CSR performance and financial performance of firms in
environmentally sensitive industries: A comparative analysis
between the USA and Europe
ABSTRACT
This study empirically examines the influence of CSR performance and its environmental dimension on the corporate financial performance of publicly listed firms operating in environmentally sensitive industries. Based on theoretical arguments from the stakeholder theory and resource-based view, a panel data regression analysis is conducted for a sample of 178 European and U.S. firms in the period 2008-2018. The results indicate that ROA is positively influenced by CSR performance of firms in environmentally sensitive industries. In contrast, environmental performance showed an insignificant association with both measures of financial performance. Furthermore, this study uses two subsamples that separate European and U.S. firms for the means of comparison in the CSR-CFP link, as the subsequent aim of the study assumes that the association is more influential in Europe. Results indicate that CSR's positive influence is stronger for the European sample, which allows Hypothesis 3 of the study to be accepted.
2
TABLE OF CONTENTS
1. INTRODUCTION………3
2. LITERATURE REVIEW AND HYPOTHESES……….7
2.1 Defining Corporate Social Responsibility……….7
2.2 Theoretical framework………...8
2.3 Hypotheses development………11
2.3.1 CSR-CFP………...11
2.3.2 EP-CFP………..13
2.3.3 Comparison between European and U.S. firms……….…...15
3. DATA AND METHODOLOGY………...17
3.1 Sample and Data………...17
3.2 Variable measures………18 3.2.1 Dependent variables……….……….18 3.2.2 Independent variables………19 3.2.3 Control variables……...………20 3.3 Research Method……….22 3.4 Regression Models………...23 4. RESULTS ………...24 4.1 Descriptive statistics……….24
4.2 Correlations and multicollinearity………....26
4.3 Panel data analysis……….……….29
4.4 Robustness check ……….35
5. CONCLUSION AND LIMITATIONS………...36
5.1 Conclusion………...……….…36
5.2 Limitations and suggestions……….…37
REFERENCES………..39
3
1. INTRODUCTION
It is generally admitted that the degree of attention in corporate social responsibility (hereafter: CSR) studies and its effect on firm’s financial performance has increased in recent years. Although many researchers try to find whether CSR is beneficial for a firm's financial performance, the results remain inconclusive while there are different opinions regarding this relationship. Besides, CSR appears to have various dimensions that make it difficult for researchers to indicate which activities can be characterized as socially responsible (Baird et al., 2012). On the one hand, CSR requires costs that are not in line with economic objectives. Accordingly, Friedman (1970) stated that the primary and only responsibility of a company should be the profit-maximization efforts to satisfy the shareholders' interests. In this vein, CSR policies may be considered irrelevant and harmful when it comes to financial performance since they require costs that are not producing value to shareholders, at least not in a short-term horizon.
In contrast, an opposing view is that CSR can be seen as a crucial determinant that might positively impact financial performance. The stakeholder theory, which was originated by Freeman (1984), suggests that CSR can positively impact a firm's financial performance, in the form of benefits that come from satisfying the demands of various stakeholders. Accordingly, numerous studies have claimed the existence of a relationship between CSR and financial performance, but the results are different. Although there is evidence for the existence of a neutral or negative relationship (Saeidi et al., 2014), the majority of prior publications which empirically examined the link between CSR and financial performance suggest a positive relationship (Orlitzky et al., 2003; Waddock and Graves, 1997; Reverte et al., 2016; Rodriguez-Fernandez, 2016; Giannarakis et al., 2016).
4
environmental standards (Barnett and Salomon, 2006). Besides, several environmental catastrophes of recent years raised attention in environmental awareness specifically, which is a crucial part of the total CSR performance of a company. An example can be found in 2010 when the well-known Deepwater oil spill disaster took place, which can be considered one of the most massive oil spills in history. BP, the company engaged in that event, realized a decline of around 30 billion dollars in market value (Villiers et al., 2011), which confirms that polluting the environment might have a tremendous impact on the relative firm's market value. The disastrous consequences that BP faced gave rise to other company's concerns regarding the environment. Nowadays, the environmental indignity of previous years has shed light on today's competitors to act responsibly, aiming to low-carbon emissions, pollution reduction, and the use of green resources (Alexopoulos et al., 2018). With the increasing awareness on the topic, various stakeholders anticipate that firms engage in environmental activities and express their contribution.
Moreover, industry differences have been examined in quite a few academic papers around the field of CSR (Orlitzky et al., 2003; Endrikat et al., 2014), since it is one of the most important issues that need to be controlled when investigating CSR (Barnea and Rubin, 2010). It is usually argued that CSR's impact on a firm's financial performance can be influenced by the industry in which a company operates (Lin et al., 2015). In line with that, Baird et al. (2012) provided evidence that the CSR-CFP linkage differs across industries, by investigating the potential effects of CSR on CFP using several dimensions of CSR in multiple industries. According to Russo and Fouts (1997), CSR-CFP relationship can be more robust in high-growth industries. They possess several advantages compared to the slowest growing industries, such as more exceptional organizational capabilities, faster
adaption to new technologies, and other intangible assets.
5
While CSR's impact on financial performance depends on the industry in which a firm operates (Lin et al., 2015), it is expected that the association will be more visible in environmentally sensitive industries. Environmentally sensitive industries are those industries whose production process tends to be more harmful to the environment than others (Bansal and Clelland, 2004). Traditionally, these industries operate in a more costly and risky environment (Semenova and Hassel, 2008). This happens because companies in polluting industries face different environmental concerns due to the nature of their operations and are prone to more severe pressure from stakeholders to engage in CSR (Lin et al., 2015). Consequently, the demand for cleaner technologies to mitigate the incurred pollution in the environment may be higher in polluting industries. As Walley and Whitehead (1994) argued more than two decades ago, it is not easy for a firm to invest in the environment since there are considerably significant costs associated with such investments. A more recent study conducted by Semenova and Hassel (2008) provides evidence that environmentally less risky industries generate higher market returns, implying that the CSR-CFP trade-off is stronger than for companies in polluting industries. In that sense, one would argue that due to higher environmental regulations imposed on polluting industries and the increased costs required for ‘green’ investments, CSR engagement is more likely to damage financial performance.
On the other hand, reputation is an essential factor that can give a competitive advantage in firms (Russo and Fouts, 1997). In several papers in the field of CSR, it is argued that CSR initiatives are closely linked to enhanced reputation, which eventually leads to higher financial performance (Wang and Berens, 2015; Hur et al., 2014). Especially in environmentally sensitive industries, companies' public image through investment in pollution reduction and cleaner production is necessary because such companies are more pressured by public and financial stakeholders to disclose their environmental awareness (Lin et al., 2015). Following that, one would expect that the trade-off between CSR and CFP is stronger in polluting industries.
6
“What is the effect of CSR on the financial performance of firms that operate in environmentally sensitive industries? “.
This study aims to examine whether the CSR performance and, more specifically, its environmental aspect, can affect a firm's financial performance, which operates in an environmentally sensitive industry. Clarkson et al. (2011) investigated the link between environmental and financial performance, by using a sample of companies from the most polluting industries in the US: pulp & paper, chemical, oil & gas, and metals & mining. To differentiate from Clarkson et al. (2011) results and complement to his study, this paper also adds companies in the energy, transport, and manufacturing, which are also considered highly polluting industries.
Furthermore, since CSR might also differ geographically wise, due to cultural differences (Danko et al., 2008), the study contributes to the existing literature by further investigating the potential differences between European firms and those based in the US. The selection is based on the fact that the European Union and the United States stand as global environmental leaders (Kelemen and Vogel, 2010). Thus, it would be tempting to see the extent to which firms differ across these two continents.
7
2. LITERATURE REVIEW AND HYPOTHESES
In this section, a definition of CSR and its importance for businesses nowadays is discussed. A theoretical argumentation follows, with theories found in prior research studies behind the link between CSR and financial performance, such as stakeholder theory and resource-based view. Lastly, the next paragraphs concern the hypotheses development of this study.
2.1 Defining Corporate Social Responsibility
Determining the factors that make a company responsible is the first idea that needs to be discussed. Although CSR is extensively analyzed in prior literature, there is no ideal definition to describe the concept correctly. It usually refers to the actions that contribute to society and the environment, without being enforced by law or directly linked to their financial obligations (McWilliams and Siegel, 2001). It is, in essence, the voluntary commitment of companies to be held accountable for societal and environmental needs. As indicated more accurately, "plant closures, employee relations, human rights, corporate ethics, community relations, and the environment" are some indicators of CSR policies (Lance Moir, 2001, p.3). It is usually accompanied by concepts like "corporate citizenship, business ethics, stakeholder management and sustainability" (Carroll and Shabana, 2010, p.86).
8
that implementing CSR can lead to several benefits for businesses, including improving reputation and stakeholder relationships and ultimately leading to higher financial performance (Carroll and Shabana, 2010). It can be seen that numerous definitions exist in the literature, and thus, it makes it more complicated for researchers to choose the most applicable one. Following Dahlsrud's (2008) work, who analyzed 38 available definitions of CSR, the definition provided by the Commission of the European Communities (2001) is the most frequently used. It is as follows: "A concept whereby companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders voluntarily". This definition is, thus, applied in this study.
The further emphasis on the CSR concept can be found on the grounds of the so-called Triple bottom line (TBL), a term that was coined by John Elkington back in 1994. In today's business world, the bottom line refers to a company's profitability. Elkington (1998) presented that the TBL approach is a comprehensive way to measure the profitability of a company by taking into account three bottom lines: 'Profit, People, and Planet.' In essence, for a firm to do well in the long-term and remain sustainable, all three bottom lines need to be met in an equal manner (Goel, 2010; Alhaddi, 2015). People are the social dimension and refer to the company's obligation to safeguard labor rights and societal needs (Elkington, 1998), for instance, by providing healthcare insurance and generous wages to their employees (Alhaddi, 2015). The environmental dimension of the TBL (Planet) refers to companies' responsibility to contribute to the environment by using energy resources and depleting gas emissions, among others (Goel, 2010; Alhaddi, 2015). The third and last dimension in Elkington's framework is the economic one (Profit). It expresses companies' responsibility to produce services and products available for customers, realizing profit (Slaper and Hall, 2011). Finally, companies that keep the balance among the three lines and implement activities based on the TBL approach might face enhanced financial and sustainability performance, which is derived from minimized operational costs and the usage of innovative products (Alhaddi, 2015).
2.2 Theoretical framework
9
study will consider the most relevant views of the stakeholder theory and resource-based view, which are widely used to oppose the neo-classical view of business (CSR only implies costs, without producing any benefits).
To begin with, the neo-classical view developed by Milton Friedman (1970) is one of the theories commonly used to argue that CSR engagement negatively affects financial performance. According to Friedman’s perspective, managers should have a single objective, which is to act on behalf of their owners by maximizing the firm's value. In this vein, any other action, apart from the profit-maximization efforts, will not be in line with their shareholder interest. As he states, corporate social responsibility should exist only on an individual level and not at the expense of the owners of the corporations. Therefore, it can be argued that investments concerning the environment, such as pollution reduction efforts or things that corporations do to contribute to societal needs, will only negatively affect financial performance. The argument behind this claim is that investments associated with CSR require costs that are more necessary for the company's daily operations that generate profit.
10
adequately treated in an ethical and social way if they want to end up with superior financial performance.
In 2001, Michael Jensen in his article "Value Maximization, Stakeholder Theory, and the Corporate Objective Function", has offered his thoughts regarding this ongoing debate between value-maximization and stakeholder theory's perspective of a business. Although he recognizes the importance of taking into account the interests of stakeholders as a means for long-term value maximization, he points out that traditional stakeholder theory fails to provide management with a single objective. Consequently, this might cause inefficiency because, in the end, management of firms ends up trying to satisfy various stakeholders instead of having a single direction, or simply they are more likely to pursue short-term personal interests. As Jensen (2001) states, “having multiple objectives is no objective at
all”. Nevertheless, he proposes a solution to that by introducing the so-called enlightened
stakeholder theory, which is, in essence, a combination of value maximization and stakeholder theory. According to this theory, long-term value maximization should be the priority for a firm. This implies that as long as the effort and costs from satisfying stakeholder’s demand can create more value, firms will eventually take into account those demands.
11
Another theoretical argument well established in the literature is based on the resource-based view (RBV), according to which firms should be evaluated in terms of their resources (Wernerfelt, 1984). Following RBV, firms' assets that can lead to competitive advantage can be characterized as resources, while they can have tangible and intangible forms (Sarkis et al., 2010). For instance, corporate culture (Barney, 1986), and reputation (Hall,1992) can be considered as valuable intangible assets that can contribute to competitive advantage (Russo and Fouts, 1997). Accordingly, since we live in an era where the corporate image is essential for sustainable performance (Russo and Fouts,1997), firms should increase their environmental awareness to enhance their reputation, leading to higher performance (Tan et al., 2017). Hart (1995) extends the RBV by adding that firms are dependent on their natural environment. As he further explains, firms can gain a significant competitive advantage by achieving environmental objectives such as 'pollution prevention', 'product stewardship', and 'sustainable development' (Hart, 1995). Therefore, it can be argued that the implementation of environmental policies will enhance firms' financial performance.
2.3 Hypotheses development
2.3.1 CSR-CFP
As mentioned earlier, there are several beliefs regarding the effects of CSR on corporate financial performance. Empirical evidence provides both positive and negative results, but also no relationship at all. Most empirical results which support the existence of a positive link, are based on the stakeholder theory. As stated by Waddock and Graves (1997), companies that tend to avoid actions in favor of society, to minimize their costs, will end up with lessened competitive power than their peers that act responsibly. From this perspective, it can be argued that financial performance is higher in firms with more exceptional CSR performance. This is consistent with the findings of Orlitzky et al. (2003), who suggested through their meta-analysis that CSR performance can drive reputation up and build solid relationships with external stakeholders, improving in this way their financial performance.
12
CSR and financial performance. This negative link arises from the belief that CSR's additional costs are harmful and not in line with the principal obligation of a company, which is to satisfy shareholder's demands. More specifically, there is evidence provided by Barnea and Rubin (2010) that CSR may sometimes result in conflicts of interest, especially when managers seek to benefit from such investments at the expense of the shareholders of the firm.
As discussed previously, scholars in the literature have well established how significant a good relationship with key-stakeholders is for a firm’s growth and success. With this in mind, Cheng et al. (2014) provided evidence that the CSR-CFP link is positively related, using a panel dataset of firms from 49 different countries from 2002 to 2009. According to their research paper, CSR is associated with better access to finance, which eventually leads to “reduced agency costs due to enhanced stakeholder engagement and reduced
informational asymmetry due to increased transparency” (Cheng et al., 2014).
Undoubtedly, these attributes are essential for a firm's success and can be derived only if a mutual relationship based on trust exists.
While it is true that firms should take various stakeholders’ interests into account, some firms might face more pressure to address their impact on society and the environment, based on the industry they are operating. For instance, firms that operate in polluting industries might be more pressured to engage in CSR because their operations cause environmental pollution. Based on this argument, Lin et al. (2015) classified public listed U.S firms from the S&P 500 index into environmentally sensitive and non-environmentally sensitive. They examined the effect of CSR on financial performance. As expected, the relationship turned out to be significantly positive in environmentally sensitive industries. Interestingly, they concluded that since the demand for CSR engagement is gradually increasing, this relationship will remain positive. Finally, firms that behave responsibly towards society and environment will outperform profit-driven firms that neglect society demands (Lin et al., 2015).
13
(McWilliams and Siegel, 2000), it is expected that this association exists, especially in environmentally sensitive industries where firms rely more on their stakeholders (Lin et al., 2015). Therefore, the first hypothesis of this study is introduced:
H1: CSR performance has a positive impact on the financial performance of firms in
environmentally sensitive industries.
2.3.2 EP-CFP
The relationship between corporate environmental performance and corporate financial performance has been extensively examined in past papers. However, there are still contradictory results that arise from taking different samples and different measures regarding environmental performance (Shen et al., 2019). Numerous studies in the field argue for a positive relationship between corporate environmental performance (CEP) and financial performance (CFP), while others found negative or neutral. Manrique and Marti-Ballester (2017) have conducted a study where the direct effect of corporate environmental performance on corporate financial performance is examined. Using panel regression analysis for a sample of around 3000 firms located in developing or developed countries, they found a positive and significant relationship between CEP and CFP. This implies that firms that adopt environmental practices are more likely to have higher financial performance, which allows them to outperform their competitors. Their findings are consistent with the instrumental stakeholder theory and the natural-resource-based view.
Additionally, Alexopoulos et al. (2018) found that Greek companies in the manufacturing industry that are more profitable may present better environmental performance. This, however, does not seem to work the other way around. Investing in the environment will not necessarily drive profitability up since there are costs associated that can be harmful to a company's financial condition.
14
sector than in the other examined industries. Even though they find a positive relationship when examining the whole sample of companies from the S&P 500 index, the results suggest no significant relationship in the extractive industry. This way, they provide further evidence that industry-specific differences can have a significant impact on the EP-CFP linkage. Also, Shen et al. (2019), in their empirical analysis, examine the effect of environmental performance on financial performance in heavily polluting industries, using data from Chinese listed firms from 2009 to 2014. Based on their findings, they suggest that companies in polluting industries with a low degree of environmental performance should implement environmental policies to enhance their environmental performance, which can lead to better financial performance.
Furthermore, Tan et al. (2017) examined the link between EP and CFP for firms operating in the travel and tourism industries. Additionally, they also linked the EP's dimensions with firms' financial performance, namely, resource reduction, product innovation, and emission reduction. One of the most significant parts of their study is that they based their hypotheses on two perspectives: the "heterogeneous resources and reputation building hypothesis" and the "trade-off hypothesis". While the former is based on stakeholder theory and resource-based, the latter is based on Friedman's neo-classical view of CSR, implying that massive engagement in CER will require costs that worsen financial performance.
Finally, empirical findings in the literature concerning the link between EP and CFP suggest that the relationship depends on the level of environmental performance (Trumpp and Guenther, 2017). More precisely, in contrast with several papers in the field that use linear models, they provide evidence of a U-shaped relationship between financial and environmental performance. Based on the theoretical arguments discussed above and after considering the various empirical results from prior studies, it is expected that the financial performance of firms operating in polluting industries will be positively impacted by their environmental performance. Thus, the following hypothesis is formulated
H2: Environmental Performance has a positive impact on the financial performance of
15
2.3.3 Comparison between European and U.S. firms
When considering the various approaches and empirical evidence around the CSR-CFP link, we can argue that CSR's importance is context-specific and may vary across countries. Given this, several differences may appear regarding how companies from different continents approach CSR, and thus, the effects that CSR has on firms' financial performance will differ substantially.
To begin with, both in Europe and the United States, it is not mandatory for companies to publish CSR reports, which means CSR disclosure depends on the company's willingness to disclose such information (Tschopp, 2005). However, European countries seem more willing to initiate CSR policies. As articulated by Tschopp (2005), companies based in Europe are more consistent with the social and environmental standards and get more pressure from respective governments to prepare reports relative to their social and environmental responsibility. It is also possible that some theoretical aspects will differ across regions. For instance, European firms attribute more value to the stakeholder theory perspective compared to their U.S. peers (Von Arx and Ziegler, 2004). As argued by Von Arx and Ziegler (2004), climate change attention in Europe is closer, which is linked to higher demands of environmental awareness by stakeholders. As a consequence, the impact of environmental performance may be stronger for European companies.
16
Similarly, differences in CSR also exist between these two continents in terms of CSR communication, in the sense that U.S. firms are more likely to communicate CSR by arguing about financial benefits. In contrast, European firms communicate CSR with both financial and sustainability statements (Hartman et al., 2007). Mostly, this can be supportive of the argument that European firms are far more dedicated to sustainability performance, and thus drive stakeholders' attention up, leading in that way in higher financial performance compared to their U.S. peers.
Moreover, the Paris Agreement constitutes a universal climate policy which addresses climate issues and anticipates compliance from organizations around the world to contribute to the global environment. For instance, reducing emissions, use of renewable energy, and eventually, global warming reduction is the ideal goals of this agreement (Saad, 2018). Three years ago, precisely on 1 June 2017, the current President of the U.S. Donald Trump decided to withdraw from the Paris Agreement. However, this choice was subject to extensive criticism with several parts of society expressing their disappointment (Zhang et al., 2017). Additionally, the absence of the U.S. from this agreement potentially allows other continents to take advantage of the situation and become prominent leaders regarding environmental concerns (Zhang et al., 2017). Such a decision would impact the financial performance of U.S. firms. The idea behind this is that it is more likely that various stakeholders and environmentally driven shareholders might lose their trust in U.S. firms and, therefore, return to investing in such companies.
The above arguments are supportive of the study’s expectation that the impact of CSR performance on financial performance is stronger for European firms compared to their U.S. peers. Thus, the following hypotheses can be formulated:
H3: The impact of CSR performance on financial performance is stronger for European
17
3. DATA AND METHODOLOGY
This section starts with a description of the sample used in the study as well as information regarding data collection. Following that, the relevant variables and the means of measurement are being presented. Lastly, the next paragraphs discuss the methodology used to test the study's hypotheses and introduce the formulated models for the regression analysis.
3.1 Sample and Data
This study examines the relationship between CSR performance and the financial performance of firms operating in environmentally sensitive industries. Manufacturing, Energy, Transport, Mining, and Oil and Gas sectors are considered as heavily polluting in this study, and thus, only firms that operate in these industries are included. The subsequent aim is to investigate the environmental pillar of CSR more in-depth due to the nature of the sample and to make a comparison between firms based in Europe and firms in the United States. For the primary analysis, the initial sample consists of 178 firms from the abovementioned industries in total, with data available for the period 2008-2018. Regarding the comparison between Europe and the United States, the initial sample is distinguished into two smaller samples, which result in 56 European firms and 122 U.S. firms. Both samples consist of public listed firms operating in environmentally sensitive industries. FTSE 100, CAC 40, and DAX 30 are the European indexes taken into account for the collection of firms, while the S&P 500 index is considered for the U.S. sample of this study. Information for the companies regarding the industry and the continents they are operating is provided in Appendix 1.
18
firm-year observations.
The following section introduces the relevant variables of the study and the way they are measured.
3.2 Variable measures
3.2.1 Dependent variables
The dependent variable of this study is corporate financial performance. After reviewing the literature, it is found that there are two common ways to measure financial performance, each covering different aspects of financial performance. The first way is to gauge financial performance via accounting-based measures like return on assets or return on equity. The other method is via market-based measures, which are usually either stock returns or Tobin's Q (McGuire et al., 1988). The inconsistency of the results in the link between CSR and financial performance largely depends on the different measurements used for financial performance (Ullmann, 1985). Thus, it is crucial to carefully select the appropriate measures of financial performance, since not doing so may substantially affect the results of the study (McGuire et al., 1988). To improve this research quality, both accounting-based and market-accounting-based measurements are included to capture any potential differences and have a complete view of the relationship.
These types of performance measurements address several different aspects of financial performance, and their interpretation differs substantially. While accounting-based measures can capture a firm's prior financial performance and on a short-term horizon, market-based measures predict the long-term performance and focus on future value (Gentry and Shen, 2010). In addition, accounting-based performance measures reflect unsystematic market movements, as opposed to market-based measures (McGuire et al., 1988). Overall, despite the differences among these types of performance measurements, they can indicate a firm's financial performance sufficiently, and thus it is interesting to include both in the study.
19
most prominent one (McGuire et al., 1988; Waddock and Graves, 1997; Ahamed et al., 2014; Manrique and Marti-Ballester, 2017) and thus, it is included in this study as a proxy of short-term financial performance. ROA is calculated by dividing net income by total assets (Waddock and Graves, 1997).
As far as the market-based indicator of long-term financial performance, Tobin’s Q (TBQ) can be considered as the most adequate and it is widely used in existing literature (Shen et al., 2019; Tan et al., 2017; Dowell et al., 2000; Manrique and Marti-Ballester, 2017). Based on this ratio, firms that have TBQ values higher than one are more likely to have a comparative advantage as well as substantially higher growth opportunities compared to their peers (Rose, 2007; Tan et al., 2017). Following prior research conducted by Lioui and Sharma (2012), in this study, the Tobin's Q ratio is calculated as follows:
𝑇𝐵𝑄 =𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
3.2.2 Independent variables
20
firm's performance is deficient, while firms can have up to a maximum of 100, representing a firm's superiority in terms of CSR and environmental performance. An overview of the relevant ESG categories that constitute the total ESG score is presented in Appendix 2.
3.2.3 Control variables
Next to the dependent and independent variables, three control variables that are commonly used in CSR literature are incorporated in this study to avoid having biased estimations due to omitted variables. In line with previous research papers in the field, the relevant control variables taken into account are firm size, leverage, and R & D ratio.
Firm Size
It is argued that size may affect not only the CSR initiatives of a firm but also financial performance. As far as its effect on CSR is concerned, a common argument is based on the fact that larger firms possess more capacity of financial resources available to allocate in CSR related investments (Waddock and Graves, 1997; Semenova and Hassel, 2008). Similarly, larger firms are more likely to trigger society's attention, and thus, they receive more pressure to respond to social and environmental concerns (Chang et al., 2012). At the same time, a considerably large effect on financial performance is observed. Orlitzky (2001) argues for a positive effect driven by the attraction of highly expert labor in larger firms, which usually leads to better operating performance. Therefore, a positive association between firm size and financial performance is expected. In line with prior recommendations, firm size is measured by the natural logarithm of total assets (Cheng et al., 2014; Tan et al., 2017; Trumpp and Guenther, 2017).
Financial leverage
21
papers that controlled for a firm's risk, leverage is measured as total debt divided by total assets (Waddock and Graves, 1997; Clarkson et al., 2011; Trumpp and Guenther, 2017).
R&D ratio
22
3.3 Research method
The main goal of this study is to examine the direct relationship between CSR performance and its environmental dimension on the financial performance of firms operating in environmentally sensitive industries. Following prior literature, this study employs panel data regression analysis to investigate CSR's impact on financial performance (Manrique and Marti-Ballester, 2017; Tan et al., 2017). The implementation of panel data regression analysis is optimal when data varies across time and entities and control for omitted variables (Boulouta, 2013). After combining financial and ESG data, we end up with an unbalanced panel dataset of 13,937. The first step is to conduct pooled ordinary least squares (OLS) regressions, which assumes no heterogeneity in the dataset. However, it
Table 1. Overview of variables
Abbreviation Variable Type Description
TBQ Tobin’s Q ratio Dependent The sum of market
value of equity and total debt divided by total assets (%)
ROA Return on Assets Dependent Net income divided
by total assets (%)
CSR Corporate social
responsibility performance
Independent Total ESG score
(0-100)
EP Environmental
performance
Independent Environmental
Pillar Score (0-100)
SIZE Firm size Control Natural logarithm
of total assets
LEV Financial leverage
ratio
Control Total debt divided
by total assets (%)
RDratio R&D ratio Control R&D expenses
23
might be the case that there is heterogeneity, which is unobservable. Fixed effects (FE) and random effects (RE) model might solve this issue, and thus, a comparison among these models should be made to see which is of a better fit for this dataset. This method is in line with Tan et al. (2017), who performed several tests for comparison purposes. First of all, the selection between pooled OLS and FE is made by calculating the F-test. In case that the null hypothesis is rejected, FE should be preferred. In the scenario that FE is more appropriate over pooled OLS, Hausman (1978) test allows us to compare between FE or RE method. Finally, on the occasion that pooled OLS turns to be a better fit, the Breush-Pagan test is performed to decide between pooled OLS and RE method.
Following prior studies such as Alexopoulos et al. (2018), the independent variables CSR and EP are lagged by one year. The reason behind this is that CSR is assumed not to affect financial performance immediately, meaning that financial performance depends on the CSR performance of previous years (Waddock and Graves, 1997; Scholtens, 2008). An additional reason to choose for using one-year lagged variables is that it can help in avoiding potential endogeneity issues (Manrique and Marti-Ballester, 2017; Trumpp and Guenther, 2017). Likewise, the control variables are also lagged by one-year.
3.4 Regression models
The first hypothesis of this study assumes a positive association between CSR performance and firms' financial performance. In order to obtain empirical evidence, panel data regression analysis is used for the initial sample of 178 firms. The CSR performance, together with the study's control variables, isis regressed over the dependent variables ROA (accounting-based measure of financial performance) and Tobin’s Q (market-based measure of financial performance).
Hypothesis 1:
i. 𝑅𝑂𝐴𝑖,𝑡 = 𝛽0 + 𝛽1∗ 𝐶𝑆𝑅𝑖,𝑡−1+ 𝛽2∗ 𝑆𝐼𝑍𝐸𝑖,𝑡−1+ 𝛽3∗ 𝐿𝐸𝑉𝑖,𝑡−1+ 𝛽4∗
𝑅𝐷𝑟𝑎𝑡𝑖𝑜𝑖,𝑡−1+ 𝜀𝑖,𝑡
24
Similarly, the second hypothesis of this study is tested by adding EP as an independent variable, using again the whole sample of firms operating in environmentally sensitive industries, resulting in the following regressions.
Hypothesis 2:
i. 𝑅𝑂𝐴𝑖,𝑡 = 𝛽0 + 𝛽1∗ 𝐸𝑃𝑖,𝑡−1 + 𝛽2∗ 𝑆𝐼𝑍𝐸𝑖,𝑡−1+ 𝛽3∗ 𝐿𝐸𝑉𝑖,𝑡−1+ 𝛽4∗
𝑅𝐷𝑟𝑎𝑡𝑖𝑜𝑖,𝑡−1+ 𝜀𝑖,𝑡
ii. 𝑇𝐵𝑄𝑖,𝑡 = 𝛽0+ 𝛽1∗ 𝐸𝑃𝑖,𝑡−1+ 𝛽2∗ 𝑆𝐼𝑍𝐸𝑖,𝑡−1+ 𝛽3∗ 𝐿𝐸𝑉𝑖,𝑡−1+ 𝛽4∗ 𝑅𝐷𝑟𝑎𝑡𝑖𝑜𝑖,𝑡−1+ 𝜀𝑖,𝑡
Lastly, the third hypothesis of the study investigates whether there are differences between firms in Europe and the United States. For this purpose, the same regressions are used for European and U.S. firms separately, with the addition of the Wilcoxon rank-sum test to examine potential differences among variables.
4. RESULTS
In this section, the empirical analysis results are shown, as obtained using the statistical package Stata. Paragraph 4.1 provides the descriptive statistics of the main variables, while the correlation analysis is discussed in paragraph 4.2. Then, paragraph 4.3 presents the results of the panel data regression analysis, starting with the initial sample and followed by the results of the subsamples that concern the comparative analysis. Finally, this section ends with paragraph 4.4, which describes the robustness test of the results.
4.1 Descriptive statistics
25
Descriptive statistics include the total amount of observations, mean, standard deviation, minimum and maximum value of the specific variables.
Table 2. Descriptive Statistics for the initial sample and the subsamples.
Variable Obs Mean Std.Dev Min Max
Entire Sample ROA 1801 7.002 6.365 -46.9 40.5 TBQ 1852 1.474 1.294 0.168 15.187 CSR 1851 61.477 19.736 5.032 95.378 EP 1787 59.745 24.642 0.1 98.715 SIZE 1950 23.728 1.392 17.631 26.850 LEV 1900 0.279 0.144 0 1.179 RDratio 995 8.787 25.594 0.031 540.072 European Sample ROA 600 6.054 4.462 -7.155 34.142 TBQ 610 1.152 0.948 0.169 7.496 CSR 620 71.073 15.286 5.032 95.249 EP 619 71.682 19.432 7.314 98.715 SIZE 625 24.074 1.398 20.689 26.769 LEV 618 0.260 0.137 0.002 0.728 RDratio 327 2.906 2.446 0.031 13.894 U.S. Sample ROA 1201 7.476 7.083 -46.9 40.5 TBQ 1242 1.633 1.408 0.315 15.187 CSR 1230 56.625 19.958 5.059 95.378 EP 1167 53.395 24.771 0.1 98.495 SIZE 1324 23.563 1.358 17.691 26.58 LEV 1281 0.289 0.146 0 1.179 RDratio 668 11.667 30.791 0.116 540.072
26
The total number of observations for most variables are similar and around 1800. As can be seen in table 2, RDratio is the only variable lacking observations because data for research and development is scarcely available, but yet, it is an important variable that should be accounted for in CSR studies (McWilliams and Siegel, 2000). Turning to the study's main variables, table 2 shows that there are visible differences in ROA. Both subsamples exhibit negative ROA values, but the minimum value for U.S. firms (-46.9) is way lower than for European firms (-7.155). However, U.S. firms have higher ROA values on average (7.476) than the European subsample (6.054). The same exists for the second dependent variable of the study (TBQ), where firms in the U.S. have higher values again on average (1.633).
Regarding the independent variables, the average scores for CSR and EP for the entire sample are 61.477 and 59.745, respectively. Here, a visible difference can be seen in both variables, where European firms’ scores in CSR and environmental performance averaged almost 20 units more than U.S. firms. Variables SIZE and LEV do not seem to have significant differences, meaning that the dataset includes firms of similar size and degree of leverage. Finally, the average amount of RDratio in U.S. firms (11.667) is way higher than in European firms (2.906), implying that investments in research and development are given higher importance in the U.S.
4.2 Correlations and multicollinearity
27 Table 3. Pearson’s correlation matrix
Variables ROA TBQ CSR EP SIZE LEV RDratio
ROA 1.000 TBQ 0.475*** 1.000 CSR -0.044* -0.217*** 1.000 EP -0.118*** -0.172*** 0.904*** 1.000 SIZE -0.279*** -0.451*** 0.610*** 0.555*** 1.000 LEV -0.206*** -0.102*** -0.019 0.045* 0.056** 1.000 RDratio -0.250*** 0.300*** -0.157*** -0.106*** -0.180*** -0.033 1.000
Notes: Indicator of significance level: *** p<0.01, ** p<0.05, * p<0.1 All independent and control variables are lagged by one year.
28
From the first look in table 3, it can be seen that the correlations are generally moderate and that almost all the correlation coefficients are statistically significant at the 1% level. The only correlation coefficient that exceeds the critical level of 0.8 Is the one concerning the correlation between EP and CSR, which is positive and significant (0.904, p < 0.01). However, this is not an issue since environmental performance is one of the dimensions comprising the total CSR performance, and hence, this correlation is expected. A significant positive correlation is also observed between the two financial performance measures: ROA and TBQ (0.475, p < 0.01). Again, both variables measure financial performance and are regressed in different models so that no multicollinearity will arise.
Moreover, ROA shows significant negative correlations with all independent and control variables, where the highest is with that of variable SIZE (-0.279, p < 0.01.), which is opposite to what expected. A similar pattern is observed for TBQ, which appears to be negatively correlated with the independent and control variables at a 1% significance level. The only control variable that does not follow this pattern is RDratio, which shows a positive and statistically significant correlation with TBQ (0.3, p < 0.01). Lastly, variable SIZE shows significant correlations with all the dependent and independent variables, of which CSR and EP are the highest (0.610, p < 0.01; 0.555, p < 0.01, respectively).
29
3 Panel data analysis
This paragraph starts with the regression results of the first and second hypotheses being presented in table 5. Models 1-6 are regressed using the most applicable method based on the outcome of the relevant tests, as described in paragraph 3.3. Models 1-3 include ROA as the dependent variable and seek to explain the CSR-CFP and EP-CFP relationships. Likewise, models 4-6 aim to examine the same relationships, using TBQ as the dependent variable. After that, a comparison between European and U.S. firms is made, and results are presented in Table 6.
According to Tan et al. (2017), the first step is to conduct the F-test for comparison between the pooled OLS and the fixed-effects model. As shown in appendix 3, the null hypothesis is rejected at the 1% significance level, implying that the fixed effects model is of a better fit for this specific dataset. Thereafter, the Breusch-Pagan Lagrange multiplier test (LM test) was conducted to compare random effects with pooled OLS. Here again, the results of the LM test, as presented in appendix 3, indicate that random effects are more appropriate than pooled OLS since the null hypothesis is rejected at the 1% level. Also, the Hausman test was conducted to choose between fixed effects and random effects. The results (see Appendix 3) indicate that the fixed effect model better fits the dataset, and thus, models 1-6 are regressed using fixed effects.
30 Hypotheses 1 and 2
Hypothesis 1 examines the effect of CSR on the financial performance of firms operating in environmentally sensitive industries and proposes a positive direct effect, based on the theoretical arguments of the stakeholder theory and resource-based view. The relationship is expected to have the same positive direction under Hypothesis 2, where the EP-CFP relationship is examined. Models 1 to 3 include return on assets (ROA) as a proxy of short-term financial performance, while models 4 to 6 use Tobin’s Q ratio (TBQ) to capture CSR and EP's effect on long-term financial performance. Model 1 starts with the control variables being regressed over ROA. Following that, model 2 adds the first independent variable of the study (CSR), while model 3 includes the second independent variable (EP), together with CSR and the relevant control variables. The same pattern is followed in Models 4-6, but here, independent and control variables are regressed over TBQ. Table 5 above
As can be seen in table 5 control variable SIZE turns out to have a significant negative influence on financial performance in every model (0.720, p < 0.1; 1.471, p < 0.05; -1.143, p < 0.1; -0.183, p < 0.05; -0.267, p < 0.1; -0.263, p < 0.1). This, in turn, means that smaller firms in size can be benefited more than larger ones from the CSR-CFP trade-off. Although it opposes the study's expectations, this is consistent with Manrique and Marti-Ballester (2017) findings. The same negative and significant association holds for control variable RDratio when CSR is included in the regression, which is also opposed to the study's expectations. Lastly, the control variable LEV shows an insignificant association with financial performance, implying that the degree of financial leverage affects a firm's financial performance neither in the short-term nor in the long-term horizon.
31
operations in new environmental standards and invest in pollution prevention. At the same time, they are most prone to society's criticism regarding their CSR engagement. As such, the benefits arising from acting responsibly in favor of society and environment accounts only for the short-term, implying that these firms have to continuously increase their CSR performance by being in line with the needs of key stakeholders. Consequently, if they wish to benefit from that positive influence in profitability that CSR engagement has to offer, they will need to focus on short-term investment plans.
32
Table 5. Panel data fixed effects regression results for the initial sample and the period 2008-2018.
ROA TBQ
Model 1 Model 2 Model 3 1-3 Comb. Model 4 Model 5 Model 6 1-3 Comb.
33 Hypothesis 3
The subsequent aim of the study is to make a comparison between two continents, which are the European Union and the United States. Hypothesis 3 of this study predicts that the CSR-CFP relationship is more substantial in firms based in Europe. For the investigation of this hypothesis, two different subsamples will be used for the regression of models 1-6. The first includes only European firms from environmentally sensitive industries, while the other concerns only firms based in the United States. The examined period remains the same, which is from 2008 to 2018. The results of the panel data regressions are shown in table 6 below.
First, before the regressions are performed, the Wilcoxon rank-sum statistical test was conducted to check the variables for differences between the two continents. The results of the test can be found in table 7. As can be seen, the null hypothesis is rejected at the 1% significance level, implying that all variables have significant differences when comparing the two subsamples. Following that, models 1-6 are regressed for both subsamples, as
Table 6 shows.
34
Table 6. Panel data fixed effects regression results for European and U.S. subsamples for the period 2008-2018
European firms U.S. firms
ROA TBQ ROA TBQ
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Controls SIZE -0.694 (0.42) -1.462** (0.42) -1.485** (0.45) -0.048 (0.04) -0.093 (0.06) -0.093 (0.06) -0.682 (0.39) -1.500** (0.47) -1.456** (0.52) -0.207* (0.09) -0.303* (0.14) -0.372* (0.15) LEV -3.007 (3.80) -3.594 (2.84) -3.609 (2.83) 0.017 (0.22) -0.012 (0.19) -0.012 (0.19) -1.099 (2.81) -0.152 (3.09) -1.193 (4.41) 0.666 (0.74) 0.870 (0.80) 1.106 (1.07) RDratio -0.100 (0.24) 0.010 (0.21) 0.011 (0.21) -0.001 (0.01) 0.006 (0.01) 0.006 (0.01) -0.066*** (0.00) -0.066*** (0.00) -0.159 (0.08) -0.010*** (0.00) -0.010*** (0.00) -0.006 (0.01) Independent CSR 0.103** (0.04) - - 0.006 (0.00) - - 0.083* (0.03) - - 0.008 (0.01) - - EP - - 0.007 (0.03) - - 0.000 (0.00) - - 0.010 (0.03) - - 0.001 (0.00) Constant 24.043* (10.84) 34.796*** (9.71) 35.194** (10.02) 2.301* (1.02) 2.930* (1.29) 2.932* (1.31) 25.344** (9.54) 39.543*** (10.29) 40.237*** (10.88) 6.721** (2.19) 8.435** (3.08) 9.797** (3.33) Observations 306 304 304 314 312 312 574 553 516 602 577 535 F-statistic 1.04 3.44** 2.75** 0.44 1 0.92 423.48*** 456.10*** 4.62*** 675.85*** 787.35*** 2.21* R2 0.032 0.116 0.116 0.010 0.035 0.035 0.091 0.114 0.049 0.096 0.105 0.053 Adjusted R2 0.022 0.104 0.101 0.001 0.022 0.019 0.087 0.108 0.040 0.091 0.099 0.044
35
Looking at the control variables, an observable difference is found under models 4,5 and 6. While the coefficients are insignificant when regressions run for the European subsamples, they turn out to be slightly significant for the U.S. subsample. This implies that the firm size does not affect long-term financial performance (TBQ), but this is not the case for the U.S. It seems that larger U.S. based firms are negatively impacted since when prior firm size increase, a decrease in long-term financial performance is realized (-0.207, p < 0.1; -0.303, p < 0.1; -0.372, p < 0.1). Lastly, differences in variable RDratio worth attention. Here, investments in research and development seem to negatively affect only U.S. firms (-0.066, p < 0.01; -0.010, p <0.01.), since one unit change in R&D investments would reduce short-term financial performance (ROA) by -6.6% and long-term financial performance (TBQ) by -1%.
4.4 Robustness check
36
5. CONCLUSION AND LIMITATIONS
5.1 Conclusion
Although many empirical studies around CSR examine its impact on financial performance, the inconsistent findings leave space for other researchers to examine the relationship further. This thesis attempts to fill this gap in the previous literature and investigate the impact of CSR performance on financial performance, focusing on specific industries that are highly polluting. Based on the theoretical arguments of the stakeholder theory and resource-based view, it is hypothesized that an increase in CSR performance of firms operating in such industries will offer better financial performance. Due to their high dependence on key stakeholders and the extensive pressure to disclose their environmental responsibility, it is expected that firms in polluting industries are more likely to invest in CSR and thus take advantage of the benefits that might arise when acting responsibly. In addition, the subsequent aim of the thesis is to investigate whether the relationship is different among continents. Thus, a comparison between firms in Europe and the U.S. has been made.
To obtain empirical evidence, a panel data regression analysis is conducted in this thesis. Data was collected for 178 European and U.S. publicly listed firms from industries such as oil & gas, metals & mining, transportation, energy, and manufacturing over the 2008-2018 period. Following Manrique and Marti-Ballester (2017), both accounting-based (ROA) and market-based (TBQ) measures are used to assess short-term and long-term financial performance, respectively. Both financial and ESG data of the relevant firms were collected from the Thomson Reuter database provided by Eikon. Lastly, for continental comparison, two subsamples were used, including only European and the other only U.S. firms.
37
financial performance might increase by their responsible actions can make them adjust their CSR investments, focusing on short-term plans.
Another key finding of this thesis is that CSR-CFP relationship in the polluting industries is indeed stronger for European firms, providing in that way evidence that there are cultural differences that may influence the benefits arising from CSR. This can give space for further research since no study examines continental differences in environmentally sensitive industries.
Altogether, the thesis results contribute to the existing literature by closing the gap in the highly debatable CSR-CFP link, focusing on environmentally sensitive industries. The positive and significant association found in the study implies that, even though CSR investments require high costs, management of companies should consider finding ways to increase CSR performance. In that way, they can see an increase in financial performance, which is observed in a short-term horizon. Therefore, even though prior literature argues that the costs and effort associated with the CSR engagement are likely to damage financial performance, the thesis provides evidence of the opposite, supporting Lin et al. (2015). They found this relationship to be positive due to reputation enhancement, among others. Lastly, the findings in this thesis draw attention in the polluting industries and allow further research to examine potential differences among those industries.
5.2 Limitations and suggestions
This thesis might suffer from potential limitations. First of all, following prior literature, fixed effects regression models were used, a widely used method to investigate the CSR-CFP link (Tan et al., 2017; Manrique and Marti-Ballester, 2017). A suggestion would be that other means of regression analysis can be used by researchers and check the results using these specific variables. Although this study contributes to the existing literature by finding evidence for the existence of a positive CSR-CFP relationship in environmentally sensitive industries, further research should aim for higher adjusted R-squared.
38
subjective, and this might be another limitation. It would have been of great interest to see further research to extend this selection and include firms from more industries that are considered highly polluting.
Moreover, a potential limitation of the thesis might be the relatively small sample size to assess CSR's impact on financial performance, which might also be the reason for insignificant results (Elsayed and Paton, 2005). When separating the initial sample for comparison purposes, the European subsample consists of 56 firms. Further research can add more firms from several European countries for more specified conclusions.
39
REFERENCES
Ahamed, W. S. W., Almsafir, M. K., & Al-Smadi, A. W. (2014). Does corporate social responsibility lead to improve in firm financial performance? Evidence from Malaysia. International Journal of Economics and Finance, 6(3), 126-138.
Alexopoulos, I., Kounetas, K., & Tzelepis, D. (2018). Environmental and financial performance. Is there a win-win or a win-loss situation? Evidence from the Greek manufacturing. Journal of Cleaner Production, 197, 1275-1283.
Alhaddi, H. (2015). Triple bottom line and sustainability: A literature review. Business and Management Studies, 1(2), 6-10.
Baird, P. L., Geylani, P. C., & Roberts, J. A. (2012). Corporate social and financial performance re-examined: Industry effects in a linear mixed model analysis. Journal of business ethics, 109(3), 367-388.
Bansal, P., & Clelland, I. (2004). Talking trash: Legitimacy, impression management, and unsystematic risk in the context of the natural environment. Academy of Management journal, 47(1), 93-103.
Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of business ethics, 97(1), 71-86.
Barnett, M. L., & Salomon, R. M. (2006). Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance. Strategic management journal, 27(11), 1101-1122.
40
Boulouta, I. (2013). Hidden connections: The link between board gender diversity and corporate social performance. Journal of business ethics, 113(2), 185-197.
Carroll, A. B., & Shabana, K. M. (2010). The business case for corporate social responsibility: A review of concepts, research and practice. International journal of management reviews, 12(1), 85-105.
Chang, Y. K., Oh, W. Y., Jung, J. C., & Lee, J. Y. (2012). Firm size and corporate social performance: The mediating role of outside director representation. Journal of Leadership & Organizational Studies, 19(4), 486-500.
Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic management journal, 35(1), 1-23.
Clarkson, M. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of management review, 20(1), 92-117.
Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2011). Does it really pay to be green? Determinants and consequences of proactive environmental strategies. Journal of Accounting and Public Policy, 30(2), 122-144.
Commission of the European Communities. 2001. Promoting a European Framework for Corporate Social Responsibilities, COM (2001) 366 final, Brussels.
Dahlsrud, A. (2008). How corporate social responsibility is defined: an analysis of 37 definitions. Corporate social responsibility and environmental management, 15(1), 1-13.
Danko, D., Goldberg, J. S., Goldberg, S. R., & Grant, R. (2008). Corporate social
responsibility: The united states vs. Europe. Journal of Corporate Accounting & Finance, 19(6), 41-47.
41
characteristics on firm environmental performance. Journal of Management, 37(6), 1636-1663.
Dowell, G., Hart, S., & Yeung, B. (2000). Do corporate global environmental standards create or destroy market value?. Management science, 46(8), 1059-1074.
Elkington, J. (1998). Partnerships from cannibals with forks: The triple bottom line of 21st‐century business. Environmental quality management, 8(1), 37-51.
Elsayed, K., & Paton, D. (2005). The impact of environmental performance on firm performance: static and dynamic panel data evidence. Structural change and economic dynamics, 16(3), 395-412.
Endrikat, J., Guenther, E., & Hoppe, H. (2014). Making sense of conflicting empirical findings: A meta-analytic review of the relationship between corporate environmental and financial performance. European Management Journal, 32(5), 735-751.
Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge university press.
Friedman, M. (2007). The social responsibility of business is to increase its profits. In Corporate ethics and corporate governance (pp. 173-178). Springer, Berlin, Heidelberg.
Gentry, R. J., & Shen, W. (2010). The relationship between accounting and market measures of firm financial performance: How strong is it?. Journal of managerial issues, 514-530.
42
Goel, P. (2010). Triple Bottom Line Reporting: An Analytical Approach for Corporate Sustainability. Journal of Finance, Accounting & Management, 1(1).
Greene, W. H. (2000). Econometric analysis 4th edition. International edition, New Jersey: Prentice Hall, 201-215.
Hall, R. (1992). The strategic analysis of intangible resources. Strategic management journal, 13(2), 135-144.
Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of management review, 20(4), 986-1014.
Hartman, L. P., Rubin, R. S., & Dhanda, K. K. (2007). The communication of corporate social responsibility: United States and European Union multinational corporations. Journal of Business Ethics, 74(4), 373-389.
Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the econometric society, 1251-1271.
Hurst, N. E. (2004). Corporate ethics, governance and social responsibility: Comparing European business practices to those in the United States. A Study Conducted for the Business and Organizational Ethics Partnership Markkula Center for Applied Ethics Santa Clara University, Spring.
Hur, W. M., Kim, H., & Woo, J. (2014). How CSR leads to corporate brand equity: Mediating mechanisms of corporate brand credibility and reputation. Journal of Business Ethics, 125(1), 75-86.
Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of applied corporate finance, 14(3), 8-21.
43
Judge, G. G., Hill, R. C., Griffiths, W. E., Lütkepohl, H., & Lee, T. C.
(1988). Introduction to the Theory and Practice of Econometrics (No. 330.015195 I61 1988). J. Wiley.
Kelemen, R. D., & Vogel, D. (2010). Trading places: The role of the United States and the European Union in international environmental politics. Comparative Political Studies, 43(4), 427-456.
Lin, C. S., Chang, R. Y., & Dang, V. T. (2015). An integrated model to explain how corporate social responsibility affects corporate financial performance. Sustainability, 7(7), 8292-8311.
Lioui, A., & Sharma, Z. (2012). Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects. Ecological Economics, 78, 100-111.
Manrique, S., & Martí-Ballester, C. P. (2017). Analyzing the effect of corporate environmental performance on corporate financial performance in developed and developing countries. Sustainability, 9(11), 1957.
McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of management Journal, 31(4), 854-872.
McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification?. Strategic management journal, 21(5), 603-609.
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of management review, 26(1), 117-127.
44
Neter, J., Wasserman, W., & Kutner, M. H. (1985). Applied linear statistical models: Regression, analysis of variance, and experimental designs, Homewood, IL: Richard D. Irwin. Inc.[701].
Nikolova, V., & Arsić, S. (2017). The stakeholder approach in corporate social responsibility. Engineering management, 3(1), 24-35.
Orlitzky, M. (2001). Does firm size confound the relationship between corporate social performance and firm financial performance?. Journal of Business Ethics, 33(2), 167-180.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization studies, 24(3), 403-441.
Padgett, R. C., & Galan, J. I. (2010). The effect of R&D intensity on corporate social responsibility. Journal of Business Ethics, 93(3), 407-418.
Roberts, R. W. (1992). Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, organizations and society, 17(6), 595-612.
Reverte, C., Gomez-Melero, E., & Cegarra-Navarro, J. G. (2016). The influence of corporate social responsibility practices on organizational performance: evidence from Eco-Responsible Spanish firms. Journal of Cleaner Production, 112, 2870-2884.
Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role of good corporate governance. BRQ Business Research Quarterly, 19(2), 137-151.
Rose, C. (2007). Does female board representation influence firm performance? The Danish evidence. Corporate Governance: An International Review, 15(2), 404-413.
45
534-559.
Saad, A. (2018). Pathways of Harm: The Consequences of Trump's Withdrawal from the Paris Climate Agreement. Environmental Justice, 11(1), 47-51.
Saeidi, S. P., Sofian, S., Saeidi, P., Saeidi, S. P., & Saaeidi, S. A. (2015). How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of business research, 68(2), 341-350.
Sarkis, J., Gonzalez-Torre, P., & Adenso-Diaz, B. (2010). Stakeholder pressure and the adoption of environmental practices: The mediating effect of training. Journal of operations Management, 28(2), 163-176.
Schoenherr, T., & Talluri, S. (2012). Environmental sustainability initiatives: A
comparative analysis of plant efficiencies in Europe and the US. IEEE Transactions on Engineering Management, 60(2), 353-365.
Scholtens, B. (2008). A note on the interaction between corporate social responsibility and financial performance. Ecological economics, 68(1-2), 46-55.
Semenova, N., & Hassel, L. G. (2008). Industry risk moderates the relation between environmental and financial performance. Sustainable Investment Research Platform Working Papers, 08-02.
Shen, F., Ma, Y., Wang, R., Pan, N., & Meng, Z. (2019). Does environmental
performance affect financial performance? Evidence from Chinese listed companies in heavily polluting industries. Quality & Quantity, 53(4), 1941-1958.
Slaper, T. F., & Hall, T. J. (2011). The triple bottom line: What is it and how does it work. Indiana business review, 86(1), 4-8.
46
dimensions of environmental performance on firm performance in travel and tourism industry. Journal of environmental management, 203, 603-611.
Trumpp, C., & Guenther, T. (2017). Too little or too much? Exploring U‐shaped relationships between corporate environmental performance and corporate financial performance. Business Strategy and the Environment, 26(1), 49-68.
Tschopp, D. J. (2005). Corporate social responsibility: a comparison between the United States and the European Union. Corporate Social Responsibility and Environmental Management, 12(1), 55-59.
Ullmann, A. A. (1985). Data in search of a theory: A critical examination of the
relationships among social performance, social disclosure, and economic performance of US firms. Academy of management review, 10(3), 540-557.
Van Beurden, P., & Gössling, T. (2008). The worth of values–a literature review on the relation between corporate social and financial performance. Journal of business
ethics, 82(2), 407.
Vincent, O., & Yusuff, K. (2020). Role of Industry Context in The Firm Environmental-Financial Performance Link: Evidence from the Extractive Sector. The Journal of Developing Areas, 54(1).
Von Arx, U., & Ziegler, A. (2014). The effect of corporate social responsibility on stock performance: New evidence for the USA and Europe. Quantitative Finance, 14(6), 977-991.
