Corporate social responsibility and financial performance: Correlation or misspecification?

Abagail McWilliams, Donald Siegel

Research output: Contribution to journalArticle

1369 Citations (Scopus)

Abstract

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.

Original languageEnglish (US)
Pages (from-to)603-609
Number of pages7
JournalStrategic Management Journal
Volume21
Issue number5
DOIs
StatePublished - Jan 1 2000
Externally publishedYes

Fingerprint

Financial performance
Corporate Social Responsibility
Misspecification
Firm performance
Social performance
Control variable
Corporate social performance
Inconsistency
Econometrics
Empirical analysis

Keywords

  • Corporate social responsibility
  • Firm performance
  • Product differentiation
  • R&D
  • Specification error

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

Cite this

Corporate social responsibility and financial performance : Correlation or misspecification? / McWilliams, Abagail; Siegel, Donald.

In: Strategic Management Journal, Vol. 21, No. 5, 01.01.2000, p. 603-609.

Research output: Contribution to journalArticle

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