The Relationship between Corporate Social and Financial Performance

The Relationship between Corporate Social and Financial Performance
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The Relationship between Corporate Social and Financial Performance
The Relationship between Corporate Social and Financial Performance Introduction Corporate social responsibility (CSR) is one of the key elements that corporate organizations worldwide embrace in developing their business strategies for sustainable growth and development. The relationship between corporate social responsibility and financial performance raises diverse perspectives across both the scholarly and the business management fields on the correlation of the two concepts in corporate or business organizations. Precisely, the influence of corporate social performance on the financial performance of corporate organizations accounts for many studies revealing different perspectives on the existing relationship. The quest for achieving the key objective of sustainable growth and development for business organizations worldwide demands the development and implementation of effective business strategies. Corporate social performance (CSP) refers to the observable outcomes of a business organization’s societal relationships from its configuration of social responsibility principles, social responsiveness processes, policies, and programs (Lahouel, 2020). In essence, corporate social responsibility is characteristic of an organization’s market behavior, societal commitment, respect for the environment, and respect for human rights in the workplace. On the hand, financial performance refers to the observable outcomes of a business organization’s financial aspects, such as return on equity, return on assets, and market-to-book ratio (Hirigoyen, 2015). Engaging in corporate social responsibility endeavors entails the use of resources or investing in diverse processes, programs, and projects across the different principles of social responsibility. Such investments may have different implications on an organization’s financial performance. It is, therefore, important to understand the impact of corporate social performance on the financial performance of business organizations towards fostering an effective integration of the two concepts for sustainability. Existing research on the relationship between corporate social and financial performance reveals divergent views on the correlation between the two concepts. For instance, some studies find a positive correlation between corporate social performance and financial performance, with greater investment in the former being a prerequisite for profit maximization. Other studies find a negative relationship between corporate social performance and the financial performance of business organizations. Hirigoyen (2015) reiterates the lack of consensus across different studies in determining the relationship between the corporate social and financial performance of business organizations. According to Hirigoyen (2015), empirical studies of the relationship between corporate social responsibility and financial performance result in divergent conclusions. Lin (2015) concludes that other factors, such as industry type, determine the influence of corporate social responsibility on the f...