The link between CSP and CFP

This work aims to contribute to the existent research body on Corporate Social Performance (CSP) by proving the existence of a business case for CSR, demonstrating the existence of a link between the Corporate Social Responsibility performances and the Corporate Financial Performances (CFP) of firms. We endeavor in answering our research question firstly through a qualitative analysis in order to generate an effective research design and subsequently by applying the resulting research design in two empirical analyses on European and Italian firms. The results of our analyses confirm that firms with higher CSR performances report increased economic, financial and operating performances, showing the existence of a positive correlation between CSP and CFP. The first study allows us to conclude that at least four transmission mechanisms of CSP on CFP exist. We theorize that the typology of communication enacted, the proactivity in implementing CSR actions and the industrial sector of firms can mitigate the transmission of CSR behaviour into perceived CSR performances. Finally, we theorize that the coherence over time (or consistency) of CSR performances, the geographical area where firms operate, and the congruity of CSR actions with companies’ core business, shall be considered as mitigating factors of the transmission of CSP on CFP. The second study, through an empirical analysis on 191 European firms, based on the research design generated in the first study, concludes that a positive link between firms’ social performances and their economic and workforce productivity, intended as a proxy of operating performance exists. We acknowledge that endogeneity might arise in our analysis given that conditions that drive firms to implement CSR activities could affect their financial, economic and operating performances, and given that some correlation might arise between the control variables and the error term in our model. To address this issue properly, we conduct an endogeneity correction or treatment effect Heckman two-stage model on our data. After treating for endogeneity using a two-step Heckman model, our analysis continues to show that a higher overall CSR score is significantly correlated with higher revenues/ employees and higher revenues, whilst EBITDA margin %, still maintains a positive correlation, loses statistical significance. We conclude that, even if endogeneity might be present in our analyses, it does not affect the results of our inquiry. The third study, through an empirical analysis on 42 Italian firms, based again on the research previously generated, but with a different sample and a structured segmentation of CSR activities, concludes once more that positive CSR performances are associated with higher financial, economic and operating performances. In particular, the present work allows us to segment the multidimensional construct that represents Corporate Social Responsibility while analyzing its effects in relation to CFP of firms, leading to an increased level of understanding of the topic. Also in the third study we discuss endogeneity issues. Furthermore, both in the second and third study, we discuss also potential issues arising from measurement errors in the empiric analyses conducted. We draw the conclusion that managers may increase the economic, financial and operating performances of firms by implementing socially responsible activities, in particular in relation to socially responsible labor practices and product responsibility practices. In addition, we conclude that when implementing environmental responsibility practices managers shall estimate the direction of their potential economic and financial returns in relation to the transmission channels activated by their investments. Finally, we suggest areas of further research in the field, in order to encourage scholars to expand the literature following the research path that we identified