Relationship between Corporate Social Responsibility (CSR) and Financial Performance (FP)

Introduction

Corporate Social Responsibility (CSR) has become an increasingly important aspect of a company’s operations. While its impact on financial performance is widely debated, research suggests that CSR can have a significant effect on a firm’s bottom line. This article explores the relationship between CSR and Financial Performance (FP), examining the direct and indirect relationships between these two variables.

Direct Relationship between CSR and FP

The equations for Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS) are essentially identical, indicating that the same factors (community, diverse, environment, workplace) are expected to impact all three financial performance metrics. This is a reasonable assumption, as these metrics are all related to a company’s profitability.

Indirect Relationship between CSR and FP

The addition of firm size ((Fsize)) as a moderating variable introduces an interesting aspect: the possibility that CSR has a different impact on FP depending on the size of the firm. This is a plausible assumption, as larger firms may have more resources to devote to CSR initiatives, which could influence their financial performance differently than smaller firms.

Suggestions for Future Research

• Inclusion of additional control variables: While firm size is included as a moderating variable, other factors such as industry, market conditions, or country-specific regulations may also impact the relationship between CSR and FP.
• Use of alternative measures for CSR: The study relies on four dimensions of CSR (community, diverse, environment, workplace). Exploring additional aspects of CSR, such as human rights or supply chain management, could provide a more comprehensive understanding of its impact on financial performance.
• Longitudinal analysis: Given the panel data used in this study, it would be interesting to explore how the relationship between CSR and FP evolves over time, especially considering changes in regulatory environments, industry trends, or societal expectations.

By exploring these suggestions for future research, we can gain a deeper understanding of the complex relationship between CSR and Financial Performance, ultimately informing strategies that benefit both companies and society.