Interest in why firms conduct environmental, social and governance (ESG) activity is longstanding and increasing. Our understanding, however, remains fragmented with alternative accounts that seek to ...explain the relationship between ESG performance (ESGP) and corporate financial performance (CFP). This paper reviews alternative accounts for the relationship and finds that the weight of empirical evidence shows a positive, statistically significant but economically modest ESGP–CFP link, consistent with theoretical expectations. This economically modest relationship suggests ESG activity is unlikely to be primarily motivated by narrow measures of CFP. Further scholarship viewing ESG as part of overall firm activity would be constructive.
In recent years, many companies obtain financing by improving their ESG scores. This inevitably affects the financial performance of enterprises. We provide a view that companies should balance ...non-financial and financial performance rather than only increasing ESG scores. High ESG score companies that are not profitable will not perform well in the market. By applying the coupling coordination model (CCM) and China's listed firm data from 2010 to 2022, we assess the coupling coordination between ESG and financial performance among listed companies in China. We found that the overall level of corporate coupling coordination in China is not high, locating at the transitional stage. East, the Yangtze River Economic Belt, the Chengdu-Chongqing City Group, and foreign firms have a higher level of coupling coordination. Northeast, Yellow River Basin, and private enterprises perform poorly. Coupling coordination is higher for firms that are larger, more capital intensive, and more socially responsible. From the decomposition results, improving corporate coupling coordination needs to focus on enhancing the E (environmental) score and S (social) score in the non-financial performance, as well as the growth capacity and profitability in the financial performance. The innovation of this paper is that it assesses the firm's coupling coordination from the perspective of balancing ESG and financial performance. It provides a warning to firms that focus too much on ESG scores. Enterprises should avoid excessive focus on ESG that leads to poor financial performance.
•We analyzed the coupling between financial and non-financial (ESG) performance of more than 1000 listed firms in China.•Chinese listed companies' coupling coordination improves, but overall level is low from 2010 to 2022.•The East, the Yangtze River Economic Belt, and foreign enterprises performed better in terms of coupling coordination.•Improving coupling coordination requires boosting environmental score, social score, growth capacity, and profitability.
Environmental and social disclosures entail costs, yet increasingly, large listed firms are making higher and better quality disclosures. In this paper we examine the link between a firm's ...environmental and social disclosures and its profitability and market value. We find that past profitability drives current social disclosures. However, consistent with the existing evidence, we do not find any relation between environmental disclosures and profitability. Further, while prior literature has largely focussed on environmental disclosure, we find that it is the social disclosures that matter to investors. We find that firms that make higher social disclosures have higher market values. Further analysis reveals that this link is driven by higher expected growth rates in the cash flows of such companies. Overall our findings are consistent with the resource based view of the firm and the voluntary disclosure theory, suggesting that firms with greater economic resources make more extensive disclosures which yield net positive economic benefits.
We examine the effect of a firm's relations with its nonfinancial stakeholders, including its employees, suppliers, customers, and communities, on the persistence of both superior and inferior ...financial performance. In particular, integrating and extending the resource-based view of the firm and stakeholder management literatures, we develop the arguments that good stakeholder relations not only enable a firm with superior financial performance to sustain its competitive advantage for a longer period of time, but more importantly, also help poorly performing firms to recover from disadvantageous positions more quickly. The arguments are supported by the analysis of a series of first-order autoregressive models. Our findings further suggest that the positive effect of good stakeholder relations on the persistence of superior performance is not as strong as that of some other firm resources, such as technological knowledge, but it is the only factor examined that promises to help a firm recover from inferior performance. Therefore, the role of positive stakeholder relations in helping poorly performing firms recover is found to be more critical than its role in helping superior firms sustain their performance advantage.
Theoretical discussions and empirical studies on the nexus between corporate social responsibility/corporate social performance and corporate financial performance have never ceased since the origin ...of the concepts. The development trajectories of such studies should be articulated with a view to informing practical corporate social responsibility applications and theoretical studies in the future. This paper presents a critical review of relevant empirical research articles on the nexus between corporate social performance and corporate financial performance published during the ten-year period from 2002 to 2011. Using mixed-methods of content analyses and statistical analyses, the paper reviews 84 empirical studies of this kind published during the period. The results indicate that, despite the enormous amount of previous studies, the corporate social performance and corporate financial performance nexus is a line of inquiry that remains inconclusive. The pattern of corporate social performance-corporate financial performance relationship research in the decade examined has shifted towards exploring the linkages between specific aspects of the two constructs. The positive relationships between these specific aspects in dual directions are confirmed by most of the studies examined in this paper. The paper also examines the impact of time and space change on the corporate social performance-corporate financial performance nexus. The findings show that researchers have gradually recognized that the relationship is not static but changes over time. Furthermore, the paper finds that corporate social responsibility has been increasingly debated in developing countries and in specified industrial settings. The review concludes that to explore the corporate social performance-corporate financial performance nexus by contextualizing it in a specified community, and/or examine its dynamics is a promising research area that can yield significant academic and practical values.
•Empirical research papers on the nexus between CSR and CFP are reviewed.•The nexus between specific aspects of CSR and CFP are increasingly examined.•The positive nexus between the specific CSR and CFP are confirmed.•Researchers recognized that the relationship is not static but changes over time.•CSR was increasingly debated in developing countries/specified industrial settings.
Research summary: In this study, we revisit the relationship between corporate social performance (CSP) and corporate financial performance (CFP) by conducting a replication of Waddock and Graves ...(1997). Using 1990 KLD ratings as the CSP measure, the original study reports a positive bidirectional relationship between CSP and CFP. However, our replication analyses with a larger sample over a longer time period indicate that the findings of the original study may not be generalizable to different samples. We argue that our replication casts doubt on the original study and can serve as a starting point to reconsider the CSP-CFP relationship. Based on the findings of our replication, we discuss the differences between the replication results and the original findings, and then suggest several approaches to revise and extend the original study. Managerial summary: Advocates of corporate social performance (CSP) have long argued that "doing good leads to doing well." However, the evidence to support this argument is not strongly convincing, and managers hence doubt whether better CSP leads to improved corporate financial performance (CFP). In this article, we directly examine the relationship between CSP and CFP. Our article reports that CSP may not have a positive influence on CFP. Instead, our article shows the complexity of the relationship between CSP and CFP. Therefore, we cannot simply argue that doing good will necessarily lead to doing well.
Building on the theoretical argument that a firm's ability to profit from social responsibility depends upon its stakeholder influence capacity (SIC), we bring together contrasting literatures on the ...relationship between corporate social performance (CSP) and corporate financial performance (CFP) to hypothesize that the CSP-CFP relationship is U-shaped. Our results support this hypothesis. We find that firms with low CSP have higher CFP than firms with moderate CSP, but firms with high CSP have the highest CFP. This supports the theoretical argument that SIC underlies the ability to transform social responsibility into profit.
•This study addresses a real-world business problem, the digitalization of SMEs.•Three main SME resources show to positively relate to digitalization.•Digitalization, in turn, positively relates to ...financial performance.•It also mediates the impact of information technology on financial performance.•A digital strategy or employee skills alone do not foster financial performance.
Small and medium-sized enterprises (SMEs) lag behind larger firms when it comes to digitalization. This has negative impacts on firm performance. Despite the economic importance of SMEs, little is known about the antecedents, consequences, and challenges of SME digitalization. We have set three objectives to address this knowledge gap. Drawing on the resource-based view, we first investigate the impact of three main SME resources on digitalization: information technology, employee skills, and digital strategy. Second, we assess the impact digitalization has on financial performance. We then investigate whether digitalization mediates the effect of resources on performance. The results of a survey of 193 SMEs demonstrate how digitalization can impact SME performance, with the three resources positively relating to digitalization. And in turn, digitalization significantly relates to performance, mediating the effect of information technology on performance. It however does not mediate the effect of digital strategy or employee skills on performance.
Energy transition has become a major challenge that will shape the global agenda in the coming decades. In addition to governments and major energy firms, non-energy firms also play a significant ...role in the energy transition with their growing share in renewable energy supply and other pro-environmental investments. Using the Resource-based View and Dynamic Capabilities perspectives, we discuss non-energy firms’ capability-based energy transition strategies and explore the channels through which these strategies affect their financial performance. We test our hypotheses using S&P 500 firms’ data and show that capability-based energy transition strategies have had a positive moderating effect on the relationship between the renewable energy sector performance and non-energy firms’ financial performance in the short term. Furthermore, these strategies have had a positive moderating effect on the relationship between fossil fuel prices and non-energy firms’ financial performance in the long term. Our findings indicate that capability-based energy transition strategies created a virtuous investment–return opportunity for non-energy firms between 2009 and 2021.
•We explore how energy transition affects financial performance.•We revisit the transmission channels of energy transition.•Energy transition capabilities have had moderating effects.•The energy transition capability has created a virtuous investment cycle.
In this paper, we review the literature on moderators and mediators in the corporate sustainability (CS)-corporate financial performance (CFP) relationship. We provide some clarity on what has been ...learned so far by taking a contingency perspective on this much-researched relationship. Overall, we find that this research has made some progress in the past. However, we also find this research stream to be characterized by three major shortcomings, namely low degree of novelty, missing investment in theory building, and a lack of research design and measurement options. To address these shortcomings, we suggest avenues for future research. Beyond that we also argue for a stronger emphasis on the strategic perspective of CS. In particular, we propose future research to take a step back and aim for an integration of the CS-CFP relationship into the strategic management literature.
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