Relationship of CSR and measures of financial performance: International evidence

The aim of this paper is to find the relationship between different types of firm’s actions present in the Corporate Social Responsibility (CSR) universe. Next, we would like to differentiate specific types of CSR actions and measure their impact on the financial performance. We extend our analysis by checking the results with a wide range of control variables.

Our contribution to the literature on Corporate Social Performance (CSP) is threefold. First, our paper extends prior large scale American studies by utilizing data of 4000 firms from 60 countries. Second, we investigate financial performance of socially responsible companies, as well as the relationship of CSR actions undertaken by companies in three specific dimensions, namely: environmental, social and governance. Third our proxy for CSP is the scoring of Thomson Reuters ASSET4 that hasn’t been used for this type of research yet (to the best of our knowledge). Therefore this condition creates an opportunity to confirm or reject hypotheses tested on different datasets as proxies for CSP.

Methodology

Financial data for our research is divided into a valuation proxy (dependent variable) and control (independent) variables taken from Thomson Reuters Datastream and Bloomberg databases. Tobin’s q is used as a proxy for asset valuation. For Tobin’s q we have used the values provided by Thomson Reuters Datastream database.

Following (Barth et al., 1998), firm’s value is influenced by firm profitability, firm size and sales growth. For the sake of the correctness of the model’s specification we used a complete set of those variables. Return on Equity (RoE) is used a measurement of firm profitability; firm size is defined as a logarithm of the market enterprise value; sales growth as one-year revenue growth.

Results

For each of dependent variables: Tobin’s q, ln (Tobin’s q), Trimmed Tobin’s q, Trimmed ln (Tobin’s q) we run regressions which exhibit an adjusted R-squared between 27.32% and 36.56%. The proxies of CSR ranking are significant except for CSR social actions. Only environmental actions have a negative sign for the coefficient which suggests value destruction. Nevertheless, all CSR activities have a minor impact on financial performance.

JEL G38, G32