IUP Publications Online
Home About IUP Magazines Journals Books Archives
     
Recommend    |    Subscriber Services    |    Feedback    |     Subscribe Online
 
The IUP Journal of Corporate Governance
Corporate Social Responsibility and Corporate Financial Performance: An Exploratory Study of Measurement-Approach Selection Issues
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 
 
 

This paper examines the various approaches used in a number of empirical studies for measuring Corporate Social Responsibility (CSR) and Corporate Financial Performance (CFP) to find out measurement challenges. This study also investigates alternative strategic approaches for measuring CSR and CFP. In this study, various empirical research papers are intensively reviewed to investigate which measurement approach is appropriate to incorporate in future research. It was found that CSR is being strategically utilized in many ways such as unidimensional to multidimensional in the empirical literature. Besides, multidimensional CSR measurement approaches, employed in different forms like reputation indices, questionnaire-based survey, content analysis and unidimensional approach have been used in various studies. Accounting-based variables and market-based variables have been utilized for measuring firm performance. The findings also show that no CSR measurement approach is without limitations. In addition, most of the approaches face two problems, namely, researcherís subjectivity and biasness in selection, which may affect the nature of CSR-CFP relationship results. This study suggests that potential measures should be taken up to overcome these limitations.

 
 
 

The issues of Corporate Social Responsibility (CSR) and Corporate Financial Performance (CFP) measurement have been discussed by academicians and business managers across the world over the period of time due to the equivocal nature of empirical results related to them. Prior studies have found positive, negative, neutral or even curvilinear (e.g., U-shaped/inverted U-shaped) relationship between CSR and CFP. Orlitzky et al. (2003) and Margolis et al. (2007) conducted studies based on meta-analysis. The authors found that positive relationship is more common among the findings of the empirical literature. There are also studies that reveal negative and mixed results. This gives rise to the question that based on these equivocal results, how the notion of CSR and CFP should be operationalized and estimated. The basic answer to this question is an inappropriate incorporation of measurement approach in the estimation.

Generally, CFP is measured in terms of profitability ratios retrieved from financial statements of the firm which are easily accessible and relatively standardized. But the measurement of CSR notion is more difficult due to several reasons. One of the reasons is disagreement on the conceptualization of the CSR definition (Dahlsrud, 2008), while another is multiple approaches to its measurement. This is because of information related to the concept is non-financial in nature. Basically, these are very limited to retrieve and their standardization is problematic if they are reported (Tschopp and Nastanski, 2014). The next difficulty is its disclosure because in many countries CSR reporting is not mandatory but is voluntary in nature. India is an exception in this regard because with the inception of the Company Act, 2013 CSR spending up to a specific limit and publishing a separate CSR performance report has become mandatory.

 
 
 

Corporate Governance Journal,Corporate Social Responsibility (CSR) ,Corporate Financial Performance (CFP), Methods for Measuring Corporate Social Responsibility.