Returns on investment of socially responsible firms versus non-socially responsible firms: A financial market perspective

As societal pressures heighten the importance of socially responsible corporate behavior, having a socially responsible agenda has become a key element of a company's strategic business plan; however, the literature provides contradictory findings on the correlation between corporate social responsibility (CSR) and shareholder value. Thus, business executives often face significant resistance to their decisions to invest in socially responsible initiatives since critics purport such actions are still open to interpretation and further research. The purpose of this study was to provide business leaders with more definitive data upon which to justify an investment in CSR by measuring the performance of socially responsible companies (SRCs) versus non-socially responsible companies (non-SRCs). Research questions examined the performance of SRCs versus non-SRCs relative to standard financial performance metrics of returns, valuation and a general market index. Archival public data was collected for the top 120 NASDAQ and NYSE firms ranked by market capitalization, and SRC/non-SRC classification was determined by matrix coding of socially responsible corporate practices. Tabular analyses of indexed stock prices, returns and valuation performance was compared across SRC versus non-SRC categorization over a 5-year period to examine impact on shareholder value. The study demonstrated that SRCs outperformed non-SRCs over the 5-year period relative to returns, valuation and the S&P 500 general market index. The results of this study are expected to contribute to social change by informing or supporting the decision making of business executives considering socially responsible business plans, encouraging corporate investment in enhancing social responsibility and thereby benefitting stakeholder groups within the organization and society at large.