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A Meta-Analytical Investigation of the Relationship Between Corporate Social and Financial Performance

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José Allouche at Paris 1 Panthéon-Sorbonne University
José Allouche
Patrice Laroche at University of Lorraine
Patrice Laroche
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Abstract

The growing number of academic studies on the impact of Corporate Social Performance (CSP) on Corporate Financial Performance (CFP) and the mixed findings they report complicate efforts among managers and academics to identify the outcomes of corporate social responsibility. These mixed findings and the growing interest of managers on having satisfied corporate social policy point to the value of empirically synthesizing the evidence on the relationship between CSP and CFP. Although many reviews of these studies have been published (Ullman, 1985 ; Griffin & Mahon, 1997 ; Roman, Haybor & Agle, 1999 ; Margolis & Walsh, 2003), there have been little attempts to use formal statistical tools to synthesize the results (Orlitky & Benjamin, 2001 ; Orlitky, Schmidt & Rynes, 2003). Orlitsky et al. (2003) obviously made valuable contributions, presenting the first meta-analysis of the empirical evidence on the impact of CSP on firm financial performance. However, since this last meta-analytic review, dozens of studies examining the link between CSP and CFP have been published in academic journals and recent studies have also focused on the effect of CSP on CFP in a broader international context. To this end, we conduct a new meta-analysis of the reported findings on the CSP/CFP relationship. We document that CSP is strongly related to CFP on average. We also find that measurement and method that characterize the research often moderate relationship strength between CSP and CFP. Finally, we discuss the implications surrounding these effects and offer several directions for future research.
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A META-ANALYTICAL INVESTIGATION OF THE RELATIONSHIP BETWEEN CORPORATE SOCIAL AND FINANCIAL PERFOR...
Allouche, José;Laroche, Patrice
Revue de Gestion des Ressources Humaines; Jul-Sep 2005; 57; ABI/INFORM Complete
pg. 18
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... The research results from several of these studies (Allouche & Laroche, 2005;Barnea & Rubin, 2010;Borghesi et al., 2014;Brown et al., 2006;Kao et al., 2018;Schuler & Cording, 2006) konsisten dengan teori keagenan. The empirical findings include that corporate social responsibility is a manifestation of agency problems (Benabou & Tirole, 2010;Masulis & Reza, 2015), managers involved in corporate philanthropic activities gain personal benefits at the expense of shareholders (Brown et al., 2006;Krüger, 2015), agency costs rise when managers invest in social activities to enhance their personal reputation (Barnea & Rubin, 2010), managers may lose focus on core managerial responsibilities (Jensen, 2010), and decreased ESG activity is associated with greater firm value. ...
... Thus, ESG activities are activities that consume company resources and will harm company performance. Second, because it is related to cost allocation, the company's involvement in ESG activities will displace other projects that are more profitable for the company (Schuler & Cording, 2006), because ESG practices require company resources so that socially active companies are in a less advantageous position compared to other companies that are not active (Allouche & Laroche, 2005). Third, corporate involvement in ESG activities can encourage managers to engage in window dressing to cover up poor corporate performance by engaging in ESG activities. ...
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... The availability of financial resources is one of the factors that influences a company's capacity to invest in ESG practices (Aguilera-Caracuel et al., 2015;Allouche & Laroche, 2005;Carnahan et al., 2010;Waddock & Graves, 1997). When organizations have resources that can be allocated to other uses, their managers tend to take more innovative actions (Voss et al., 2008), thereby meeting the demands of corporate stakeholders. ...
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... According to the positive synergy hypothesis, there is a sequential relationship between a firm's social responsibility and its profitability (Friedman, 1970). The hypothesis assumes that companies with high corporate social performance will have the opportunity to reinvest in social responsibility actions, leading to performance improvement (Allouche & Laroche, 2005). Therefore, creating a productive cycle will result in a concurrent positive relationship between CSR and financial performance (Waddock & Graves, 1997). ...
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