Wednesday, July 16, 2014

CSR and Financial Performance

Today I am highlighting a very interesting economics article exploring the relationship between corporate social performance and corporate financial performance.  

Scholars have been searching for a link between corporate social performance (CSP) and corporate financial performance (CFP) for thirty-five years. If only doing good could be connected to doing well, then companies might be persuaded to act more conscientiously, whether in cleaning up their own questionable conduct (Campbell, 2006) or in redressing societal ills (Porter & Kramer, 2006). A positive link between social and financial performance would legitimize corporate social performance on economic grounds, grounds that matter so much these days (Useem, 1996). It would license companies to pursue the good—even incurring additional costs—in order to enhance their bottom line and at the same time contribute more broadly to the well-being of society.

In DOES IT PAY TO BE GOOD?, three economists (Joshua Margolis,  HIllary Anger Elfenbein, and James P. Walsh) perform a meta analysis of 251 effects in over 200 manuscripts to examine the relationship between CSP and CFP.  They find a small positive effect. Most importantly, the articles engages in a rich conversation (and critique) of empirical studies in this area and suggests parameters for future research.  

This paper is accessible for non-economists and provides a very interesting discussion on the links between doing well and doing good.

-Anne Tucker

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That is a very interesting article, primarily because it raises more questions than it answers. For example, it doesn't address causality, just correlation. Is there an independent variable that accounts for the correlation? Or maybe the causation goes the other way - the more financially successful companies are better able to spend resources on CSR? All good topics for discussion in class.

Posted by: Douglas Levene | Jul 16, 2014 6:01:53 AM

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