While companies’ charitable activities often get favorable publicity, studies on the relationship between corporate social responsibility and financial performance haven’t allowed broad conclusions to be drawn.
The researchers, who were based at the University of New South Wales, University of Sydney and University of Iowa, conclude that:
The relationship between corporate social responsibility and financial performance was universally positive, varying between highly positive and moderately positive.
Socially responsible practices such as minority hiring and managerial principles had a greater effect on financial performance than environmental responsibility.
Social responsibility and financial performance affect each other in a “virtuous cycle”: successful firms spend more because they can, but such spending helps them become more successful.
Because markets do not penalize companies for being socially responsible, it is compatible with maximizing shareholder value and thus can be pursued by managers.
While the authors found that there is a “halo effect” — successful firms can be seen as being more socially responsible than less successful ones even if they’re not — it does not distort the results of the study. In conclusion, they write: “Corporate virtue in the form of social and, to a lesser extent, environmental responsibility is rewarding in more ways than one.”