The study of CSR and CP commenced over three decades ago in the Western countries. In addition to the methodological differences discussed above, there are two types of empirical studies of the relationship between CSR and CP (Saleh et al. 2008). One involved the use of event study methodology to gauge the short-run financial impact (abnormal returns) on companies who engage in socially responsible or irresponsible acts. A number of studies of this type have been conducted (Posnikoff 1997; Wright and Ferris 1997; McWilliams and Siegel 2001). The second set of studies examined the
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relationship between CSR and long-term CP (Aupperle et al. 1985; Mahoney and Roberts 2007).
The results of those two types of empirical studies have been mixed. For example, the long-term financial impacts showed a positive relationship with CSR in Waddock and Graves‘ (1997) study, no relationship in Aupperle et al.‘s study (1985) and a negative relationship in the study by Waddock et al. (1998). Similarly, studies of the relationships between CSP and CP have shown mixed results, with some short-term results being positive, others were mixed (Posnikoff 1997), or negative (Wright and Ferris 1997), while yet others found a neutral relationship (Teoh et al. 1999). A similar pattern emerged from studies of long-term CP. Some researchers identified a positive relationship (Cochran and Wood 1985; Waddock and Graves 1997; Stanwick and Stanwick 1998; Tsoutsoura 2004), some found a non-significant relationship (e.g., Aupperle 1985) and others contradicted showing a negative relationship (Waddock et al. 1998).
Griffin and Mahon (1997) extended the earlier literature by adopting a more direct approach with a particular emphasis on methodological inconsistencies. They criticised three aspects of the existing literature: focus on particular industries, and the multiple dimensions employed to measure CP and CSP. Their research explored the relationship between CSP and CP in a sample of seven companies from the chemical industry. They employed five financial measures, including ROE, ROS, asset age and 5-year ROS, and four corporate sources of CSP including a fortune reputation survey, the TRI index, the KLD index and corporate philanthropy. Interestingly, their results suggested that the a priori use of measures may actually predetermine the outcome of CSP and CP relationship analyses. Unexpectedly, the fortune and KLD indices track one another very closely, whereas the TRI and corporate philanthropy measures differentiate between high and low social performances and do not correlate with CP.
The majority of studies, however, have shown that that CSR exhibits a positive relationship with organisational performance (Ruf et al. 2001). The main problematic issue in these studies is wide range of different variables and approaches used to measure CSR and CP. An overview of CSR and CP in the developed world was presented by Waddock and Graves (1997) in their study was underpinned by study of
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the link between these two variables. Their study focused two theories to develop the following hypothesis: slack resources and good management. The most significant finding from their study was that CSP appears to be positively associated with prior CP, supporting the theory that slack resource availability and CSP are positively related. In addition, they demonstrated that CSP is positively associated with future CP, supporting the theory that good management and CSP are positively related.
In criticism of these two studies, while Griffin and Mahon (1997) used four CSP measurements in their sample, Waddock and Graves (1997) utilised only one, the KLD. Both studies arrived at the same conclusion when they used KLD as a measurement of CSP. Griffin and Mahon (1997) tested their model in only seven companies in the chemical industry; Waddock and Graves‘s (1997) on the other hand investigated several industries, including the chemical industry with a sample of 500 companies. McWilliams and Siegel (2000) used event study methodology to assess the short-run financial impact (abnormal returns) on companies who engage in either socially responsible or irresponsible acts. They utilised the Domini 400 Social Index as a measure of CSP. In addition, they employed average of annual values for 1991–1996 for 524 US companies to obtain a measure of CP as the dependent variable. Two dummy variables were included as independent variables: industry and research and development. Their results showed that inclusion of the variables caused the CSR variable to become insignificant, leading them to the conclusion that if the regression model is correctly specified there may not be a relationship between CSR and CP. An augmented study was conducted by Stanwick and Stanwick (1998) utilising three independent variables; organisation size, CP and environmental performance, with one independent variable; CSP. Their study supported Waddock and Graves (1997) study, in that they found that large, profitable companies have a strong relationship with CSP. In addition, Stanwick and Stanwick (1998) showed that CSP is a multi-faceted construct that is affected by various organisational variables. They concluded that there was a strong relationship between CSP and the profitability, size and amount of pollution released by a company.
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Tsoutsoura (2004) studied the relationship between CSR and CP using the S&P 500 company data over a five-year period. He integrated prior disclosure studies in two ways: short-term financial effects and long-term financial effects. This classification used the same methodology utilised in previously published studies. He employed two sources of measures for CSP, the KLD rating data and the Domini 400 social index, as well as ROA, ROE and ROS as accounting variables as indicators of CP. His findings were similar to the studies of Griffin and Mahon (1997), Stanwick and Stanwick (1998) and Waddock and Graves (1997) discussed above. Like these scholars, he argued that either market-based or accounting-based financial measurements can be used, emphasising that the accounting based measures captured only historical aspects of company performance, while market measures are forward-looking and focus on market performance.
Simpson and Kohers (2002) investigated the link between CSR and CP using the banking industry as their sample companies. They used the community reinvestment act rating as a social performance measure, and concluded that there was a significant positive relationship between CSR and CP. A recent study undertaken by Mahoney and Roberts (2007) used panel data for Canadian publicly held companies over a 4-year period. Their results showed significant relationships between CP and individual measures of CSP, in particular, company environmental and international activities. Elsayed and Paton (2005) used panel data analysis to identify the impact of environmental performance on CP. Their study investigated a sample of 227 UK companies using data from 1994–2000 with Tobin‘s q, ROA and ROS as CP measures in order to minimise the limitations identified in earlier published studies. The results of their analysis revealed a neutral impact of these two variables.
The studies described above were all conducted in the UK, USA and Canadian market settings. Empirical studies of CSR and CP outside of these markets are very rare, although small studies have been conducted on emerging markets by Subroto (2002) and Saleh et al. (2008). Subroto (2002) used a descriptive survey and multivariable correlations of cross-sectional data and critical part analyses, to analyse the correlation between CSR and CP and ethical business practices in Indonesia. According to Subroto, the interests of stakeholders showed a significant correlation with CSR, CP and ethical
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business practices. Secondly, his research relationship is still positive. Thirdly, he indicated that the correlation between social responsibility and CP was quite low.
Another recent study by Saleh et al. (2008) concluded that there was limited evidence for significant effects of CSR on CP over the long-term. Their study utilised five years of data from company annual reports, and measured four key CSR indicators; employee relations, employment, community involvement and products, using the fortune reputation survey, the KLD index, the Toxics Release Inventory and the Best Corporate Citizens index. They also included the average shareholder return and average scores on social measures. The CP indicators they used included ROS, stock market returns and Tobin‘s q ratio. This study also employed panel data analyses using the cross-sectional and time-series data and used three CP indicators, ROE, ROA and ROS, and six CSR indicators covering employees, customers, community, education, health and environmental. In addition, they used an index for measuring the CSR performance of the 50 listed companies of the CSE in Sri Lanka.