Financial performance: the motivation behind corporate social responsibility reporting

Abstract

Corporate Social Responsibility (CSR) reporting has become an increasing trend in the corporate world. It is a relatively new concept but has become a major research topic in the accounting profession. The motivations behind why companies make voluntary CSR disclosures are unclear. Does a firm really spend its shareholders funds without some kind of return?

This paper aims to empirically explore the relationship between CSR and financial performance to see if this is what motivates firms to disclose voluntary CSR activities. This paper provides a New Zealand perspective on the topic using 125 firms from the NZSX. The relationship between CSR and financial performance is compared in two broad industries, the production industry and the service industry. This is carried out to see if there is a difference in the relationship between CSR and financial performance across different industries. A comparison of the relationship between CSR and financial performance across industries has been suggested but has never been empirically tested.

The results suggest that the industry a firm operates in has a large effect on the relationship between CSR and financial performance. Only firms in the production industry seemed to benefit financially from reporting more CSR. There is evidence of legitimacy theory as those firms in the production industry are often more publicly exposed or have a greater impact on the environment.