Financial and corporate social performance in the UK listed firms: the relevance of non-linearity and lag effects

Emmanuel Adegbite, Y. Guney, Frank Kwabi, Suleiman Tahir

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

Using environmental, social and governance scores compiled by Reuters Datastream for each company’s corporate social performance (CSP), we examine the relationship between CSP and corporate financial performance (CFP) of 314 UK listed companies over the period 2002–2015. We further evaluate the relationship between prior and subsequent CFP and prior and subsequent CSP. Based on the system-GMM estimation method, we provide direct evidence that suggests that while CFP and CSP can be linked linearly; however, when we examine the impact of CSP on CFP, the association is more non-linear (cubic) than linear. Our results suggest that firms periodically adjust their level of commitment to society, in order to meet their target CSP. The primary contributions of this paper are testing (1) the non-monotonous relationship between CSP and CFP, (2) the lagged relationship between the two and the optimality of CSP levels, and (3) the presence of a virtuous circle. Our results further suggest that CSP contributes to CFP better during post-crisis years. Our findings are robust to year-on-year changes in CFP and CSP, financial versus non-financial firms, and the intensity of corporate social responsibility (CSR) engagement across industries.
Original languageEnglish
Pages (from-to)105–158
JournalReview of Quantitative Finance and Accounting
Volume52
Early online date18 Feb 2018
DOIs
Publication statusPublished - 15 Jan 2019
Externally publishedYes

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