Document Type

Article

Publication Date

Winter 2016

Publication Title

European Business Review

Volume

28

Issue

6

First Page

709

Keywords

Corporate social responsibility, Corporate social irresponsibility, Financial and firm performance, Angel-halo effect, Devil-horn effect.

Last Page

722

Abstract

Purpose – To examine how increases in corporate social responsibility (CSR) and corporate social irresponsibility (CSiR) relate to firm performance. Further, we investigate how increases in CSR (CSiR) while CSiR (CSR) is present relate to three measures of firm performance: profitability, management efficiency, and market valuation.

Design/methodology/approach - Using over 10,000 observations from 2009-2013 and combined data from Sustainalytics and Compustat we examine how increases in either CSR or CSiR relate to firm performance.

Findings - We find that increased CSR significantly relates to increased firm performance in all three measures, and that increased CSiR significantly relates to decreased profitability only. Furthermore, increased CSR when CSiR is present relates to increased efficiency and market valuation. Lastly, increased CSiR when CSR is present relates to increased profitability and efficiency. Our results suggest CSR dominates the relationship to firm performance, as it is positively related to all three measures of firm performance, and when CSR and CSiR exist simultaneously, CSR has a dominant positive effect.

Research limitations/implications – Our sample consists of U.S. firms only from 2009-2013, the generalizability of our results to other countries and time periods is unknown.

Practical implications – Our results demonstrating differing effects based on the measure of firm performance suggest that managers should be specific with which measures are used to gauge the impact of CSR and CSiR. In addition, managers would be wise to invest in CSR as our results suggest that they can improve profitability, efficiency and market value. Even further, the empirically identified angel-halo effect suggests that investments in CSR may counter any potential negative effects from CSiR. Lastly, the latter results suggest that firms can “get away” with some degree of CSiR when CSR is present.

Originality/value - By examining changing levels of CSR and CSiR independently and conjunctly across various measures of firm performance, we found a dominating role for CSR, which we label the angel-halo effect.

Keywords - Corporate social responsibility, Corporate social irresponsibility, Financial and firm performance, Angel-halo effect, Devil-horn effect.

Paper type - Empirical

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