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Journal Article•DOI•

Corporate social responsibility and financial performance: correlation or misspecification?

Abagail McWilliams1, Donald S. Siegel2•
Arizona State University1, University of Nottingham2
01 May 2000-Strategic Management Journal (STRATEGIC MANAGEMENT JOURNAL)-Vol. 21, Iss: 5, pp 603-609
TL;DR: In this paper, the authors demonstrate a particular flaw in existing econometric studies of the relationship between social and financial performance, and find that CSR has a neutral impact on financial performance.
Abstract: Researchers have reported a positive, negative, and neutral impact of corporate social responsibility (CSR) on financial performance. This inconsistency may be due to flawed empirical analysis. In this paper, we demonstrate a particular flaw in existing econometric studies of the relationship between social and financial performance. These studies estimate the effect of CSR by regressing firm performance on corporate social performance, and several control variables. This model is misspecified because it does not control for investment in R&D, which has been shown to be an important determinant of firm performance. This misspecification results in upwardly biased estimates of the financial impact of CSR. When the model is properly specified, we find that CSR has a neutral impact on financial performance. Copyright © 2000 John Wiley & Sons, Ltd.
Citations
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Journal Article•DOI•
Corporate Social and Financial Performance: A Meta-Analysis

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Marc Orlitzky1, Frank L. Schmidt2, Sara L. Rynes2•
University of New South Wales1, University of Iowa2
01 Mar 2003-Organization Studies
TL;DR: This article conducted a meta-analysis of 52 studies and found that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association.
Abstract: Most theorizing on the relationship between corporate social/environmental performance (CSP) and corporate financial performance (CFP) assumes that the current evidence is too fractured or too variable to draw any generalizable conclusions. With this integrative, quantitative study, we intend to show that the mainstream claim that we have little generalizable knowledge about CSP and CFP is built on shaky grounds. Providing a methodologically more rigorous review than previous efforts, we conduct a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta-analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. For example, CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based ...

6,493 citations

Cites background or methods or result from "Corporate social responsibility and..."

  • ...Despite previous assumptions of inconclusive findings (for example, Jones and Wicks 1999; McWilliams and Siegel 2001; Roman et al. 1999; Ullmann 1985; Wood and Jones 1995), we can legitimately derive implications for corporate strategy from the meta-analysis....

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  • ...Organization Studies 24(3): 403–441 Copyright © 2003 SAGE Publications (London, Thousand Oaks, CA & New Delhi) www.sagepublications.com 0170-8406[200303]24:3;403–441;032910 Marc Orlitzky UNSW and University of Sydney, Australia Frank L. Schmidt University of Iowa, USA Sara L. Rynes University of Iowa, USA The impression that ‘in the aggregate, results are inconclusive’ regarding any theoretical conclusions about the relationship between CSP and corporate financial performance (CFP) has persisted until today (Jones and Wicks 1999: 212; cf. also Donaldson 1999; McWilliams and Siegel 2001; Roman et al. 1999)....

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  • ...Like earlier research reviews, McWilliams and Siegel (2001) take inconsistent findings in primary studies at face value (that is, ignore the possible impact of sampling error and measurement error) and explain the (apparent) inconsistency with a demand/supply model of corporate social responsibility....

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  • ...…that ‘in the aggregate, results are inconclusive’ regarding any theoretical conclusions about the relationship between CSP and corporate financial performance (CFP) has persisted until today (Jones and Wicks 1999: 212; cf. also Donaldson 1999; McWilliams and Siegel 2001; Roman et al. 1999)....

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  • ...The data accumulated over the past 30 years do not support the latest contingency theory in the area of corporate social responsibility (McWilliams and Siegel 2001)....

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Journal Article•DOI•
Corporate Social Responsibility: a Theory of the Firm Perspective

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Abagail McWilliams1, Donald S. Siegel2•
University of Illinois at Chicago1, University of Nottingham2
01 Jan 2001-Academy of Management Review
TL;DR: In this article, the authors outline a supply and demand model of corporate social responsibility (CSR) and conclude that there is an "ideal" level of CSR, which managers can determine via cost-benefit analysis.
Abstract: We outline a supply and demand model of corporate social responsibility (CSR). Based on this framework, we hypothesize that a firm's level of CSR will depend on its size, level of diversification, research and development, advertising, government sales, consumer income, labor market conditions, and stage in the industry life cycle. From these hypotheses, we conclude that there is an “ideal” level of CSR, which managers can determine via cost-benefit analysis, and that there is a neutral relationship between CSR and financial performance.

6,305 citations

Journal Article•DOI•
Misery Loves Companies: Rethinking Social Initiatives by Business:

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Joshua D. Margolis1, James P. Walsh2•
Harvard University1, University of Michigan2
01 Jun 2003-Administrative Science Quarterly
TL;DR: The authors argue that companies are increasingly asked to provide innovative solutions to deep-seated problems of human misery, even as economic theory instructs managers to focus on maximizing their shareholders' wealt.
Abstract: Companies are increasingly asked to provide innovative solutions to deep-seated problems of human misery, even as economic theory instructs managers to focus on maximizing their shareholders' wealt

4,666 citations

Journal Article•DOI•
Corporate Social Responsibility: Strategic Implications*

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Abagail McWilliams1, Donald S. Siegel2, Patrick M. Wright3•
University of Illinois at Chicago1, Rensselaer Polytechnic Institute2, Cornell University3
01 Jan 2006-Journal of Management Studies
TL;DR: In this paper, a variety of perspectives on corporate social responsibility (CSR) are described, which are used to develop a framework for consideration of the strategic implications of CSR. Based on this framework, an agenda for additional theoretical and empirical research on CSR is proposed.
Abstract: We describe a variety of perspectives on corporate social responsibility (CSR), which we use to develop a framework for consideration of the strategic implications of CSR. Based on this framework, we propose an agenda for additional theoretical and empirical research on CSR. We then review the papers in this special issue and relate them to the proposed agenda.

2,782 citations

Cites background or methods from "Corporate social responsibility and..."

  • ...McWilliams and Siegel (2000) challenged the conventional regression model used to assess the relationship between corporate social performance (CSP), which is often used as a synonym for CSR, and firm performance....

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  • ...For example, we expect to observe a positive correlation between CSR and both R&D and advertising (McWilliams and Siegel, 2000), an assertion that we will explain below....

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  • ...Understanding the role of leadership could be extended to © Blackwell Publishing Ltd 2006 understanding the decision making process and how decisions about CSR activity are affected by demands from multiple stakeholders....

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Journal Article•DOI•
What We Know and Don't Know About Corporate Social Responsibility: A Review and Research Agenda

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Herman Aguinis1, Ante Glavas2•
Indiana University1, University of Notre Dame2
01 Mar 2012-Journal of Management
TL;DR: In this article, the authors review the corporate social responsibility literature based on 588 journal articles and 102 books and book chapters and offer a multilevel and multidisciplinary theoretical framework that synthesizes and integrates the literature at the institutional, organizational, and individual levels of analysis.

2,592 citations

Cites background from "Corporate social responsibility and..."

  • ...Moderators in the price group are any costs invested in CSR such as in research and development or advertising (e.g., McWilliams & Siegel, 2000)....

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  • ...Finally, the profile category refers to moderator variables such as firm size (e.g., Waddock & Graves, 1997a), industry (e.g., Klassen & Whybark, 1999), and slack resources (e.g., McWilliams & Siegel, 2000)....

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References
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Journal Article•DOI•
The corporate social performance-financial performance link

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Sandra Waddock1, Samuel B. Graves1•
Boston College1
01 Apr 1997-Strategic Management Journal
TL;DR: In this article, the authors report the results of a rigorous study of the empirical linkages between financial and social performance, finding that corporate social performance (CSP) is positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related.
Abstract: Strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them. Recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management, rather than traditional arenas of strategic management. Using a greatly improved source of data on corporate social performance, this paper reports the results of a rigorous study of the empirical linkages between financial and social performance. Corporate social performance (CSP) is found to be positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related. CSP is also found to be positively associated with future financial performance, supporting the theory that good management and CSP are positively related.? 1997 by John Wiley & Sons, Ltd

5,922 citations

Journal Article•DOI•
Issues in assessing the contribution of research and development to productivity growth

[...]

Zvi Griliches
01 May 1979-The Bell Journal of Economics
TL;DR: In this article, the authors outline the production function approach to the estimation of the returns to R&D and then discuss in turn two very difficult problems: the measurement of output in R&DI intensive industries and the definition and measurement of the stock of R&DC 'capital'.
Abstract: The article outlines the production function approach to the estimation of the returns to R&D and then proceeds to discuss in turn two very difficult problems: the measurement of output in R&D intensive industries and the definition and measurement of the stock of R&D 'capital'. Multicollinearity and simultaneity are taken up in the next section and another section is devoted to estimation and inference problems arising more specifically in the R&D context. Several recent studies of returns to R&D are then surveyed, and the paper concludes with suggestions for ways of expanding the current data base in this field.

4,003 citations

Book•
Principles of econometrics

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Henri Theil1•
University of Cambridge1
01 Jan 1971

3,550 citations

"Corporate social responsibility and..." refers background in this paper

  • ...As noted in Theil (1971), if an omitted...

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  • ...SAdditional detail on the KLD file and the social "screens" is presented in Waddock and Graves (1997) and Kinder and Domini (1997)....

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Journal Article•DOI•
Corporate Social Responsibility and Firm Financial Performance

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Jean McGuire1, Alison Sundgren2, Thomas Schneeweis2•
Concordia University1, University of Massachusetts Amherst2
01 Dec 1988-Academy of Management Journal
TL;DR: This paper analyzed the relationship between perceptions of firms' corporate social responsibility and measures of their financial performance and found that a firm's prior performance, assessed by both stock-market returns and accounting-based measures, is more closely related to corporate social concern than is subsequent performance.
Abstract: Using Fortune magazine's ratings of corporate reputations, we analyzed the relationships between perceptions of firms’ corporate social responsibility and measures of their financial performance. Results show that a firm's prior performance, assessed by both stock-market returns and accounting-based measures, is more closely related to corporate social responsibility than is subsequent performance. Results also show that measures of risk are more closely associated with social responsibility than previous studies have suggested.

2,862 citations

Journal Article•DOI•
How much does industry matter

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Richard P. Rumelt1•
University of California, Los Angeles1
01 Mar 1991-Strategic Management Journal
TL;DR: In this article, the total variance in rate of return among FTC Line of Business reporting units was divided into industry factors (whatever their nature), time factors, factors associated with the corporate parent, and business-specific factors.
Abstract: This study partitions the total variance in rate of return among FTC Line of Business reporting units into industry factors (whatever their nature), time factors, factors associated with the corporate parent, and business-specific factors. Whereas Schmalensee (1985) reported that industry factors were the strongest, corporate and market share effects being extremely weak, this study distinguishes between stable and fluctuating effects and reaches markedly different conclusions. The data reveal negligible corporate effects, small stable industry effects, and very large stable business-unit effects. These results imply that the most important sources of economic rents are business-specific; industry membership is a much less important source and corporate parentage is quite unimportant.

2,731 citations

"Corporate social responsibility and..." refers background in this paper

  • ..., or NUMMI, the innovative joint venture een Toyota and General M tors, wa estab(Powell, 1996; Rumelt, 1991; Schmalansee, 1975; Waring, 1996), the consensus is that industry factors "matter," in the sense that they explain a non-negligible percentage of the variation in profitability across firms....

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Related Papers (5)
The corporate social performance-financial performance link

[...]

01 Apr 1997-Strategic Management Journal
Sandra Waddock, Samuel B. Graves
Corporate Social and Financial Performance: A Meta-Analysis

[...]

01 Mar 2003-Organization Studies
Marc Orlitzky, Frank L. Schmidt, Sara L. Rynes
Corporate Social Responsibility: a Theory of the Firm Perspective

[...]

01 Jan 2001-Academy of Management Review
Abagail McWilliams, Donald S. Siegel
Strategic Management: A Stakeholder Approach

[...]

01 Jan 1984
R. Edward Freeman, R. Edward Freeman
A Three-Dimensional Conceptual Model of Corporate Performance

[...]

01 Oct 1979-Academy of Management Review
Archie B. Carroll
Trending Questions (2)
Corporate social responsibility and financial performance: correlation or misspecification?

The paper suggests that the inconsistency in the relationship between corporate social responsibility (CSR) and financial performance may be due to a misspecification in the empirical analysis. When properly specified, the study finds that CSR has a neutral impact on financial performance.

See answers from 3 other papers  
Corporate social responsibility and financial performance: Correlation or misspecification?

The paper suggests that the inconsistency in the relationship between corporate social responsibility (CSR) and financial performance may be due to a misspecification in the empirical analysis. When properly specified, the study finds that CSR has a neutral impact on financial performance.

See answers from 3 other papers