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Corporate social responsibility and financial performance

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74 African J. Accounting, Auditing and Finance, Vol. 4, No. 1, 2015

Corporate social responsibility and financial

performance

Abdelkbir Elouidani* and Faiçal Zoubir

Faculty of Economic Sciences of Agadir, Morocco
BP 8658 Poste Dakhla Agadir, Morocco
Email: elouidani@gmail.com
Email: z.faical@gmail.com
*Corresponding author

Abstract: This article will support on the econometrics of panel data to

analyse the influence of corporate social responsibility (CSR) on the financial
performance measured by several indicators. From a sample of 20 firms listed
on the stock exchange of Casablanca between 2007 and 2010. Our research
found a negative and significant impact of the CSR on financial performance.
The negative influence is important in large companies, which means it is a
mediating factor.
Keywords: corporate social responsibility; CSR; financial performance; panel
data; unobservable heterogeneity.
Reference to this paper should be made as follows: Elouidani, A. and
Zoubir, F. (2015) ‘Corporate social responsibility and financial performance’,
African J. Accounting, Auditing and Finance, Vol. 4, No. 1, pp.74–85.
Biographical notes: Abdelkbir Elouidani is a Professor of Business
Management and Quantitative Techniques. He is the Head of Economics and
Management Department at the Faculty of Economics of Agadir. He teaches
financial accounting, analytical and thorough, and control management and
finance. He made several works in social responsibility, marketing and
financial governance. Slumber
Faiçal Zoubir is a PhD student in Corporate Governance and Finance. He
works on issues of corporate governance, corporate finance, financial markets
and econometrics.

1 Introduction

In an environment where consumers are becoming more discerning in where businesses

are in the obligation to adopt a mode of management more participatory and take into
account the concerns of a multitude of stakeholders. In effect the shareholder model,
liberal who proclaimed the maximisation of shareholder value, considered that the
ultimate purpose of any profit-making organisation is to ensure the interests of the
introducers of financial resources.
The emergence of the concept of sustainable development, which is part of a
participatory approach to all components of the socio-economic environment, has only
exacerbated the expectations with regard to a social responsibility, see societal of the
firm.

Copyright © 2015 Inderscience Enterprises Ltd.

 Corporate social responsibility and financial performance 75

The response of the latter to all its expectations is made by the corporate social
responsibility (CSR).1
The defenders of this approach, who are the supporters of the famous theory of
stakeholders, support their position by the tracks of success which can open to any
company which ensures the satisfaction of its stakeholders (Freeman, 1984; Cornell and
Shapiro, 1987). These authors consider that adopting an approach societalement
responsible, the company improved its brand image, source of economic performance.
The commitment of the company in the activities of a social nature, can be a source of
costs which reduces its competitiveness and adversely affect its financial performance
(Friedman, 1970). In the same perspective, Williamson et al. (1997) consider that any
expense incurred in the context of an activity of a social character, or having for purpose
the protection of the natural environment, is likely to serve as the leaders of pretext to
justify a bad financial performance could be due to an irrational management.
Other authors condone the absence of any association between CSR and financial
performance of the company (McWilliams and Siegel, 2001; Hing, 2003; Preston and
O’Bannon, 1997) and consider that, in balance, gains induced by the social commitment
are totally offset by the related expenses.
Empirical studies have not allowed the supremacy of one of the theoretical views of
the impact of CSR on financial performance. These are still marred by methodological
limitations regarding the choice of good proxies of the degree of societal involvement of
the company, or of the financial performance.
Some questions remain without answers sharp: Is it illusory to engage in practices
societalement responsible that will only increase the burdens of the firm in a calling
environment the control of costs?
If the answer is negative, is there then a positive impact of CSR on the financial
performance of the latter?
The present article proposes to provide elements of response to the last question by
adopting a methodology hypothetico-deductive method.
In a first time, there will be question of dealing with the main currents theoretical
devoted to the study of the impact of CSR on financial performance, while making a
synthesis of the results of major empirical research dealing with the issues in question. In
a second time, it will be studied the impact of CSR on the financial performance of
companies and this from a sample of 20 companies listed on the stock exchange
securities of Casablanca, on the period: 2007–2010, or the different results obtained will
be discussed and analysed.

2 The CSR and financial performance: between theoretical models and

divergent empirical results inconclusive

2.1 The CSR and financial performance: the inputs of the models and liberal
societal
2.1.1 The models of the negative impact of CSR on financial performance
These models suggest that the commitment in social practices or for environmental
protection negatively influences the financial performance of the company. Two models
can be distinguished.
76 A. Elouidani and F. Zoubir

The first model, famous liberal, is initiated by Friedman (1970). This author considers
that taking into account the principles of CSR generates costs for the company and
reduces its competitiveness. Friedman (1970) gives the example of the firm which
refrains to increase the price of his product in the laudable goal of does not cause
inflation, in spite of the fact that this increase would benefit the latter. The author also
proposes the example of the company that spends money to reduce pollution beyond
what is needed, or even when it adopted a policy of mass recruitment, in spite of the
absence of need for human resources, and this in the objective to contribute to the
reduction of unemployment.
To Friedman (1970), these actions constitute only an expenditure of money which
returns to the shareholders and that the company has the sole responsibility to use its
resources in activities generators of wealth.2 CSR is only an alternative to the mechanism
of the market, only to ensure the optimal allocation of resources.
The second model is the work of Preston and O’Bannon (1997), who consider that the
expenditure in the protection of the environment or in social activities can be used by
managers as a pretext to justify the excesses of costs due to bad management.
Unlike the liberal model, other authors have forged a model which explains the
benefits of CSR on the financial performance of the company.

2.1.2 The social models and the elucidation of the positive association between
CSR and financial performance
The theoretical models that assume the existence of a positive impact of CSR on financial
performance emanate from the theory of stakeholders and are the number of two models.
The first door which the model name of the social influence (social impact hypothesis) is
initiated by Freeman (1984), Carroll (1979) and Cornell and Shapiro (1987). These
authors consider that the financial performance of the company past by a good image
with all its stakeholders, which can be done only by taking into account their
expectations.
The second model, entitled: model of the organisational surplus, is defended by,
among others, McGuire et al. (1988). This author considers that it is the financial
performance which determines the engagement in socially responsible practices.

2.1.3 The neutrality of the CSR on financial performance

According to the supporters of this model (McWilliams and Siegel, 2001; Hing, 2003;
Preston and O’Bannon, 1997), the profits generated by the adoption of an approach
socially responsible, are offset by the costs it entails. On the one hand, McWilliams and
Siegel (2001), depart from a model of supply and demand for social responsibility. The
offer comes from businesses and takes the form of commitments, in the short term, to
meet the expectations of the stakeholders. The request comes from the stakeholders in the
life of the company. Thus, the confrontation between the supply and demand led, at the
equilibrium, to a mutual compensation between the profits and costs of CSR. According
to these authors, the model thus developed, allows to explain the results of the empirical
studies that conclude in the absence of any association between the financial performance
and the CSR.
 Corporate social responsibility and financial performance 77

2.2 The CSR and financial performance: empirical studies to the results often
dissidents
The different theoretical models that have studied the nature of the impact of CSR on
financial performance have opened the way for several empirical studies which have
given rise to the results, at least say, mixed. The divergence of results obtained testifies
on the one hand, of the complexity of the associations between the two concepts that can
only partially be picked up by a few indicators, on the other hand, the impact of the
context of the completion of the study.

2.2.1 The concept of CSR

To operationalise the concept of CSR, the empirical studies have adopted different
approaches which the analysis of the contents of the annual reports was among the most
coveted. This method is to assess, via a grid of notation, the degree of communication of
societal information. The indicators of reputation communicated by the credit rating
agencies have been used in several studies to measure the degree of the involvement of
societal firms (Igalens et al., 2008; Griffin and Mahon, 1997; Graves and Waddock,
1994). These indices, have been widely employed3 in empirical studies dealing with the
association between CSR and financial performance. However these measures are not
based in theory (Allouche and Laroche, 2005).
Other studies have concentrated on measures from surveys by questionnaire which
allow you to operationalise, by items of measurement, the three dimensions of CSR. In
this category we can include measures that operationalise the Carroll (1979) model
(Aupperle et al., 1985; Zeribi-Benslimane and de Boussoura, 2007).

2.2.2 The measurement of the financial performance

Two categories of measurement of financial performance are used in the studies which
involve in the CSR. The measures of accounting nature and the measures of stock market
nature. As accounting measures we include the return on assets (McGuire et al., 1988;
Graves and Waddock, 1994; Griffin and Mahon, 1997; Preston and O’Bannon, 1997), the
return on equity (Graves and Waddock, 1994; Griffin and Mahon, 1997; Preston and
O’Bannon, 1997), and the trade performance (Graves and Waddock, 1994; McGuire
et al., 1988; Griffin and Mahon, 1997; Preston and O’Bannon, 1997; Seifert et al., 2003).
The main stock market measures used are: the ratio of Marris, the price earning ratio
(Pava and Krausz, 1996), and the total return to shareholders (McGuire et al., 1988;
Alexander and Buchholdz, 1978).
The accounting measures have the merit of highlighting the level of economic
performance, however they may be the object of a manipulation by the leaders. The stock
market measures are less prone to the managerial discretion, nevertheless they reflect
only the subjective assessment of investors, particularly as they do not highlight faithful
manner, the economic reality of the firm (Allouche and Laroche, 2005).
78 A. Elouidani and F. Zoubir

3 The CSR and financial performance: research hypothesis, methodology

and results

This research examines the impact of the RES on the financial performance in the context
of an emerging country. Taking into account the institutional characteristics of the
Moroccan context characterised by a speech more and more strong on the need for the
involvement of firms in the process of sustainable development, this country offers a
conducive framework for the consideration of such a problematic.

3.1 Assumptions of the search

3.1.1 Relationship between CSR and financial performance
Based on the liberal model, Friedman (1970) considers that the CSR induces costs which
reduce the competitiveness of the firm which adversely affects its value. By against the
current partnership which was inspired by the stakeholders theory, apprehended CSR as
an outcome in favour of the improvement of the image of the company to its
stakeholders, which might be reflected positively on its financial performance (Freeman,
1984; Graves and Waddock, 1994; Alexander and Buchholz, 1998).
The social commitment of the company can have a positive influence on its financial
performance, particularly when it is measured by the stock market indicators, when the
latter evolved in a financial market efficient (the course quickly integrates all of the
information relative to the publicly traded company) and if the investors are positively
sensitive to efforts made by the firm in respect of corporate responsibility.
In Morocco, the ownership of listed companies is concentrated, which chalk of course
a problem of non-liquidity of the securities, which leads to a lower efficiency. In
addition, the Moroccan investor seeks first the maximisation of the value of his savings
(Bakir, 2004). In effect in a context similar to that of Morocco, Zeribi-Benslimane Olfa
(2007) found that the CSR measured by measurement scales based on the Carroll model
has no significant impact on the financial performance measured by stock market
indicators from a sample of companies listed on the stock exchange securities of Tunis.
Thus our first hypothesis predicts the absence of a significant impact of CSR on
financial performance.
H1 The CSR has no significant impact on the financial performance measured by ratios
fellows in the context of a financial market are emerging.

3.1.2 The relationship between CSR and the size of the company
The size of the firm influence its degree of commitment in the CSR. In effect, Graves and
Waddock (1994) consider that large entities, to share their relations with a multitude of
stakeholders, and their high sensitivity to the media, are more eager to reflect a good
image. The large size of the company may be a proxy for the importance of its financial
resources to carry out a mode of responsible management. In addition, the size is often
regarded as a factor influencing the financial performance of the company measured by
stock market indicators (Demsetz and Villalonga, 2001; Charreaux, 1991). The direction
of the relationship between the size of the company and its performance, has not been the
subject of a consensus between the authors.
 Corporate social responsibility and financial performance 79

Therefore we can assume that the large companies, which are the more, the subject of
media attention, are the most prone to adopt a mode of responsible management and from
whom, the CSR has more influence on financial performance.
H2 The impact of CSR on financial performance is stronger for large firms.

3.2 Methodology
3.2.1 Variables studied and specification of econometric models
Table 1 Operationalisation variables

Description of variables
1
Dependent variables
QT: Tobin’s Q Relation between (the market capitalisation of the company +
the book value of its debts) and of the accounting value of
assets
MR: The ratio of Marris Relation between the market capitalisation of the company and
the book value of its own capital
ROE1: profitability of own Ratio between the net income and equity
capital (return on equity)
ROA: Return on assets Ratio between the gross operating surplus and the net assets
(return on assets)
Explanatory variable
CSR: Corporate social Dichotomous variable that takes the value 1 if the firm holds
responsibility2 the label issued by the MEGC, and 0 if it is not labelise
Control variables
Size: size of the firm The logarithm of the market capitalisation of the company
Risk : the risk linked to the Standard deviation of the daily return of the action of the
activity of the firm company over a period of one year (by not taking into account
that the working days on the stock exchange)
LF: The financial lever Report between the debts long and medium term and the own
capital
Notes: 1In this research, the financial performance is measured by stock market indicators
and accounting. The choice of certain stock market indicators is justified by the
nature of the sample composed only of companies listed on a stock exchange.
Furthermore we believe that the accounting indicators can play a complementary
role to the extent or the inefficiency of the financial market Moroccan may be a
brake which limits the sensitivity of stock market indicators to business behaviour
in the field of CSR.
2
The choice of this measure of CSR is justified by several reasons. On the one
hand, we regret the absence, in Morocco, of rating agencies the CSR. In addition,
the label of the MEGC which sanctioned the social commitment, is issued only to
those firms who have met certain basic conditions in terms of CSR, especially as
they are submitted periodically to compliance audits. Thus we believe that the
detention of a label of CSR of the MEGC demonstrates a real commitment of the
company labelled in the field of corporate social responsibility.
80 A. Elouidani and F. Zoubir

3.2.1.1 Specification of econometric models

The equations of the models which reflect the impact of CSR on financial performance
are as follows:
1 Impact of CSR on financial performance measured by stock market indicators:
• equation (1): model of the stock market performance 1
Qt it = α0 + α1 CSR it + α 2 sizeit + α3 Risk it + α 4 LFit + ε it
• equation (2): model of the stock market performance 2
MR it = β0 + β1 CSR it + β2 sizeit + β3 Risk it + β4 LFit + ε it
• equation (3): model of the accounting performance 1.
2 Impact of CSR on financial performance measured by indicators of accounting:
ROE1it = ã0 + ã1 CSR it + γ2 sizeit + γ3 Risk it + γ4 LFit + ε it
• equation (4): model of the accounting performance 2
ROA it = δ0 + δ1 CSR it + δ2 sizeit + δ3 Risk it + δ4 LFit + ε it

3.2.2 Sample and data source

3.2.2.1 Sample
The study is carried out on the basis of a sample of 20 companies listed on the stock
exchange securities of Casablanca on the period 2007–2010. Thus, we have 20 * 4 = 80
comments business-year. Among the 20 companies studied, 4 hold the label of the CSR
issued by the MEGC.

3.2.2.2 Source of data

The data relating to CSR have been collected from the information sheet on companies
with label communicated by the MEGC.
The information needed to measure the variables: performance, size, the risk, and the
financial lever, are collected from the states of synthesis, of the annual reports and the
historical stock prices of the shares of each listed company.

4 Analysis of the results and discuss

4.1 The control of the heterogeneity unobserved inflow and the real impact of
CSR on financial performance
We appreciate the impact of CSR on financial performance by using two groups of
econometric models (Hisiao, 2003).
 Table 2
Models of financial Models of financial Models of financial
performance on data stacked performance stock market performance accounting
QT MR ROE1 ROA QT MR ROE ROA
Dependent variable
C –12.7499 –17.51 –0.827 –0.848 –27.52732 –51.76726 –1.217836 –1.090666
(–8.769***) (7.68)*** (–3.8)*** (–4.3)*** (–21.423)*** (26.039)*** (4.4905)*** (5.795344)***
Exogenous variable
CSR 0.232573 0.79596 0.01052 0.01429 –0.202116 –0.218447 –0.046473 –0.073195
(0.94489) (2.064)** (0.2871) (0.4286) (4.2632)*** (1.299248)* (1.655869)* (2.011284)**
Control variables
Size 1.514052 2.19607 0.11195 0.1127 3.095789 5.877514 0.146557 0.134694
(11.79)*** (10.9)*** (5.85)*** (6.48)*** (23.8746)*** (28.1439)*** (5.460821)*** (6.384091)***
Risk 0.033590 0.05167 –0.00595 –0.02308 0.048042 –0.011694 0.035654 0.005591
(0.16425) (0.1613) (–0.195) (–0.833) (1.653396) (0.960746) (1.378021) (0.357150)
LF –0.090680 –0.11071 –0.08926 –0.06038 –0.071413 0.200537 –0.134340 –0.101551
(–0.38892) (–0.3031) (–2.57)** (–1.911)* (0.071413) (2.236540)** (3.241875)*** (–2.623488)**
Type of Models on data stacked Model to Effects model Effects model Effects model
econometric (modelling not taking into account the individual individual individual and individual individual
model heterogeneity unobservable of each company effects and temporal fixed random random
temporal fixed
Corporate social responsibility and financial performance

Fisher 49,161*** 44.3*** 14.37*** 18.15*** 69.98570*** 428.4110*** 9.337372*** 9.325653***

2
R 0.723904 0.70261 0.43392 0.49196 0.971698 0.995264 0.332440 0.332162
Econometric models of the impact of CSR on financial performance

Notes: QT: Tobin’s q reported the market value of equity and book value of debt to the book value of its assets. MR: The ratio of
the husbands reported the market capitalisation to the accounting value of own capital. ROE1: The ratio of the
profitability of own capital, reports the net result to the own capital. ROA: ratio of the profitability of the asset, reports the
gross operating surplus in total assets on the balance sheet. *Significant at the threshold of 10%. **Significant at the
threshold of 5%. ***Significant at the 1% threshold.
81
82 A. Elouidani and F. Zoubir

The first group allows the regression of stock market measures of financial performance
(QT and MR) on CSR while monitoring the effect of variables LF, risk and size. The
second group of models allows to disentangle the impact of CSR on financial
performance measured by the indicators accountants: ROE1 and ROA.
When the specification of the models is done on the data stacked (without taking
account of the heterogeneity unobservable of businesses), we find that, in accordance
with the results of the descriptive analysis, the CSR positively influences the financial
performance. However the control of this heterogeneity enables you to assess the real
impact of CSR on financial performance (Sevestre, 2002).
Thus we note that the CSR influence negatively and significantly the financial
performance measured by the four measures. Thus for example, the detention of a label
of CSR, reduced on average the performance measured by the QT of 20%.
The size retains its positive and significant impact on all measures of financial
performance. The risk influence positively but not significantly the financial
performance, and the financial lever has a negative impact and statistically significant on
all the measures of the financial performance deductions with the exception of the QT
toolkit.

4.2 Discussion
Our results come to endorse the predictions of the model of Fridman, and corroborate the
results of the studies conducted by McGuire et al., 1988), Graves and Waddock (1994),
Preston and O’Bannon (1997), Verschoor (1988), Stanwick and Stanwick (1998),
Orlitzky (2005), Mc Williams and Siegel (2001), Zeribi-Benslimane and Boussourra
(2007) and Cardebat Sirven (2010).
The negative impact of the social commitment of the firm on its stock market
performance is proved that when the latter is large in size. Thus the size to a moderating
effect in the relationship between CSR and financial performance.4 This result comes to
confirm those obtained in studies of Graves and Waddock (1994), Verschoor (1988),
Simpson and Kohers (2002), Zeribi-Benslimane and Boussourra (2007) and Cardebat
Sirven (2010).
CSR has a negative effect on the performance of the exploitation activities. In effect,
companies which have a privileged societal approach are penalised and emit a
profitability of assets and equity capital less than the other companies. Possibly, the CSR
pushes the company to engage in investment generating costs that reduce the
profitability.
Thus, we can reject the hypothesis H1 which predicts the neutrality of CSR on
financial performance and accept the hypothesis H2 which suggested a more important
impact of CSR on financial performance in large firms.
In an emerging country, the social commitment of the company must be the subject of
a long-term investment. In effect, the objectives in expected in terms of value creation for
the shareholder, are not reached in the first years of its begun. It is possible to assume in
addition that in emerging countries, the CSR is merely an effect of mode, in the
expectation of a process of institutionalisation, and/or of an awareness by the general
public, the stakes in such a commitment.
 Corporate social responsibility and financial performance 83

5 Conclusions

The acerbite competition pushes the company to confine the maximisation of the wealth,
the preservation of the interests of stakeholders, and the protection of the natural
environment . This purpose strong commendable is supposed by the supporters of the
current partnership as a new outcome for the reconciliation of the large business with its
environment in order to improve the value. However, a real social commitment of the
company is not without costs, which can sometimes be a brake in the face of value
creation. From this angle of saw, the supporters of the current liberal, fervently contested
the idea of CSR regarded as a defamation of the ultimate purpose of the creation of the
value, without which, there would not even of businesses.
Apart from the dissensions between supporters of the benefits of CSR and those who
shall bring into focus its faintness, it has begun to be adopted by several companies
everywhere than the world and it is more than a simple effect of mode in Morocco.
Countries or economic development depends on the involvement of all the
components of the civilian population, the companies are more than ever called upon to
demonstrate a real commitment in the effort of this development. If today the interest on
the SMES, the large company has always remains a major actor in the economic fabric
Moroccan. Therefore, if the objective is to anchor the CSR in the management practices
of the leaders of our SMES, it is probably more appropriate to start with the managers of
large boxes. On the other hand, for the large company agreed to integrate such a
philosophy, foreign to the principle of maximisation of shareholder value, it is may be
more appropriate to highlight its benefits. This questioning was the anchor of this work
which has sought to clarify the impact of CSR on financial performance, from a panel of
companies listed on the stock exchange securities of Casablanca.
In considering that the firms studied have the same specific characteristics, we have
found that those who demonstrate a commitment societalement responsible, performing,
yet that little, the other companies. However when we control the specificities of each
individual company, which are of nature not observable and that influence the financial
performance, we have leads to the observation that the social commitment does that
deteriorate the financial performance . In this sense the companies that are making efforts
in the areas of social welfare and the protection of the environment, achieve operating
results lower than the other companies, the consequent negative effects on the value of
their shares on the stock exchange. This result can be considered as robust in the light of
the negative impact of CSR on the performance measured by several indicators.
Large size firms having opted for the CSR, seem more sensitive to its negative
impacts on financial performance. The size is therefore a factor of mediation in the
relationship between CSR and financial performance . Of this fact, a societal commitment
of the business is of the long-term investment. Indeed, the objectives in discounts,
consisting of an improvement of the economic performance, must not be expected from
the first years of the beginning of an approach to CSR.
Like any other work of research, the present study is marred by a few limitations.
Concerning the choice of explanatory variables, we would have liked to incorporate
other variables that can influence the financial performance such as research and
development spending, the influence sectoral or even the distribution of dividends. In
addition, the fault of measurement of CSR has forced us to consider this as an indicator
variable which depends on the detention of the company of the label of the MEGC. In
84 A. Elouidani and F. Zoubir

this sense it is possible that the labelling does not accurately reflect the social
commitment of the company.
The sample size reduced, and the low number of periods of study, does not allow a
better control of specific effects and makes the only random effects models, generalisable
on listed companies to the BVMC.

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Notes
1 The founding fathers of the concept of CSR are Penrose (1959) and Carroll (1970). These two
researchers have attempted to reconcile the traditional objective of maximisation of profit to
the objectives of the compliance of the social conditions of labour, of business ethics and the
protection of the environment.
2 The corporate-executive would be spending someone else’s money for a general social
interest. In so far “as his actions in accord with his “social responsibility” reduce returns to
stockholders, he is spending their money” (Friedman, 1970).
3 For example the index of the Fortune magazine which provided an annual ranking of the ten
best companies in the field of CSR.
4 When we considered the different models without the integration of the variable, size of the
business, the CSR variable spring non-significant after the specification.

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