The Impact of Social Variables on Financial Performance

ABSTRACT: In recent years, the discussion on corporate social responsibility has surged and firm management are seen to devote more efforts and resources towards improving their social image. Even under such intense public scrutiny, product recalls in the electronics, automotive, and healthcare sectors have not declined. Quality issues persist due to the severe competitive pressure to meet time to market’ product launches. Carbon emissions and green-house gases generated by industrial manufacturing, waste disposal, and automotive vehicles also continue to rise. The research purpose was to investigate the impact of individual social variables on financial performance. This research paper used multiple linear regression to assess the relationship between key indicators of corporate social responsibility and financial performance from 372 corporations in the S&P500 in 2014. The theoretical foundation was Freeman’s stakeholder theory. Environment, community, human rights, diversity, employee relations, product quality, and corporate governance were measures of social performance. Return on assets was used to measure financial performance. When independent social variables were evaluated with corporate financial performance, employee relations and product quality in the healthcare sector, and community in the financial sector, were found to be positively significant. Environment, product quality, and corporate governance in the financial sector, and employee relations in the consumer and energy sectors, were found to be negatively significant. This research revealed that the relationship between some social variables and financial performance are significant, but not always in a positive direction. Based upon the findings established in this paper, managers can use the findings to evaluate their firm’s social position, develop strategies to address gaps, and undertake actions to enhance their firm’s social performance, thereby creating positive social change in the community. KEYWORDS: social variables, corporate social responsibility, financial performance, stakeholder theor