An Investigation of the Impact of Corporate Social Responsibility on Firms’ Financial Performance: a Global Study

Chaman Shrestha*

*Corresponding author for this work

Research output: ThesisDoctoral Thesis


Firms’ profitability is no longer a single measure of their success as CSR has started becoming the cornerstone of modern corporate accomplishment. Due to recent corporate scandals and unethical business practices, stakeholders are compelling firms to act responsibly and make a positive change in the environment, society and the world. Companies are investing heavily in CSR related programmes, and there has been a significant rise in the CSR performance reporting over the recent years. It is, therefore, the business benefits for implementing CSR initiatives is a rationale of this study. This thesis contains three empirical investigation chapters that provide compelling evidence on the impact of CSR on the firms’ financial performance.

Prior studies examining the CSR effect on financial results mainly report mixed results. However, although there is a large prior literature on the link between CSR and firms’ financial performance, studies on the link between CSR and long-term operating performance, long term stock performance are limited. Especially, prior studies examining the impact of CSR index’s re-compositing on firms’ financial performance focus on short term stock return and are from a single country/market. Very limited focus on more extensive geographical coverage (including emerging market) as CSR is becoming the global spectacle. Also, the CSR initiatives vary company to company and the nature of the industry they are operating. Hence, it is also vital to examine the potential heterogeneity in CSR-CFP relationship among industries/sectors.

In order to examine the impact of CSR on firms’ financial performance, I conducted three empirical investigations. I use the FTSE4Goodindex series addition (deletion) and its ESG (Economic, Social and Governance) rating for CSR conformity.

First empirical investigation (chapter 4) focuses on the long-term operating performance and use FTSE4Good Global index and a proxy for CSR conformity; the sample comprises 819 additions and 462deletions between March 2002 and December 2015 (26 countries). I compared the operating performance of the FTSE4Good companies against the median performance of a relevant benchmark, e.g. industry-, size-, B/ME-, and momentum-matched portfolios of non-CSR firms (firm-matching approach). The first empirical result shows a statistically significant increase (decrease) in the operating performance of firms added (deleted) in the CSR index. Further comparisons with non-CSR benchmarks show that firms’ addition in the FTSE4Good index is followed by a positive and statistically significant increase in most of the operating indicators studied and across all firm-matching criteria. On the contrary, firms’ deletion from this CSR index is usually followed by consistent deterioration in all operating performance measures.

Similarly, in the second empirical investigation (chapter 5), I examine both short-term and long-term stock return. To examine the short-term stock return, I use a total of 1,302 companies (725 additions and 577 deletions) and use Cumulative Average Abnormal Return (CAAR) methodology. Whereas, using the Buy-Hold Abnormal Return (BHAR) model and a sample of 596 added and 410 deleted companies, I examine the long-term stock return. The second empirical results report a positive and statistically significant abnormal long-term stock return for firms added in the FTSE4Good index over the long term. Investors can enjoy up to 4.41% in a matter of a year. However, for the firm deleted from FTSE4Good experience a negative and statistically significant stock return of 1.09% throughout30 days and no material changes afterwards. In case of a short-term stock return, firms experienced a significant negative abnormal return when they are added, but no material changes in stock return for the firms deleted from the index.

In the third empirical investigation (chapter 6), I examine the impact of CSR on CFP in emerging markets by using a total of 1,244 firms-year observations representing 779 individual companies from 23 emerging nations between 2016 and 2017. I further evaluate the heterogeneity in CSR-CFP relationship across industries/sectors. The result of a final empirical investigation from the emerging market shows a positive and statistically significant impact of CSR rating on firms’ financial performance measured by Tobin’s Q and ROA. The robustness test confirms the positive impact of CSR on CFP using PTBV and ROIC. I also report that the CSR-CFP varies across industries/sectors. In this chapter, I further examine the moderating impact of cross-listing on CSR-CFP relationship and find that the positive impact of CSR on CFP is more pronounced for firms that are cross-listed in the foreign stock market.

Overall, the results of this study support the assumption of the stakeholder theory (instrumental stakeholder theory). Consistent with the signalling hypothesis, CSR reputation signals firms having strong internal resources and management capabilities to capitalise on potential investments and other corporate expansion opportunities in the future. Managers/corporate executives must maintain consistency in the firm’s CSR engagement as any inverse changes could negatively impact firms’ future performance. Hence, firms’ engagement in the CSR-related initiative is a cornerstone of long-term business success.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Coventry University
  • Andrikopoulos, Panagiotis , Supervisor, External person
  • Park, Jin Suk, Supervisor, External person
  • Yekini, Sina , Supervisor, External person
Award date10 Feb 2020
Publication statusPublished - 10 Feb 2020


  • Corporate Social Responsibility
  • FTSE4Good Index
  • Operating Performance
  • long-term stock returns
  • CSR Index Additions
  • CSR Index Deletions
  • ESG Rating


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