Corporate Social Responsibility and Financial Performance Analysis

This research investigates the relationship between corporate social responsibility (CSR) and corporate financial performance, addressing the research objective and questions effectively. A critical literature review reveals differing opinions among authors regarding the correlation between these variables. Employing a mono method, data on Tobin’s q, profit margin, revenue growth, R&D expenditure, Beta, and CSR ratings were collected from various websites for 32 companies. Statistical analysis indicates a moderate relationship between the variables. However, the absence of a significant relationship between Beta and CSR ratings suggests a potentially limited impact on return on assets. The research explores the social, environmental, and financial dimensions of CSR, examining factors that enhance financial performance and the relationship between CSR and financial orientation. It also addresses research limitations and ethical considerations. The study concludes by summarizing the findings and their implications for understanding the role of CSR in organizational success.

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Executive Summary
This research had examined the impact of corporate social responsibility on the corporate
social performance of organization. This research had developed the research objective and
question effectively. The critical analysis of the literature shows that there is argument among
various authors where some opined that there is no significant relation between both the
variables while others had opposite opinion on it. The research methodology had used a
mono method where data has been collected from different websites to collect data on
Tobin’s q, profit margin, revenue growth, R&D expenditure, Beta and CSR ratings. These
variables had been collected for 32 companies and their statistical analysis had shown that
there is moderate relationship between the variables. However, as there is no significant
relationship between B and CSR rating, it may not have significant impact on the return on
assets.

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Table of Contents
Chapter 1: Introduction..............................................................................................................4
1.1. Background.....................................................................................................................4
1.2. Research Problem............................................................................................................5
1.3. Research Significance.....................................................................................................6
1.4. Aim and Objectives of Research.....................................................................................7
2.0 Literature review..................................................................................................................8
2.4 Corporate social responsibility.........................................................................................8
2.1.1 Social dimension.......................................................................................................9
2.1.2 Environmental dimension.......................................................................................10
2.1.3 Financial dimensions...............................................................................................10
2.2 Factors increasing financial performance......................................................................11
2.3 Relationship between CSR and financial orientation.....................................................14
2.3.1 Factors affecting CSR and financial performance..................................................14
Chapter 3: Research methodology...........................................................................................16
3.0 Introduction....................................................................................................................16
3.1 Research onion...............................................................................................................16
3.2 Research philosophy......................................................................................................16
3.3 Research approach.........................................................................................................17
3.4 Research design..............................................................................................................17
3.5 Data sources...................................................................................................................18

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3.6 Data analysis..................................................................................................................19
3.7 Sampling techniques......................................................................................................19
3.8 Ethical consideration......................................................................................................20
3.8 Research limitation.........................................................................................................20
3.10 Summary......................................................................................................................20
Chapter 4: Findings and Analysis............................................................................................21
4.1 Introduction....................................................................................................................21
4.2 CSR and Financial Data.................................................................................................21
4.2 Descriptive statistics.......................................................................................................22
4.3 Correlation matrix..........................................................................................................23
4.4 Regression analysis........................................................................................................25
Chapter 5: Conclusion..............................................................................................................26
References................................................................................................................................29

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Topic: ''Analysis of the relationship between corporate financial outcome/performance and
their degree of social responsibility".
Chapter 1: Introduction
1.1. Background
The concept of “corporate social responsibility” can be described as the
responsibilities of stakeholders to create such policies that facilities in making few decisions
those are advantageous in terms of values and objectives to the society. The focus of CSR is
observed to move the stances of various firms from acknowledgement of social interest to
becoming a key aspect of strategic approach in several firms (Misani and Pogutz 2015).
There has been significant increase in the concept of CSR in all the global organizations
which made the firms change their approach to this management. The number of
organizations implementing these strategies are increase in numbers to minimize the harmful
impact on the society and the environment. It can be seen that among the top 250 well
established organizations, more than 90% have published their sustainability report in the
financial year of 2017. The majority of the organizations have not implemented these
strategies as they wanted to develop an altruistic business model but these companies have
been under immense pressure from the stakeholders to fulfil the sustainability responsibility
and become a socially responsible corporate citizen (Pardis, Sofian and Abdullah 2016).
Even though, there has been significance increase in regulatory and legislative
guidelines regarding the implementation of CSR, it has been observed that it is not dominant
all the world. However, there have been several nations and unions that are trying to
implement strategies to promote CSR and enhance the sustainability and performance of
these firms. There has been significant modification in the meaning of social responsibility
and ethics which has led to the change in the role of ethics and social responsibility in

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enhancing the performance of business entities (Sun et al. 2018). On the other hand,
corporate social responsibility is a subjective topic and its implementation by adhering to all
ethical guidelines varies depending upon the size and nature of the company. Therefore, it is
observed to be not possible to simplify the extent to which companies evaluate one another or
a general framework and with the responsibility scope in improving company’s financial
performance.
1.2. Research Problem
The increase in acceptability of the CSR concept has led to several viewpoints which
have been gathered regarding the processes used by the companies in implementing the social
responsibilities conducted by companies in United Kingdom. These processes have led to the
observation that financial performance is enhanced by social responsibility (Cook, Romi,
Sanchez and Sanchez 2017). This also indicates that the social responsibility of the
companies is obliged to be at a level which is acceptable to the shareholders. Moreover, the
increase in companies’ profits should remain within the boundaries of business laws and
ethics. Along with that, it is also been identified that the new mandate on corporate social
responsibility requires the companies in UK to follow the new guidelines where they need to
upsurge their CSR reporting that can have an increased impact on the financial situation of
organizations (Cheng, Ioannou and Serafeim 2014). Social responsibility measures have
increased the complexity which has impact of the financial performance of firms due to the
cost incurred and the value that is being generated. However, it is evident that there has been
significant increase in competition in the United Kingdom market and the incorporation of
corporate social responsibility may be appealing to the ethical consumers which may result in
enhancement of financial and organizational performance. This means that it is essential to
report on the social responsibility activities that portray a good image in the market (Wang,
Dou and Jia 2016). It has been identified that companies not paying heed to their social and

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environmental responsibility have been struggling to achieve a good financial performance.
On top of that, mediocre corporate social responsibility performances increase the risk level
of these companies when compared to other companies having good CSR activities.
1.3. Research Significance
The significance of the present research is to assess the association amid the financial
performance and the CSR intensity processes and policies followed by the organizations. The
study will correspondingly analyse the role of responsibility and ethics in improving the
financial performance of the companies. This is due to present change the approaches to
sustainability and ethical practices with global organizations. As the nature of social
responsibility is subjective by nature, its implementation varies depending upon the size and
nature of the business entity (Saeidi et al. 2015). This research will explain few critical
theoretical framework and significant concepts on social responsibility as well as financial
performance of organizations focused on dimensions and stakeholder theory.
Moreover, the study examines the ways in which corporate social responsibility has affected
the financial performance of various companies in the global market by comparing the
financial aspect and the CSR activities. This is because of the fact that there are different
ways in which companies operate in respect to their CSR activities so it will determine the
way the relationship varies based on these activities (Lins, Servaes and Tamayo 2017). The
present research will develop findings that will add to the existing literature by evaluating the
market valuation and CSR activities used by the organizations. The findings of this research
will be as per the literature developed based on the past studies that might not be in
accordance to the relationship already established by the previous researches. The results
will also facilitate the organizations and practitioners in realizing the CSR and financial
performance association in consideration to publicly traded global organizations. This can

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also impact the degree to which organisations decide to make investment within CSR
conducts in case such financial measures are considered important.
1.4. Aim and Objectives of Research
The research objective to examine the association between corporate financial
outcome/performance and their degree of social responsibility. The research has explained in
brief the objectives and they are as follows:
 To investigate the link between CSR activities and financial performance of the
organizations
 To evaluate the ways in which CSR ratings of companies impacts their financial
performance
1.5. Research Questions
The research questions which will be addressed through completion of the current study are
elaborated below:
 How different CSR activities affect the financial performance of different global
organizations?
 What are the ways in which CSR ratings of companies impacts their financial
performance?

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2.0 Literature review
2.4 Corporate social responsibility
In this context, the concept of Corporate Social Responsibility is highly significant
and relevant. According to Cavaco and Crifo (2014), the CSR is associated with not only the
social and environmental activities but associated with the sustainability of the business. On
the other hand, Waworuntu, Wantah and Rusmanto (2014) proclaimed that the CSR is a form
of corporate self-regulation that is associated with the business model. In this regard, the
objective and use of the CSR policy is to create, self-regulating processes whereby a
company oversees and ensures its vigorous obedience with the spirit of law, international
norms and ethical standards. From that perspective it can be argued that the CSR aims to take
up responsibility of the company and inspire positively so that the business entity can develop
better knowledge of the stakeholders of the company which includes consumers,
environment, employees, communities and shareholders along with other members identified
as stakeholders. Organizations can develop better competitive advantage by implementing
effective CSR policies which results in generation of long-term profits. On the other hand, the
purpose of developing effective CSR strategies is to address the vision and mission of the
organization which adds value to the brand image. These policies also coincide with the
customer satisfaction as it improves the operational efficiency of all the organizational
processes and it also fulfils the ethical requirements. In light of this context, Qiu, Shaukat and
Tharyan (2016) claimed that CSR can be considered as a management concept that focuses
on the incorporation of social and environmental activities in business operations and create a
healthy interaction with the stakeholders. In this regard, Saeidiet al. (2015) stated that the
implementation of triple bottom line is relevant to the context of CSR. As per the research it
can be stated that CSR plays a significant role in developing suitable environment, social and
economic activities that are aligned to the needs of the stakeholders.

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There are various organization that have issues in dealing with their operations in
respect to developing sustainability measures. For example, environmental management and
eco-efficiency has been recognized as key elements of corporate social responsibility both in
local and global operations of business and have been dealing with the communities,
employees and social equality. In respect to this, CSR has a key role in reducing operational
cost, increasing sales volumes and provide competitive advantage to the companies in the
market. Therefore, it has become a better measure to improve the CSR practices that
improves the loyalty of the consumers and better decision-making strategies and reduces the
overall risk probabilities. CSR is a dynamic approach that is associated with the concept of
Triple Bottom Line (TBL). In this TBL framework, there are three different entities in terms
of the environmental dimension, social dimension and the financial dimension.
2.1.1 Social dimension
The advent of globalisation has made the business competition so intense that the
companies are looking for an alternative approach in order to bring more stability in the
organisational practice. Henceforth, the social sustainability is considered to be one of the
major aspects that not only create effective business effectiveness but also helps the
organisation to re-establish their images and brand values with the help of social concerns.
Hussain, Rigoni and Orij (2018) opined that the role of the organisation is also transcended
rapidly due to the change in consumer behaviours. Therefore, pressure pounding on the
companies to take responsibility in the social problem solving like charity donations,
environmental protection and so on. On the other hand, McWilliams et al. (2016) articulated
that the role of the consumer purchasing behaviour influenced the vision of the companies as
well. The technological advancement pushes the global corporate farms to use social media
as a tool for their promotion and attracting more customers digitally.

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2.1.2 Environmental dimension
Negative impact on the environment and carelessness damage the business
opportunities for the companies profoundly. It becomes a term of public interest that brings
the business organisations under the radar of international environmental organisation and
alleged to create deliberate exploitation of Earth. This consequence has a great deal of impact
on both the international and domestic level as most of the countries seek legal help to
formulate an eco-friendly business practice (Alhaddi 2015). Therefore, the big business
companies feel the need to incorporate the stakeholders more intricately in order to refurbish
its image in the international and domestic level. According to Hammer and Pivo (2017)
environment-oriented measures and eradicating the negative impact on ecology are going to
be the primary concern for most of the corporate entities for maintaining their sustainability
effectively.
2.1.3 Financial dimensions
From the financial perspective, Wilson (2015) found out that the initiation of the
financial practice paved the way for putting great emphasis on the stakeholders. As a result of
that the business organisations were more focused to keep a better financial performance
through CRM techniques. In fact, Miemczyk and Luzzini (2016) claimed that the
stakeholders were also looking for companies that had good and stable financial performance.
Therefore, it can be stated that financial performance has a close relation with the
development of CSR. The connection between CRM and financial experience has also been
proved in the form of maximising the customers. From the research of Muñoz-Pascual,
Curado and Galende (2019) it can be derived that a good CSR score of a company makes the
customers reliable on its financial practices and it can help the organisation to get the trust of
its stakeholders.

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2.2 Factors increasing financial performance
In order to improve the monetary performance of business entities, there are both
external and internal factors that facilitates in developing a better framework for executing
the processes within the global organizations. Leverage, liquidity asset utilization, market
share position and firm size have been identified as the internal factors. While considering
liquidity, Aininet al. (2015) opined that liquidity is the significant element that can identify
the ability of the company to meet the debt obligations through cash inflow and current
assets. In order to develop better understanding, it can be stated that the current ratio is
defined as a general assessment of liquidity. Soto-Acosta, Popa and Palacios-Marqués (2016)
displays that current assets and liabilities share a strong degree of correlation between them.
In order to maintain a healthy liquidity ratio, the ratio between the current liabilities and
current assets should be 2:1. It implies that the ability of the business entity can be proved in
order to en-cash the assets which is similar as managing the business wealth. Moreover, Qiu,
Shaukat and Tharyan (2016) supported the concept of having high liquidity that provides
options for developing contingency plan while conducting business. Moreover, it is critical to
be prepared for the future uncertainties, and in this regard, high liquidity can be used as an
option to mitigate the short-term obligations and address the situation of crisis.
On the other hand, leverage is recognised as a central feature, represented in ratio
form and measures total liabilities to total assets. Bazhair and Sandhu (2015) opined that in
case of a debt-ridden business the finance assets are very effective to deal with the objective
of the company to achieve financial performance that is favourable. In this respect, the equity
holders use leverage as an alternative in order to boost the financial performance. In the
words of Wu, Straub and Liang (2015) it can be determined that the role of financial leverage
is to create a positive equity return on the basis of the ration between total debt and total
assets. By using the understanding on this concept, empirical analysis has been performed