Much of the literature in social responsibility has focused on the link between firm’s social responsibility and FP, particularly profitability. This is maybe to bring into perspective a strong case for justifying CSR investments for the business. Orlitzky et al found a statistically strong correlation between a firm’s social performance and FP. McWilliams and Seigel found a positive relationship between CSR investments and a firm’s profitability. Most of the research that links CSR to profitability has concluded that CSR investments reap better financial returns to organizations, both in marketing measures and in accounting measures.
There is a positive relationship between a company’s internal CSR activities and corporate financial performance. There is a positive relationship between a company’s external CSR activities and corporate financial performance.
Reputational capital and firm performance
Reputational capital is an organization’s stock of perceptual and social assets – the quality of the relationship it has established with stakeholders and the regard in which the company and brand is held. According to Carmelli and Tishler, perceived organizational reputation is related to organizational performance. And reputation serves as an immune system to the organization, which leads to better organizational performance.
There is a positive relationship between reputational capital and corporate financial performance. There is a positive relationship between reputational capital and perceived organizational performance.
Social capital and firm performance
Corporate social capital is a phenomenon explained by a network of relationships that facilitates resource building and resource development categorized as an intangible asset. Leana and Van Buren studied the link between social capital and organizational performance and found social capital to be a strong predictor of firm performance. A substantial number of studies have worked upon social capital and firm performance and concluded that networking and its related resources are an important contribution to the economic performance of a firm.
There is a positive relationship between social capital and corporate financial performance. There is a positive relationship between social capital and perceived organizational performance.
The field of corporate social responsibility has grown exponentially in the last decade. More than half of the Fortune 1000 companies issue CSR reports. A larger number of companies than at any time previous are engaged in a serious effort to define and integrate CSR into all aspects of their businesses. An increasing number of shareholders, analysts, regulators, activists, labour unions, employees, community organizations, and news media are asking companies to be accountable for an ever-changing set of CSR issues. There is increasing demand for transparency and growing expectations that corporations measure, report, and continuously improve their social, environmental, and economic performance.
Different firms worldwide investing huge amounts on CSR to enhance its FP through retaining the current employees, attracting new brilliant employees, attracting shareholders due to the strong image created by the firm’s CSR which leads to the better FP. Performance is generally considered in two ways end results and the means to achieve the results. Financial performance is measuring the results of a firm’s policies and operations in monetary terms. These results are reflected in the firm’s return on investment, return on assets, value added. A subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm’s overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.
The optimistic involvement of CSR has a probability to the advancement of society and businesses. The interest on the CSR is rising due to its potential of persuading firm’s performance. The CSR strategies and operations in market and non-market have impact on performance of business. The empirical studies over the years states that there are essentially two type of study of the relationship between CSR and financial performance. The CSR have significant positive correlation with financial performance measure. There are two measure to evaluate the financial performance and CSR in which one is market measure and other one is accounting measure used by the researchers when firms engage in either socially responsible or irresponsible activities initially uses the event study methodology to evaluate the short-run financial impact. The second type of study using accounting or financial measures of profitability to examines the relationship between measures of long term financial performance, and some measure of corporate social performance.
Corporate social responsibility manages reputation by creating good image in the mind of customers, suppliers etc. Stakeholders will think that when a company is fulfilling its social responsibility then how it is possible that it will do anything bad for them, so their trust will enhance on company. Stakeholders trust will impact on company’s profitability and success. Therefore, it is concluded that corporate social responsibility has positive impact on the financial performance of a firm. One of the study concluded that CSR has a positive impact on the firm’s financial performance. Those firms which do not pay attention on CSR’s activities have not good financial performance as compared to those who are responsible in performing social activities. On the other hand, firm’s profit can be reduced due to higher cost occur on performing social activities. Those firms which play role for the welfare of society avoid the cost arising from people’s claims about their safety. When firms do not consider the influence of its operations on environment or society then it creates a bad image in the mind of customers and sales decrease.
CSR’s activities such as donations, activities for the welfare of its employees and society etc. create a good image in the consumer’s mind and protect the firm from decrease in sales. Firm performs its CSR toward lenders by paying back loans and installments as they become due and towards shareholders by giving appropriate portion of their share from firm’s earning continuously. By taking such actions, lenders and investors will attract towards company and continue to contribute their money in the firm; therefore firm’s financial condition will improve.
Another study concluded that, if firm works for the welfare of its employees, suppliers, investors, and consumers etc. then it will be profitable. If a company makes rules and regulation about the needs and satisfaction of its employees such as rules for safe working environment, that is the evidence of the company’s social responsibilities towards them. Employee satisfaction impacts on their performance and ultimately financial performance improvisation. While making and promoting the product, company should consider all the concerns related to the product including any side effects, harms, associated dangers or even affordability in reasonable range, which will eventually drive the customers towards the product resulting from the image created by the company in context of its CSR, therefore, the financial performance will enhance. When a company is doing something for the benefits of its investors like rules about appropriate information available for the stockholders, their involvement in making decisions, then it represents firm’s CSR for its investors. Stock price of more CSR firms will increase as compare to those who do less for the benefits of it investors. Firm performs its CSR towards it employees giving them bonuses, compensation, remuneration on time, therefore they will be motivated and their commitment towards firm will enhance which in turn increase the employee performance so firm’s financial performance will increase. Firm build the strong relationship with its suppliers by timely paying the purchase price of goods taken on credit, by this way it attracts various suppliers and firm can purchase less expensive material because of competition. Therefore firm’s financial performance will enhance.
By performing CSR activities, firm can create good image in the mind of customers, government, and the public that will enhance firm’s financial performance. Therefore, it is concluded that CSR has a positive impact on the firm’s financial performance. Positive relationship between CSR and FP is also agreed by another research. Those firms which are playing greater role for the welfare of society, atmosphere, providing health conveniences etc. these creates good reputation in the mind of customers, suppliers, employees etc. in competitive setting. . These firms get more benefits than the cost they have to bear for the welfare of society. Therefore Firm’s CSR enhance the financial performance of firm, so when a firm has good FP it can do more for the welfare of society. This study shows that firm’s CSR and FP are related to each other. Companies should consider the CSR when any decision is made because it protects the company from expenses which occurred due to criticisms, oppositions and strikes and lawsuits against environment hazardous etc. . . . They concluded that CSR is the best mean to enhance the firm’s financial performance. Therefore, it was concluded that there is positive relationship between CSR and firm’s FP.
Various studies have shown that there is a significant positive correlation between CSR and financial performance linked with the series of bottom line benefit. Measure of financial performance is a simpler task but have specific complications. It is evaluate through different theoretical implications. The argument is that the firms which have strong financial performance have the ability to invest more in social responsibility that have a long term strategic impact such as offer services to community as a result it attract more investor and skilled employees. Literature from the previous researches shows that spending ones creates the positive image on the different stake holders of the firms which leads to enhance the FP.
