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Journal of Business Ethics (2011) 103:167188 Springer 2011 DOI 10.1007/s10551-011-0867-0
Reviewing the Business Case for CorporateSocial Responsibility: New Evidenceand Analysis Philipp Schreck
ABSTRACT. This study complements previous empirical research on the business case for corporate social responsibility (CSR) by employing hitherto unused data on corporate social performance (CSP) and proposing statistical analyses to account for bi-directional causality between social and financial performance. By allowing for differences in the importance of single components of CSP between industries, the data in this study overcome certain limitations of the databases used in earlier studies. The econometrics employed offer a rigorous way of addressing the problem of endogeneity due to simultaneous causality. Although the studys results provide no evidence that there is a generic or universal business case for CSR, they indicate that there is a strong link between single stakeholder-related issues of CSR and financial performance. However, the analysis does not establish causality within these relationships.
KEY WORDS: business case, corporate social responsibility, corporate social performance, CSP/CFP link, empirical, causality
ABBREVIATIONS: CFP: Corporate nancial performance; CSP: Corporate social performance; CSR: Corporate social responsibility; IV: Instrumental variable; KLD: Kinder, Lydenberg, Domini & Co; OLS: Ordinary least squares; ROE: Return on equity; VIF: Variance ination factor; 2SLS: Two-stage least squares
Introduction
Traditionally, expenditures for corporate social responsibilities (CSR) have often been considered an illegitimate waste of resources that conict with a rms responsibility to its shareholders and by extension with the very function of business in modern societies (Friedman, 1970; Henderson,
2001; Jensen, 2002; Levitt, 1958; Sundaram and Inkpen 2004). On the other hand, proponents of CSR have tried to champion the idea by emphasising the so-called business case for CSR. Arguing that CSR can come along with certain benets that might outweigh its costs, they see it as a necessity for business, not least for the sake of the economic interest that CSR presents (Bowen, 1953; Brown and Fraser, 2006; Drucker, 1984; Freeman, 1984; Kotler and Lee, 2005; Mintzberg, 1983; Porter and Kramer, 2006). If the business case for CSR could be proved, i.e. if CSR and protmaximising interests could indeed be shown to go hand in hand, two related conicts could be resolved. First, on a conceptual level, the arguments of many economists that CSR is an...