Interaction Between CSR and Financial Performance. Comparing the Largest Multinational FMCG Corporations in Europe and the USA
Term Paper 2014 14 Pages
1. Corporate Social Responsibility Theories: The Past and the Present
1.1. CSR Concepts Evolution
1.2. Corporate Sustainability and Its Impact on Non-fínancial Reporting
2. Empirical Analysis of CSR Practices and Corporate Financial Performance
2.1. Sampling and data collection
2.2. Descriptive Statistics
3. Econometric Model
3.1. Model Specification
3.2. Granger Causality Test
3.3. Empirical Results: Discussion
Several research studies have examined corporate social responsibility (CSR) and its effects on business performance, but their results vary widely. This paper studies the interaction between social, environmental and short-term financial performance. Using a sample of the 16 largest multinational FMCG companies from the US and Europe covering the period 2005-2012 and employing two different test methods, namely ordinary least squares (OLS) and Granger causation, we demonstrate that while all CSR dimensions have significant financial effects, there has been only one causality link found between employment structure and short-term profitability.
Attention to corporate social responsibility has increased significantly during the last decades both among academics and managers. In marketing, being socially and environmentally responsible is positioned as a relevant product and firm characteristic. In academic research, many studies investigate the interdependence between financial and social performance.
There are different opinions about the interaction between financial and social performance and the empirical research has not reached a consensus. On the one hand, the liberal view suggests a negative link because social responsibility involves costs and therefore worsens firms’ competitive position [see Friedman, 1962]. On the other hand, the stakeholder view holds that satisfying stakeholders’ interests will result in an improvement of the firms’ financial and economic performance [see e.g. Freeman, 1984]. According to the corporate sustainability approach, firms taking into account all three scopes of CSR (economic, social, and environmental) will achieve a long-run win-win-win result for society, environment, and the firm itself.
The subject of this paper is business strategy. The topic is Corporate Social Responsibility. As for the thesis of the paper, it states that in spite of strong evidence of interdependence between corporate social responsibility and corporate financial performance in the international business, there was only one causality link found between employment structure and short-term profitability of multinational FMCG companies.
So the purpose of this research is to identify points of interaction, which in its turn leads to performing the following tasks and objectives: introduce the history of concepts and practices of CSR, demonstrate sampling and data collection, present econometric models and discuss the obtained results.
The study is significant because it is aimed at answering one of the most debated questions of importance of CSR to the modern international business practices, and the methods employed in the work are those making it possible to describe the interaction between CSR and CFP in the most precise way.
As for relevance of the study, this paper aims at complementing the existing literature by studying the interaction between short-term financial and both social and environmental performance. The key questions are, firstly, whether there exists interaction between CSR and CFP, and, secondly, whether financial performance precedes social and/or economic performance, or vice versa.. Answering these questions most discussed within academic circles contributes to a clear understanding of the business case for corporate social responsibility: whether it is worth being socially and environmentally responsible. The results obtained from the study can be applied in practice by management scholars and consultants designing the business strategy for firms.
This study is innovative in three respects. Firstly, it is the first study that is based on the Global Reporting Initiative (GRI) data collected from open standardized reports issued by multinational companies. Secondly, it employs two different techniques to assess the interaction between CSR and financial performance, namely simple OLS and Granger causation. Thirdly, the study is based explicitly on the corporate sustainability theory. The research is aimed at confirmation of this approach.
Financial measures of performance for each firm were taken from TheThomsonOne, a commercial data provider. Sustainability data are obtained from open reports published by the firms according to the GRI standards.
The structure of the paper is as follows. The history of CSR concepts and practices are introduced first. Thensampling and data collection are demonstrated. The following part presents the econometric models employed in the study. Lastly, there are results reported and there is a discussion of the findings and a brief conclusion.