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Shafat Maqbool
(Department of Commerce, Aligarh Muslim University, Aligarh, India) Shabir Ahmad Hurrah (Department of Commerce, Aligarh Muslim University, Aligarh,
India)
This study aims to investigate the relationship between corporate social responsibility (CSR) and financial performance from the bi-directional perspective.Abstract
Purpose
Design/methodology/approach
The final sample for this study are 79 companies listed in the national stock exchange for a period of eight-years (2008–2015). Random effect panel regression was performed to examine the possible link.
Findings
The result shows that CSR has a positive impact on the contemporaneous and future financial performance of the selected companies. Further, the study shows that only social dimension has a positive and significant impact on concurrent and future financial performance. The results further validate slack resource theory as lagged financial performance has a positive and significant impact on CSR.
Practical implications
The strategic value of CSR indicates that it should be seen as a value-enhancing strategy, and therefore, incorporated with the broader corporate strategy of the company. Companies should not trade-off between CSR and financial performance, rather a strategic synchronization of CSR with corporate functioning is essential. This will pave a way to build a stakeholder-sense in the corporate entities.
Originality/value
The study comprehensively examines the relationship between CSR and financial performance from both “prospective” and “retrospective” framework. This bi-directional approach has received minimal attention in the Indian context.
Keywords
- Environment
- Social and governance
- Corporate social responsibility
- Indian companies
- Prior and subsequent financial performance
Citation
Maqbool, S. and Hurrah, S.A. (2021), "Exploring the Bi-directional relationship between corporate social responsibility and financial performance in Indian context", Social Responsibility Journal, Vol. 17 No. 8, pp. 1062-1078. //doi.org/10.1108/SRJ-05-2019-0177
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited
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Consumers are demanding that corporations become more socially responsible. Executives are challenged to maximize shareholders' returns with achieving a favorable corporate citizen status. The research problem was a gap in knowledge and understanding of the impact of corporate social responsibility on financial performance. This study used multiple linear regression to assess the relationship between key indicators of corporate social responsibility and financial performance from 372 corporations in the S&P500 in 2014. The theoretical foundation was Freeman's stakeholder theory. Environment, community, human rights, diversity, employee relations, product quality, and corporate governance were measures of social performance. Return on assets was used to measure financial performance. When corporate social responsibility was evaluated as an aggregate variable, a significant and negative relationship was found in the financial and material sectors. When corporate social responsibility variables were evaluated independently, employee relations and product quality in the healthcare sector, and community in the financial sector, were found to be positively significant. Environment, product quality, and corporate governance in the financial sector, and employee relations in the consumer and energy sectors, were found to be negatively significant. This study revealed that the relationship between some social variables and financial performance are significant, but not always in a positive direction. Practitioners, executives, and managers can use the findings to evaluate their firm's social position, develop strategies to address gaps, and undertake actions to enhance their firm's social performance, thereby creating positive social change in the community.
Recommended Citation
Lim, Christopher, "Relationship Between Corporate Social
Responsibility and Corporate Financial Performance" (2017). Walden Dissertations and Doctoral Studies. 4529.
//scholarworks.waldenu.edu/dissertations/4529
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