The Relationship Between Corporate Social Responsibility And Corporate Financial Performance

The relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) has always been a central and contentious debate in the extant literature. However, prior empirical studies provide indefinite conclusions. More than that, the relationship between CSR and CFP varies significantly across different institutional environments. Research in this area begins to investigate the CP-CFP relationship in different institutional environments, recognizing that the financial benefits from philanthropic activities may be subject to institutional influences.Building on stakeholder theory and institutional theory, this paper try to figure out following two questions:(1) what is the overall effect size of the CSR-CFP relationship based on the previous studies?(2) How does the institution matter in the CP-CFP relationship?Institutional theory is useful to help us understanding this issue is because institutions beyond the market are often necessary to ensure that corporations are responsive to the interests of social actors beside themselves and vary the way their stakeholders reward focal companies. Institutional theory has long established that organizations are embedded within broader social structures, comprising different types of institutions that exert significant influence on the corporate decision-making and organizational outcomes. Moreover, corporate social consciousness activities are framed vis-a-vis the social context, and are thus influenced by the prevailing institutions in such contexts.Therefore the present paper systematically reviews and quantifies the CSR-CFP link in a meta-analytic framework. Further, this work proposes that CSR in the developed world, with a relatively mature institutional system and efficient market mechanism, will be more visible than CSR in the developing world.Based on119effect sizes from42studies, this study estimates that the overall effect size of the CSR-CFP relationship is positive and significant, thus endorsing the argument that CSR does enhance financial performance. Further, this study examines the moderating effect of the institutional environment on the CSR-CFP link. The results show that the CSR-CFP relationship is stronger for firms from advanced economies than for firms from developing economies. Then, this study focus on the three-dimension model proposed by Scott to examine how regulative, normative and cognitive institutional environments effect on the CSR-CFP linkage. This study reached the following conclusions. The regulative and normative institutions positively moderate the relationship between CSR and CFP across different provinces in China. Because of the different cognitive institutions, this paper argues that the relationship between corporate philanthropy and financial performance should be stronger in U.S. than in China. Further, whether a firm operates in sinful industry and how intensive a firm advertises should have different moderating effect on the CP-CFP relationship for US firms vs. for Chinese firms. These predictions were generally supported by our analyses.The results of this study make several contributions to the literature on the value of CSR. First, based on42studies and119effect sizes, an integration correlation revealed a positive association of CSR-CFP linkage. Second, this study has responded to the calls by Brammer et al (2012) and Campbell (2007) for more rigorous research on the role of institutional environments in the CSR-CFP relationship.