The Effect of Corporate Social Responsibility on Financial Performance – An empirical study on US firms

This research investigates the effect of corporate social responsibility (CSR) on financial performance for US firms. By empirically testing data from 2000 until 2013 for 5272 unique firms resulting in 27440 observations, this study finds general support for the hypothesized positive relationship between CSR and financial performance when a market-based measure of financial performance is used. This finding is in line with the existing literature and the enlightened stakeholder theory. However, when financial performance is measured by an accounting-based measure, nonsignificant results are obtained. In addition, this study suggests that the effect of CSR on financial performance varies across different dimensions of CSR and across industries. CSR in the corporate governance dimension and in the community dimension could be considered as the key drivers to improve financial performance, although depending on the level of risk of the firm. In addition, CSR in the manufacturing industry and in the retail trade industry shows significant effects on financial performance. This research contributes to the existing literature by further clarifying and deepening the empirical linkages between CSR and financial performance, mainly approached from an economic perspective. The findings of this research provide guidelines for shareholders and managers for optimizing financial performance by CSR engagement.