Impact of Corporate Social Responsibility on Corporate Financial Performance in Consumer Goods Industry of India
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50 Amity Global Business Review February
Impact of Corporate Social Responsibility on Corporate
Financial Performance: A Study Of The Consumer
Goods Industry of India
Uzma Amin Mir & Farooq Ahmad Shah
Corporate social responsibility (CSR) is a self-regulatory mechanism whereby a business monitors
and ensures its active compliance with the socio-ethical standards and international norms. A firm’s
implementation of CSR goes beyond legal compliance and it involves actions that appear to further
some social good, above the interests of the firm. Companies aim to embrace social responsibility in
corporate actions and encourage their positive impact on the environment and stakeholders including
customers, employees, investors and communities. Realizing the significance of CSR initiatives in social
development, India is the first country to have declared 2% of the company’s average net profits as a
mandatory spending on CSR initiatives with effect from April 1, 2014.
The last few decades have seen an increasing focus of the companies on fulfilling their social obligations. This
has led to the emergence of CSR as a widely researched area at the global level. Further, the relationship
between CSR and the financial performance of the companies is an area that has been extensively studied
by researchers all over the world. As the main aim of an organisation is to make profits, researchers
have attempted to find the impact of CSR spending on the Financial Performance, i.e. if it is a cost or an
investment for the organisation. Even though an extensive research has been conducted in the area, the
relationship between the two variables in hotel industry of India is yet to be investigated. This research,
therefore, aims to study the impact of CSR (measured as the total of five CSR dimensions) on the Corporate
Financial Performance (measured using ROA, ROE, EPS) in the consumer goods companies of India after
controlling for the effect of other variables (Age, Size and Leverage) on financial performance. The data for
the study has been collected from secondary sources, mainly consisting of the official published reports
of the companies included in the study. Descriptive statistics, correlations and regression and have been
used to analyze the data. The results reveal a significant positive impact of ROA and ROE on CSR. Also,
CSR does not have any significant impact on EPS.
Keywords: Corporate Social Responsibility, Financial Performance.
Introduction
Traditionally, a business focused mainly on
increasing its profits and a business was said to be
socially accountable if it produces goods and renders
services for profit maximisation which was considered
to be the sole aim of a business. Gradually, companies
realised that focussing only on profit maximisation is
not adequate to sustain in the changing world. This
led to the modern concept of social accountability
known as CSR (Corporate Social Responsibility).
According to Carroll (1979), the modern era of CSR
started with Howard R. Bowen’s publication “Social
Responsibilities of Businessman” in 1953. Bowen
(1953) was the first to comprehensively discuss
social responsibility and business ethics and laid a
foundation for business executives and academicians
alike to consider them in managerial decision-making
and strategic planning.
Business for Social Responsibility (BSR) defines CSR
as “achieving commercial success in ways that honour
ethical values and respect people, communities, and
the natural environment.” McWilliams and Siegel
(2000) describe CSR as “actions that appear to further
some social good, beyond the interest of the firm and
that which is required by law.” The Commission of
European Communities (2002) defines CSR as “A
concept whereby companies integrate social and
environment concerns in their business operations
and in their interaction with their stakeholders on a
voluntary basis, as they are increasingly aware that
responsible behaviour leads to sustainable business
success”.
From the perspective of a firm seeking profit, benefits
and implications of investments in socially responsible
activities have tom be taken into consideration. This
is studied in the form of organisational performance,
particularly financial performance. CSR spending
by a firm should enhance its triple bottom line,
otherwise such investment may not be considered
beneficial for the company in the long run. For
this purpose, the relationship between Corporate
Department of Management Studies, Central University of Kashmir, Kashmir
Impact of Corporate Social Responsibility on Corporate
Financial Performance: A Study Of The Consumer
Goods Industry of India
Uzma Amin Mir & Farooq Ahmad Shah
Corporate social responsibility (CSR) is a self-regulatory mechanism whereby a business monitors
and ensures its active compliance with the socio-ethical standards and international norms. A firm’s
implementation of CSR goes beyond legal compliance and it involves actions that appear to further
some social good, above the interests of the firm. Companies aim to embrace social responsibility in
corporate actions and encourage their positive impact on the environment and stakeholders including
customers, employees, investors and communities. Realizing the significance of CSR initiatives in social
development, India is the first country to have declared 2% of the company’s average net profits as a
mandatory spending on CSR initiatives with effect from April 1, 2014.
The last few decades have seen an increasing focus of the companies on fulfilling their social obligations. This
has led to the emergence of CSR as a widely researched area at the global level. Further, the relationship
between CSR and the financial performance of the companies is an area that has been extensively studied
by researchers all over the world. As the main aim of an organisation is to make profits, researchers
have attempted to find the impact of CSR spending on the Financial Performance, i.e. if it is a cost or an
investment for the organisation. Even though an extensive research has been conducted in the area, the
relationship between the two variables in hotel industry of India is yet to be investigated. This research,
therefore, aims to study the impact of CSR (measured as the total of five CSR dimensions) on the Corporate
Financial Performance (measured using ROA, ROE, EPS) in the consumer goods companies of India after
controlling for the effect of other variables (Age, Size and Leverage) on financial performance. The data for
the study has been collected from secondary sources, mainly consisting of the official published reports
of the companies included in the study. Descriptive statistics, correlations and regression and have been
used to analyze the data. The results reveal a significant positive impact of ROA and ROE on CSR. Also,
CSR does not have any significant impact on EPS.
Keywords: Corporate Social Responsibility, Financial Performance.
Introduction
Traditionally, a business focused mainly on
increasing its profits and a business was said to be
socially accountable if it produces goods and renders
services for profit maximisation which was considered
to be the sole aim of a business. Gradually, companies
realised that focussing only on profit maximisation is
not adequate to sustain in the changing world. This
led to the modern concept of social accountability
known as CSR (Corporate Social Responsibility).
According to Carroll (1979), the modern era of CSR
started with Howard R. Bowen’s publication “Social
Responsibilities of Businessman” in 1953. Bowen
(1953) was the first to comprehensively discuss
social responsibility and business ethics and laid a
foundation for business executives and academicians
alike to consider them in managerial decision-making
and strategic planning.
Business for Social Responsibility (BSR) defines CSR
as “achieving commercial success in ways that honour
ethical values and respect people, communities, and
the natural environment.” McWilliams and Siegel
(2000) describe CSR as “actions that appear to further
some social good, beyond the interest of the firm and
that which is required by law.” The Commission of
European Communities (2002) defines CSR as “A
concept whereby companies integrate social and
environment concerns in their business operations
and in their interaction with their stakeholders on a
voluntary basis, as they are increasingly aware that
responsible behaviour leads to sustainable business
success”.
From the perspective of a firm seeking profit, benefits
and implications of investments in socially responsible
activities have tom be taken into consideration. This
is studied in the form of organisational performance,
particularly financial performance. CSR spending
by a firm should enhance its triple bottom line,
otherwise such investment may not be considered
beneficial for the company in the long run. For
this purpose, the relationship between Corporate
Department of Management Studies, Central University of Kashmir, Kashmir
2018 51
Social Responsibility (CSR) and Corporate Financial
Performance (CFP) needs to be established i.e. does
socially responsible behaviour by a company lead to
an improved financial performance or not.
Literature Review
The basic problem that needs to be addressed
is whether firms actively participating in CSR
outperform firms that do not exhibit the same
degree of social participation (Lee & Park, 2009;
McWilliams & Siegel, 2001).Critics of CSR argue
that the responsibility of a business is to carry out its
operations in accordance to its desires, which mainly
is maximising profits (Friedman, 1970). Furthermore,
investing in CSR could lead agency problems as
the corporate resources or the profits are used by
the managers for pursuing socially responsible
activities instead of maximising the shareholder’s
wealth (Brammer & Millington, 2008). Scholars in
support of CSR have proposed CSR as a source of
competitive advantage (Porter & Kramer, 2006).
CSR has been shown to be positively affecting firm
reputation (Brammer & Millington, 2005; Turban
&Greening, 1996), consumer satisfaction (Luo &
Bhattacharya, 2006), attractiveness of a firm as an
employer (Backhaus, Stone, & Heiner, 2002; Turban
& Greening, 1996), and organizational commitment
among employees (Peterson, 2004).
In spite of the empirical evidence demonstrating
the positive relationship between CSR and various
aspects of firm performance, the results still remain
inconclusive (Godfrey & Hatch, 2007; Margolis &
Walsh, 2003; McWilliams & Siegel, 2000). Corporate
Financial Performance has been measured in
terms of company’s market value or the short-
term profitability of the firm (Schuler & Cording,
2006). The literature relating the CSR-CFP link
has revealed mixed set of results which includes
positive, negative and neutral relationships;
thereby revealing lack of agreement on whether
or not increased CSR spending leads to improved
CFP (Margolis & Walsh, 2003; McWilliams &
Siegel, 2000).
Various researchers have found a negative
relationship between CSR and CFP following that
increased CSR spending involves costs and these
costs deplete the profits meaning a negative impact
on the profitability of the firm (Moore, 2001; Vance,
1975; Wright and Ferris, 1997). Scholars like Preston
and O’Bannon 1997; Ruf et al. 2001; Russo and Fouts
1997; Simpson and Kohers 2002; Tsoutsoura (2004);
Waddock and Graves (1997) have shown CSR and
CFP to have a positive relationship. They propose
that if organisations exhibit socially responsible
activities, then the financial performance shows
a significant increase. Also, increased social
involvement creates a favourable public image for
the company (Krishna, 1992; Rashid and Ibrahim,
2002). Customers prefer to buy from a company
with a positive public image and one which is
socially responsible (Creyer and William 1997; Mohr
and Webb 2005). Inconclusive relation between CSR
and CFP has been found by Abbott and Monsen
(1979), Griffin and Mahon (1997), and McWilliams
and Siegel (2000). They found that there is no effect
of improved CSR bon CFP of the firm. Ullmann
(1985) stated that the relationship between CSR and
CFP does not exist as there are many intervening
variables between the CSR-CFP relationships.
Moskowitz (1972) studied the CSR-CFP link by
studying 14 firms. He studied the social performance
of these firms and notices that these firms exhibited
a 7.28 percent increase in the stock price over a
period of six months. The findings reveal that firms
that exhibit socially responsible behaviour show
a positive relationship between CSR and CFP.
However, Moskowitz did not mention the criteria
for selecting these 14 firms. Later, Vance (1975)
studied the market performance of the same 14
firms for a period of 3 years i.e. 1972-1975 and found
that the stock price of all the 14 firms declined thus
establishing a negative relation between CSR and
market value of the firms.
Abbott and Monsen (1979) studied 450 firms out
of the Fortune 500 firms to study the impact of
CSR on the investor’s return. CSR was measured
by developing SID (Social Development Index) for
these firms for the year 1974. SID was generated
by applying content analysis on the annual reports
of the firms for that particular year. The results
revealed that there exists no association between the
variables under study.
Ullmann (1985) examined the work done by other
researchers on the CSR and economic performance
link. Among the 13 reviews, 8 were found to have
a positive relationship, 4 showed no association and
only one revealed a negative relation between the
variables. This variation in results may be due to
lack in theory, inappropriate sample size, different
methods used for CSR measurement. Also, proper
Uzma Amin Mir & Farooq Ahmad Shah
Social Responsibility (CSR) and Corporate Financial
Performance (CFP) needs to be established i.e. does
socially responsible behaviour by a company lead to
an improved financial performance or not.
Literature Review
The basic problem that needs to be addressed
is whether firms actively participating in CSR
outperform firms that do not exhibit the same
degree of social participation (Lee & Park, 2009;
McWilliams & Siegel, 2001).Critics of CSR argue
that the responsibility of a business is to carry out its
operations in accordance to its desires, which mainly
is maximising profits (Friedman, 1970). Furthermore,
investing in CSR could lead agency problems as
the corporate resources or the profits are used by
the managers for pursuing socially responsible
activities instead of maximising the shareholder’s
wealth (Brammer & Millington, 2008). Scholars in
support of CSR have proposed CSR as a source of
competitive advantage (Porter & Kramer, 2006).
CSR has been shown to be positively affecting firm
reputation (Brammer & Millington, 2005; Turban
&Greening, 1996), consumer satisfaction (Luo &
Bhattacharya, 2006), attractiveness of a firm as an
employer (Backhaus, Stone, & Heiner, 2002; Turban
& Greening, 1996), and organizational commitment
among employees (Peterson, 2004).
In spite of the empirical evidence demonstrating
the positive relationship between CSR and various
aspects of firm performance, the results still remain
inconclusive (Godfrey & Hatch, 2007; Margolis &
Walsh, 2003; McWilliams & Siegel, 2000). Corporate
Financial Performance has been measured in
terms of company’s market value or the short-
term profitability of the firm (Schuler & Cording,
2006). The literature relating the CSR-CFP link
has revealed mixed set of results which includes
positive, negative and neutral relationships;
thereby revealing lack of agreement on whether
or not increased CSR spending leads to improved
CFP (Margolis & Walsh, 2003; McWilliams &
Siegel, 2000).
Various researchers have found a negative
relationship between CSR and CFP following that
increased CSR spending involves costs and these
costs deplete the profits meaning a negative impact
on the profitability of the firm (Moore, 2001; Vance,
1975; Wright and Ferris, 1997). Scholars like Preston
and O’Bannon 1997; Ruf et al. 2001; Russo and Fouts
1997; Simpson and Kohers 2002; Tsoutsoura (2004);
Waddock and Graves (1997) have shown CSR and
CFP to have a positive relationship. They propose
that if organisations exhibit socially responsible
activities, then the financial performance shows
a significant increase. Also, increased social
involvement creates a favourable public image for
the company (Krishna, 1992; Rashid and Ibrahim,
2002). Customers prefer to buy from a company
with a positive public image and one which is
socially responsible (Creyer and William 1997; Mohr
and Webb 2005). Inconclusive relation between CSR
and CFP has been found by Abbott and Monsen
(1979), Griffin and Mahon (1997), and McWilliams
and Siegel (2000). They found that there is no effect
of improved CSR bon CFP of the firm. Ullmann
(1985) stated that the relationship between CSR and
CFP does not exist as there are many intervening
variables between the CSR-CFP relationships.
Moskowitz (1972) studied the CSR-CFP link by
studying 14 firms. He studied the social performance
of these firms and notices that these firms exhibited
a 7.28 percent increase in the stock price over a
period of six months. The findings reveal that firms
that exhibit socially responsible behaviour show
a positive relationship between CSR and CFP.
However, Moskowitz did not mention the criteria
for selecting these 14 firms. Later, Vance (1975)
studied the market performance of the same 14
firms for a period of 3 years i.e. 1972-1975 and found
that the stock price of all the 14 firms declined thus
establishing a negative relation between CSR and
market value of the firms.
Abbott and Monsen (1979) studied 450 firms out
of the Fortune 500 firms to study the impact of
CSR on the investor’s return. CSR was measured
by developing SID (Social Development Index) for
these firms for the year 1974. SID was generated
by applying content analysis on the annual reports
of the firms for that particular year. The results
revealed that there exists no association between the
variables under study.
Ullmann (1985) examined the work done by other
researchers on the CSR and economic performance
link. Among the 13 reviews, 8 were found to have
a positive relationship, 4 showed no association and
only one revealed a negative relation between the
variables. This variation in results may be due to
lack in theory, inappropriate sample size, different
methods used for CSR measurement. Also, proper
Uzma Amin Mir & Farooq Ahmad Shah
52 Amity Global Business Review February
control variables like size, leverage, risk, industry,
etc. have not been included to control for the effects
of the additional variables.
Griffin and Mohan (1997) studied seven companies
of chemical industry to examine the CSR-CFP
relation. CFP was measured using ROA (Return
in Assets), ROE (Return on Equity), ROS (Return
on Sales), Assets age and Total assets. The data
for Corporate Social Responsibility was obtained
from Fortune reputation survey, Toxic Release
Inventory (TRI) index, Kinder, LyndenbergDomini
& Co. (KLD) index and CorporatePhilanthropy. The
results reveal a positive relation between CSR and
CFP when Fortune and KLD measures of CSR were
used. However CSR and CFP showed no association
when TRI and Corporate Philanthropy measured
were used. These results reveal that the choice of
CSR measures has an impact on the relationship
between the two variables.
Inoue and Lee (2001) have attempted to disaggregate
CSR dimension-wise based on corporate voluntary
activities for five primary stakeholders. The five
dimensions used are: employee relations, product
quality, community relations, environment and
diversity. The effect of each of these dimensions
on financial performance of firms among the four
tourism-related industries (airline, casino, hotel, and
restaurant) has been studied. The results have revealed
a positive impact of all the five CSR dimensions on
the financial performance of the firms.
Aggarwal (2013) has attempted to assess the relation
between CSR and FP (Financial Performance). To
measure FP, both market- based measures (PE Ratio
and Beta) and accounting-based measures (ROA and
ROE) have been considered. CRISIL’s ESG index
has been used to measure CSR. Data for a period of
five years i.e. 2008 to 2012 has been collected. Her
findings reveal that there is no significant association
between the variables under study.
Govindrajan and Amilan (2013) have studied
the CSR-CFP link in the oil and gas products
industry in India consisting of 12 companies. The
analysis was done for a period of four years i.e.
from 2007 to 2010. CSR has been measured using
three parameters i.e. Karmayog ratings; NGO
ratings for companies exhibiting CSR activities;
the amount of CSR spend and the focus area of
CSR. EPS (Earnings per Share) has been used as
a measure of Financial Performance. The findings
demonstrate a positive impact of CSR initiatives
on EPS.
Yang and Baasandorj (2017) analyses the impact
of CSR on the Financial Performance of low-cost
carriers (LCC) and full-service air carriers (FSC). The
period under study is from 2006 to 2015. Panel data
analysis has been used to study the impact. FSC’s
show an improved financial performance with an
increase in environmental and social activities.
LCC’s show an increase in the financial performance
with an increased firm size and environmental CSR
activities. Also, firm age shows a significant negative
influence in LCCs, while leverage shows a mixed
influence in FSCs. It means that increased CSR lead
to an increase in current and expected financial
performance for FSCs and LCCs, respectively.
To explain the inconclusive results of the CSR-CFP
link over time, the researches have tried to identify
the methodological issues in the studied trying
to establish the CSR-CFP link (Godfrey & Hatch,
2007; Griffin & Mahon, 1997; Margolis & Walsh,
2003; McWilliams & Siegel, 2000). Godfrey & Hatch
(2007) identified three main issues: the use of multi-
industry sample, cross-sectional observations and
the aggregation of various CSR dimensions. For
these reasons, it has been suggested that a long-
term relation between the two variables within a
single industry using disaggregated CSR measures
should be studied. Keeping this in view, this study
has employed different CSR dimensions to study
the CSR-CFP link in the consumer goods industry in
India. This study proposed that CSR can be divided
into five different dimensions i.e. Community &
Society, Environmental contribution, Employees,
Customer Relation & Product Contribution and
Others (Includes investors, legal and ethical
dimensions).
Objectives of the Study
To study the impact of Corporate Social Responsibility
onCorporate Financial Performance of the consumer
goods sector in India.
To study the relation of the CSR dimensions i.e.
Community & Society, Environmental contribution,
Employees, Customer Relation & Product
Contribution and Others (Includes investors,legal
and ethical dimensions) with Financial performance
(measured by ROA-Return on Assets; ROE- Return
on Equity and EPS-Earnings per Share) of the
companies under study.
control variables like size, leverage, risk, industry,
etc. have not been included to control for the effects
of the additional variables.
Griffin and Mohan (1997) studied seven companies
of chemical industry to examine the CSR-CFP
relation. CFP was measured using ROA (Return
in Assets), ROE (Return on Equity), ROS (Return
on Sales), Assets age and Total assets. The data
for Corporate Social Responsibility was obtained
from Fortune reputation survey, Toxic Release
Inventory (TRI) index, Kinder, LyndenbergDomini
& Co. (KLD) index and CorporatePhilanthropy. The
results reveal a positive relation between CSR and
CFP when Fortune and KLD measures of CSR were
used. However CSR and CFP showed no association
when TRI and Corporate Philanthropy measured
were used. These results reveal that the choice of
CSR measures has an impact on the relationship
between the two variables.
Inoue and Lee (2001) have attempted to disaggregate
CSR dimension-wise based on corporate voluntary
activities for five primary stakeholders. The five
dimensions used are: employee relations, product
quality, community relations, environment and
diversity. The effect of each of these dimensions
on financial performance of firms among the four
tourism-related industries (airline, casino, hotel, and
restaurant) has been studied. The results have revealed
a positive impact of all the five CSR dimensions on
the financial performance of the firms.
Aggarwal (2013) has attempted to assess the relation
between CSR and FP (Financial Performance). To
measure FP, both market- based measures (PE Ratio
and Beta) and accounting-based measures (ROA and
ROE) have been considered. CRISIL’s ESG index
has been used to measure CSR. Data for a period of
five years i.e. 2008 to 2012 has been collected. Her
findings reveal that there is no significant association
between the variables under study.
Govindrajan and Amilan (2013) have studied
the CSR-CFP link in the oil and gas products
industry in India consisting of 12 companies. The
analysis was done for a period of four years i.e.
from 2007 to 2010. CSR has been measured using
three parameters i.e. Karmayog ratings; NGO
ratings for companies exhibiting CSR activities;
the amount of CSR spend and the focus area of
CSR. EPS (Earnings per Share) has been used as
a measure of Financial Performance. The findings
demonstrate a positive impact of CSR initiatives
on EPS.
Yang and Baasandorj (2017) analyses the impact
of CSR on the Financial Performance of low-cost
carriers (LCC) and full-service air carriers (FSC). The
period under study is from 2006 to 2015. Panel data
analysis has been used to study the impact. FSC’s
show an improved financial performance with an
increase in environmental and social activities.
LCC’s show an increase in the financial performance
with an increased firm size and environmental CSR
activities. Also, firm age shows a significant negative
influence in LCCs, while leverage shows a mixed
influence in FSCs. It means that increased CSR lead
to an increase in current and expected financial
performance for FSCs and LCCs, respectively.
To explain the inconclusive results of the CSR-CFP
link over time, the researches have tried to identify
the methodological issues in the studied trying
to establish the CSR-CFP link (Godfrey & Hatch,
2007; Griffin & Mahon, 1997; Margolis & Walsh,
2003; McWilliams & Siegel, 2000). Godfrey & Hatch
(2007) identified three main issues: the use of multi-
industry sample, cross-sectional observations and
the aggregation of various CSR dimensions. For
these reasons, it has been suggested that a long-
term relation between the two variables within a
single industry using disaggregated CSR measures
should be studied. Keeping this in view, this study
has employed different CSR dimensions to study
the CSR-CFP link in the consumer goods industry in
India. This study proposed that CSR can be divided
into five different dimensions i.e. Community &
Society, Environmental contribution, Employees,
Customer Relation & Product Contribution and
Others (Includes investors, legal and ethical
dimensions).
Objectives of the Study
To study the impact of Corporate Social Responsibility
onCorporate Financial Performance of the consumer
goods sector in India.
To study the relation of the CSR dimensions i.e.
Community & Society, Environmental contribution,
Employees, Customer Relation & Product
Contribution and Others (Includes investors,legal
and ethical dimensions) with Financial performance
(measured by ROA-Return on Assets; ROE- Return
on Equity and EPS-Earnings per Share) of the
companies under study.
2018 53
Research Methodology
Sample
To study the relationship between the variables,
15 consumer goods companies have been selected.
These companies are a part of Nifty 100 Index
(based on market capitalisation). Out of these 15,
only 13 form a part of the sample as the data for the
remaining 2 was not available. These 13 consumer
goods companies are represented below in Table 1:
Table 1: Sample of the Study
Sample for the Study
Asian Paints Ltd. Hindustan Unilever Ltd.
Britannia Industries Ltd. I T C Ltd.
Colgate Palmolive (India)
Ltd.
Marico Ltd.
Dabur India Ltd. Titan Company Ltd
Emami Ltd. United Breweries Ltd
Godrej Consumer Products
Ltd.
United Spirits Ltd.
Havells India Ltd
Variables
CSR (Corporate Social Responsibility): In
accordance with Kim et al. (2014), Seo et al.
(2015) and Ding et al. (2016), CSR scoreshave
been used to study its impact on financial
performance. The CSR score includes the total
score of all the CSR dimensions i.e. Community &
Society, Environmental contribution, Employees,
Customer Relation & Product Contribution and
Others (Includes investors, legal and ethical
dimensions).
Financial Performance: Accounting-based
measures i.e. ROA (Return on Assets), ROE
(Return on Equity) and market-based measure
i.e. EPS (Earnings per Share) have been used
to measure financial performance. Accounting-
based measures indicate a firm’s current
financial performance, whereas market-based
measurements indicate market expectation of
future financial performance (McGuire et al.,
1988).
In accordance with Roberts and Dowling (2002),
Guenster et al. (2011) and (Gama Boaventura et
al., 2012), ROA and ROEhave been selected as the
accounting-based measures to indicate a firm’s
financial performance and profitability toward
corporate social performance. Eq. (1) presents
the ROA calculation formula:
ROA = Net Profit (1)
Total Assets
Eq (2), given below presents the ROE calculation
formula:
ROE= Net Income (2)
Shareholder’s equity
Also, Govindrajan and Amilan (2013) have been
referred to in selecting EPS as the market-based
measure of financial performance. Eq. (3) denotes
the EPS calculation formula:
EPS = (Net Income - Preferred Dividends) (3)
Number of Common Shares Outstanding
Control Variables: The effects of the following
variables on financial performance has been
controlled for in this study:
Firm Size: Firm size show a positive influence
towards CSR participation (Kim et al., 2014)
i.e. large firms are more likely to employ CSR
initiatives than small firms (Luo & Bhattacharya,
2006; McWilliams & Siegel, 2001; Waddock &
Graves, 1997). For a majority of firms, firm size
causes a significant positive increase in corporate
profit (Roberts and Dowling, 2002). Following
Kim et al. (2014); Chen and Gavious (2015); Seo
et al. (2015), and Ding et al. (2016), firm size
has been selected to identify the causal effect
toward financial performance. Previous research
has also established a significant influence of
firm size onfinancial performance, though no
agreement appears to the direction of its effects
(e.g., Hillman & Keim, 2001; Kang et al., 2010;
Waddock & Graves, 1997). Relying on Previous
literature (e.g., Hillman & Keim, 2001; Lee & Park,
2009; Waddock & Graves, 1997), Size has been
operationalised as the log of the total assets.
Leverage: Leverage is the defined as the ratio
of total liabilities to total assets. This has been
introduced into the model by McWilliams &
Siegel, 2000; Waddock & Graves, 1997. It has
also been used as a control variable by Kim et al.
(2014); Seo et al. (2015); Chen and Gavious (2015),
and Ding et al. (2016) as it controls for the effect
of firm specific capital structure. Leverage affects
Uzma Amin Mir & Farooq Ahmad Shah
Research Methodology
Sample
To study the relationship between the variables,
15 consumer goods companies have been selected.
These companies are a part of Nifty 100 Index
(based on market capitalisation). Out of these 15,
only 13 form a part of the sample as the data for the
remaining 2 was not available. These 13 consumer
goods companies are represented below in Table 1:
Table 1: Sample of the Study
Sample for the Study
Asian Paints Ltd. Hindustan Unilever Ltd.
Britannia Industries Ltd. I T C Ltd.
Colgate Palmolive (India)
Ltd.
Marico Ltd.
Dabur India Ltd. Titan Company Ltd
Emami Ltd. United Breweries Ltd
Godrej Consumer Products
Ltd.
United Spirits Ltd.
Havells India Ltd
Variables
CSR (Corporate Social Responsibility): In
accordance with Kim et al. (2014), Seo et al.
(2015) and Ding et al. (2016), CSR scoreshave
been used to study its impact on financial
performance. The CSR score includes the total
score of all the CSR dimensions i.e. Community &
Society, Environmental contribution, Employees,
Customer Relation & Product Contribution and
Others (Includes investors, legal and ethical
dimensions).
Financial Performance: Accounting-based
measures i.e. ROA (Return on Assets), ROE
(Return on Equity) and market-based measure
i.e. EPS (Earnings per Share) have been used
to measure financial performance. Accounting-
based measures indicate a firm’s current
financial performance, whereas market-based
measurements indicate market expectation of
future financial performance (McGuire et al.,
1988).
In accordance with Roberts and Dowling (2002),
Guenster et al. (2011) and (Gama Boaventura et
al., 2012), ROA and ROEhave been selected as the
accounting-based measures to indicate a firm’s
financial performance and profitability toward
corporate social performance. Eq. (1) presents
the ROA calculation formula:
ROA = Net Profit (1)
Total Assets
Eq (2), given below presents the ROE calculation
formula:
ROE= Net Income (2)
Shareholder’s equity
Also, Govindrajan and Amilan (2013) have been
referred to in selecting EPS as the market-based
measure of financial performance. Eq. (3) denotes
the EPS calculation formula:
EPS = (Net Income - Preferred Dividends) (3)
Number of Common Shares Outstanding
Control Variables: The effects of the following
variables on financial performance has been
controlled for in this study:
Firm Size: Firm size show a positive influence
towards CSR participation (Kim et al., 2014)
i.e. large firms are more likely to employ CSR
initiatives than small firms (Luo & Bhattacharya,
2006; McWilliams & Siegel, 2001; Waddock &
Graves, 1997). For a majority of firms, firm size
causes a significant positive increase in corporate
profit (Roberts and Dowling, 2002). Following
Kim et al. (2014); Chen and Gavious (2015); Seo
et al. (2015), and Ding et al. (2016), firm size
has been selected to identify the causal effect
toward financial performance. Previous research
has also established a significant influence of
firm size onfinancial performance, though no
agreement appears to the direction of its effects
(e.g., Hillman & Keim, 2001; Kang et al., 2010;
Waddock & Graves, 1997). Relying on Previous
literature (e.g., Hillman & Keim, 2001; Lee & Park,
2009; Waddock & Graves, 1997), Size has been
operationalised as the log of the total assets.
Leverage: Leverage is the defined as the ratio
of total liabilities to total assets. This has been
introduced into the model by McWilliams &
Siegel, 2000; Waddock & Graves, 1997. It has
also been used as a control variable by Kim et al.
(2014); Seo et al. (2015); Chen and Gavious (2015),
and Ding et al. (2016) as it controls for the effect
of firm specific capital structure. Leverage affects
Uzma Amin Mir & Farooq Ahmad Shah
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