Does corporate social responsibility improve financial performance?

By

[Writer's Name]

[Instructor's Name]

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Table of Contents

Chapter # 1: Introduction1

Background of the Problem2

Purpose of the Study4

Aims and Objectives5

Research Question5

Significance of the study5

Scope and Limitations6

Chapter # 2: Literature Review7

CSR Defined7

The UN Global Compact9

Strategic corporate social responsibility Investments10

Types of Investors12

CSR Mutual Funds14

Market Performance14

Disputes about Major Responsibility (CSR)15

Concept of CSR15

Convenience of carrying out corporate social responsibility practices18

Corporate Social Responsibility and financial Performance19

Chapter # 3: Methodology21

Research Method and Design Appropriateness22

Chapter # 1: Introduction

Society expects corporations to behave in a socially responsible manner (Marshall, 2006). That is, companies should ensure their behaviours have a positive effect on the environment, their employees, and society. In addition, companies should ensure transparent governance that ensures against corruption. The public debate about Corporate Social Responsibility (CSR) is becoming more emphatic and appears on discussion agendas at the highest levels of the world's largest companies, governments, and prominent scholars (Maxfield, 2008). In 1999, the United Nations (UN) launched its Global Compact (UNGC; United Nations, 2008). The UN presents the UNGC as the "largest, global corporate citizenship initiative" (United Nations, 2008, para. 1), inviting companies to embrace voluntarily the highest standards pertaining to "human rights, labour, the environment, and anti-corruption" (United Nations, 2008, para. 1). Likewise, the European Union (EU) maintains an entire section of their website to promote CSR (European Union, 2009), which has become a major policy initiative in the ED. With so much societal pressure for corporations to engage in CSR, the companies that do so should enjoy favourable treatment in the value of their stock in the market (Reynolds & Yuthas, 2008).

However, CSR often entails corporate behaviours that do not add to the firm's profitability. According to Bird, Hall, Momente, and Reggiani (2007) and Maxfield (2008), in the neoclassical economic framework, firms should have a singular focus on maximizing profits. Behaviour that does not add to profitability normally connotes inefficiency. The neoclassical framework also holds that the market allocates scarce resources to firms according to their efficiency and exploitation of competitive advantages (Maxfield, 2008). A firm viewed as inefficient may not enjoy the same market performance of their stock as a firm viewed by the market as more efficient. Therefore, there exists a tension between the private enterprise profit motive and a firm's proclivity to pursue CSR. In this study, I investigated the relationship between a firm's commitment to social responsibility and the firm's market performance. To determine the market rewards or penalties assessed to the stock of a firm that engages in CSR, I compared the market performance of firms identified as socially responsible and firms that are not.

Background of the Problem

With the inception of free markets and capitalism, the profit motive sufficed as providing proof that a firm provided a social benefit (Maxfield, 2008). If it were not doing so, it would not survive, as the argument went. The market demanded the firm's product or service, and the company enjoyed success by providing it. The free market allocates scarce resources to firms according to their efficiency and exploitation of ...