Corporate Social Responsability and Firm Financial Performance MCGUIRE, Jean B. SUNDGREN, Alison. SCHNEEWEIS, Thomas. Corporate social responsibility and firm financial performance. Academy of management journal. 1988, Vol. 31, No. 4, p. 854-872. Presented by: Melanie Hurlimann Course: Research Methods Date: 09.12.2010 Abstract: Using Fortune magazine's ratings of corporate reputations, we analyzed the relationships between perceptions of firms' corporate social responsibility and measures of their financial performance. Results show that a firm's prior performance, assessed by both stock-market returns and accounting-based measures, is more closely related to corporate social responsibility than is subsequent performance. Results also show that measures of risk are more closely associated with social responsibility than previous studies have suggested.

Context Research was conducted in various industries Context Research Question Literature Review Methodology Findings Context Research was conducted in various industries “Various arguments have been made regarding the relationship between firms’ social responsibility and their financial performance” Firms face trade-offs Firms benefit in terms of employee morale and productivity Firms reduce costs Firms invest in their reputation 1/5

Research Objective & Question Context Research Question Literature Review Methodology Findings Research Objective & Question Research Objective Measure the relationship between a firm’s financial performance and its corporate social responsibility as well as extending previous research. Research Question The correlation between a firm’s CSR and its financial performance is negative, positive or not significant in terms costs, reputation and risk. 2/5

Context Research Question Literature Review Methodology Findings “Moskowitz (1972) ranked 67 selected firms in terms of his evaluation of their level of social responsibility and reported higher than average stock returns for highly ranked firms” Reference: MOSKOWITZ, M. Choosing socially responsible stocks. Business and society. Vol. 1, p.71-75 “Bowman and Haire (1975) have suggested that stakeholder and stock- and bondholders may see corporate social responsibility as indicating management skill” Reference: BOWMEN, E. HAIRE, M. A strategic posture towards CSR. California Management Review. 1978, Vol. 18, No. 2, p. 49-58 3/5

Methodology Source of data Fortune magazine’s annual survey Context Research Question Literature Review Methodology Findings Methodology Source of data Fortune magazine’s annual survey COMPUSTAT data base for data on accounting- and stock-market-based measures Descriptive Statistics Regression and correlation analysis Hypothesis testing Corporate social responsibility and ROA are not correlated Corporate social responsibility and ROA are correlated 4/5

Context Research Question Literature Review Methodology Findings “Rather than looking for increased profitability from socially responsible actions, managers and those interested in the financial impact of social responsibility might look toward reduced risk.” “Our data [...] suggests that firms low in social responsibility also experience lower ROA and stock-market returns than do firms high in social responsibility.” “[...] most interesting is that prior performance is generally a better predictor of corporate social responsibility than subsequent performance. Thus, associations found between concurrent social responsibility and performance may partially be artefacts of previous high financial performance.” 5/5