Executive Summary
Recognizing that corporations can act responsibly and irresponsibly simultaneously, the researchers studied the financial impact of CSR and irresponsibility, both in isolation and in combination.
The study finds that CSR significantly improves:
- profitability
- management efficiency
- market valuation
On the other hand, corporate irresponsibility has a marginal effect on damaging profitability only — and no significant effect on damaging management efficiency or market valuation.
When a firm acts both responsibly and irresponsibly simultaneously, the study confirms the “halo-effect” because the positive impact of CSR on financial performance outweighs the negative impact of acting irresponsibly.
Research Notes
The researchers studied over 10,000 US firm-quarter observations from 2009-2013 to examine how changes in CSR and irresponsibility relate to measures of firm performance.
The data was sourced from Sustainalytics (for CSR-related information) and Compustat (for financial data).
Note: Sustainalytics provides information for measures of corporate social responsibility and irresponsibility. Sustainalytics specializes in Environmental, Social and Corporate Governance (ESG) data. For any given firm, Sustainalytics provides detailed ratings on up to 148 CSR-related attributes.
Also note: The study includes an academic literature review for those investigating the relationship between CSR and aspects of company performance, including:
- efficiency improvements
- reductions in regulatory costs
- new market access
- improved firm reputation
- reduced employee turnover
- increased customer satisfaction
- the ability to charge premium prices
The data was sourced from Sustainalytics (for CSR-related information) and Compustat (for financial data).
Note: Sustainalytics provides information for measures of corporate social responsibility and irresponsibility. Sustainalytics specializes in Environmental, Social and Corporate Governance (ESG) data. For any given firm, Sustainalytics provides detailed ratings on up to 148 CSR-related attributes.
Also note: The study includes an academic literature review for those investigating the relationship between CSR and aspects of company performance, including:
- efficiency improvements
- reductions in regulatory costs
- new market access
- improved firm reputation
- reduced employee turnover
- increased customer satisfaction
- the ability to charge premium prices
Full Report
Instructions to access the full report of: The Angel-Halo Effect: How Increases in CSR and Irresponsibility Relate to Firm Performance
Publication Date
2016/08/03
Publication
European Business Review
Author(s)
Kent Walker, Zhou Zhang, Bing Yu