Corporate Social Responsibility: Impact on Firms’ Financial Performance

Abstract

The aim of this study is to provide a comprehensive and structured analysis of the relationship between firm’s financial performance and Corporate Social Responsibility (CSR) on a global scale. Evidence from previous studies suggests no consensus in the relationship between CSR and firms’ performance. This study is conducted with a sample of 744 companies from 31 countries and 147 different industries, between 2005 and 2019. The CSR performance analysis is conducted through firms’ Environment, Social and Governance (ESG) scores whilst the financial performance is evaluated by Return on Assets (ROA) and Return on Equity (ROE). All data is extracted from Thomson Reuters Eikon. The results suggest there is a positive relationship between CSR and the financial performance of the companies. The findings also suggest that companies that have a low value of Total Revenues do not benefit from an investment on ESG Factors, as the results show a negative relationship between ESG Score and Return on Assets. Lastly, this study allows to conclude that when considering the three pillar scores individually, the Social Pillar is the only one that leads to a better performance of the companies. The outcomes of this study are important not only for the investment decision-making of both values-driven and profit-driven investors but also to increase awareness of how sustainable financial markets can contribute positively to reduce global risks.