Kauppatieteellinen tiedekunta, 2016
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
The purpose of this study is to find out whether there is a link between corporate social responsibility (CSR) and corporate financial performance (CFP). By utilizing CSR and CFP data from European companies between years 2005 and 2013 this thesis presents results which indicate how the relationship between the variables is formed and how it develops throughout time. Furthermore this thesis also studies the causality and direction of the relationship more closely. The topic is current because corporate social responsibility has become increasingly important in recent decade. CSR scandals like the Volkswagen emission scandal in 2015 have emphasized the topic and it is evident that negative publicity can harm company’s financial performance.
Although the negative side of irresponsibility can be easily detected, it is interesting to investigate the topic from other angles as well. Does excellent CSR performance improve company’s financial performance as well or is it enough if a company stays at average level. What is the optimal level of CSR and does it create financial benefits if company exceeds it. Academic theories explain the relationship from different angles as well. As well as negative relation, also positive relation between the variables can be explained with a logical theoretical framework. The nature of the relationship has also been in the center of interest among academics because it has been detected that it changes throughout time. The effect which CSR has on CFP can be very diverse.
By utilizing the Thomson Reuters ESG research data this thesis analyzes how CSR performance impacts CFP. In the center of interest are 200 randomly selected publicly listed European companies from different industry sectors. Multiple OLS regression model is applied to analyze the panel data from years 2005-2013. Results indicate that performing well in CSR weakens company’s CFP. More closely performing well in the human rights category causes CFP to drop. Results are statistically significant when both account based and market based CFP measures are utilized.
This thesis also discusses the possible issues and errors which CSR and CFP measures cause and provides idea for future research. Although this thesis indicates that high CSR firms underperform financially, the nature of the relationship has still a lot to investigate.
Corporate social responsibility, Corporate financial performance, Return on Assets, Market to book value, Panel data, Disaggregated measures