Relationship Between CSR and Firm Value of LSE-Listed Companies - Research Paper

Paper Type: Research paper

Pages: 5

Wordcount: 1345 Words

Date: 2023-01-11

Categories:

Research Objectives

To define CSR, a listed firm, and firm value
To determine the relationship between CSR and firm value of companies listed at the LSE

Research Summary

This research study sought to determine the relationship between corporate social responsibility (CSR) and firm value of publicly listed companies. Therefore, corporate social responsibility was the independent variable, and the firm value was the dependent variable. The researcher used the case study method to describe the relationship between the two variables. Purposive sampling method was used to select five firms listed at the London Securities Exchange. The five companies were Barclays, Coca-Cola Hellenic Bottling Company, HSBC, Prudential plc, and Unilever. The study used secondary data from the London Securities Exchange website and annual financial reports of the selected firms. Therefore, the primary method of data collection was content analysis. The study found that a strong correlation exists between the value of CSR investment and the value of a firm. The firm size also correlates moderately to changes in firm value.

Annotated Bibliography

Several studies have been done on the topic in the past. The following is a list of peer-reviewed sources that informed the study theory and discussions:

Deng, X., Kang, J.K. and Low, B.S., 2013. Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of financial Economics, 110(1), pp.87-109. doi: https://doi.org/10.1016/j.jfineco.2013.04.014

This study focused on several mergers in the United States to determine the role of CSR in the creation of value that helps firms acquire shareholders. The study found that the social performance of acquirers plays a crucial role in determining whether a merger will be profitable or not; hence it affects the overall decision of whether to complete the merger or not.

Gimenez, C., Sierra, V. and Rodon, J., 2012. Sustainable operations: Their impact on the triple bottom line. International Journal of Production Economics, 140(1), pp.149-159.

The study sought to determine how environmental programmes and social practices of firms on their economic, social, and environmental performance. The study found that internal social initiatives only positively impact both environmental and social performance of a firm, internal environmental programmes positively impact all the three factors. Tghe findings imply that managers must be wary of the bad effects of social practices on operations costs in the short run.

Harjoto, M., and Laksmana, I., 2018. The impact of corporate social responsibility on risk-taking and firm value. Journal of Business Ethics, 151(2), pp.353-373. DOI

The study used the stakeholder theory to look at how CSR minimizes excessive avoidance of optimal risk taking. The researchers reported that when deviations from optimal risk taking levels are low, the CSR performance becomes stronger.

Kang, C., Germann, F. and Grewal, R., 2016. Washing away your sins? Corporate social responsibility, corporate social irresponsibility, and firm performance. Journal of Marketing, 80(2), pp.59-79. doi/abs/10.1509/jm.15.0324

The study looked at various perspectives that influence the choice of the framework for CSR implementation. The researchers suggested an agenda for additional empirical and theoretical CSR research.

Kuzey, C., and Uyar, A., 2017. Determinants of sustainability reporting and its impact on firm value: Evidence from the emerging market of Turkey. Journal of cleaner production, 143, pp.27-39. https://doi.org/10.1016/j.jclepro.2016.12.153

The study investigated 297 listed Turkish firms to determine various aspects of sustainability reporting. Eventually, it reported that sustainability reporting based on Global Reporting Initiative is becoming more and more common. Hence, reporting quality has been improving.

Li, F., Li, T. and Minor, D., 2016. CEO power, corporate social responsibility, and firm value: A test of agency theory. International Journal of Managerial Finance, 12(5), pp.611-628. https://doi.org/10.1108/IJMF-05-2015-0116

This paper sought to test the prediction of the classical agency theory based over-investment assumption that powerful CEOs spend more on CSR. On the contrary, it found that CEO power is negatively associated with CSR expenditure. Nonetheless, it found that CSR increases value.

Lins, K.V., Servaes, H. and Tamayo, A., 2017. Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. The Journal of Finance, 72(4), pp.1785-1824. D https://doi.org/10.1111/jofi.12505OI:

Based on examination of the level of social capital of firms during the 2008-2009 financial crisis, the study found that stock returns are directly correlated to a firm's social capital. Also, firms with high CSR raised more debt, and had higher sales, growth and profitability. It means investment through social capital leads to beneficial trsust between a firm and its stakeholders.

Saeidi, S.P., Sofian, S., Saeidi, P., Saeidi, S.P. and Saaeidi, S.A., 2015. How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of business research, 68(2), pp.341-350. https://doi.org/10.1016/j.jbusres.2014.06.024

The paper looked looked at customer satisfaction, reputation, and sustainable competitive advantage as possible mediating factors in the relationship between firm performance and CSR. A study of over 200 firms in Iran found that only competitive advantage and reputation mediate the relationship between firm performance and CSR. This implies that CSR indirectly contributes to firm performance.

Servaes, H. and Tamayo, A., 2013. The impact of corporate social responsibility on firm value: The role of customer awareness. Management science, 59(5), pp.1045-1061. DOI: https://doi.org/10.1287/mnsc.1120.1630

The study demonstrated that there is a positive relationship between CSR and firm value for companies with high public awareness created by advertising. This relationship is not significant in companies with low public awareness. Therefore, it concluded that CSR increases firm value under specific conditions.

Wang, D.H.M., Chen, P.H., Yu, T.H.K. and Hsiao, C.Y., 2015. The effects of corporate social responsibility on brand equity and firm performance. Journal of business research, 68(11), pp.2232-2236. DOI: https://doi.org/10.1016/j.jbusres.2015.06.003

Using structural equation modeling and quantile regression in high-tech firms in Taiwan, the study looks at how CSR is related to firm performance and brand equity. The quantile regression showed that CSR economic dimension is positively related to brand equity. However, brand loyalty driver has negative effect on firm performance. The structural equations on the other hand indicated that both brand equity and CSR have positive effects on firm performance.

References

Gimenez, C., Sierra, V. and Rodon, J., 2012. Sustainable operations: Their impact on the triple bottom line. International Journal of Production Economics, 140(1), pp.149-159.

Harjoto, M., and Laksmana, I., 2018. The impact of corporate social responsibility on risk-taking and firm value. Journal of Business Ethics, 151(2), pp.353-373. DOI

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