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The Relationship Between Corporate
Social Responsibility and Financial
Performance (A Case Study
from Finland)
Mari Kooskora, Miia Juottonen and Katlin Cundiff
Abstract The impact of Corporate Social Responsibility (CSR) on the company’s
performance has become an increasingly important issue among investors, com-
panies and company’s management. Despite the fact, that many studies have been
conducted on this topic, the relationship between CSR and financial performance is
still unclear regarding the causality and different categories of CSR. Therefore, the
aim of this paper is to study if corporate social responsibility (CSR) has an impact
on financial performance (FP) and to find out, what the nature of the impact is. This
study uses correlation and multiple linear regression models in order to examine
the relationship between CSR and the financial variables. The sample consists of 30
publicly listed companies in Finland whose financial data and CSR activities dur-
ing the years 2013–2016 are analyzed. The accounting based model of Return on
Assets (ROA) and the market-based model of Earnings per share (EPS) are selected
to measure financial performance and CSRHub rates to estimate the corporate social
responsibility (CSR). The control variables: capital structure, risk, size and industry
were chosen for this research, because of their tendency to have association with the
financial performance.
Keywords Corporate social responsibility ·Financial performance ·Finland
M. Kooskora (B)·M. Juottonen
Estonian Business School, Tallinn, Estonia
e-mail: mari.kooskora@ebs.ee
M. Juottonen
e-mail: miia.juottonen@gmail.com
K. Cundiff
Drury University, Springfield, USA
e-mail: katlincundiff@hotmail.com
© Springer Nature Switzerland AG 2019
W. Leal Filho (ed.), Social Responsibility and Sustainability, World Sustainability
Series, https://doi.org/10.1007/978-3- 030-03562- 4_25
471
472 M. Kooskora et al.
1 Introduction
The role of business in the society has been discussed and debated over heavily for
decades and the overwhelming consensus leans towards companies not only earning
profit but adding value to the community, or at least taking care that its activities do
not negatively affect the surrounding community. For that purpose, many companies
have begun to report different CSR activities to show their interest and investments
into social welfare. Furthermore, companies are interested to better monitor and
measure their social responsibility activities. These investments in social welfare
have also raised the question whether CSR activities may lead to better financial
benefits or is it only a cost item.
The relationship between CSR and financial performance has been studied in
different ways and many researchers have found that CSR and financial performance
are positively connected (McGuire et al. 1988; Karagiorgos 2010; Simpson and
Kohers 2002). Others have found negative relationship between these two variables
(Vance 1975; Lopez et al. 2007; Makni et al. 2009) while some researchers argue that
there is no connection at all (Peng and Yang 2014; Nelling and Webb 2009). Despite
the fact, that many studies have been conducted on this topic, the relationship is still
unclear regarding the causality and different categories of CSR. Therefore, the aim
of this paper is to study if, and what kind of impact, corporate social responsibility
(CSR) has on financial performance (FP) in Finland.
2 Theoretical Framework
There is an impressive and long history behind the concept of corporate social respon-
sibility (CSR) but a universal definition of what CSR exactly is still missing (van
Marrewijk 2013). Dahlsrud (2008) recognized 37 different definitions of CSR in his
study, which shows the wide variation in these definitions. One of the most widely
accepted definition comes from the European Commission (2011) who has defined
CSR as “the responsibility of enterprises for their impacts on society”.
According to Visser (2006) Carroll’s CSR Pyramid is probably the most well-
known model of CSR. Its four interrelated layers encompass the economic, legal,
ethical and philanthropic expectations that the society has of organizations at the
given point in time (Carroll 1991). Several authors have gone beyond Carroll’s
model. Rahman (2011) derived ten distinguishing characteristics from numerous
CSR definitions: obligation to society, stakeholder involvement, improving the qual-
ity of life, economic development, ethical business practice, law-abiding, volun-
tariness, human rights, protection of the environment, as well as transparency and
accountability. Kooskora and Vau (2011) for example proposed that CSR is a process
which is defined by six separate characteristic: (1) accountability; (2) sustainability;
(3) economy; (4) integrity; (5) transparency; and (6) trust. McWilliams and Siegel
(2001) defined CSR as actions that appear to further some social good, beyond the
The Relationship Between Corporate Social Responsibility … 473
interest of the firm and that which is required by law. The lack of one-size-fit all
definition offers benefits to apply the most fitting definition of CSR, yet at the same
time open doors for opportunism to apply CSR in the loosest sense.
According to McWilliams et al. (2006) there is no common certainty, why com-
panies engage in CSR activities. Sprinkle and Maines (2010) have proposed that
companies either see CSR as a “right thing to do” in order to be a good global cit-
izen, or seek stakeholder approval and try to avoid negative publicity. Dechant and
Altman (1994) has also pointed out that stakeholders may have strong impact on the
company’s choice of engaging in CSR activities. Beside the pressure from stake-
holders, the other motives behind CSR engagement include beneficial impacts, such
as company image and reputation; employee motivation, retention and recruitment,
cost savings and increased revenue from sales and market share; and CSR-related
risk reduction or management (Weber 2008).
2.1 CSR Frameworks
Thomson (2007) identified 33 different groups of theories used as theoretical frame-
works in CSR studies. According to Fernando and Lawrence (2014) the CSR the-
oretical perspectives can be classified into two categories, which are “Economic
Theories” such as and “Social and Political Theories”. The economic theories, such
as usefulness theory, agency theory and positive accounting theory consider more an
economic aspect of CSR practices. The three mainstream social and political theories
such as stakeholder theory, legitimacy theory and institutional theory, provide more
insightful perspective than economic theories (Gray et al. 1996).
The “stakeholder perspective” suggests that besides the shareholders, groups and
constituents such as employees and the local community are affected by the com-
pany’s activities (Freeman 2001) and should therefore be considered in managers’
decisions as equally as possible with shareholders. According to this view, it might
be beneficial for the company to engage in some CSR activities which are perceived
to be important by non-financial stakeholders as those groups might otherwise lose
their support for the company (Freeman 2001).
Legitimacy theory is the most widely used theory in the literature that discusses
the CSR disclosures of organizations (Campbell et al. 2003) and relies on the idea that
there is a “social contract” between a company and the society in which it operates
(Deegan 2006). Lindblom (1994) explains that an organization’s value system is
congruent with the value system of the larger social system of which the entity is a
part, and when a disparity, actual or potential, exists between the two value systems,
there is a threat to the entity’s legitimacy.
Institutional theory has not been often used in CSR literature (Gray et al. 2009).
According to Oliver (1991), “institutional theory views organisations as operat-
ing within a social framework of norms, values, and taken-for-granted assumptions
about what constitutes appropriate or acceptable economic behavior”. The institu-
tional theory includes two dimensions: isomorphism and decoupling (Dillard et al.
474 M. Kooskora et al.
2004). Moll et al. (2006) refer to isomorphism as “how competitive forces drive orga-
nizations towards adopting least-cost, efficient structures, and practices”. The other
dimension: decoupling is related to the distinction between the external image of an
organization and its actual practices (Moll et al. 2006). Deegan (2009) has claimed
that the voluntary engagement in CSR activities should be considered as part of an
institutional theory as it ties organizational practices for example, including CSR
practices, to the values of a society within an organization operates.
Usefulness theory, also known as decision usefulness theory, assumes that
investors find the social information exposed by company useful in their decision
making (Spicer 1978). In this theory, the primary purpose of accounting, including
CSR reporting is to provide information to permit informed decisions and it does not
focus mainly on the needs of financial stakeholders as agency theory does (FASB
2010). Usefulness theory mostly focuses on user’s perspective instead of reporting
entity, as legitimacy theory does (IASB 1989;FASB2010).
Agency theory describes the self-interested relationship between two parties: “the
agent” who acts on behalf of another party called “the principal” (Ross 1973). Deegan
and Unerman (2006) have argued that this theory assumes the existence of transac-
tions costs and information costs. If the relationship between self-serving agents and
principals is in balance, then both parties will benefit. However, if the relationship is
not in balance, then “agency costs” will arise Benn and Bolton (2011).
Positive accounting theory focuses on how accounting is managed between two
groups—individuals, the providers of resources, and the organization, the receiver
of the resources (Deegan and Unerman 2006). Watts and Zimmerman (1978,1986)
argue that the main objective of Positive accounting theory is to explain the account-
ing practices chosen by managers and proposed three hypothesis of Positive account-
ing theory—bonus plan hypothesis, debt hypothesis, and political cost hypothesis.
Bonus plan hypothesis note that the bonus receiving managers are more likely to
use accounting methods that increase the reported income of current period. If pub-
lishing CSR information can increase the income of the company, managers through
bonuses are more willing to participate (Scott 2014). Debt hypothesis assumes that
the managers use the accounting method, which offers the highest debt/equity ratio of
the company. If applying CSR activities offers higher debt/equity ratio, those activ-
ities would more likely be applied (Scott 2014). The cost hypothesis state that large
companies are more likely to use those accounting methods that reduce reported
profit. The more wealth the company has, the more it is subject to potential wealth
transfers in the political processes, and therefore managers are likely to use account-
ing methods that reduce such a transfer (Setyorini and Ishak 2012). In perspective of
CSR, this would mean that managers will not apply CSR, because this can increase
the income and therefore affect their political examination (Scott 2014).
The Relationship Between Corporate Social Responsibility … 475
2.2 CSR Reporting
CSR reporting is a rather new phenomenon compared to financial reporting and
regulation on reporting is diversified (KPMG 2011). Organizations are often devel-
oping their own standards for social accounting, reporting and auditing. Nevertheless,
the purpose of CSR reporting is to measure, exposure and show how the company
is liable towards the sustainable development and provide this information to its
internal and external stakeholders (Simpson and Taylor 2013). Although there are
no universally agreed common guidelines for CSR reporting, United Nations Envi-
ronment Program’s (UNEP) Global Reporting Initiative (GRI) is the most widely
accepted reporting guideline. The main objective of GRI is to improve the compara-
bility of CSR reports and their mission is “developing globally applicable guidelines
for reporting on economic, environmental and social performance” (GRI 2016). The
other commonly known sustainability reporting frameworks are AA1000 by ISEA
(Institute of Social and Ethical Accountability), ISO 14000 series by International
Organization for Standardization, EMAS by Eco-Management and Audit Scheme
and SA 8000 labor standard by Social Accountability International.
According to Shnayder et al. (2015) one common practice to reporting is to apply
Triple Bottom Line framework. Triple Bottom Line framework includes three dimen-
sions of performance: social, environmental and financial (Slaper and Hall 2011).
TBL also refers to three entities: people, planet and profit, more commonly known
as the 3P’s.
In Finland, as in most countries, CSR reporting is voluntary. Finnish Government
has however stated that companies that are wholly or partially owned by Finnish gov-
ernment should either publish separate reports on corporate responsibility or include
CSR information in annual financial reports (Valtioneuvosto 2011:5).KPMG’sCor-
porate Responsibility Reporting survey among 100 large Finnish companies in 2013,
showed that up to 85% of surveyed companies report their CSR activities (KPMG
2014). According to PwC Corporate Responsibility Barometer, more than 65% of
the companies report CSR activities in their annual reports, 38% publish separate
CSR report, and 60% of companies use GRI as a reporting standard (PwC 2013). In
2016, Finnish government passed an Accounting Act amendment, which based on
EU directive, obliges large publicly listed companies with a turnover greater than
40 million euros and with an average of more than 500 employees, to report their
policies concerning the environment, employees, social issues, human rights and
tackling corruption, bribery, CSR and Diversity (Ministry of Economic Affairs and
Employment 2017).
2.3 Association Between CSR and FP
The association between CSR and financial performance has been examined in many
different studies and the results and areas studied vary in these cases. There has been
476 M. Kooskora et al.
no consensus whether CSR has an impact on company’s financial performance.
The study results have fallen into three types of conclusions which are positive
relationship, negative relationship or no association.
Most of the studies have found a positive relationship between CSR and finan-
cial performance, e.g. Karagiorgos (2010), Simpson and Kohers (2002), Allouche
and Laroche (2005). McGuire et al. (1988) also added that low CSR performance
could lead the company to larger risks than high performing firms. On the other
hand, Vance (1975) used ROE as a performance measurement and concluded that
CSR and ROE have a negative relationship. Lopez et al. (2007) looked at the Dow
Jones Sustainability Index as a measurement of CSR concluded that engagement in
CSR causes extra costs and therefore lower on financial performance. Makni et al.
(2009) used both accounting and market-based measurements and concluded that
socially responsible companies had lower profit than the companies less socially
responsible. There are also studies that have found no correlation between CSR and
financial performance (Soloman and Hansen 1985; Peng and Yang 2014). Nelling
and Webb (2009) used both accounting- and market-based measurements for finan-
cial performance; McWilliams et al. (2006) used a regression model as a measure of
FP and social performance, industry and expenditure for research and development
as CSR measures. Neither studies found a relationship between CSR and financial
performance.
2.4 CSR Measurements
There are a wide variety of different ways to measure the connection between cor-
porate social responsibility and financial performance. Turker (2009) has presented
four different approaches: reputation indices and databases; single or multiple issue
indicators; content analysis of corporate publications; and scales measuring CSR
performance of individuals. Reputation indices and databases include methods as
KLD database, Fortune reputation index or CSRHub. Single or multiple issue indi-
cator, such as pollution control rate, has many limitations since it does not consider
the whole structure of CSR (Maignan and Ferrel 2000). The content analysis of cor-
porate publications can provide a lot of information, however, reported information
may not reflect the actual activities performed (McGuire et al. 1988). The scales mea-
suring CSR performance of individuals, focus on different interest groups (Clarkson
1995), however it’s limitation is the difficulty to provide scale measurement for CSR
performance (Turker 2009).
The three most commonly used financial performance measures are accounting
based, market based, or the combination of the two for. The accounting based mea-
sures are often return on equity (ROE) and Return on Assets (ROA) (Davidson and
Worrell 1990; Tang et al. 2012). Wu (2006) applied other accounting measures such as
Return on sales (ROS), Return on investment (ROI) and Profit margin. Market based
measures are market return, price to earnings ratio, and market value to book value
(Pava and Krausz 1996). Brammer et al. (2006) used stock market performance as
The Relationship Between Corporate Social Responsibility … 477
a market based measure, while Martinez-Ferrero and Frías-Aceituno (2015) applied
market value as a measurement. McGuire et al. (1988) and Pava and Krausz (1996)
used the combination of accounting and market based measures and concluded that
the use of the combination method may predict the relationship better and result the
positive association between CSR and financial performance.
3 Research Methods
In order to answer the research question whether corporate social responsibility has
an impact on company’s financial performance, in 2017 and early 2018 quantitative
data was collected from CSRHub, Nasdaq, Kauppalehti (Finnish newspaper) and
The Wall Street Journal from the years 2013–2016. The time period was limited to
four years, since CSR reporting is still a relatively new concept in Finland and there
was not enough data available for a longer time period.
Accounting based measure (ROA) and Market based measure (EPS) were used
to measure financial performance of the 30 Finnish companies listed on the Helsinki
Stock Exchange. The data concerning financial performance (ROA) was collected
from Wall Street Journal and EPS data was collected from Kauppalehti. CSR data has
been gathered from CSRHub. The data concerning control variables size and risk,
was collected from Wall Street Journal, capital structure data from Kauppalehti, and
industry data from Nasdaq. Wall Street Journal and Kauppalehti provides yearly data
from all listed companies.
3.1 Dependent and Independent Variables
Return on Assets (ROA) is being used in this study as an accounting-based measure
for financial performance and Earnings per share (EPS) is being used as a market-
based measure. The dependent variable ROA measures the profitability of a company
relatively to its total assets and separates financial activities of the company from
operational and investment activities (Nelling and Webb 2009). The formula used
for calculating ROA is following according to Hackston and Milne (1996):
ROA Net Profit/Total Assets
Earnings per share (EPS) is often been used when determining the value of stock
and it is defined as the amount of company’s income attributed to each share of
common stock (Das and Zhang 2003). The formula used for calculating EPS is:
EPS Net earnings/number of outstanding shares
478 M. Kooskora et al.
The independent variable of this study is CSR. The data concerning CSR was
collected from CSRHub, which aggregates ESG datasets from leading analysts:
ASSET4 (Thomson Reuters), CDP (Carbon Disclosure Project), IW Financial, MSCI
(ESG Intangible Value Assessment, ESG Impact Monitor, Governance Metrics, and
Carbon Tracker), RepRisk, Trucost and Vigeo EIRIS. CSRHub scores company’s
social responsibility performance on a scale of 1–100 points. The total points of
the company are calculated as the weighted average of four sub-categories. The
sub-categories are Community, Employees, Environment and Governance.
3.2 Control Variables
There are four control variables used in this research: capital structure, firm size, risk
and industry. The capital structure is measured by equity ratio. Equity ratio describes
the relative solvency of the company’s operations, in which the amount of equity is
measured in relation to the total capital of the company (Leppiniemi and Leppiniemi
2006). The formula used for calculating capital structure is following:
Capital Structure Equity/Total Capital
Firm size is selected as one of the control variables because large companies might
be more capable and active to implement CSR activities than small companies. There
are different measures used for this variable in previous literature, such as asset value,
sales and number of employees. (McWilliams and Siegel 1997; Waddock and Graves
1997). This study utilizes ln of total assets as a measurement of firm size.
Risk is commonly used control variable in the previous studies and the risk toler-
ance of the company’s management affects its attitude toward activities that have the
potential to either obtain savings, incur present or future costs, or build or destroy
markets (Waddock and Graves 1997). In this research, the risk was measured by the
total debt to total assets ratio. The formula is following:
Risk Total Debt/Total Assets
Industry was selected as a fourth control variable because of its tendency to influ-
ence the association between CSR and financial performance. Furthermore, some
industries may perform financially better than others (Waddock and Graves 1997;
McWilliams and Siegel 2000). The US Standard Industrial Classification (SIC) codes
were used in this research to measure industry. SIC codes are four-digit numerical
codes assigned to companies to identify the primary business of the establishment.
The Relationship Between Corporate Social Responsibility … 479
3.3 Methods of Data Analysis
This study utilizes a multiple linear regression model to determine the impact of the
independent variable CSR on dependent variables ROA and EPS. The first regression
model uses ROA as an accounting-based measure, and the second regression model
uses EPS as a market-based measure.
The regression model created to dependent variable ROA is following:
Yi,tα+β1CSRi,t+β2CAPSTRUCi,t+β3SI ZEi,t+β4RISKi,t
β5INDi,t+εi,t
where Yi,t—Dependent variable (ROA) of company i, (Net Profit/Total Assets)
αregression constant
CSRi CSR score of a company i
CAPSTRUCi a proxy for capital structure of company i, (Equity/Total Capital)
SIZEi a proxy for the size of company i, (ln of total assets)
RISKi a proxy for the risk of company i, (Total debt/Total Assets)
INDi industry of company i, (4 digit SIC code)
iresidual, part of the observed FPi which is not explained by the model
t year index (year 2013–2016)
i company index
The regression model created to dependent variable EPS is following:
Yi,tα+β1EPSi,t+β2CAPSTRUCi,t+β3SIZEi,t+β4RISKi,t
β5INDi,t+εi,t
Yi,tα+β1EPSi,t+ Where Yi,t—Dependent variable (EPS) of company i, (Net
earnings/Number of outstanding shares)
αregression constant
CSRi CSR score of a company i
CAPSTRUCi a proxy for capital structure of company i, (Equity/Total Capital)
SIZEi a proxy for the size of company i, (ln of total assets)
RISKi a proxy for the risk of company i, (Total debt/Total Assets)
INDi industry of company i, (4 digit SIC code)
iresidual, part of the observed FPi which is not explained by the model
t year index (year 2013–2016)
i company index
3.4 Hypothesis
There are four hypotheses in this research:
480 M. Kooskora et al.
H0a: There is no significant connection between CSR and company’s financial per-
formance in Finnish listed companies using accounting based measure.
H1a: There is a significant connection between CSR and company’s financial per-
formance in Finnish listed companies using accounting-based measure.
H0b: There is no significant connection between CSR and company’s financial per-
formance in Finnish listed companies using market-based measure.
H1b: There is a significant connection between CSR and company’s financial per-
formance in Finnish listed companies using market-based measure.
The null hypothesis can be rejected if corporate social responsibility is found to be
statistically significant meaning that P-value is less than 0.05. Then the connection
between CSR and company’s financial performance can be stated. In the event that
corporate social responsibility is found to be statistically insignificant meaning that
P-value is larger than 0.05, it may be stated that there is no connection between CSR
and company’s financial performance and the null hypothesis will be failed to reject.
The above mentioned hypothesis will be tested and explained in the next chapter.
4 Results and Discussion
4.1 Descriptive Analysis
Table 1shows the descriptive statistics and provides an overview of the dependent,
independent, and control variables that are used in this study. ROA has a mean of
8.9233, while EPS has a mean of 1.0213, which indicates that the majority of the
Finnish listed companies in this research have a ROA of 8.92% and EPS of e1.02.
The mean of CSR is 59.1417 showing that majority of the Finnish listed companies in
this research have scored close to 59 points in CSRHub. Capital Structure shows that
the equity ratio of most of the companies is 44.14% and size indicates that companies
have approximately e61.87 million worth of total assets. Risk has a mean of 58.1
which is generally high. Industry has a mean of 3960, this explains that most of the
companies in this research are manufacturing companies.
4.2 Correlation Analysis
Table 2shows the Pearson correlations between ROA and CSR, including the vari-
ables related to the regression models. The Pearson correlation between ROA and
CSR is weak −0.095. The value indicates that higher value of CSR decreases the ROA
of the companies. This correlation is anyhow insignificant as Pvalue is 0.302. Also
Risk and Industry are negatively correlated with ROA. Risk appears to have stronger
correlation with ROA −0.489 than Industry, as this correlation is only −0.028. The
correlation between ROA and Risk is significant as Pvalue is less than 0.05 but
The Relationship Between Corporate Social Responsibility … 481
Tabl e 1 Descriptive statistics
NMinimum Maximum Mean Std. deviation
ROA 120 −4.40 30.00 8.9233 6.51262
EPS 120 −2.95 3.09 1.0213 0.89740
CSR 120 45.00 69.00 59.1417 5.80828
CAPSTRUC 120 21.50 73.80 44.1375 10.20929
SIZE 120 679,000.00 767,500,000.00 61,875,916.6583 157,082,161.102
32
RISK 120 26.75 78.57 58.1000 11.41069
IND 120 500.00 9500.00 3960.0000 2435.67325
Val i d N
(listwise)
120
Source Authors’ calculations
the correlation between Industry and ROA is insignificant. Capital structure and size
have a positive correlation with ROA. Both are significant as Pvalue is less than 0.05.
Capital structure has a moderate correlation 0.528 with ROA, while the correlation
between size and ROA is weaker 0.217. It should be also noted that the situation,
where independent variables are highly correlated, called collinearity, may cause
problems in interrelationship of the resulting multiple regression equations (Elliot
and Woodward 2014). In this correlation results, there is a high negative correlation
0.951 between capital structure and risk.
Table 3presents the Pearson correlations between EPS and CSR, including the
variables related to regression models. The Pearson correlation between EPS and
CSR is also negative −0.113, which indicates that higher value of EPS decreases
the EPS of the companies. The correlation is anyhow insignificant as Pvalue is
more than 0.05. Capital structure and industry has positive correlation with EPS.
The correlation between Capital structure and EPS is significant but only 0.280.
The correlation between Industry and EPS very weak as only 0.001, this is anyhow
insignificant. Risk is negatively correlated with EPS. The correlation is significant
but weak as −0.292. Size is also negatively correlated with EPS −0.104 but the
correlation is insignificant as Pvalue is larger than 0.05. In this correlation results
also, capital structure and risk variables are highly negatively correlated.
4.3 Multiple Regression
In this section the multiple regression analysis conducted for two financial perfor-
mance measures will be discussed. The first equitation contains independent variable
(CSR) and four control variables: capital structure, risk, size and industry, which
explains the first measured dependent variable ROA. The value of R (0.586) presents
the multiple correlation between ROA, CSR and control variables. The value of
482 M. Kooskora et al.
Tabl e 2 Correlation table (ROA)
ROA CSR CAPSTRUC SIZE RISK IND
ROA Pearson
correla-
tion
1−0.095 0.526** 0.217* −0.489** −0.028
Sig.
(2-tailed)
0.302 0.000 0.017 0.000 0.760
N120 120 120 120 120 120
CSR Pearson
correla-
tion
−0.095 10.186* −0.058 −0.115 −0.006
Sig.
(2-tailed)
0.305 0.042 0.527 0.212 0.948
N120 120 120 120 120 120
CAPSTRUC Pearson
correla-
tion
0.526** 0.186* 10.131 −0.951** −0.046
Sig.
(2-tailed)
0.000 0.042 0.155 0.000 0.615
N120 120 120 120 120 120
SIZE Pearson
correla-
tion
0.217* −0.058 0.131 1−0.177 −0.100
Sig.
(2-tailed)
0.017 0.527 0.155 0.053 0.278
N120 120 120 120 120 120
RISK Pearson
correla-
tion
−0.489** −0.115 −0.951** −0.177 1−0.003
Sig.
(2-tailed)
0.000 0.212 0.000 0.053 0.973
N120 120 120 120 120 120
IND Pearson
correla-
tion
−0.028 −0.006 −0.046 −0.100 −0.003 1
Sig.
(2-tailed)
0.760 0.948 0.615 0.278 0.973
N120 120 120 120 120 120
**Correlation is significant at the 0.01 level (2-tailed)
*Correlation is significant at the 0.05 level (2-tailed)
Source Authors’ calculations
The Relationship Between Corporate Social Responsibility … 483
Tabl e 3 Correlation table (EPS)
EPS CSR CAPSTRUC SIZE RISK IND
EPS Pearson
correla-
tion
1−0.113 0.280** −0.104 −0.292** 0.001
Sig.
(2-tailed)
0.219 0.002 0.257 0.001 0.994
N120 120 120 120 120 120
CSR Pearson
correla-
tion
−0.113 10.186* −0.058 −0.115 −0.006
Sig.
(2-tailed)
0.219 0.042 0.527 0.212 0.948
N120 120 120 120 120 120
CAPSTRUC Pearson
correla-
tion
0.280** 0.186* 10.131 −0.951** −0.046
Sig.
(2-tailed)
0.002 0.042 0.155 0.000 0.615
N120 120 120 120 120 120
SIZE Pearson
correla-
tion
−0.104 −0.058 0.131 1−0.177 −0.100
Sig.
(2-tailed)
0.257 0.527 0.155 0.053 0.278
N120 120 120 120 120 120
RISK Pearson
correla-
tion
−0.292** −0.115 −0.951** −0.177 1−0.003
Sig.
(2-tailed)
0.001 0.212 0.000 0.053 0.973
N120 120 120 120 120 120
IND Pearson
correla-
tion
0.001 −0.006 −0.046 −0.100 −0.003 1
Sig.
(2-tailed)
0.994 0.948 0.615 0.278 0.973
N120 120 120 120 120 120
**Correlation is significant at the 0.01 level (2-tailed)
*Correlation is significant at the 0.05 level (2-tailed)
Source Authors’ calculations
484 M. Kooskora et al.
R2 (0.343) shows that independent variables explain 34.3% of dependent variable
ROA. ANOVA table shows that for the model the F-ratio is 11.915. This model is
significant, because (P< 0.05) and it indicates that overall the regression model sta-
tistically significantly predicts the outcome variable. 0 for this model is −10.759 and
the first regression coefficient is negative (−0.194) which indicates that the associa-
tion between ROA and CSR is negative using this model. Increasing the independent
variable by one point, results 0.194 decrease on dependent variable. This result shows
that an increase in CSR results a decrease of the companies ROA. The association
is significant (P< 0.05), which shows that this variable has statistically significant
impact on the outcome variable. This means that the null hypothesis may be rejected
and the connection between CSR and financial performance using accounting based
measure can be stated. There is a positive association between ROA and the control
variables but only Capital structure has Pvalue smaller than 0.05 and therefore has
statistically significant impact on the outcome variable. The rest of the control vari-
ables have Pvalue more than 0.05 and therefore have insignificant impact on the
outcome variable.
The second equitation contains independent variable CSR and four control vari-
ables, which explains the second measured dependent variable EPS. In Appendix
9 the whole output of the second multiple regression is presented. The value of R
(0.37) presents the multiple correlation between EPS, CSR and control variables.
The value of R2 (0.137) shows that independent variables explain only 13.7% of
dependent variable EPS. ANOVA table shows that for the model the F-ratio is 3.619.
This model is also significant, because (P< 0.05) and it indicates that overall the
regression model statistically significantly predicts the outcome variable. 0 for this
model is 3.354 and the first regression coefficient is negative (−0.24) which indicates
that the association between EPS and CSR is negative. Increasing the independent
variable by one point, results the decrease of 0.24 on dependent variable. However,
CSR variable has statistically insignificant impact on the outcome variable as Pvalue
is larger than 0.05. This means that the null hypothesis has to be accepted and stated
that there is no statistically significant relationship between CSR and financial per-
formance using market-based measure. There is a positive association between EPS
and other control variables except the association between Risk and EPS is negative.
Also every control variable has insignificant impact on the outcome variable.
4.4 Discussion
From the regression outputs it may be concluded that the accounting based measures
showed that the independent variables explain 34.3% of dependent variable ROA in
this model. The coefficient was found to be negative, which might indicate that CSR
has negative impact on ROA. This was also found to be significant and shows that CSR
variable has statistically significant negative impact on the outcome variable ROA.
However, the results do not explain even the half of the whole sample. Therefore,
any generalized conclusion cannot be made whether CSR results the decrease in
The Relationship Between Corporate Social Responsibility … 485
ROA and further research is needed, in order to define the other aspects that affect
the outcome. Market-based measure showed that independent variables explain only
13.4% of dependent variable EPS and this model was also found to be significant.
The first coefficient was found to be negative, which might indicate that CSR has
negative impact on EPS. However, all coefficients in this model were found to be
insignificant and therefore the independent variables cannot explain the impact on
the outcome variable EPS.
The results might convey that the companies do not apply CSR practices only
because they are profitable and also that applying CSR activities does not guarantee
profitability. The findings may agree with the Carrol’s construct (1991) which indi-
cated that the aim is to meet the expectations of society rather than maximize profit
and the other reason for this kind of findings might be similar to conclusion made by
Lopez et al. (2007), who noted that when companies engage in CSR, this causes extra
costs and therefore those companies perform lower on financial performance. It can
be also noted that this research found similar results than previous research made by
McGuire et al. (1988), that accounting based measure can predict the outcome better
than market based measures.
Based on the findings of this research and previously made arguments, it might be
concluded that corporate social responsibility has an impact on financial performance
of Finnish companies, when using accounting based measure but not when applying
market-based measure. Statistically significant evidence was found that CSR has a
slight negative impact on company’s financial performance when using accounting
based model. When applying market based measure, CSR could not explain the
impact on EPS. However, no direct conclusions can be drawn from these results and
it cannot be said that CSR activities are the reason for weaker financial performance.
The findings in future research may change significantly, when the obligation for
CSR reporting comes into effect in Finland in 2018. This will result in more CSR
data being available from Finnish companies.
As limitations of this study, the data covered four-year period only, which is
relatively short time period for the research concerning CSR which it can be seen more
as a long term investment. Also, the sample size of 30 companies was rather small
due to lack of CSR data available, and the sample was only collected from Finnish
companies, meaning that the results cannot be generalized to other countries. Last,
this research only included two different financial variables, which cannot offer very
wide scope of insight into how CSR affects different financial parameters. Therefore,
extensive generalizations cannot be made based on the results of this research because
it does not include all aspects that lead to company’s financial gains in the long- and
short-run.
5 Conclusion
The aim of this paper was to study the connection between corporate social rela-
tionship and financial performance of Finnish publicly listed companies. This topic
486 M. Kooskora et al.
has been universally studied with different methods but the mixed results have been
found and no common ground has been obtained regarding the connection between
corporate social responsibility and financial performance. This paper covered two
different economic performance indicators: return on assets (ROA) and earnings per
share (EPS) in order to cover accounting based measure and market-based measure
of financial performance. Two multiple regression models were developed in order
to answer to the research questions:
(1) Does corporate social responsibility have an impact on company’s financial
performance in Finland?
(2) What kind of impact corporate social responsibility has on company’s financial
performance in Finland?
According to this research, made from panel data from Finnish listed companies
during 2013–2016, we can conclude as an answer to the first research question, that
there is a statistically significant evidence that corporate social responsibility has an
impact on company’s financial performance when using an accounting based mea-
sure. When applying a market-based measure, corporate social responsibility also
had an impact on company’s financial performance, but the connection could not
be established because the result was found to be insignificant. As an answer to the
second research question, the results revealed that the impact is negative but weak
when applying the accounting-based measure and there is a need to pay attention to
the threat of collinearity, which might have affected the model. As mentioned ear-
lier, when applying the market-based measurement, the result was insignificant and
therefore the nature of connection in this case is not relevant. However, as the sig-
nificant evidence found was not strong and the results varied between measurement
methods, it cannot be generalized that corporate social responsibility has a negative
impact on company’s financial performance in Finland.
As mentioned previously, this research is only a small part of the larger entity and
it does only give an insight to the subject. As the period in this study was from 2013
until 2016, it also might be that the impact of CSR is not visible yet in these years
financial performance measurements, as CSR can be seen more like a long-term
investment or the CSR might still be see as an “cost item” meaning that it does not
affect the financial performance measurements positively yet,.
Therefore, further research on this topic is needed in order to make any gener-
alizations. The suggestions for future research would be to apply the sample taken
from a longer period of time, which would improve the research. Also different
types of variables could be applied in order to generalize the conclusions based on
the wider sample. The authors also believe that the financial performance measures
are not enough to measure company’s benefits of CSR engagement. A more holis-
tic view is needed in order to see how different CSR activities impact the overall
organization and its operations. For that purpose, several internal measures can be
used, for example employee turnover, productivity, job satisfaction, or reputation or
marketing-related measures would give a better picture of the correlation with CSR.
The results of this study also show the need to study the motives for engaging
in CSR activities first before measuring its impact on financial performance. When
The Relationship Between Corporate Social Responsibility … 487
the companies’ reasons for CSR engagement are not determined, it is not certain,
whether the purpose of companies is to achieve increased financial performance or
possibly affect the other performance indicators, such as reputation or marketing
based indicators.
Appendix 1: Model Summary ROA
Model RRSq. Adjusted
RSq.
Std.
error of
the
estimate
Change statistics Durbin-
Wat s o n
RSq.
change
F
change
df1 df2 Sig. F
change
1586a0.343 0.314 4.47353 0.343 11.915 5114 0.000 2.123
aPredictors: (Constant), IND, RISK, CSR, SIZE, CAPSTRUC
Appendix 2: Anova Table ROA
ANOVAa
Model Sum of
squares
df Mean
square
FSig.
1 Regression 1192.255 5238.451 11.915 0.000b
Residual 2281.423 114 20.012
Tot a l 3473.678 119
aDependent variable: ROA
bPredictors: (Constant), IND, RISK, CSR, SIZE, CAPSTRUC
Appendix 3: Coefficients ROA
488 M. Kooskora et al.
Unstandardized
coefficients
Standardized
coefficients
95.0% confidence
interval for B
Correlations
Model BStd. error Beta tSig. Lower
bound
Upper
bound
Zero-order Partial Part
1 (Constant) −10.759 12.972 −0.829 0.409 −36.457 14.938
CSR −0.194 0.074 −0.209 −2.643 0.009 −0.340 −0.049 −0.095 −0.240 −0.201
CAPSTRUC 0.465 0.138 0.879 3.380 0.001 0.193 0.738 0.526 0.302 0.257
SIZE 5.327E−90.000 0.155 1.975 0.051 0.000 0.000 0.217 0.182 0.150
RISK 0.166 0.123 0.350 1.353 0.179 −0.77 0.409 −0.489 0.126 0.103
IND 6.181E−50.000 0.028 0.359 0.720 0.000 0.000 −0.028 0.034 0.027
aDependent variable: ROA
The Relationship Between Corporate Social Responsibility … 489
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