Electronic copy available at: http://ssrn.com/abstract=1942014
WHAT ASPECTS OF CSR REALLY MATTER: AN EXPLORATORY STUDY USING WORKPLACE
Adam J. Sulkowski, University of Massachusetts Darmouth, North Dartmouth MA, USA
Jonathan P. Barboza, University of Massachusetts Dartmouth, North Dartmouth MA, USA
Jacob Vaillancourt, University of Massachusetts Dartmouth, North Dartmouth MA, USA
Aneta Studnicka, Warsaw University of Life Sciences, Warsaw, Poland
This work contributes to a growing and important body of research that tests whether there is any
relationship between reporting positive corporate social responsibility metrics and their return-on-
investment for stockholders. Following a review of key literature, this article will test the following
hypothesis: whether a portfolio of stocks of companies that produce CSR reports that reveal the lowest
on-the-job mortality rates produce better returns for investors than a portfolio of stocks of companies that
produce CSR reports that reveal highest on-the-job mortality rates. Indeed, stocks of companies with
lowest rates of workplace mortality on average increased in value more than the stocks of companies with
the highest rates of workplace mortality, especially in a shorter observation period. However, somewhat
disturbing, counterintuitive and thought-provoking, the difference in stock performance is found to not be
statistically strong over a longer observation period. In the discussion section, the authors consider
whether some CSR metrics are too granular to impact stock performance, whether the impacts of
changes in some metrics become evident over a longer observation period, or whether outside factors
affected the results. The study concludes by pointing to several new directions for promising research.
Keywords: Corporate Social Responsibility, CSR, human resources, mortality, stock value
Today more than ever, companies are being challenged by investors to cut costs and to best their
competitors’ returns. But at the same time, increasingly, the market is also starting to examine society's
needs and how companies comply with these requirements. It has become trendy to incorporate
Corporate Social Responsibility (CSR) into the systems of corporate governance as investors begin to
study CSR reports. Slavery, dangerous working conditions, and lack safety regulations seem like
problems distant in history, but the number of people in forced labor worldwide is at an all-time high and
workplace mortality is still an issue in even the most developed economies. This publication examines
the stock performance of the best and worst 33 firms as ranked by worker mortality and considers
whether there is a relationship between this metric and stock performance.
2. LITERATURE REVIEW
The orgins of the term corporate social responsibility in scholarly literature date back to the 1950s (Caroll,
1999). Since then theory of CSR has endergone evolution. The concept of CSR can be defined in many
ways. One common definition is "actions that appear to further some social good, beyond the interests of
the firm and that which is required by law" (Williams and Siegel, 2001). As early as the 1970s, scholars
have postulated that firms that are more socially reponsible enjoy better stock performance (Moskowitz,
Since the 1980s, research has addressed the influence of sustainability performance and CSR on various
measures of firm value. One of the first widely cited journal articles concluded that there was no
relationship between CSR and profitability (Aupperle et al. 1985).
Regardless, the dawn of the 1990s saw a change of behavior on the part of institutional investors and the
conclusions of scholars; while many alleged that investors still refused to pay a so-called premium for
responsible corporate behavior, 538 institutional investors were allocating funds based on social screens
and criteria and by 1992 $600 billion of invested funds was being socially screened (Pava and Krausz
Electronic copy available at: http://ssrn.com/abstract=1942014
1992). Waddock and Graves (1997) suggested that firms with greater financial strength were more likely
to engage in positive social performance, and that good social performance was also predictive of future
strong financial performance, furthering the growing perception that a good CSR record contributes to
good financial results.
Luo and Bhattacharya (2006) found that customer satisfaction partially mediates the relationship between
CSR and firm market value (Tobin's q and stock return) and that corporate abilities (innovativeness
capability and product quality) moderate the financial returns to CSR; namely, in firms with low
innovativeness capability, CSR actually reduces customer satisfaction levels and, through the lowered
satisfaction, harms market value.
As of the second decade of the 2000s, there is a nascent consensus among managers that sustainability
and CSR issues can impact the financial performance and value of a firm. For example, Tsoutsoura
(2004) found a positive relationship between CSR and financial performance in 500 companies over a
five year period. According to one literature review, such current empirical evidence supports the
statement that social performance positively correlates with financial performance, and findings to the
contrary typically cite to out-of-date data (Van Beurden and Gössling, 2008).
Managers also perceive this link between CSR, CSR reporting and firm performance and have valuable
opinions about how exactly sustainability and CSR performance impacts firm financial performance and
value. KPMG's 2005 survey of senior executives at 1600 companies in sixteen different countries found
that roughly 50 percent of respondents "listed employee motivation as their driver for CSR behavior,
which is an indication of the 'war for talent' which is increasingly important" (KMPG, 2005). In the next
KPMG survey on corporate social responsibility in 2008 (in which executives from 2200 companies in
twenty-two countries participated), an even larger percentage of respondents - 52 percent - identified
employee motivation as a driver (KPMG, 2008). Other characteristics of the internal working environment
of a company were also commonly identified as drivers of CSR behavior; 55 percent indicated that
innovation and learning was a key driver and 69 percent claimed that ethical considerations drive CSR
practices (KMPG, 2008). The 2200 respondents in 2008 identified other major drivers of CSR activities
that also impact firm performance and ultimately value; among them were brand image, access to capital,
market share and risk management (KPMG, 2008).
Specifically, studies have shown that there is a connection between employee satisfaction and the
financial performance of companies (Harter et al., 2002). Workplace health and safety has been found to
be significant to international competitiveness of firms (Smallman and John, 2001). A study
of 36 companies demonstrated a significant relationship between employee satisfaction and profit (Guest,
2002). Mortality at the workplace has postulated to perhaps affect market valuation (Dorman, 1996).
However, more broadly, injury to human life was shown by empirical research to not change the
perception of a company as much as damage to the environment (Zyglidopoulos, 2001).
Based on the foregoing literature review, the hypothesis to be tested in this paper is as follows: the stocks
of companies with the lowest incidence of workplace mortality outperform the stocks of companies with
the highest incidence of workplace mortality. Conversely, the null hypothesis is that there is no significant
difference in stock performance for companies with high and low employee mortality.
4. DATA AND TEST DESCRIPTION
Two portfolios of stocks were formed using data disclosed in CSR reports. The authors used the
Smartview360 CSR data aggregation tool from CRD Analytics to compile a list of 33 stocks of companies
with the lowest employee mortality metrics and the 33 stocks of companies with the highest employee
mortality metrics. The range of employee deaths counted in 2009 among these companies was a low of
zero and a high of 36. Stock values were tracked from June 26 2010 to June 26 2011. An ANOVA test
was completed using the R statistical package.
The increase in value of the stocks of companies with lower incidence of workplace mortality was higher
over the course of a full year, increasing in value by an average of 6.91 percent, while the value of the
portfolio of stocks with higher incidence of workplace mortality increased an average of 5.83 percent.
Even more compelling, during the second quarter of 2011, the value of the portfolio of stocks of
companies with lower workplace mortality outperformed the S&P500 by 22.31 percent while the portfolio
of stocks of companies with higher workplace mortality underperformed the S&P500 by 4.8 percent.
During this time, a t-test revealed a P value of 0.0231 and an F value of 2.313; in other words, the
samples were statistically different.
The results of the ANOVA test of the two portfolios over the course of a year are as follows:
Sum of Squares 0.058797 3.429676
Deg. of Freedom 1 31
Residual standard error: 0.332618
Df Sum Sq Mean Sq F value Pr(>F)
y 1 0.0588 0.058797 0.5314 0.4715
Residuals 31 3.4297 0.110635
The test revealed that the difference in performance of the stocks in the two sample populations over the
course of a year was not statistically significant. Therefore, the study fails to reject the null hypothesis.
6. LIMITATIONS AND DISCUSSION
It is important that the limitations within our study are acknowledged. Clearly, data reflecting different
periods of time produce different outcomes. Also, the same regression test using alternative measures of
financial performance and/or employee safety may result in different outcomes. Finally, the European
financial crisis may have played a role in confounding normal causal relationships between various
variables and stock performance.
From the data we analyzed, it cannot be proven that there is a causal relationship between employee
mortality and firm value. This is somewhat counterintuitive, in that one would assume greater costs, such
as fines, lawsuits, and investigations, are all associated with incidence of workplace mortality. However,
the firms with more mortality may be firms that are hyper-cost conscious and have - deliberately or not -
sacrificed workplace safety in the pursuit of aggressive cost savings.
Further, it may be that some CSR metrics such as employee mortality data are simply too granular. CSR
metrics - to be meaningful in the context of stock valuation - may need to be aggregated to reflect a
gestalt. In other words, the overall prevailing attitude toward society and/or the environment at a
company may affect firm financial performance and/or stock valuation, while certain metrics on their own
may neither be predictive of stock valuation nor particularly interesting to investors.
The practical implication for managers is somewhat limited. One could interpret this study to mean that
the number of workers killed in one's facilities is irrelevant to stock price, or that investments to prevent
workplace mortality cannot be justified as maximizing shareholder value. However, even if one did not
have ethical qualms with stating this, and even ignoring the limitations of this study, it would be a
misinterpretation. There is no evidence that any firms in this study had more or less workplace health
and safety investments than others. So this study's findings, even if they were repeated using different
samples and time periods, could not legitimately be the basis for making a decision, as a manager, that
one ought to pursue anything less than state-of-the-art health and safety standards.
This study does provoke many questions for scholars, however. It suggests future directions for research
in, for example, determining if injuries and other metrics for workplace safety impact firm value and, if so,
to what degree. Also, how the relationship is evolving over time between employee mortality and firm
value is important. It would be of value to determine if the value of human life relative to that of the firm is
growing in an accelerating, linear or decelerating manner.
More broadly, this study's findings should provoke scholars to investigate the following. First, the linkage
between sustainability and/or CSR performance and financial performance and firm value should
continually be tested. Second, these linkages can be tested over various time periods and geographic
areas and in various market conditions and in various industry sectors. Third, the precise causal
mechanisms through which one variable causes changes in financial performance and/or firm value
remain a rich vein of future research. Finally, different measures of sustainability and/or CSR
performance may matter more than others. For example, is environmental performance more important
to the performance of a company's stock, or is social performance? Within the broad universe of
indicators of social performance, what impacts stock value more: measures of gender equity or indicators
of employee health and safety or even mortality? Transparency and access to data have increased, and
with that has grown the opportunity to engage in further research that deepens our knowledge and
increases certainty that behaving well really equates with better financial performance and value.
CSR has proven itself to be more than public relations and more than a passing trend. The growing
consensus is that there is a connection between CSR and firm financial performance and value.
Workplace safety data is one subset of CSR metrics that could potentially be connected with firm stock
value. In examining two samples of 33 stocks, a relationship was found, and it was especially strong
during a period of three months. However, over the course of a year, the relationship was not strong
enough to qualify as statistically significant. Given the limitations of the study, too much should not be
inferred from these results. Rather, the foregoing literature review and results are likely to provoke further
studies. Scholars have the chance to add value to the real world by testing theoretical and practical
connections between CSR metrics and company performance and financial value.
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Professor Adam J. Sulkowski earned his JD and MBA at Boston College in 2000. He is recipient of
several awards for teaching, research and service excellence. He mentored MBA students to produce
the first GRI-guided sustainability report by a university anywhere in the world to achieve an A level of
compliance with the premier global standard for such reporting.
Jonathan P. Barboza earned his MBA from the Charlton College of Business at University of
Massachusetts Dartmouth in 2011. He will soon begin his doctoral studies.
Jacob Vaillancourt earned his BS from the Charlton College of Business at University of Massachusetts
Dartmouth in 2011.
Aneta Studnicka earned her MBA from the Warsaw University of Life Sciences in Warsaw, Poland in