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About this sample
About this sample
Words: 750 |
Pages: 2|
4 min read
Published: Sep 19, 2019
Words: 750|Pages: 2|4 min read
Published: Sep 19, 2019
Since the 1980s, media, government and the public have been increasingly concerned in terms of environmental and social consequences beyond corporate activities. Ecological scandals, employee welfare exploitation and negative social responsibility news release attract considerable publicity. Investors have easy access to detailed CSR ranking reports published by myriad organizations. As a result, CSR has evolved to appear on the evitable agenda for corporate governance (Porter and Kramer 2006). Corporates actively participate in CSR activities for a variety of reasons, such as risk management consideration (Eisingerich and Ghardwaj 2011), brand differentiation enhancement (Fry et al. 1982; Griffin and Vivari 2009), “triple bottom line” achievement which refers to the balance of “people, planet and profit” (Elkington 1994), or expectation of reduced scrutiny. Aside from earning a positive reputation, most firms invest in fragmented philanthropic activities instead of thinking of how CSR proposition could be integrated to their value chain. Some pioneering firms, such as Nestle and Clarins, that closely tied a social issue to business have turned out to benefit society while reinforcing strategy (Porter and Kramer 2006). In China, CSR is a fairly recent notion that draws considerable attention and swiftly goes popular over the decades. Fast economic growth, loose fiscal policy and more liberal market transformation catalyze crowd craze for commercial success. Absence of effective supervision, however, provides convenience for shady corporate activities.
Poisonous baby milk, fake lamb product made from stray cats, industrial effluent secretly injected to underground water floor … all kinds of vicious incidents diminish trust from customers. To save reputation and differentiate from venal peers, companies get actively engaged in CSR initiatives. The global expansion of Chinese MNEs also facilitates Chinese firms to join the international trend of CSR investment (Msika et al. 2016). Despite the fact that the general public hold companies accountable for social consequences of their operational activities, many firms are reluctant to fulfill social responsibility. Social responsibility is often times viewed as “a cost, a constraint, or a charitable deed” for winners (Porter and Kramer 2006). Many researchers try to prove that upright CSR strategy could yield better financial performance either from a theoretical perspective or in an empirical approach, but the conclusion frequently gets refuted in developing markets. Literature Review The inquiry of interactive relationship between CSR and corporate financial performance (CFR) could be traced back to the 1970s. The majority of researchers find a significantly positive relationship. Margolis and Walsh (2003) reviewed 109 papers since 1972 on this topic and found 54 positive, 28 insignificant and 7 negative results. 20 papers did not give explicit discoveries. For instance, Waddock and Graves (1997) used the CSR scores ranked by KLD as measurement of CSR disclosure, ROA and return on sales as measurement of CFP. They find that firms with better financial performance in the current year are more likely to have better CSR disclosures next year. Since 2005, Chinese researchers also started to investigate in this problem. Shen (2005), Yang and Yin (2009), Tian (2009) and Zhang (2013) have reported positive relationship findings.
Different voices come out as public interest in CSR increases. For instance, Ingram and Frazier (1983) choose 79 American companies in chemicals and oil industry as empirical research sample, and find that CFP has a weak negative impact on CSR disclosure. Controlling corporate size and industry, Cowen et al. (1987) find that profitability has no significant influence on CSR disclosure. Researchers from China (Li 2006, Wen and Fang 2008) also find a negative relationship between CSR and CFP. Rowley and Berman (2000) believe the underlying logic connecting CSR-FP varies with specific cases, and the inquiry of their correlation “provides only a small piece of descriptive puzzle”. van Beurden and Gossling (2008) use meta-analysis to review 34 typical papers since 1990 and find 23 positive, 2 negative and 6 no correlation conclusions.
Conclusion Profitability has a significant positive impact on CSR. Highly profitable firms usually have better social performance. Furthermore, the expectation of growth has a quadratic effect. As sales growth gradually increases to a certain value, a company’s willingness to invest in CSR also increases. After sales growth reaches a critical point, companies are more and more reluctant to fulfill CSR as growth continues to increase. Firms actively engage in CSR programs to distinguish themselves from other slow-growth firms. After the critical point, managerial opportunism hypothesis dominates. Managers take advantage of the strong performance to increase their own benefits and reduce CSR expenditure. While profitability and growth of the previous year has no influence on the current year’s social performance disclosure.
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