Relationship Between Corporate Social Responsibility and Corporate Financial Performance

Consumers are demanding that corporations become more socially responsible. Executives are challenged to maximize shareholders' returns with achieving a favorable corporate citizen status. The research problem was a gap in knowledge and understanding of the impact of corporate social responsibility on financial performance. This study used multiple linear regression to assess the relationship between key indicators of corporate social responsibility and financial performance from 372 corporations in the S&P500 in 2014. The theoretical foundation was Freeman's stakeholder theory. Environment, community, human rights, diversity, employee relations, product quality, and corporate governance were measures of social performance. Return on assets was used to measure financial performance. When corporate social responsibility was evaluated as an aggregate variable, a significant and negative relationship was found in the financial and material sectors. When corporate social responsibility variables were evaluated independently, employee relations and product quality in the healthcare sector, and community in the financial sector, were found to be positively significant. Environment, product quality, and corporate governance in the financial sector, and employee relations in the consumer and energy sectors, were found to be negatively significant. This study revealed that the relationship between some social variables and financial performance are significant, but not always in a positive direction. Practitioners, executives, and managers can use the findings to evaluate their firm's social position, develop strategies to address gaps, and undertake actions to enhance their firm's social performance, thereby creating positive social change in the community.