Corporate Social Performances: the Financial Effects of Responsive and Strategic Approaches

The empirical research on corporate social responsibility (CSR) has largely focused on the strategic and positive aspects (strengths) of corporate social performance (CSP) and neglected the analysis of actions and initiatives that would qualify as responsive, defensive or negative CSP (or weakness in CSP). Using data from the KLD collected over a three-year period, this study examines the relationship between both strategic and responsive CSP and company financial performance (CP) across individual stakeholder domains. Results of the study suggest that strengths in strategic CSP – as measured by strong technical and strong institutional relationships about selected stakeholder domains – are associated with superior financial performance. As for responsive CSP related to all other technical and institutional relationships, the results suggest that a firm performing only defensively in meeting the expectations of stakeholder groups, it is penalized in the form of inferior CP.