Guest article by Tohid Ghanbarpour. Tohid Ghanbarpour is finalist of the 2024 SERVSIG Best Dissertation Award.
Since the 1990s, research on the influence of corporate social responsibility (CSR) on financial performance (FP) has attracted extensive attention. The existing literature indicates that the direct effects of CSR on FP can vary, being negative, neutral, or positive, suggesting that the relationship is dependent on multiple factors. This complexity has led researchers to explore various mechanisms that could explain this relationship, with marketing literature emphasising on customer satisfaction and the broader impact of CSR on customer perceptions.
Accordingly, we built on the foundational differences between service and goods firms, demonstrating that CSR initiatives tend to enhance customer satisfaction more significantly in goods firms than in service firms, without markedly affecting firm value or return on assets (ROA). We also examined the role of innovation in mediating the relationship between CSR and customer satisfaction, finding that innovation is a significant factor only for service firms. This is likely because goods firms (versus services) already possess high innovation capabilities that enable them to implement effective CSR activities, which in turn does not significantly alter the CSR-FP relationship among them. Additionally, we observed that business-to-business (B2B) firms experience a more positive impact of CSR on customer satisfaction compared to business-to-consumer (B2C) firms (Ghanbarpour et al., 2024).
These industry-level differences indicate that the study population is an extremely important factor. This is especially important because, normally, we seek to generalize our research findings. However, due to data-related limitations, research on CSR and other firm-related activities is carried on a limited population of firms, which increases the probability of having a biased sample. I believe a solution could be to focus more on context-specific studies or be very clear and detailed in reporting the characteristics of the study population.
The influential factors on the CSR-FP research are not limited to study population and contengincy factors. Another critical consideration is the variation in CSR areas and activities (Tran & Pham, 2024). Most research on the CSR-performance relationship employs indicators based on the environmental, social, and governance (ESG) performance of firms. This research often relies on composite measures of these factors, obscuring the specific impacts of each component on firm performance. This can lead to an average effect, where the statistical impact of CSR, as measured by ESG factors, reflects a blend of potentially conflicting individual effects. For example, if the environmental factor has a negative impact, the social factor a positive one, and the governance aspect remains neutral, the overall effect of CSR could range from negative to positive. This raises questions about whether such averaged results provide relevant and accurate theoretical and empirical insights.
Additionally, much of the extant literature presumes linear relationships between CSR and FP. However, emerging evidence supports the existence of non-linear relationships, including U-shaped and inverted U-shaped patterns (e.g., Sun et al., 2019). The industry and firm-level differences, as well as the use of composite measures, might contribute to such non-linearities. However, the only way to find out the reality is to do more research, where we bend the assumption of linearity.
Lastly, discussions in the CSR-FP literature generally focus on financial performance broadly, yet different financial performance indicators represent different aspects of firm performance (Katsikeas et al., 2016). For instance, sales value closely relates to customer behavior, ROA reflects firm efficiencies, and market value indicates investor responses, which depend not only on ROA and sales but also on other non-measurable factors. This diversity necessitates a differentiated approach to analyzing how each indicator responds to CSR activities, highlighting the need for more tailored research that can effectively capture these varied responses.
In summary, the relationship between CSR and FP is indeed a complex one, which requires furthur research to increase our understanding of the relationship. As we move forward, I believe it is crucial that CSR research evolves to include aforementioned considerations, enhancing the accuracy and relevance of its conclusions.
Tohid Ghanbarpour
Associate Professor of Marketing,
Kristiania University College,
Oslo, Norway
Image credit: StellrWeb.
Reference
Ghanbarpour, T., Crosby, L., Johnson, M. D., & Gustafsson, A. (2024). The Influence of Corporate Social Responsibility on Stakeholders in Different Business Contexts. Journal of service research, 27(1), 141-155.
Katsikeas, C. S., Morgan, N. A., Leonidou, L. C., & Hult, G. T. M. (2016). Assessing performance outcomes in marketing. Journal of Marketing, 80(2), 1-20.
Sun, W., Yao, S., & Govind, R. (2019). Reexamining corporate social responsibility and shareholder value: The inverted-U-shaped relationship and the moderation of marketing capability. Journal of Business Ethics, 160, 1001-1017.
Tran, H. T., & Pham, H. S. T. (2024). How environmental, social, and governance disclosure promotes sales? Empirical evidence from global firms. Journal of Strategic Marketing, 32(1), 1-19.
