Does Corporate Social Responsibility Affect Firms’ Performance?

Topics: Stock market, Corporate social responsibility, Social responsibility Pages: 25 (6421 words) Published: December 24, 2012
Does Corporate Social Responsibility Affect Firms’
Performance?1
Laura Poddi2

Sergio Vergalli3

July 28, 2008

Abstract
In the last two decades in the OECD countries there have been a raising development of firms certified as Social Responsible (CSR is the acronym of Corporate Social Responsibility). This kind of certification is assigned by private companies that guarantee that the behaviour of a certain firms environmentally and sociologically correct. Some papers (among others Preston and O’Bannon, 1997; Waddock and Graves, 1997; McWilliams and Sieger, 2001; Ullman, 1985) tried to verify if there exists a link between Social Responsibility certification and firms’ performance. Their results are ambiguous and do not show a common path. This ambiguity depends mainly on the static nature of their analyses and on the problem if performance is affected more by certification costs or by increasing sales due to a reputation effect. Our work would like to verify, after a review of literature, by using panel data, if some performance indicators can be affected by the firms’ social responsible behaviour and their certifications. The novelty of our analysis comes from its dynamic aspect and from the building of a CSR index that intersects two of the three main international indices (Domini 400 Social Index, Dow Jones Sustainability World Index, FTSE4Good Index), in order to be objective and to have a representative sample.

The main results seem to support the idea that the CSR firms are the more virtuous, having better performances in the long run: they bear some initial costs but obtain higher sales and profits due to several causes: reputation effect, a reduction of long rin costs, increasing social responsible demand.

Key Words: Corporate Social Responsibility, Growth.

JEL: M14, C23, O10

1

Paper accepted at the 10th bi-annual EACES Conference, August, 28-30, 2008 and presented at "Colloquio Scientifico sull'Impresa Sociale", May, 23-24, 2008, Bari.

2

University of Ferrara

3

University of Brescia, vergalli@eco.unibs.it, (corresponding author)

1

1. Introduction
Reality shows who firms have recently been able to adapt to a changing world not only by developing economically but also socially and ethically. A firm’s aim remains based on a development strategy that not only favours its share holders but also responds to all stakeholders involved either directly or indirectly in the production process. A firm is an open system and to carry out its main aim must be able to combine two large categories of interest: profitability and its stakeholders’ interest. Given that a system of exchange and mutual influence is created between stakeholders and the firm, management must be able to analyse objectives, resources and the strategy of common groups of stakeholders that need to be considered as well as its own ability to mobilise other stakeholders.

Given their over-riding priority compared with other stakeholders, the consumer has assumed a focal role, which has led firms to act ethically on their behalf as part of a new ‘social consciousness’. We can see that once the ‘primary needs’ of firms have been meet, advanced firms increasingly want to meet ethical values. A clear sign of this has been the growing number of firms that have decided to take ‘socially responsible’ action (see Masino e Poddi, 2007).

This is where the concept of Corporate Social Responsibility, (CSR) has developed and is beginning to enter into common lexical knowledge and is increasingly being used by academics and economists for the sustainability of economic development. As often happens when new terms are coined, they tend to lose their conceptual precision, leaving their evocative value which is however watered down by the multitude of different meanings and contexts in which it is used. The concept of CSR indeed, takes on different meanings depending on the organisation or group that uses it. Some tend to emphasize...
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