Relationships between Corporate Social Responsibility and Financial Performance: What is the Causality?

Abstract

This study examines the causal relationships between the various dimensions of corporate social responsibility (human resources, human rights in the workplace, societal commitment, respect for the environment, market behavior and governance) and financial performance (return on equity, return on assets, market to book ratio). It is based on a sample of 329 listed companies in three geographical areas (the United States, Europe and the Asia-Pacific region) for the years 2009 and 2010. Linear regression analysis and the Granger causality test were used to examine the causal relationships between social responsibility and financial performance. The results show not only that greater social responsibility does not result in better financial performance, but also that financial performance negatively impacts corporate social responsibility