Does it pay to be <i>really</i> good? addressing the shape of the relationship between social and financial performance

TLDR

The authors posit that a firm’s ability to profit from social responsibility depends on its stakeholder influence capacity, leading them to hypothesize a U‑shaped relationship between corporate social performance and corporate financial performance. They integrate stakeholder influence capacity theory with existing literature on corporate social and financial performance to formulate this U‑shaped hypothesis. The results confirm the hypothesis: firms with low social performance outperform those with moderate performance, while firms with high social performance achieve the highest financial performance. © 2012 John Wiley & Sons, Ltd.

Abstract

Abstract Building on the theoretical argument that a firm's ability to profit from social responsibility depends upon its stakeholder influence capacity (SIC), we bring together contrasting literatures on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) to hypothesize that the CSP‐CFP relationship is U‐shaped. Our results support this hypothesis. We find that firms with low CSP have higher CFP than firms with moderate CSP, but firms with high CSP have the highest CFP. This supports the theoretical argument that SIC underlies the ability to transform social responsibility into profit. Copyright © 2012 John Wiley &amp; Sons, Ltd.