The Relationship Between the CSR Performance and
Different Periods of Financial Performance:
An Empirical Research on the Chinese Food and Drug
Public Corporations
Name: Xintong Yao Student number: 11377097
Thesis Supervisor: Alexandros K. Sikalidis Date: 15-06-2017
Word count: 12943
MSc Accountancy & Control, specialization Accountancy Faculty of Economics and Business, University of Amsterdam
Statement of Originality
This document is written by Xintong Yao who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Content
Abstract ... 4
1. Introduction ... 5
2. Literature Reviews ... 8
2.1 The Related Theories ... 8
2.2 Hypothesis Development ... 13 3. Research Methodology ... 17 3.1 Sample Selection ... 17 3.2 Data Acquiring ... 18 3.3 Measurements ... 19 3.4 Model ... 23 4 Results ... 25
4.1 Descriptive Statistics of the Sample ... 25
4.2 The Correlation Test ... 27
4.3 Linear Regression Analysis ... 28
5 Discussion ... 36
6 Limitation and the Direction of Future Researches ... 39
Abstract
Since the CSR white paper in China issued in 2006, there are more and more corporation started to issue the CSR reports every year. When they invest more in the social responsibilities, the cost will increase somehow which brings out the question that whether the investment in CSR will decrease or increase corporation financial performance?
In the research of Pieter van Beurden and Tobias Gossling (2008), it shows that many of the previous studies found a positive relationship between CSR performance and corporation financial performance (68%), while 26% of them shows no significant relationship between CSR performance and corporation financial performance. Only 6% show a negative relationship between CSR performance. The results are diversiform according to the previous researches. This paper will explore different kinds of cause and effect relationship between the CSR and corporation financial performance in Chinese listed food and drugs industry in the linear regression. Finally, it finds that there is a positive relationship between the CSR scores and the current and the short-term future’s corporation financial performance, and there is a positive relationship between the corporation financial performance and the long-term future’s CSR scores.
1. Introduction
The continuous debate on the Corporate Social Responsibility is a new and meaningful issue as the concerned parties take notice of the economic development’s influence on the society. But it is still a developing thing since the first year of the white paper of CSP issued by the government of China in 2006. From the 32 pieces of CSR reports in 2006 to the 1703 pieces of reports covered 47 types of industries in 2015 and 71 pieces of reports are from foreign companies (the white paper of Chinese CSR, 2015). In this special nine years, the economy of China gets a substantial leap but also the consequences of the development draw the attention of the society, lobby parties, organizations, and the government. The importance of issuing CSR reports becomes more remarkable as the development of the global economics and the realization of the corporation as a crucial role in the whole society. Especially in China, more and more influential “giant” corporation started to keep up with the trend by issuing quality CSR reports and after that, a majority public companies deemed to issue CSR reports within the revolutionary context in China. The incentive of why the corporation issue the CSR reports is relevant to multiple theories and methodologies which the research area tries to explore the interrelationship between the CSR performance and other traditional financial performance measurements. Even though the government did not issue any restrictions for the social conduct, there is an increase in the concerns regards to the social responsibility.
The nature of a profitable organization is to create value and generate benefits which will incur a cost in every specific economic activity. It is a valuable research topic to investigate how the CSR influences the financial performance in respect of market value and the efficiency of creating value. The corporation always chooses to do the investment that benefits themselves the most so that they will calculate the income minus the cost. Financial performance is somehow the measurement that reflects what extent the corporation make the best use of their capital. According to the stakeholder theory and the legitimacy theory, the corporation is not isolated in this society and they get many kinds of connection with the investors, competitors, the government, and the general public. As
the action of taking corporate social responsibility is externally economical and must to pay for the certain cost. Is it contradictory to the nature of a profitable organization? Is the present CSR efficient and do the actions of corporate achieve the goal that they ought to do? From the perspective of short-term, the relation between CSR performance and corporation financial performance would be negative because there is no direct relation with their operating activities but they do pay a heavy price and even the cost will exceed the positive influence; from the perspective of long-term, the corporation consider the effects from the environment and then take the social responsibility which can decrease the risks faced by the corporation in the future because they can get the core competitive power during the change nowadays. In China, the economy is rapidly developing and the issues related environment, the welfare of employees, the influence to the general public by the business corporation just are put on the agenda of the government. Many researchers argued that the step of the ethical or the institutionalized development cannot keep up with the standard EPS of the economic development. It is the high time that the corporation should not only strive to earn money but also create value for the whole society and for the offspring.
The study will focus on how the CSR performance affects the financial performance in food and drug industry involved and discuss the relationship between CSR performance and corporation financial performance in different length of the period. As the quality of food crisis emerged, the public started to lose confidence from Chinese food production. The substandard milk powder for babies forces many Chinese parents rush to purchase the milk for babies overseas even if it is more expensive and more inconvenient. There is at least one serious scandal of the quality of food and drugs every single year. Involving the water-injected pork, the illegal cooking oil, and the leather capsules, the bad money drives out the good, more and more food and drugs industry will face critical risks that they never face before. There are no strict regulations about the CSR but there is more and more public corporation issued the reports to indicate and summarize what they did within the fiscal period, and there is also institutions tried to grade the performance of every company issued the reports and provided referential information for investors.
between Corporation Social Responsibility Reports performance and the financial performance. The study will firstly testify to what extent (positive or negative) in Chinese food and drug industry the CSR performance influence is and then explore the relation between CSR performance and different period of financial performance which means that the influence in financial measurement would appear after the release of the CSR reports or time-lag effect which manifested in the annual reporting. Prior research about CSR mainly focused on the quality and the plus or minus characteristic interrelationship with the financial performance. Few researchers are attributed the positive or negative relation to CSR reports performance and the financial performance to the timeliness of effects brought by CSR reports. This study will contribute more empirical evidence to the correlation studies, especially in Chinese food and drugs industry.
This paper focuses on one industry to improve its internal validity. As Griffin and Mahon in 1997 cited about, 78% types of research have been investigated in multiple industries of all articles analyzed and by analyzing broad, cross-sectional data, the results may mask individual differences for measuring CSP and FP based on the specific context of an industry in the specific country. Hence the internal and external pressures inherent in each industry, such as governmental regulations and public visibility are expected to be the same within an industry when one pursues multi-industry studies without further explanation or analysis (Griffin and Mahon 1997). Based on the reasons the above, this paper chooses the food and drugs industry in China only and to explore if the CSR will give negative effects on the current period’s corporation financial performance and if there are positive effects on corporation financial performance compared the short-term to the long-term because we cannot be sure the effects will be on and be produced in fact.
2. Literature Reviews
2.1 The Related Theories
2.1.1 Triple Bottom Line Theory
TBL theory was proposed by John Elkington based on the stakeholder theory. As he asserted in his book:
It is becoming clear that communicating effectively with stakeholders on progress towards economic prosperity, environmental quality, and social justice, i.e. the triple bottom line will become a defining characteristic of corporate responsibility in the 21st century (Elkington, J.
1997. Cannibals with Forks: The Triple Bottom Line of 21st Century Business)
He argued that there are three lines a business organization should stick to in order to get long-term growth. The truth is that the concept became prevent and agreed by most of the corporation and the business in the future (by the 20th century) does become something
more like a combination of the value creation, strategies, and practices which all can lead the corporate to a bright future and go operating. TBL theory emphasizes that the accounting framework is of three crucial and correlated parts: social, environment and finance and the ‘people, planet and profit’ as its pithy manifestation (Livesey 2002). The second notion related to the Integrated Report. The argues that the annual reports should not only contain the parts of financial measurement but also focus on the short-term and long-term’s ability to create value and the efforts they made to the society. The third notion is about the sustainability. It is actually a kind of trade-off that of the economic, the social and the environmental objectives among the operating period for the managers. In the model established by John Elkington, every corporation should bear the corresponding responsibility attributed to these three types of duties as the corporation is a social citizen not only just chase for the highly efficient profit model. In the further development of this model, besides these triple bottom line, the corporate should also appropriately disclosures its own value and how the issues are produced, resolved at a certain time to the public. And this paper is based on that the information disclosed by these reports are faithfully represented and reliable. The corporate deemed to contain the appeal from its stakeholders as well as the general public and do the trade-off of these three types of responsibilities.
In fact, there is no single measurement that can evaluate the meld of these three aspects, so that it is meaningful that this paper tried to examine the relation between the traditional objectives of chasing the high profit and the new definition of the integrated reporting. This exploration of the interconnection between CSR and FR maybe the first step for the researchers to discover a reliable method to evaluate these three important elements. As the effects of CSR cannot be sure when will influence the corporation performance so that this paper will discuss both short and long term in order to complete the theoretical research.
2.1.2 Stakeholders Theory
Stakeholders are not as the shareholders who provide capital for the corporation and the company had a binding fiduciary duty that should put the needs of these owners first and increase value for them. In this theory, scholars argued that there are other parties who are relevant to the corporation such as the employees, suppliers, customers, the government, communities, financial institutions and the concerned lobby groups. Cited by R. Edward Freeman(1983) who is regarded as the father of stakeholder theory, stakeholders of the corporation are the groups that corporation should be subjected to their interests so that they can live on. After that, Eric Rhenman(1968) also pointed out the twofold independence between stakeholders and corporation that stakeholders achieve their own targets relying on the corporation. According to Charkham (1992), there are two major types of stakeholders: contractual stakeholders like shareholders, employees, customers, distributors, supporters and debt holders and community stakeholders like the general consumers, supervisions, the governments, the press and local communities. Donaldson and Preston argued that the theory has multiple distinct aspects that are mutually supportive: descriptive, instrumental, and normative. The descriptive approach can elaborate something the numbers cannot do like the nature of the firms, the way of the managers thinking about the operating within the corporation. The instrumental approach is more about the date. It focuses on the link between the management of the stakeholders and the achievement of the profitability and efficiency goals. The normative approach, to be prioritized in the paper of Donaldson and Preston, focuses on the role of the corporation and identifies the "moral or philosophical guidelines for the operation and
management of the corporation." (Donaldson, Thomas; Preston, Lee E. 1995) The corporate or we can say that every individual in this modern society cannot exist in isolation. The communication and information exchange is an important part of corporate to alive even if it is with their competitors. Johnson and Johnson is a good example who set the objectives of serving all of their stakeholders as the priority and it defines their stakeholders as the hospitals, the doctors, the nurses and the consumers. As all we know now, JNJ has been one of the greatest medical corporates in this century.
Stakeholders theory is important to this paper because it provides a good evidence for the CSR grading system that is effective and reliable issued by the RSK. Regarding the food and drugs industry, the companies face more kinds of stakeholders than any others do because the quality of their products can influence the consumers directly which may be fatal. Playing such an important role in the society, the food and drugs industry should also be the mainstream to improve the progress of the CSR developing.
2.1.3 Legitimacy Theory
In moral philosophy, legitimacy is the normative status that constrained by the general public, based on the based on the belief that their government's actions are appropriate uses of power by a legally constituted government. Mathews (1993, p.350) provides a good definition at the organizational level:
Organizations seek to establish congruence between the social values associated with or implied by their activities and the norms of acceptable behavior in the larger social system in which they are a part. In so far as these two value systems are congruent we can speak of organizational legitimacy. When an actual or potential disparity exists between the two value systems there will exist a threat to organizational legitimacy.1
Mathews regarded the legitimacy as a kind of resource, or we can say cash. The organizations will just make use of this kind of resource to achieve the objective and satisfied their supervisors or the related parties to gain the good record or image from their point of view. Obviously, low legitimacy is harmful to an organization’s growth in a long term because it can attract useful resources that are possible to gain in the future. Lindblom
(1984) pointed that legitimacy is a status that the consistency of the value of both social and economic systems with the recurrence of the status. It is based on the social contract which is ubiquitous among social members and corporation and given legitimacy by the public. Without social contracts, the corporation is rootless and the powers are collapsed. From a generalized perspective, legitimacy should be not only focused on the meaning of law and principles but also involved other forms like profession system, code requirements, and the government’s regulations. In the operations process of a certain corporation, they will meet or exceed the pre-set target within firms and must consider all the factors that the stakeholders in society would care about. It is also the motivation of the corporation to issue the CSR reports. They try to show their sense of social responsibility and their rightness of doing so both in moral and legal perspective.
The progress of pursuing legitimacy is also of concerning the appeals from other stakeholders. This paper will discuss the after getting the legitimacy, how the influence will be on different period’s financial performance.
2.1.4 The Social Impact Theory
Social Impact Theory uses mathematical equations to estimate the level of social impact created by specific social situations. In 1981 by Bibb Latané, this theory was created and he was a psychologist working in Ohio, USA. Latané defined this theory as a phenomenon in which the individuals will affect each other in the society but the effects cannot observe by eyes and it also focuses on the changing of the forces of the targets such as thoughts, attitudes, incentives and physiological state. Latané also noticed the social impact influenced by three laws which can be translated into mathematical equations. The three laws are social forces, psychosocial law and multiplication/division of impact. This paper assumes that the corporation who have better (worse) CSP will get better (worse) corporation financial performance. For instance, in the aspect of employees, when they have a good relationship with their supervisors, they can feel comfortable so that can improve the efficiency and help the corporation to get more outstanding employees; for the aspect of environment, the environmental protection processes will help to improve the production efficiency and also reduce the litigation cost. The brand effect will bring a better image of the corporation and also the economic benefits. As the trust of the
investors increasing, they are more willing to provide capitals for the corporation who bear more social responsibilities.
2.1.5 Defining Corporate Responsibility and Performance
CSR has been defined as a responsibility of the corporation to be responsible to the social environment, the stakeholders’ benefits in a way that was beyond mere financial aspects (Gossling and Vocht, 2007). According to the definition of World Business Council for Sustainable Development: “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as of the local community at large.2”
(Holme and Watts, 1999). Another definition cited by Carroll in 2011 and has been used by many scholars in the field: “The social responsibility of business encompasses the economic legal ethical and discretionary expectations that society has of organizations at a given point in time.3” CSR is relevant to both internal and external levels of the
organization so that it is difficult to evaluate its performance which is also the most challenging question in this paper. Determining a reliable way to measure the CSR performance has actual meaning as it can improve the practices and institutionalized progress and make it applicable. In the current research, there are different kinds of approaches existing. From the paper of Wood (1991), three principles – the principle of legitimacy, the principle of public responsibility and the principle of managerial discretion are discussed. With varied objectives of CSR in different levels, CSR cannot measure by a certain number of the financial performance. It is more like a non-financial performance information that will help people to understand the traditional financial performance. In this paper, the grading system is covered all the respects that present researches have been defined as relevant – shareholders, employees, customers, suppliers, the environment and the society but the veracity is based on that all of the information is reliable and the reports are faithfully represented. As Carroll cited in 2001, the CSR is an integrated concept which is an exception from the public that they hope the corporation can bear the
2: Holme and Watts, 1999
responsibilities of performing the obligations. It is not only about the economy but also the aspects of the abidance by-laws, the respect of ethics and the degree of the participation of public welfare. These characteristics make it more difficult to define how good the performance is within an organization. There is not the best way to evaluate but researchers can select the one that fits best. Multiple dimensions of corporate financial performance will be employed in this paper. As Griffin and Mahon suggested, it is better to gain the scores from an independent third party to grade objectively.
2.2 Hypothesis Development
AL Louche et al. (2005) found that 75 out of 82 lectures stand on that the relation of CSR performance and financial performance is positive through literature research method and half of them argue that the relationship is significant. In recent years, Margolis et al. (2009) also draw a conclusion that most research comes to a plus relation verdict. The mainstream ideology in contemporary era tends to argue the positive significant relationship between them.
But the researches with negative outcomes are also impressive.
The trade-off hypothesis supposes a negative impact of CSP on corporation financial performance (Waddock and Graves, 1997). In the paper of Rim Makni et al. (2009)did find a robust unidirectional and negative “Granger Causal” relationship between the environmental dimension of CSP and all the three FP measures, which is consistent with the trade-off hypothesis (Rim Makni et al. 2009). For an instant, when the CSP is higher which means that more investment for the social and welfare services it will lead to a lower corporation financial performance. When the corporation financial performance is lower, the corporate will be limited capacity to bear the social responsibility and form a vicious circle. Combining the physical truth of China political system and the social context with the motivation of issuing the CSR reports, corporation publish CSR reports to stakeholders and public at the expense of disclosing the information undisclosed in annual reports which may be conducted minus influence in corporation images and more important is the cost of bearing particular social responsibilities. In the first hypothesis, the paper considers that the timeliness of effect brought by CSR reports and the anticipated
influence will appear in the current period of operating term. Although it seems like quite the contrary compared with the former researchers, it is reasonable based on the literature of Inoue Y. et al (2011). The decision of bearing CSR is costly so that the corporation must pay for it which will affect the bottom line of this corporation in current fiscal year. Even if CSR report will affect (assumed positively) the financial report, but the timeliness of such influence will finally play a role in next fiscal year. All the above theories are the basement of this paper’s first hypothesis.
In the first stage, the study supposes that:
H1: A good CSP will have negative effects on the current period Corporation financial performance.
“The positive synergy hypothesis supposes that higher levels of CSP lead to an improvement of FP, which offers the possibility of reinvestment in socially responsible actions” cited by Allouche and Laroche, in 2005a. The social impact hypothesis mentioned above is based on the stakeholder theory which brought the new concepts that various corporation stakeholders will get the favorable level of the financial performance (Freeman, 1984). To some extent, the outside parties’ acceptance gained by complied with the expectations of them will enhance the corporation’ frame, hence, improve the financial performance. It is consistent with most of the prior literature. Taking a glance at the previous research, there are several reviews from researches such as De Bakker et al., 2005; Roman et al., 1999; Allouche and Laroche, 2005; Margolis and Walsh, 2003, they all found a positive relation. If the bad performance of finance brought by the cost of bearing such responsibilities paid by a corporation is less affected than the promotion of the issuing of CSR reports, the relation will be positive. As time goes on the hysteresis quality will be weakened and then disappear gradually so that the positive effect will appear in the later period. But we cannot sure from what time or how long it will take to make the actual effects on the corporation financial performance, so this paper will compare the short-term period influence with the long-short-term period. It is defined that the short-short-term as the CSP’s influence on the next one year’s corporation financial performance and the long-term is that on the next four years. Specifically, in this paper,
Then based on the above literature, this paper will develop the second hypothesis that: H2: A good CSP will have positive effects on the future (short term V.S. long term) corporation financial performance.
The slack resource hypothesis argues that the corporation with better FP results in the slack resources that may improve the entity’s capacity of carrying social responsibility domains such as community and society, employee relations or environment (Waddock and Graves, 1997). As the original objective of an organization is to chase the economic goal and create value, they will meet their primary objective firstly and then to invest the slack resource in the program in order to gain the acceptance from the general public. According to the managerial opportunism hypothesis, the relation between these two indicators will be negative two. When the traditional performance is lower than the expectation of stakeholders, the managers will make every effort to improve and engage in conspicuous social activities to gain the legitimacy in order to neutralize the adverse effect caused by the bad performed fiscal reports. In the corporate which gets ideal financial performance this year, the managers will get a chance to consume the community property to chase the private objectives (Weidenbaum and Sheldon, 1987; Williamson, 1967, 1985). From another perspective, the causal relationship can be considered as circulation. For example, Waddock and Graves (1997) and Hillman and Keim (2001) find a positive synergistic relationship between CSP and financial performance using traditional statistical techniques and showing the existence of a virtuous circle between the two constructs. As the excellent performance from last period financial report, the corporation is more willing to devote in bearing CSR because it is stronger economically. The fundamental purpose of the corporation is to generate as many profits as possible so that they will not worry about the capital source and instead they will improve the CSR performance to engage in a positive circle. In this case, based on the economic support (good performance of last period) the corporation is prone to pay more. Last but not least, this paper will focus on whether:
Although the empirical findings of the relation are mixed within abundant investigations, most of the literature found a positive relation between CSP and corporation financial performance. The minority of the negative relation which has been verified cannot be neglected. This paper tries to find out how the CSP and corporation financial performance influences each other and the most remarkable concern is that it takes the timeliness into consideration. Besides those researches got the significant relationship between the CSP and corporation financial performance, Mahoney and Roberts (2007) found that the relationship in the Canadian context was not significant. However, using a one-year lag, they got the significant positive relationship between the CSP and corporation financial performance regarding the environmental and international activities. Inspired by this investigation, this paper will also explore the one-year lag performance to verify if the findings from Mahoney and Roberts are credible and compare with a relatively long-time lag of 4 years. This study has examined Comparing the short-term and long-term relationships at the same time will provide a new respect to inspect the causality of the CSP and corporation financial performance influence circle. These hypotheses are based on that the CSR reports issued by the corporation are faithfully represented and fully disclosed so that the grading system can get sufficient and reliable information to cite the valid scores. The more reliable the grading system is, the more convincible the outcomes are.
3. Research Methodology
3.1 Sample Selection
The study will be done based on an empirical analysis of a three-year respective CSR performance in the Food and Drugs retail industry which includes 30 public corporations and then makes a multiple factors regression analysis to test the previous hypothesizes. The information of CSR reports is from the public releasing from the official websites of each corporation and the financial information is from the public database.
This paper focuses on one industry to exclude the internal disturbances from the different industries within the same model. The most number of the previous researches investigated multiple industries in broad, cross-sectional data which is good to cover general types of the corporation but masked the potential relationship within the same industry itself Griffin and Mahon, 1997). They also do some standard EPS to minish the influence by adding the control variables. In fact, the size of the corporation cannot be measured objectively and precisely. As to classify the corporation of the similar size, this paper will talk about it later. All of these companies are more than the small type and includes both state-owned and private-owned corporation which maintain the diversity of the sample.
In choosing the specific type of the industry, three points are taken into account. First, the volunteered disclosure should be as sufficient as possible. In 2006, the CSR reports get to start in China, and only the companies with the good financial situation and are big enough to be able to attach importance to do and issue the CSR reports. Most of them are the public companies who involve more stakeholders including the retail investors and transnational enterprises. They need to get the public’s identification which is complied with the legitimacy theory and the stakeholder theory. The second point is that the industry must be eager and weightily accountable to bear the social responsibility. In China, the industry related to discharge the heavy pollution was a constraint to disclose the environmental protection information because the topic of eco-protection is vital for the sustainability for the whole country. As for the food and drugs retail industry, the
companies are more served for the people than the government or the capital providers because the products are closely related to the public lives. They do have the weighty responsibility to the society and the situation was not positive in the past years. The press and mass media focused on every scandal about the safety of the food and drugs. It is of social value to investigate the food and drugs industry in China. The last point is that the sample should not be suffered something significantly influenced the fiscal reports. If there is any material event that is not a cause or a trigger to the CSR, e.g. the merger and acquisition or the external economic depression.
The first year that the RSK started to rate the CSP was 2010 and the latest complete scores were in 2015. So, the sample is set to be the public companies from the food and drugs retail industry in China from the year 2010 to the year 2016 ultimately.
3.2 Data Acquiring
In this paper, the public database is a crucial part of the data source. The financial performance index is from the annual financial reports. The data will be collected by hand from the official website of each corporation and analyzed year by year within this 30 corporation. The financial performance indicator data is from the CSMAR Economic and Financial Research Database. This paper will start with public companies because the information is more reliable and the quality of the CSR reports will be higher. The indicators of CSR are from the CSR reports of each corporation and are put together by hand in the RSK system to give a mark. There are five levels in the first class and calculated by the weight. The CSR ratings are quite different from a major company to a relatively small company and for the next analyzing we should know that 80 out of 100 scores is a very high rating in this system and when the profitable index was negative the points will also be negative which means the minimum value is not zero but can be as less as the financial performance is. Then the collected financial performance data will be analyzed and matched in the group of years. First, there will be a descriptive statistical analysis to give a glance about the trend. The data will be put in the regression model to verify the three hypotheses above.
3.3 Measurements
3.3.1 Measurements of CSR Performance
In the previous researches, the studies related measuring the CSR has been criticized for its single-dimensional metering e.g. the reputation ranking as its performance to deal with the pollution control, and its single responsibility ratings, and the Fortune corporate reputation index. These measurements have been denied by the researchers for the ignoring of the stakeholders’ benefits (Aupperle et al., 1985; Ullman, 1985). In recent researches, the scholars tend to use the data developed by the unrelated third parties such as such as the KLD database of Kinder, Lydenberg, Domini & Co., Inc. (Kinder et al., 2005). Various aspects have been employed to identify the multidimensional essence of companies’ CSP. In the previous literature, the analysis of the content of annual reports, reputation indexes, data produced by rating agencies, pollution indexes, questionnaires; philanthropic activity-based measures is all mentioned (Waddock and Graves 1997). The quality of the CSR reports will also influence the measurement of the CSF. CSR performance is not a calculable value by a certain method or a formula. There are some mainstream evaluation methods to measure the performance of CSR reports. According to the RSK grading system, there are five main responsibilities: shareholders responsibility, employee responsibility, supporters, customer and consumer rights responsibility, environmental responsibility and the social responsibility. There is 13 secondary level of indicators and 37 third level indicators in total which is consistency with the macrocosm, content, and technique these three zero level indicators and each part is with different weight to be calculated. Here is an outline of the grading methods with first and second indicators following
Table1 The Principle of the Rating System By RSK4
First Level Weight Second Level Weight
Shareholders 30% Profit Gaining 10%
Debt-Paying 3%
Returning 8%
4 The rating system focuses not only on the CSR reports issued by the corporates, but also from the sources of other
Infor Disclosing 5% Innovating 4% Employees 15% Performance 5% Safety 5% Welfare 5% Supporters, customers, and consumers 15% Quality of Products 7% Aftersales Service 3% Integrity 5% Environment 20% Environmental Governance 20%
Society 20% Contributed Value 20%
The shareholder's segment is posted the biggest number of the weight in this model. But in the sublevels, the environmental governance occupied the biggest proportion. Around all of the indicators, there are two kinds of them and one is a numeric type, another is the logic type. Numeric indicators will be calculated by the information from the CSR reports and the logic indicators are Yes for one and No for zero type which means that an effective disclosure will get the full points and undisclosed position will not.
As for the CSR future’s performance of one year and four years, the short-term of one year will be measured as the next year’s CSR scores and the long-term of four-year will be measured as the average of the next four years’ CSR scores.
3.3.2 Measurements of Financial Performance
To get an integrated and unbiased evaluation of financial performance, several indicators are selected in both accounting and marketing perspective. The following variables will also surround these and there are three indicators used in this study:
BVPS. The book value of equity per share (BVPS) is a ratio that divides the value of the common equity by the numbers of the shares. The book value of equity per share is one of the indicators that could evaluate if the stock price is undervalued. If a business can increase its BVPS, investors may view the stock as more valuable, and the stock price increases. Calculated as:
𝐵𝑃𝑆 =𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 𝑁𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠
EPS. Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share play a role of the indicator of a company's profitability. Calculated as:
𝐸𝑃𝑆 =𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑜𝑛 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑆𝑡𝑜𝑐𝑘
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑆ℎ𝑎𝑟𝑒𝑠
ROE (Return on Equity). This is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by measuring how much profit a company generates under the capital that shareholders have invested. Calculated as:
𝑅𝑂𝐸 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟′𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
As all statements in this section, the variable is pretty clear in the study. BVPS, EPS, and ROE are the dependent variables in this study and the Grades from the CSR evaluation system are the independent variable.
For the measurement of the future financial performance, the short-term of one-year’s financial performance will be recorded as the next year’s corporation financial performance and the long-term of four years’ corporation financial performance will be measured as the average value of the four years.
3.3.3 Control Variables
Two control variables are conducted in this paper. They are company’s field, size and the risks the corporation face. As we discussed before, this paper will focus only on one kind of industry. As for the second control variable – size, this paper will use the natural logarithm of total assets to measure. The differences in the CSP and corporation financial performance may result in the size of the companies. To make this model more convincible, the natural log of total assets is used to present the company’s size which is a common control variable in the corporate research (Brammer & Pavelin, 2006, 2008). For the asset structure of corporation such as the debt and asset ratio, it determines the risks of the corporation going broken because of the inability to pay the loans but also determines if there is a stable structure of the business model. With the relatively stable profit model, the corporation will have more surplus resources to invest for the social responsibility. In
order to exclude the effects of the risks of the financial leverage. In addition, earlier research has shown that clear differences in performance and R&D investment exist among different industries (Graves and Waddock, 1994). The Correlation Between the CSP and corporation financial performance Size and systematic risk are also well-known determinants of FP (Fama and French, 1992, 1993). And the financial leverage is also a sign of the financial risks, it can reflect the effects of the liability with interest but not including the non-interest liabilities. In the normal situations, the liabilities with interest are from the debt loan financing which is the main factor causing the financial risks. So, the indicator of DFL will faithfully represent the risks aspects. Saurabh Mishra and Sachin B. Modi in 2013 explore the relationship between CSR and financial leverage and found a significant relationship. They verified that financial leverage would attenuate the negative effect of positive CSR on idiosyncratic risk (Saurabh Mishra, 2013). For choosing these indicators as the variables, the outcomes would be more reliable.
3.3.4 The Correlation Between the Variables of CSP and corporation financial performance
The trade-off theory (Waddock and Graves, 1997) implies how the CSR performance may influence the corporation financial performance for the future performance. Managers will make the decisions about the CSR investment based on the financial performance because it will consume the capital from the providers and also consider the potential benefits from the investment in CSR according to the stakeholder theory. It is not sure that which one is the cause or the effect or maybe they are both influencing each other. The synergy theory also told us that the effect could be either positive or negative. The effects could be presented both on the market value – stock price according to the stakeholder theory and on the operational value creating – income to the equity.
Bragdon and Marlin (1972) use ROE as one of the factors to measure the corporation financial performance. The numerator of ROE is net income. In the paper of Yuhei Inoue and Aubrey Kent and Seoki Lee ‘s paper, 2011, they explore the relationship between the CSP and bottom line which is the income of a corporate and found a significant negative relationship between the CSR and the operating incomes. They did this research concerning a time-lag effect within three years. This paper will compare the time-lag effect
of 1-year lag to 4-year lag. But there are still other scholars arguing that the relationship is positive. One line of work has proposed
that CSR should improve a companies’ financial performance (Porter & Kramer, 2006). This notion is supported by Orlitzky et al. (2003). They did a meta-analysis of the 52 present studies and found a positive relationship between the CSR and corporation financial performance.
The EPS and BVPS are both related to the market value of the corporation. Michael C. Jensen argued that enlightened stakeholder theory is easy to explain why the market value and CSR are related. The theory takes advantage of the most stakeholder theories and in the way of process and auditing the relations with all the relevant constituencies through the operating process within the corporations. (Michael C. Jensen 2000). Investors would receive the signal from the policies and the social activities to increase the CSP and revise their investing decisions. In this way, the market value will be influenced by the CSP.
3.4 Model
3.4.1 Development of Models
Firstly, there will be a descriptive statistical analysis to explore the interrelationship between every variable in this paper. Based on the above variables, the empirical part of this paper is developed on the following multiple linear regression models. Following the standard EPS of Kong Long and Zhang Xianhua 2012, this paper continued to use the model and add the necessary control variables, here comes the analysis model:
Basic Model: CSPit = 𝛼𝑖𝑡+ 𝛽1𝑌1𝑖𝑡+ 𝛽2𝑌2𝑖𝑡+ 𝛽3𝑌3𝑖𝑡+ ∑ 𝐶𝑖𝑗 𝐽 𝐽=1 + 𝜀𝑖𝑡 CFPit = 𝛼𝑖𝑡+ 𝛽1𝐶𝑆𝑃𝑖𝑡+ ∑ 𝐶𝑖𝑗 𝐽 𝐽=1 + 𝜀𝑖𝑡
α is the intercept term of this model, β1 to β3 is the coefficient of these models, i is the order of the sample corporation, t is the fiscal year, is the random error. corporation financial performance is the corporation financial performance includes BVPS(Y1), EPS(Y2) and ROE(Y3). C has presented the control variables which is the size of the company and the financial leverage for the risks. CSP is the corporation social
responsibility performance which is quantification according to the above RSK rating system. It is the standard linear regression models to explore the relationship between multiple variables. First of all, there is a need to testify the dominant relationship between CSR performance and financial performance-correlation analysis. In the first model, the dependent variable is financial performance, it is suitable for the hypothesis one and two. In the first two hypotheses, it explores the causal relation and the independent variable is the CSR performance, the financial performance is affected by CSR performance. By bringing in financial indicators from different periods, the timeliness of the effects on corporation financial performance and CSR will appear.
3.4.2 Analysis of Results
With the results from Stata, we will know whether the relation between CSR performance and different period corporation financial performance is a minus or plus as we know the coefficient of these models. But firstly, there should be a correlation analysis before linear regression because we need to know if there is a dominant relationship from these samples. If the correlation analysis is approved, then we can conduct the regression analysis. For H1, we suppose there is a negative relationship so that we expect a minus coefficient number as the β and will support the hypothesis one. Then the part is the theoretical analysis on the basis of the empirical results. The second and third stage of the hypothesis is like the first one. According to the Triple line bottom theory, stakeholder theory and legitimacy theory, we know the motivation of corporation to bear such costly responsibility (as the purpose of companies is to generate profits).
4 Results
4.1 Descriptive Statistics of the Sample
After gathering the recent six years CSR performance scores from RSK grating system and matching them to each year’s corporation financial performance. In order to have a glance of the relation between these two performances, the descriptive statistics analysis should be done at first. Here is the table of the BVPS, EPS, ROE, CSR, financial leverage and natural log of total assets scores’ average number, the maximum, minimum and the standard deviation lined by year.
Table 1 Descriptive Statistics of the sample
Unit: CNY
Item Yr Avg Max Min Median STDEV
BVPS 2015 6,0345 15,0384 0,0289 5.5068 3,7659 2014 4,6913 15,0384 -0,9000 4.4392 3,2469 2013 4,7371 14,9768 0,0168 3.6110 3,8938 2012 4,3574 9,7698 -0,2488 3.7500 2,8090 2011 3,8765 8,6900 -0,8600 3.7250 2,5679 2010 3,3959 8,3300 -0,9000 2.8900 2,3304 EPS 2015 0,6762 2,5300 0,0010 0.4900 0,7164 2014 0,5503 2,5300 -0,2630 0.3200 0,5657 2013 0,5181 1,8100 -0,2600 0.3750 0,5760 2012 0,5277 1,6500 0,0160 0.3604 0,4784 2011 0,5221 1,6521 -0,2630 0.4208 0,5288 2010 0,4093 1,3936 -0,0800 0.3600 0,4088 ROE 2015 0,1066 0,4298 0,0019 0.1035 0,1009 2014 0,1259 0,4963 0,0100 0.1055 0,1305 2013 0,0866 0,2600 -0,3809 0.0838 0,1594 2012 0,1104 0,3051 0,0000 0.0796 0,0912 2011 0,1346 0,6001 -0,1867 0.1099 0,1816 2010 0,1354 0,2812 0,0000 0.1335 0,0977 CSP 2015 32,9389 75,9700 16,3000 25.0450 19,8097 2014 25,4417 65,2400 11,0900 23.0300 12,7971 2013 38,3973 79,9400 3,2300 24.4550 25,9329 2012 31,0033 68,0800 8,9000 23.0300 19,9505 2011 37,8445 71,9600 -4,4100 24.9000 25,5685 2010 37,6405 67,3400 4,2900 23.7400 22,8225 Size (NLTA) 2015 22,56995 25,05152 18,18666 22.5696 1,642123 2014 22,32533 24,88746 18,34322 22.3741 1,583931 2013 22,2621 24,7542 18,9636 22.3199 1,4669
2012 22,1354 24,6564 18,9650 22.2404 1,4536 2011 21,9447 24,5875 17,8644 22.0083 1,6195 2010 21,8675 24,0615 18,0988 22.1715 1,5380 Fin. Lev. 2015 1,3021 2,5855 0,8958 1.1309 0,4891 2014 1,7853 14,4548 0,6923 1.1148 3,6173 2013 1,3457 3,3899 0,9195 1.1237 0,7157 2012 1,4064 5,7251 0,8225 1.1290 1,3109 2011 1,2325 4,2284 0,9325 1.0949 1,1206 2010 1,4732 6,0694 0,4844 1.1240 1,5065 No. of Ob. 135
The Descriptive Statistic data is shown in the above table. From the data collected from 2010 to 2015, the average of the CSR scores is showing a significant downtrend in 2014, but the general tendency is fluctuant. As for the minus value in 2011, it is the negative performance at the shareholder level and other levels’ scores cannot offset the influence caused by the low profit gaining ratio. At the same time, the standard deviation is relatively more stable than any other and the maximum of the scores varied between 65.24 appeared in 2014 and 79.94 appeared in 2013. They do not differ much in 2014 because the differences between maximum and minimum of are the smallest among these six years. Another notable thing is that the sample size is getting bigger from 2010 to 2015 which means that more and more listed corporation choose to compile and issue the Corporate Social Responsibility reports. The meaning of the CSR is drawing the attention of the entities from foods and medical industries. As for the indicators of the financial performance, the EPS (equity per share) is relatively stable compared with other two indicators. The performance of ROE (return on equity) suffered a big collapse in 2013 and the average of the indicator is significantly lower than anyone of the previous years. The differences between the maximum and the minimum are also the smallest in the six numbers which may indicate that the overall industry performed badly during this year at least regarding ROE. As for the BVPS, from the data about the average of BVPS, it goes up steadily year by year. The peak of a maximum of BVPS appeared in 2015 and also the peak of minimum which means that the overall situation of the BVPS in the last six years is getting better because the maximum and the minimum is increasing during this period. But it is remarkable that the differences and standard deviations are also going up, which
may indicate that the new companies which are recently come into the market cannot keep up with the growth of the leading companies.
As for the control variables, natural log of the total assets is relatively stable according to its standard deviation. The average of the size indicator is increasing year by year and the peak of the maximum appeared in the year 2015. Its tendency is roughly the same as that of BVPS. We can tell from the preliminary analysis that the size of the sample is not much different because they are all the listed companies. As for the financial leverage, the data from the different year is quite different. In the year 2015 and 2013, the numbers are the most stable and in 2014, there is volatility. The maximum is unexpectedly much higher than any other year. It might be that one sample is influenced by some accidental event which leads to the high ratio of the debt to the asset. In spite of the year 2014, the valley of all the data appeared in 2010 and the number is 0.4844. In earlier years, the risks that the corporations face are increasing in these years. They tend to generate benefit with financial leverage and the tendency is increasing too because the standard deviations are getting smaller. The volatility in financial leverage of these samples is not ignored as that of the natural log. The difference between the maximum and the minimum is about 5 times of the minimum. With a glance of descriptive statistical analysis, we can know better about the data which will be used in the model.
4.2 The Correlation Test
Table 2 illustrated the results of the Pearson correlation test (two-tailed). With a quick look at the correlation with each other’s variable and investigate that if there is a correlation between the dependent variables and the independent variables.
Table 2 The Results of the Correlation Test
BVPS EPS ROE Nat. Log Fin. Lev CSR Scores BVPS Pearson Correlation 1.0000 .735** .199* .483** -0.1677 .332** Sig. (2-tailed) 0.0000 0.0210 0.0000 0.0518 0.0001 N 135 135 135 135 135 135 EPS Pearson Correlation .735** 1.0000 .606** .319** -.184* .403** Sig. (2-tailed) 0.0000 0.0000 0.0002 0.0323 0.0000
N 135 135 135 135 135 135 ROE Pearson Correlation .199* .606** 1.0000 0.1305 -0.1440 .310** Sig. (2-tailed) 0.0210 0.0000 0.1315 0.0956 0.0002 N 135 135 135 135 135 135 Nat. Log Pearson Correlation .483** .319** 0.1305 1.0000 0.0738 .396** Sig. (2-tailed) 0.0000 0.0002 0.1315 0.3948 0.0000 N 135 135 135 135 135 135 Fin. Lev Pearson Correlation -0.1677 -.184* -0.1440 0.0738 1.0000 -0.0708 Sig. (2-tailed) 0.0518 0.0323 0.0956 0.3948 0.4144 N 135 135 135 135 135 135 CSR Scores Pearson Correlation .332** .403** .310** .396** -0.0708 1.0000 Sig. (2-tailed) 0.0001 0.0000 0.0002 0.0000 0.4144 N 135 135 135 135 135 135
**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).
As shown in the table, the CSR scores are related with the BVPS, EPS, ROE and Nat. Log at the level of 0.01 and have a significant relationship. All of the financial performance indicators is related to the CSR scores so that the next process of the linear regression analysis is meaningful. As the correlation among them, all kinds of the relation is positive and the negative relation of the financial leverage is not significant. The BVPS and EPS have a highly significant linear relation and the Pearson Correlation is 0.735 which is a really high value in the social science research as they all based on the shares. The ROE and BVPS have no Pearson Correlation. The ROE and EPS also have a significant linear correlation. It is necessary to do a linear regression to find out which is the independent factor and which is the dependent one or they just affect each other.
4.3 Linear Regression Analysis
4.3.1 Hypothesis One
By testing the above variable within the model, Table 2 presents the main outcomes from the first Hypothesis. In the regression for the Hypothesis one, there are three groups of the regression analyses.
Independent Variables/ Indicator Un-Std. Coefficient Std. Error Std. Coefficient P CSP 0.0209 0.0116 0.1452 0.0738 Nat. Log. 0.9831 0.1804 0.4391 0.0000 Fin. Lev. -0.4155 0.1623 -0.1899 0.0116 Constants -17.2810 3.8540 - 0.0000
Std. Error of the Estimate 2.5547
Sig. 0.000𝑏
R Square 0.2919
NO. of Ob. 135
b: Predictors: (Constant), Fin. Lev, Nat. Log, ROE, BPS, EPS
From this table, we can see the F is 0.000𝑏 and the significance of CSP is 0.0738 which
is more than 0.05 even if it is so close, so the relationship between the CSP and BVPS is insignificant in the same period. The significance of natural log of total asset and the financial leverage is less than E-06 and 0.0116 respectively. These two control variables are both relevant to the BVPS which means the size of the corporation and the risks they face do matter to the BVPS. As the investment in CSR increasing (decreasing), there is no evidence that the EPS in the same period will be effected by that through the empirical research.
Table 4 The Results from the Regression of the CSP and EPS
Independent Variables/ Indicator Un-Std. Coefficient Std. Error Std. Coefficient P CSP 0.0076 0.0021 0.3066 0.0004 Nat. Log. 0.0813 0.0326 0.2104 0.0139 Fin. Lev. -0.0673 0.0293 -0.1782 0.0234 Constants -1.4240 0.6970 - 0.0430
Std. Error of the Estimate 0.4617
Sig. 0.000𝑏
NO. of Ob. 135 b: Predictors: (Constant), Fin. Lev, Nat. Log, ROE, BPS, EPS
Table 4 illustrated the results of EPS. The F and P value is 0.000𝑏 and 0.0004 respectively.
It is said that the relationship between the EPS and the current period CSP. Like the outcome in the table 2, all the control variables are significant to the dependent variable EPS. The coefficient of financial leverage is minus which means that the negative relation between risks and CSP. When the corporation invest more in the CSR activities, they are more likely to take less financial risks while the operating period. The coefficient of the independent variables is positive which implicit a positive significant relationship between the EPS and the CSP scores. When the CSP increase (decrease), the EPS in the same fiscal year will also increase (decrease) to some extents.
Table 5 The results from the regression of the CSP and ROE
Independent Variables/ Indicator Un-Std. Coefficient Std. Error Std. Coefficient P CSP 0.0016 0.0005 0.2919 0.0015 Nat. Log. 0.0020 0.0075 0.0242 0.7890 Fin. Lev. -0.0101 0.0067 -0.1252 0.1343 Constants 0.0330 0.1590 - 0.0834
Std. Error of the Estimate 0.1056
Sig. 0.001𝑏
R Square 0.5448
NO. of Ob. 135
b: Predictors: (Constant), Fin. Lev, Nat. Log, ROE, BPS, EPS
Table 5 illustrated the results of ROE as the dependent variable. First, the P value implicit that there is a significant correlation between the CSP and ROE. As for the control variables, natural log and financial leverage are both in-significant which means that the size of the corporate and the financial risks they face will have no effect in the relation regarding ROE. But the significance of CSP is less than 0.05 and the coefficient is positive so that there is a positive relation between them. When the corporation increases there
CSR performance, the ROE will also increase to some extents.
For now, the three regression tests from the first hypothesis is presented above and all of the threes regression have an F value less than 0.05. From the three dependent variables, two of them – EPS and ROE show a significant relationship with the CSP. The CSP indicator which is the scores rated from a third party will influence this two aspect of the financial performance. The results have rejected the first hypothesis which argued there is a negative relation between the CSR and corporation financial performance of the present period.
4.3.2 Hypothesis Two
It assumes that there is a positive relation between the CSP and the future’s corporation financial performance. In this hypothesis, this paper will compare the relation from the shot-term of one-year time-lag and a long-term of a 4-year time-lag.
Table 6 The Results of BVPS in Short-term and Long-term
Independent Variables/Indicat or Un-Std. Coeffici ent Std. Error Std. Coeffici ent P Un-Std. Coeffici ent Std. Error Std. Coeffici ent P Short-term Long-term CSR Scores 0.0276 0.0131 0.1893 0.0373 0.0232 0.0235 0.1518 0.3303 Nat. Log 0.9596 0.2061 0.4146 0.0000 0.9839 0.3630 0.4142 0.0098 Fin. Lev -0.3810 0.1760 -0.1744 0.0326 -0.3040 0.2255 -0.1808 0.1852 Constants -16.990 4.3950 - 0.0000 -17.280 7.8280 0.0330 Std. Error of the Estimate 2.6076 2.9674 Sig. 0.000𝑏 0.003𝑏 R Square 0.610 0.498 No. of Ob. 114
b. Predictors: (Constant), Fin. Lev, Nat. Log, CSR Scores
As shown in the above table, the data of short-term and long-term are both presented and also significant from the Anova table’s sig. For the short-term, the CSR is significant with the BVPS and the coefficient is positive as illustrated in Table 5 which means that there might be a positive effect on the one-year after BVPS. The two control variables are also significant and the p-value is 0.00 and 0.03 respectively. The size of the corporation and the financial risks they face do matter in this regression. When the CSP increases (decreases), the BVPS will increases (decreases) synchronously. In the context of this paper,
the corporation invests in executing the CSR and then will gain the benefits resulting in the BVPS as well. For the long-term of 4-year time lag, there is no significant relation according to the outcome as the P value is more than 0.05. The outcome of the relation between CSR performance and the long future period’s BVPS. But one of the control variables – Nat. log is still significant in the long-term regression. Regarding the BVPS, short time-lag effects are significant but not in the long-term time-lag.
Table 7 The Results of EPS in Short-term and Long-term
Independent Variables/Indicat or Un-Std. Coeffici ent Std. Error Std. Coeffici ent P Un-Std. Coeffici ent Std. Error Std. Coeffici ent P Short-term Long-term CSR Scores 0.0070 0.0024 0.2874 0.0037 0.0029 0.0048 0.1041 0.5496 Nat. Log 0.0705 0.0373 0.1820 0.0610 0.0960 0.0745 0.2205 0.2047 Fin. Lev -0.0554 0.0318 -0.1515 0.0845 -0.0548 0.0463 -0.1777 0.2435 Constants -1.1840 0.7950 - 0.1390 -1.5930 1.6060 - 0.3270 Std. Error of the Estimate 0.4714 0.6088 Sig. 0.000𝑏 0.006𝑏 R Square 0.469 0.507 No. of Ob. 114
b. Predictors: (Constant), Fin. Lev, Nat. Log, CSR Scores
Table 7 illustrated the results regarding the EPS. Again, both regressions’ sig. value is less than 0.05 so that they are significant. For the short time-lag, as the BVPS in the previous regression, the relationship between the CSR performance and EPS in the future period is significant and the coefficient is positive. As the two variables not being significant, the control variables are not influencing the relation. In the long time-lag of 4-year, the three variables’ p-value is 0.5496, 0.2047 and 0.2435 respectively and are not significant. The outcome of EPS is also the same as the BVPS regarding the comparison of the short-term and long-term. For a one-year time-lag, when the CSR scores increase (decrease), the EPS in the next year will accordingly increase (decrease) as well. But in the respect of long-term, when the CSR performance increases, the EPS in the next fourth year will not have a significant relation with it.
Independent Variables/Indicat or Un-Std. Coeffici ent Std. Error Std. Coeffici ent P Un-Std. Coeffici ent Std. Error Std. Coeffici ent P Short-term Long-term CSR Scores 0.0012 0.0005 0.2222 0.0357 0.0004 0.0008 0.0786 0.6570 Nat. Log 0.0003 0.0086 0.0042 0.9679 -0.0162 0.0125 -0.2260 0.2021 Fin. Lev -0.0075 0.0074 -0.0950 0.3130 -0.0102 0.0077 -0.2006 0.1972 Constants 0.0740 0.1840 - 0.6880 0.4850 0.2690 - 0.0790 Std. Error of the Estimate 0.1090 0.1020 Sig. 0.060𝑏 0.031𝑏 R Square 0.487 0.194
b. Predictors: (Constant), Fin. Lev, Nat. Log, CSR Scores
Table 8 illustrated the CSR scores’ influence on the ROE in the future. Having a glance at the indicator of sig., the short-term regression is not significant as its value is more than 0.05 and the long-term regression is significant. As for each variable, the CSR scores is significant in the short-term model which means when the CSP increases (decrease), the ROE in the next year will increase (decrease) two. But in the long-term, there is no significant relationship. When the CSR scores increases (decreases), the ROE in the next year will increase (decrease) synchronously. The control variable- nat. log. and the financial leverage is not significant according to the p-value which is 0.9679 and 0.3130 respectively, the size of the corporation and the financial risks they face will have no significant influence in this model. The CSR scores are not significant in the long-term model which means there is no evidence that the CSR performance will influence the ROE in a long time-lag.
From table 6 and table 7, there are the outcomes of hypothesis two for the variable BVPS, EPS and ROE respectively. In the short-term concept, all the three models have a significant relationship with the CSR scores. As for the long-term concept, there is no significance in this relationship. In a word, the outcomes support hypothesis two in the short-term of one-year time-lag, but there is no evidence that the CSR performance is related to the long-term time-lag financial performance.
4.3.3 Hypothesis Three
In hypothesis three, the corporation financial performance will influence the CSP opposite to the previous hypotheses according to the slack resource theory. Here are the outcomes
of the third hypothesis’s comparison between short-term and long-term.
Table 9 The Results of the corporation financial performance and CSR in Short-term
Independent Variables/Indicator Un-Std. Coefficient Std. Error Std. Coefficient P
BVPS -0.3588 1.0948 -0.0469 0.7438 EPS 13.4868 7.0828 0.3037 0.0597 ROE 7.1679 20.5938 0.0393 0.7285 Nat. Log 5.8121 1.5974 0.3545 0.0004 Fin. Lev -2.0540 1.1921 -0.1460 0.0879 Constants -97.389 33.291 - 0.0010
Std. Error of the Estimate 18.0171
Sig. 0.000𝑏
R Square 0.313
No. of Ob. 110
b. Predictors: (Constant), Fin. Lev, Nat. Log, ROE, BPS, EPS
In Table 9, the three financial performance indicators are as the independent variables. From the ANOVA test, the sig. is less than 0.05 so that this whole model is significant. As for BVPS, the p-value is 0.7438 and the coefficient is mine 0.0469 so that there is no significance in the relation with CSR scores. The p-value of the EPS is 0.0597 which is also a little bit more than 0.05. The EPS is the most likely one which will have an influence on the next one year’s CSR scores, and the coefficient is positive as well. The p-value of BVPS and ROE is 0.7438 and 0.7285 respectively which means that they are both not obviously significant in the relation with CSR scores. It’s worth noting that, the coefficient of BVPS is minus which is different with other independent variables. One of the control variables in this model is natural log. which is related to others and the p-value is 0.0004. Another control variable is the financial leverage and its p-value is 0.0879 which means that it has no effects on this model.
Table 10 The Results of the corporation financial performance and CSR in Long-term
Independent Variables/Indicator Un-Std. Coefficient Std. Error Std. Coefficient P
BVPS -2.1331 2.1544 -0.2608 0.3287
EPS 29.6715 13.8957 0.7190 0.0396 ROE -25.6734 34.0476 -0.1811 0.4557
Nat. Log 1.8580 2.3458 0.1407 0.4335
Fin. Lev -2.4803 2.4591 -0.1466 0.3199
Std. Error of the Estimate 15.6449
Sig. 0.024𝑏
R Square 0.292
No. of Ob. 110
b. Predictors: (Constant), Fin. Lev, Nat. Log, ROE, BPS, EPS
Table 10 presented the figures from the long-term concern. First, the sig. the number is 0.024 so that this model is significant overall. The p-value of the EPS is 0.0396 and the coefficient is 0.7190. From the regression of Table 8 in which the value is 0.0597, the p-value is getting smaller which means that the relation is getting more and more significant since the time-lag is getting longer. In this regression, when the EPS increases (decreases), the CSR scores in the next four years will increase (decrease) in the context of this paper. The significance may be more remarkable when then time-lag getting longer according to these two tables. The coefficient of the EPS is positive which also support the hypothesis that the corporation financial performance will have a good effect on the future’s corporation financial performance. The other two variables are not as significant as the EPS and both of the coefficients are negative. As for the control variables in this regression, nat. log. of the total assets and the financial leverage is not significant in this model which means that the control variables- the size of the corporation and the risks they face have no significant influence on this model.
The above two tables illustrated the results of the third hypothesis. As for the short-term in one year’s time-lag, three of the financial performance indicators are not relevant with the CSR scores, but in the long-term respect, the EVP has a significant relationship with the future’s CSR scores. The different time period will be influenced by different levels.
