Financial and corporate social performance in UK listed firms: the relevance of non-linearity and lag effects

Adegbite, Emmanuel, Guney, Yilmaz, Kwabi, Frank, and Tahir, Suleiman (2018) Financial and corporate social performance in UK listed firms: the relevance of non-linearity and lag effects. Review of Quantitative Finance and Accounting. (In Press)

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DOI: 10.1007%2Fs11156-018-0705-x
View at Publisher Website: https://doi.org/10.1007%2Fs11156-018-070...
 
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Abstract

Using environmental, social and governance scores compiled by Reuters Datastream for each company’s corporate social performance (CSP), we examine the relationship between CSP and corporate financial performance (CFP) of 314 UK listed companies over the period 2002–2015. We further evaluate the relationship between prior and subsequent CFP and prior and subsequent CSP. Based on the system-GMM estimation method, we provide direct evidence that suggests that while CFP and CSP can be linked linearly; however, when we examine the impact of CSP on CFP, the association is more non-linear (cubic) than linear. Our results suggest that firms periodically adjust their level of commitment to society, in order to meet their target CSP. The primary contributions of this paper are testing (1) the non-monotonous relationship between CSP and CFP, (2) the lagged relationship between the two and the optimality of CSP levels, and (3) the presence of a virtuous circle. Our results further suggest that CSP contributes to CFP better during post-crisis years. Our findings are robust to year-on-year changes in CFP and CSP, financial versus non-financial firms, and the intensity of corporate social responsibility (CSR) engagement across industries.

Item ID: 54452
Item Type: Article (Research - C1)
ISSN: 1573-7179
Keywords: corporate social responsibility; corporate financial performance; corporate social performance; slack resources theory; UK firms
Date Deposited: 04 Jul 2018 23:59
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1501 Accounting, Auditing and Accountability > 150106 Sustainability Accounting and Reporting @ 30%
15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1502 Banking, Finance and Investment > 150201 Finance @ 70%
SEO Codes: 90 COMMERCIAL SERVICES AND TOURISM > 9001 Financial Services > 900101 Finance Services @ 100%
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