Revisiting the Corporate Social and Financial Performance Link: A Contingency Approach

Published date01 September 2017
AuthorEleanor O'Higgins,Thibault Thevissen
Date01 September 2017
Revisiting the Corporate Social
and Financial Performance
Link: A Contingency Approach
This study draws on and extends contingency theory, in
relation to stakeholder theory to understand the corpo-
rate social performance (CSP) and financial performance
(CFP) link, by evaluating under what circumstances CSP
influences CFP. Contingencies include stakeholder config-
urations/salience and crisis conditions. Using differenti-
ated measures of CSP, this study examined financial
effects of various specific stakeholder facing activities pre-
and post-crisis in the food/beverage and pharmaceutical
industries, and in firms selling search versus experience
goods. The results indicate that pre-crisis CSP is related
to post-crisis financial effects, but the relationships are
dependent on the interactions among the contingencies
studied, so investments in certain social areas improve
CFP, whereas others may hurt it. This confirms that a
finer grained approach should be taken to the examina-
tion of CSP and CFP. On a practical basis, it shows that
Eleanor O’Higgins is Adjunct Associate Professor at Smurfit Business School, University Col-
lege Dublin, Co. Dublin, Ireland. She is also an Associate at the London School of Economics
and Political Science, London, UK. E-mail: Thibault Thevissen is an
Associate with Francisco Partners, based at the firm’s London office. E-mail: t.thevissen@
C2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by
Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington
Road, Oxford OX4 2DQ, UK.
Business and Society Review 122:3 327–358
deep stakeholder knowledge and attention to complemen-
tary factors to CSP, such as advertising, must be under-
stood, so CSP activities are of benefit to the firm.
Many proponents of corporate social responsibility (CSR)
claim competitive advantage and economic benefits from
CSR activities. Nevertheless, evidence of any positive rela-
tionship between CSR and corporate financial performance (CFP) is
far from conclusive (Godfrey and Hatch 2007; Margolis and Walsh
2003; Margolis et al. 2009; Orlitzky 2011; Orlitzky et al. 2003;
Schreck et al. 2013). However, most research has not taken
account of contingencies, such as strategic imperatives relating to
salient stakeholders in particular industries, or external economic
conditions. Therefore, our study aims to investigate the strategic
value of prior CSR patterns in various industry contexts and in the
adverse market environment of the global financial crisis which
began in 2008.
First, we show in the next section how we ground our study in
contingency theory as integrated with strategic CSR and stake-
holder theory, whereby economic crisis is an important contin-
gency condition. In the following sections, we discuss some
methodological issues in research which studies possible causal
linkages between corporate social performance (CSP) and financial
outcomes for firms and then develop our hypotheses emerging
from our theoretical base. We then present our study, designed to
understand the contingencies and stakeholder influences in our
hypotheses, taking account of possible complex interactions among
CSR and other variables that influence financial results. The
industry contexts entailed different stakeholder configurations and
types of goods. We also studied CSP from the perspective of specific
dimensions rather than as a global measure. Another layer of the
study intertwined with the strategic imperatives of different indus-
tries, examines whether firms with a strong pre-crisis commitment
to various facets of CSR reported better accounting performance
after the onset of the financial crisis of 2008. The Discussion
section covers the conceptual, research, and practical implications
of the study, as well as its limitations.
Disagreement on the purposes and effects of CSR range from the
dismissal of CSR as a way of diverting resources from the profit
purpose of business (Friedman 1970; Karnani 2011) to the societal
approach to CSR which hold firms as morally obliged to serve the
public interest regardless of financial performance. In between are
views that advocate CSR activities as enlightened self-interest for
the firm, and others that integrate social and business interests in
a dynamic way (Devinney 2009; O’Higgins 2010; Schreck et al.
2013; Van Marrewijk 2003).
Contingency Theory
Some researchers have moved beyond seeking a general straight-
forward answer to the business case question of whether “CSR
pays,” or companies “do well by doing good.” Instead, scholars are
turning to questions of understanding which types of CSR produce
superior financial returns, and in which circumstances this might
occur (Husted et al. 2015). Conversely, when should firms refrain
from certain types of CSR to safeguard their CFP? This attempt at
understanding invokes questions of moderating and mediating
variables and situational contingencies in the responsibility-
performance relationship, recognizing that an appreciation of the
complexity of the relationship between CSP and CFP is necessary
beyond a simplistic direct responsibility-performance link (Carroll
and Shabana 2011). Further, the question has been rephrased, to
account for possible endogeneity, whereby account is taken of
internal influences, acknowledging managers do not make random
isolated decisions; certain types of strategic decisions may be
related to plans to engage in CSR, which may, in tandem with, but
not on their own, boost CFP (Garcia-Castro et al. 2010; Weber and
Gladstone 2014). An example is R&D intensity which has been
found to be positively related to CSP and CFP (McWilliams and
Siegel 2000).

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