THE CSR FIRM PERFORMANCE MISSING LINK
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THE CSR-FIRM PERFORMANCE MISSING LINK: COMPLEMENTARITY BETWEEN ENVIRONMENTAL SOCIAL AND BUSINESS BEHAVIOR CRITERIA? Sandra CAVACO Patricia CRIFO Cahier n° 2010-19 ECOLE POLYTECHNIQUE CENTRE NATIONAL DE LA RECHERCHE SCIENTIFIQUE DEPARTEMENT D'ECONOMIE Route de Saclay 91128 PALAISEAU CEDEX (33) 1 69333033 mailto: ha l-0 05 04 74 7, v er si on 1 - 21 J ul 2 01 0
- dimensions such
- rating
- social responsibility
- links between
- extra-financial ratings
- strategies into multiple
- practices
- firm performance
- corporate social
ECOLE POLYTECHNIQUE
CENTRE NATIONAL DE LA RECHERCHE SCIENTIFIQUE
THE CSR-FIRM PERFORMANCE MISSING LINK:
COMPLEMAENNDT ABRUISTIYN EBSEST WBEEEHNA VEINOVRI RCORINTMEERINAT?A
L SOCIAL
Sandra C
AVACO
Patricia
CRIFO
Cahier n°2010-19
DEPARTEMENT D'ECONOMIE
Route de Saclay
91128 (P33A)L 1A 6IS93E3A3U0 3C3 EDEX
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TheCSR-FirmPerformanceMissingLink:
ComplementarityBetweenEnvironmental,Social
andBusinessBehaviorCriteria?
!
SandraCavaco
†
andPatriciaCrifo
‡
July9th,2010
Abstract
Thisarticleanalyzestherelationshipbetweencorporatesocialresponsi-
bility(CSR)andfirmperformancebyproposingatheoreticalmodelandby
testingempiricallyitsmainpredictionsonamatchedpaneldatabaseforthe
biggestEuropeanlistedfirmsoverthe2002-2007period.Ourdatasetgathers
twosourcesofinformation:environmental,socialandgovernance(ESG)rat-
ingsfromtheVigeodatabase,andeconomicandfinancialperformancedata
fromtheOrbisdatabase.UsingtheSystemGMMestimatorfordynamic
paneldatamodel,wetestthecomplementarityandsubstitutability,thatis
thesuper-andsub-modularitybetweenvariouscorporatesocialresponsibility
practices,alongwithitsimpactonfirmperformance.Wedoobservethata
complementaritypremiumonspecificCSRdimensions(humanresourcesand
businessbehaviortowardscustomersandsuppliers)existsbutalsothatsome
practicesarerelativesubstitutes(environmentandbusinessbehaviors).
Keywords
:Corporatesocialresponsibility,supermodularity,paneldata.
JELCodes
:M14,L21,C33.
!
WewouldliketothankKathrynShaw,PierreMohnen,EricStrobl,JosephLanfranchi,Isabelle
MejeanandVaninaForgetfortheirhelpfuladvices,andAbelLucenaforhishelpontheempirical
analysis.Wealsothankfortheirhelpfulremarksandsuggestionstheparticipantsatthefollowing
conferencesandseminars:Coinvest(Lisbon2010),CAED(Tokyo2009),ICQME(ENSAEParis
2009),NancyII,ParisII,ParisWest,CEEandE´colePolytechniqueCSR’sworkgroup.Ofcourse,
weremainresponsibleforallresidualerrorsoromissions.WearegratefultoVigeoforgranting
usaccesstotheirdata.PatriciaCrifoacknowledgesthesupportoftheChairforSustainable
FinanceandResponsibleInvestment(Toulouse-IDEIandE´colePolytechnique)andtheChairfor
BusinessEconomics(E´colePolytechnique).Accesstofinancialdata(Orbis)waspossiblethrough
theX-HEC-GISpartnership.
†
LEM,UniversityParisIIPantheon-AssasandCPP,AarhusSchoolofBusiness.
sandra.cavaco@u-paris2.fr.
‡
UniversityParisX,E´colePolytechniqueandIRES,CatholicUniversityofLouvain.patri-
cia.crifo@polytechnique.edu.
1
1Introduction
Thisarticleexaminesthee
!
ectsofcorporatesocialresponsibility(CSR)onfirm
performance.Aconsiderableattentionhasbeengiventothisissueforthepast
threedecades,especiallyinmanagementsciencesandorganizationaleconomics,but
noconsensushasemergedsofaronwhethercorporatesocialresponsibility(CSR)
leadsornottosuperiorperformance
1
.DoCSRstrategiesimproveperformanceor,
aretheycostlyCSRpracticesadoptedbyfirmswhereperformanceisalreadyhigh
or,wherethesepracticesaremostlikelytoimproveperformance?
Beingsociallyresponsiblemeansthat,beyondlegalconstraints,firmscommiton
avoluntarybasistobearthecostofamoreethicalbehavior(EuropeanCommis-
sion,2001).
2
Forinstance,CSRstrategiesimplytoimproveemploymentconditions
and/orbanchildlaborincountriesthatdonotrespecthumanrights,protectthe
environmentandinvestinabatementequipmenttoreducecarbonfootprint,develop
partnershipswithNGOs,orprovidefundstocharity,etc.Therefore,CSRisinher-
entlymulti-facetedanditiscrucialtounderstandwhysomebusinessesadoptthese
practiceswhileothersdonotaswellaswhichtypesofpracticesaremoreprofitable.
Thisarticlehelpsanswerthesequestionsbyinvestigatingwhichcombinations(or
clusters)ofCSRstrategiesaremostlikelytoimprovefirmperformance.
ToexaminetheimpactofclustersofCSRpracticesonfirmperformance,we
proposeatheoreticalmodelandtestitsmainpredictionsonarichdatapanelset
ofCSRandperformanceindicatorsforthebiggestEuropeanlistedfirmsduringthe
2002-2007period.
OurtheoreticalmodelformalizesCSRdecisionsasamulti-tasksagencyprob-
lemwithmoralhazardinwhichshareholdersdelegateCSRtomanagers,withthe
CSRtasksbeingevaluatedexogenouslybyanextra-financialratingagency.More
precisely,oneachCSRtask,thefirmmayreceivearatingeitheraboveorbelow
sectoralaverage.Extra-financialevaluationsareexogenousandpublicyobservedby
bothparties.TheimpactofCSRdecisionsonfirmperformancethendependson
thedegreeofcomplementaritybetweenthedi
!
erentCSRtasks.Giventheextra-
financialevaluation,twoCSRtasksarecomplementarywhenthecostofe
!
ortin
oneCSRtaskdecreaseswhenanotherCSRtaskisimplemented
3
.Weshowthat
extra-financialratingshaveapositiveimpactonCSRe
!
ortswhenatleasttwopairs
ofCSRtasksarecomplementary.WhenonlyonepairofCSRtasksiscomplemen-
tary(and/oranotheroneissubstitutable)thenCSRratingshaveanambiguous
1
ForareviewofresultsfromtheseempiricalstudiesseeMargolisandWalsh(2003)orMargolis,
ElfenbeinandWalsh(2007).
2
In2005,52%ofthetop100corporationsinthe16moreindustrializedcountriespublisheda
reportontheircorporateandsociallyresponsible(CSR)activities(Becchettietal.2005a).Inthe
U.S,1dollaroutof9investedonfinancialmarketsin2007embeddedadimensionofCSR(11%),
3%inFranceandnearly4%inEurope(EFAMA2008andEuroSIF2008).
3
Inotherwords,twoormoretasksarecomplementswhenusingonemoreintenselyincreases
themarginalbenefitofusingothersmoreintensively(seeMilgromandRoberts,1995).Inour
model,thischaracteristicsisformalizedintermsofcostcomplementarity.
2
impactonCSRe
!
ortsandfirmperformance.Hence,weshowthattheimpact
ofCSRratingsonfirmperformancedependsonthedegreeofcomplementarityor
substitutabilitybetweenthedi
!
erentCSRtasks.
ThemainpredictionsofourmodelarethentestedonamatchedCSR-Firm
performancedatabasepanelofthebiggestEuropeanlistedfirmsoverthe2002-2007
period.WeexaminewhetherCSRispositivelycorrelatedwithfirmperformance
andhowthecomplementarityorsubstitutabilitybetweentheCSRtasksa
!
ectsthis
relationship,giventheextra-financialratings.
Inourdataset,theCSRvariablesconsistinratingsattributedbytheFrench
environmentalandsocialratingagencyVigeoover3broaddomainsoffirms’cor-
poratesocialresponsibility:humanresources,environment,andbusinessbehavior
towardscustomersandsuppliers.
ThefirmperformancevariablescomefromtheOrbisdatabase(BureauVan
Dijk)andconsistindetailedinformationfromthecompanies’standardizedannual
accounts(cashflow,operatingratios,totalassets,profitabilityratiosetc.).
AsimpleanalysisontheVigeodatabaserevealsthatthedistributionofcorre-
lationamongenvironmental,humanresourcesandbusinessbehaviorratingsshows
positivecorrelationsbetweenthesedimensions.Thispatternisclearlyconsistent
withtheideathatcorporatesocialresponsibility,decomposedintoenvironmental,
socialandbusinessbehaviorfactors,wouldbecomplementaryinputsoffirmperfor-
mance.ToestimatethelinksbetweenCSRandfirmperformance,weexploitthe
dynamicdimensionofourdatasetthroughtheSystemGMM(GeneralizedMethod
ofMoments)techniqueandestimatetheimpactofCSRpracticesonfirmperfor-
mance.Thenwetestexplicitlythecomplementaritybetweenenvironmental,human
resourcesandbusinessbehaviors,anddeterminewhichpairsofpracticesarecom-
plementaryorsubstitutableinputsoffirmperformance.Wedoobservethatsome
practicesarecomplementary(humanresourcesandbusinessbehaviortowardscus-
tomersandsuppliers),butotherCSRdimensionsarealsosubstitutes(environment
andbusinessbehaviors).
Thispaperisorganizedasfollows.Section2presentsasyntheticreviewofthe
literatureonthelinksbetweenCSRandfirmperformance.Section3developsthe
theoreticalmodelanditsmaintheoreticalpredictions.Thedataandvariablesare
presentedinsection4.Theempiricalmethodologyandresultsaredevelopedin
section5.Section6concludesthearticle.
3
2BriefReviewontheCSR-FirmPerformance
kniL
ManyreasonsintheliteratureareinvokedtoexplaintheprevalenceofCSRstrate-
gies:shrinkingroleofgovernments,society’sdemandsforgreaterdisclosureand
increasedconsumers’interestinCSR,growinginvestorpressure,competitiononla-
bormarketsforcompetentandmotivatedemployees,increasingrisksassociatedwith
unethicalbehaviors,importanceoftakingintoaccountrelationshipswithsuppliers,
externalpressurefromthecivilsociety,etc.CSRstrategieswouldinfactallowfirms
tomaximizevalueandtominimizeriskinthelongruninordertorespondtoan
increasedcompetitivepressureandmarketdi
!
erentiation.Suchstrategieswould
moregenerallyallowtakingintoaccountthegrowingdemandsofthei
