Impact of Corporate Social Responsibility on

Corporate Financial Performance

Abstract:
This research proposal is about that how corporate social activities affect on the corporate profits,
its image in the market and its employees performance. Different researches have been studied to
analysis the impact of social welfare activities on the companys profits.
Purpose:
The purpose of this paper is to find the relationship between corporate social responsibility and
corporate financial performance of the companies
Keywords:
Corporate social responsibility, employee engagement, employees productivity, corporate
image, financial performance
Paper type:
Research proposal

Introduction:
The field of corporate social responsibility has growing form last decade. Now a day businesses
trends have been changed and its not very easy gain a good corporate image. But a good
corporate image is very important form business point of view. Its a routine practice now a day
that supplier of a specific business feels happy to make deal with those firms that have a good
corporate image. There is increasing demand for transparency and growing expectations that
corporations measure, report and continuously improve their social, environmental, and
economic performance.
CSR is generally viewed as corporations responsibility to integrate Environmental, Social, and
Governance (ESG) practices into their business model, beyond mandatory legal requirements.
Moreover, CSR is often associated with the notion of sustainable development.
The definition of corporate social responsibility is not an abstract. According to business for
social responsibility achieving commercial success in a way that honor ethical values and
respect people, communities and the natural environment. McWilliams and Siegel (2001:117)
define CSR as action that appear to further some social goods beyond the interest of firm and
that which require by law.
Alternatively according to Frooman (1997:227) the definition of that what would be exemplifies
CSR is the following .an action by the firm which the firm chooses to take that sustainability
affects an identifiable social stakeholders welfare. A firm which is socially responsible should
take steps to adopt policies and business practice that go beyond the minimum level requirements
and contribute to the welfare of its key share holders.
CSR is view as a comprehensive set of polices programs that are integrated into business
operations. It also include issues related to decision making process and issues related to
business ethics community investment govern human rights
Each company differs in how it implements corporate social responsibility. It depends upon
different factors like firm size nature of business culture of a country and stakeholders demand.
Each and every organization focuses on different aspects of CSR. Some companies focus on

single area which is regarded as important for them or where they have highest impact like
human rights and environmental issues.
Porter and Kramer (2006) make a strong case for strategic CSR, arguing that companies should
favor a strategic approach to CSR, i.e. they should identify the corporate agenda that can bring
the greatest competitive benefit. They claim that . . . the more closely tied a social issue is to a
companys business, the greater the opportunity to leverage the firms resources, and benefit
society. Moreover, they argue that companies should carefully select the social issues that
intersect with their particular business, because No business can solve all of societys problems
or bear the costs of doing so.
Its curial that CSR principles are the part of corporations values and strategic planning for both
organization and employees. So corporate social responsibility is the obligation of a firm to make
decisions and act in such a way that are in the favor of organizations and accepted by all
stakeholders. So it can be concluded that a firm financial performance and corporate social
responsibility have a strong relationship. Several studies have been carried out in CSR and CFP
which concluded that CSR has a positive impact on the firm finical performance. The firm
having well cooperate image and have a real implementation of aspects of corporate social
responsibility will definitely enjoy the high rate of return on assets return on equity and sales etc.

Literature Review:
The studies of CSR and firm financial performance started over three decades in western world
and here are several number of studies base on different type of studies to justify the text that
why corporate social reasonability important for firms how it influence the firm performance.
Various arguments have been made about relation among corporate social responsibility. Some
people has view that firm face tradeoff between firm financial performance and corporate social
responsibility
Due to corporate social responsibility some firm incur loss as compared to less social cooperate
firm. (Carroll, 1985)According to second view point social corporate responsibility the explicit
cost of corporate social responsibility are minimal and those firms who performed social
responsibility. They get benefit in form of employee morale and productivity (Ebert p. , 1988)
A third prospective is that cost of corporate social responsibility is sufficient but offset by
reduction in a firm cost (Cornell&shapiro, 1987)
According to stack holder theory a firm must not satisfied not stock holders but also those with
explicit and implicit cost.
In addition (buckles, 1990) suggested that stock holders or bound holders may see corporate
social responsibility as a incanting management skills.
According to financial theories on the connection between firm corporate social responsibilities
and firm finical performance, the firm profitability based on assets pricing model and on the
efficient market hypothesis (GUENSTER, 2005) so all type of firm which having the practice of
cooperate social responsibility and those who having it not have the same rate of return on their
investments. Because other types of risk are associated with corporate social responsibility.
According to (Tsoutsoura, March, 2004) there is a positive relationship between CSR and
financial performance of companies.
According to (Friedman, 1970)any firm is having only one social responsibility and that is to get
profits through true means without doing any kind of fraud and corruption.

(Walsh, 2002) Says that between 1971 and 2001 there are one hundred twenty two studies
analyzed the relationship between the firms profits and firms social activities.
(Graves, 1997) Examined positive relationship between firms social responsibility and profits of
the firm, as it showed high return on assets in that specific year.
(Dhaliwal, 2011)Find out that if a firm is voluntarily disclose its social activities what they are
doing for the society, it help in attracting the valuable and institutional investors and then it
reduced the firms cost of capital.
(Bucholtz, 1978) (Haire, 1975)Explained that any firms social activities shows its managements
efficiency and skills according to its stakeholders, stock and bondholders perspectives.
(Papasolomou, 2007) CSR teaches the companies that they should think of combine interest of
all the stakeholders rather than their individual interest of getting high profit while ignoring
about the society, environment etc
There are several reports that explain how environmental, social and economical situations affect
the business.
There are two basic ways to measure the sustainability performance of any corporation. First
method evaluates the social and environmental risks associated with the industry in which that
corporation is working. And the second method evaluates the corporations activities in regarding
to that social and environment issues as compared to industry average (Rennings, 2003).
(Bebbingto, 2005) There is a clear relationship between the social, environmental and ethical
disclosure of activities and financial performance of the company in the perception of investors.
So the reporting of social, environmental and ethical activities in the financial reports of the
company and in general environmental related repots shows the effects of the company towards
environmental and social related issues and objectives of sustainable reporting.

CSR also helps in minimizing the cost associated with the regulations as if a company disclose
its wrong actions in its financial reports, its more likely a effort to resolve it so it minimize the
fines and regulation cost.CSR also help the corporations to attract and retain high quality

employees that can increase the financial performance of the company. (Lankoski, 2008) CSR
also creating a good image in the customers perceptions and it also leads to attract new group of
customers.

Theoretical Framework:

Based on the study of the literature review following characteristic have influence on the firm
performance. And these characteristic set as a depended and in depend variable in the firm
performance. The relationship among these variables and firm performance are hypothesized is
given below.

c o rp
e ra t
p ro
e
i m fa i t a
g e b lit
y

c o rp e rte
s o c ia l
re s p o n a b
lity

e
y
p
c

m p lo
e e
ro d u
tiv ity

In this theoretical framework there is one independent variable is corporate social responsibility
and three dependent variables are employee productivity, profitability and corporate image.

Reference