Critical approach on investing in corporate social responsibility: when does it improve firm value?

Mutiganda, Jean Claude; Alsaid, Loai and Svanberg, Jan (2017). Critical approach on investing in corporate social responsibility: when does it improve firm value? In: Accounting, Society and the Environment (ASE) Research Workshop, 3 May 2017, Heriot-Watt University, Edinburgh, UK.

Abstract

Considerable recent accounting research has focused on the financial effects of CSR activities but this research has not adequately engaged in the authenticity of firms’ CSR efforts, essentially regarding opportunistic CSR activities as having the same potential effects on firm value as authentic CSR activities. This deficiency of previous studies may explain the inconsistent evidence in previous studies of the relationship between CSR activities and firm value. We address this research issue by suggesting that authentic CSR activities tend to be consistent efforts over time while opportunistic CSR activities are typically sporadic. We examine whether any effect of CSR activities on firm value is stronger when CSR activities are consistent than when they are sporadic. We find, supporting our hypothesis, that CSR activities have a positive impact on both types of financial performance examined, stock price and accounting earnings, when CSR activities are strategic, but a weak or no impact of CSR activities on financial performance when CSR activities are opportunistic. We contribute to the accounting literature and the CSR literature at large with our finding that consistency moderates the impact of CSR activities on financial performance so that more consistency strengthens the impact and less consistency weakens the impact. Our study is the first to systematically examine the importance of CSR consistency for increasing financial performance.

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