The aim of this paper is to find an answer to a question that has received extended attention in prior literature, but for which evidence provided has not yet reached a single unanimous consent: is there an association between companies’ corporate sustainability performance (CSP), as measured by inclusion in Dow Jones Sustainability Index Europe (DJSI Europe), and their corporate financial performance, proxied by return on assets (ROA) and return on equity (ROE)? The paper adopts pooled ordinary least square (OLS) regression models, as well as fixed effects (FE) panel data models to focus on the association between CFP and CSP in a cross-country analysis based on European companies. The application of OLS models reveals a significantly strong positive impact of high CSP on CFP, when proxied by ROA and a neutral relation when measured by ROE. Under the FE models, the coefficient for CSP is statistically insignificant when CFP is measured by ROA. A negative relation is found when CFP is measured by ROE and CSP is proxied by a measure that assesses inclusion in DJSI Europe on an annual basis. When the analysis is taken a step further, to include temporal consistency in the construction of the CSP, the sign of the association changes - for ROE, or becomes significantly positive - for ROA. Our analysis therefore suggests that when simultaneity biases are included in the model, and once temporal effects are controlled for, CSP and CFP are positively related, when CFP is measured by either ROA or ROE. Overall, the findings suggest that the CSP – CFP relation is sensitive to firm specific heterogeneity, and the choice of proxy for each of the two types of performance.
1. Artiach, T., Lee, D., Nelson, D. and Walker, J. (2010), The determinants of corporate sustainability performance, Accounting and Finance, 50: 31–51.
2. Bauer, R., Koedijk, K. and Otten, R., (2005), International evidence on ethical mutual fund performance and investment style, Journal of Banking and Finance, 29: 1751–1767.
3. Baum, C.F. (2006), An introduction to modern econometrics using Stata, Stata Press, Texas.
4. Becchetti, L., Di Giacomo, S., Pinnacchio, D., (2008), Corporate social responsibility and corporate performance: evidence from a panel of US listed companies, Applied Economics, 40: 541–567.
5. Carroll, A.B. (1979), A three-dimensional conceptual model of corporate performance, Academy of Management Review, 4: 497–505.
6. Carroll, A.B. and Shabana K.M. (2010), The business case for corporate social responsibility: Areview of concepts, research and practice, International Journal of Management reviews, 12 (1): 85-105.
7. Cheung, A., (2011), Do stock investors value corporate sustainability? Evidence from an event study, Journal of Business Ethics, 99: 145-165.
8. Cormier, D. and Magnan M. (2007), The revisited contribution of environmental reporting to investors’ valuation of a firm’s earnings: An international perspective, Ecological Economics, 62: 613-626.
9. 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: 395–412.
10. Garcia-Castro, R., Arino, M.A. and Canela, M.A. (2010), Does social performance really lead to financial performance? Accounting for endogeneity, Journal of Business Ethics, 92: 107–126.
11. Graves, S.B. and Waddock S.A. (2000), Beyond Built to Last…Stakeholder Relations in Built to Last Companies, Business and Society Review, 105: 393–418.
12. Griffin, J. J. and Mahon, J. F. (1997), The corporate social performance and corporate financial performance debate, Business & Society, 36 (1): 5-26.
13. Hillman, A.J. and Keim G.D. (2001), Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line?, Strategic Management Journal 22 (2): 125–139.
14. Kennedy, P. (1992), A Guide to Econometrics, Cambridge, MA: MIT Press.
15. King, A.A. and Lenox, M.J. (2001), Does it really pay to be green? An empirical study of firm environmental and financial performance, Journal of Industrial Ecology, 5 (1): 105-116.
16. Konar, S. and Cohen M.A. (2001), Does the market value environmental performance, The Review of Economics and Statistics, 83 (2): 281-289.
17. KPMG, (2005), International survey of corporate responsibility reporting. Amsterdam: KPMG.
18. KPMG, (2008), International survey of corporate responsibility reporting. Amsterdam: KPMG.
19. KPMG, (2011), International survey of corporate responsibility reporting. Amsterdam: KPMG
20. Lourenço, I.C., Branco, M.C., Curto, J.D. and Eugenio T. (2012), How does the market value corporate sustainability performance?, Journal of Business Ethics, 108: 417-428.
21. Margolis, J.D. and Walsh, J.P. (2001), People and pro?ts? The search for a link between a company’s social and financial performance, Mahwah, NJ: Lawrence Erlbaum Associates.
22. Margolis, J.D., Elfenbein, H.A. and Walsh, J.P. (2007), Does it pay to be good? A meta-analysis and redirection of research on the relationship between corporate social and ?nancial performance, working paper, Boston: Harvard Business School. Available online at>>> http://stakeholder.bu.edu/docs/walsh, %20jim%20does%20it%20pay%20to%20be%20good.pdf
23. McGuire, J.B., Sundgren, A. and Schneeweis, T. (1988), Corporate social responsibility and firm financial performance, Academy of Management Journal, 31 (4): 854-872.
24. McWilliams, A. and Siegel, D. (2000), Corporate social responsibility and financial performance: correlation or misspecification?. Strategic Management Journal, 21: 603–609.
25. McWilliams, A., Siegel, D. and Wright, P.M. (2006), Guest editors’ introduction: Corporate social responsibility: strategic implications, Journal of Management Studies, 43 (1): 1-18.
26. Orlitzky, M., Schmidt, F.L. and Rynes, S.L. (2003), Corporate social and financial performance: A meta-analysis, Organization Studies, 24 (3): 403–441.
27. Roberts, R.W. (1992), Determinants of corporate social responsibility disclosure: An application of stakeholder theory, Accounting, Organizations and Society, 17 (6): 595-612.
28. Scholtens, B. (2008), A note on the interaction between corporate social responsibility and financial performance. Ecological Economics, 68 (1-2): 46-55.
29. Telle, K. (2006) “It pays to be green”—a premature conclusion?, Environmental and Resource Economics, 35: 195–220.
30. Trotman, K.T. and Bradley, G.W. (1981), Associations between social responsibility disclosure and characteristics of companies, Accounting, Organizations and Society, 6 (4): 355-362.
31. Ullmann, A.E., (1985), Data in search of a theory: A critical examination of the relations among social performance, social disclosure and economic performance of U.S. firms, Academy of Management Review, 10 (3): 540–557.
32. Waddock, S. A. and Graves, S. B. (1997), The corporate social performance–financial performance link, Strategic Management Journal, 18: 303-319.
33. Wang, H. and Choi, J. (2013), A New Look at the Corporate Social–Financial Performance Relation: The Moderating Roles of Temporal and Interdomain Consistency in Corporate Social Performance, Journal of Management, 39 (2): 416-441.
34. Wood, D.J. (1991), Corporate social performance revisited, Academy of Management Review, 16: 691–718.
35. Wood, D. J. and Jones, R. E. (1995), Stakeholder mismatching: A theoretical problem in empirical research on corporate social performance, The International Journal of Organizational Analysis, 3(3): 229–267.
36. Wood, D. J. (2010), Measuring corporate social performance: A review, International Journal of Management Reviews, 12(1): 50-84.
37. Ziegler, A. and Schröder, M. (2010), What determines the inclusion in a sustainability stock index? A panel data analysis for European firms, Ecological Economics, 69: 848–856.
38. Ziegler, A. (2012), Is it beneficial to be included in a sustainability stock index? A panel data study for European firms, Environmental Resource Economics, 52: 301-325.
39. *** STOXX® Europe 600 Index web page, accessed 8th of April 2013, available online at>>> http://www.stoxx.com/indices/index_information.html?symbol=SXXP
40. *** DJSI Guidebook, 2012, accessed 16th of January, available online at>>> http://www.sustainability-index.com/images/djsi-world-guidebook_tcm1071-337244.pdf
41. *** DJSI Europe Index Guide, 2013, Version 2.1, accessed 30th of April, available online at>>> http://www.sustainability-indices.com/images/djsi-europe-guidebook_tcm1071-337250.pdf
Copyright: © 2013 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
