Business Research and Professional Practice: BKEY 501.
Literature review: PRIMARK LTD - The Imporance of Values on The Relation Between Corporate Social Responsibility and Financial Performance. Prepared by: Paulina Dominowska, Hematollah Safi, Hengameh Samie, Patrycja Dominik.
Numerous research papers are devoted to the relationship between Corporate Social Responsibility and a given company's financial result. CSR has been identified as the duty of organizations to be responsible for their environment and for their stakeholders, in a way that takes into account not only financial aspects (Go ̈ ssling and Vocht, 2007). A particularly broad definition of CSR was presented at the World Business Council for Sustainable Development: ‘‘Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as of the local community at large’’ (Holme and Watts, 1999, p. 3). According to Waddock (200), the pressure for corporate accountability is rising. This includes different aspects, like legal, social, moral, and financial. Customer demands are rising with the increasing transparency of markets. Barnett and Salomon (2006) stated that there is a higher number of potential investors who value the way corporations meet their social responsibilities (Barnett and Salomon, 2006). According to the study by Friedman (1970) management’s main obligation is to increase the revenue. Contrary to this, the author assumed that social performance is needed in order to achieve business legitimacy. It was argued by Freeman that there is a link between social responsibility and financial performance and he emphasized a positive connection between the two in the long term. The main clue in this theory is that companies’ success depends on the ability of maintaining its relationships with key groups, such as investors and shareholders, but also customers, employees, and other third parties. Customer satisfaction would function as a moderator and it is significant in the relationship between CSP and CFP according to Luo and Bhattacharya (2006). Edward Nelling and Elizabeth Webb (2008) in their numerous studies proved that good social relations do lead to better financial results. They also imply that it results from the fact of reduced risk of a conflict of interest with clients, employees and society. In accordance with their research work, good company management and social cooperation lead to a strong market position. Research conducted by K. Jin and R. Drozdenko (2012) emphasized the fact that the crisis in 2007 was a “moral wake-up call” and although it might seem that companies will limit their activities in the area of CSR, the situation proved otherwise. During an economic breakdown, social involvement may be an opportunity for companies to become visible on the market, which may lead to greater profits. Moreover, Jin and Drozdenko (2012) suggested that social responsibility should be invested in even if it minimizes the company's profits. E.Nelling and E.Webb ( 2008) conducted a series of analyses using the OLS regression model. They chose the financial results measured by return on assets or return on the firm's stock as their main coordinate. They concluded that there exists a 'virtuous circle' between CSR and the financial results. However, when they introduce panel fixed effects into the model, the results are no longer as impressive as previously, as no such strong connection is found between these factors. In both studies (Nelling and Elizabeth 2008 ; Jin and Drozdenko 2012 ) we find arguments both for and against. Nobody is capable of presenting a 100% proof that there exists a relationship between CSR and a company's financial status. 'If social responsibility leads to profits, they are not directly connected with the company's financial results' (Nelling and Webb 2012). Considering the costs...
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