The Corporate Social Performance and Corporate Financial Performance Debate

TLDR

Research on the relationship between corporate social performance and corporate financial performance is extended in three critical areas. This article extends earlier research on the relationship between corporate social performance and corporate financial performance, emphasizing methodological inconsistencies. The study focuses on the chemical industry, triangulates corporate social performance using four data sources (two perceptual: KLD Index and Fortune reputation survey; two performance‑based: TRI database and corporate philanthropy), and assesses corporate financial performance with five common accounting measures. The results indicate that the a priori use of measures may predetermine the CSP/CFP relationship outcome, and that while Fortune and KLD indices closely track each other, TRI and corporate philanthropy differentiate high and low social performers and do not correlate with firm financial performance.

Abstract

This article extends earlier research concerning the relationship between corporate social performance and corporate financial performance, with particular emphasis on methodological inconsistencies. Research in this area is extended in three critical areas. First, it focuses on a particular industry, the chemical industry. Second, it uses multiple sources of data-two that are perceptual based (KLD Index and Fortune reputation survey), and two that are performance based (TRI database and corporate philanthropy) in order to triangulate toward assessing corporate social performance. Third, it uses the five most commonly applied accounting measures in the corporate social performance and corporate financial performance (CSP/CFP) literature to assess corporate financial performance. The results indicate that the a priori use of measures may actually predetermine the CSP/CFP relationship outcome. Surprisingly, Fortune and KLD indices very closely track one another, whereas TRI and corporate philanthropy differentiate between high and low social performers and do not correlate to the firm's financial performance.