A Bi-Directional Examination of the Relationship Between Corporate Social Responsibility Ratings and Company Financial Performance in the European Context

Prior research focusing on the relationship between corporate social responsibility (CSR) measures and company financial performance has led to mixed results in the North American context. In this paper, we use CSR ratings issued by a major European CSR ratings agency (Vigeo) to study relationships between CSR ratings and financial performance. The Vigeo ratings are unique and proprietary and their use is restricted to subscribing investment firms and selected researchers. Our methodology follows that of McGuire, Sundgren and Schneeweis (1988) who studied relationships between perceptions of firms’ corporate social responsibility and measures of financial performance. Their results indicated that corporate social responsibility measures are more closely related to a firm's prior performance, assessed by both stock-market returns and accounting-based measures, than to subsequent performance measures. Their results also indicated that measures of risk are closely associated with social responsibility measures. In our paper, the principal findings are: (1) the greater the market capitalization of a company, the higher the Vigeo rating, (2) the higher the risk of the company, the lower the Vigeo rating, and (3) the greater the stock market return of a company, the lower the Vigeo rating. These findings lead us to propose a theory of "political visibility" in which larger companies appear to invest more in CSR; a theory of “priorities” in which less risky companies receive a higher CSR rating; and a theory of "rating downgrading in which the rating agency appears to penalize companies with above average stock market performance.

Références

Titre
A Bi-Directional Examination of the Relationship Between Corporate Social Responsibility Ratings and Company Financial Performance in the European Context
Type de publication
Article de revue
Année de publication
2018
Revue
Journal of Business Ethics
Volume
148
Nombre
3
Pagination
527-544
Date de publication
mars
Soumis le 17 septembre 2018