Strategic Management Journal
Sustainability and the Business Case
Researchers have reported a positive, negative, and neutral impact of
corporate social responsibility (CSR) on financial performance. This
inconsistency may be due to flawed empirical analysis. In this paper, we
demonstrate a particular flaw in existing econometric studies of the
relationship between social and financial performance. These studies
estimate the effect of CSR by regressing firm performance on corporate
social performance, and several control variables. This model is
misspecified because it does not control for investment in R&D,
which has been shown to be an important determinant of firm performance.
This misspecification results in upwardly biased estimates of the
financial impact of CSR. When the model is properly specified, we find
that CSR has a neutral impact on financial performance.