Page 1 of 11
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 01
January 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 59
Relationship between Corporate Social
Responsibility and Financial Performance
of Selected Public Sector enterprises of
India
Megha Narang
Research Scholar
(IMSAR, MDU)
megha.narang.dbe11@gmail.com
Abstract: Corporate social responsibility is a factor having an important role in the consumer
selection of products and services. Thus, CSR is increasingly gaining in importance because it creates
organizational value for a company by giving the ability to differentiate the company from its
competitors. All successful companies in the world have recognized the importance of CSR, but not all
are equally successful in its implementation. Although many empirical studies found a link between the
quality of CSR and the company performance measured by financial indicators, there is still a lot of
inconsistency in the results of previous research, mainly due to the factors influencing this relation.
The main objective of this research paper is to examine the relationship between corporate social
responsibility (CSR) and financial performance of the public sector enterprises of India for the
financial year 2016-17. The analysis reveals that there is a positive relationship between CSR and
financial performance (NPAT) and the descriptive and inferential measures shows that Corporate
social expenditure depends upon the financial performance ( NPAT) of the Company.
Key Words: Corporate, Empirical, Financial Performance, Social Programmes , Correlation
and Regression.
INTRODUCTION
Corporate Social Responsibility (CSR) is a
form of corporate self-regulation integrated
into business models. CSR functions as a self- regulatory mechanism by which a corporation
ensures its active compliance with the spirit of
the law and ethical standards. Its aim is to
increase the long-term profits or survival of a
firm through constructing positive public
relations and high ethical standards, in order to
reduce the business and legal risk and build
shareholder trust. Accordingly, the CSR
strategies of a corporation are tightly related to
its sustainable growth. To ensure sustainable
growth, it is necessary for a company to make a
positive impact on the surrounding
environment, as well as on its stakeholders,
such as its consumers, employees, investors,
Page 2 of 11
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 01
January 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 60
communities, and others. CSR referred as a
strategic plan is increasingly gaining in
importance because it creates organizational
value for a company by giving the ability to
differentiate the company from its competitors.
The general assumption is that a successful
implementation of the CSR standard leads to
higher financial performance of the companies.
Successful companies support the development
of the capital market. Studies show that stock
prices and other financial indicators generally
respond positively to any improvement in CSR.
Although many empirical studies find a link
between the quality of CSR and the company
performance measured by financial indicators,
there is still a lot of inconsistency in the results
of previous research, mainly due to the factors
influencing this relation. The reason for this
can be sought in the absence of adequate
measures for quality of CSR, but also because
of application of different measures. The
unique standard of measure has not been
established.
REVIEW OF LITERATURE
From the earliest classic studies by Bowen
(1953), Eells and Walton (1961), McGuire
(1963), Carroll (1979), the importance of CSR
and its impact on society has been explored
from various viewpoints. However, their
opinions are divided on the need for corporate
CRS. Some studies with a positive appraisal of
CSR argued that ‘a corporation has a duty to
society’ (Andrews 1973; Davis and Blomstrom
1975; Carroll 1979;Drucker 1984; Epstein
1987), whereas others reported that ‘a
corporation only has the duty to maximize its
benefit within the fence of law and minimum
ethical restrictions’(Levitt 1958; Friedman
1970).
Nonetheless, in the 2000s, various studies
identified CSR as a source of competitive
advantage (e.g. Russo and Fouts 1997;
McWilliams and Siegel 2011). Donaldson and
Preston (1995) and Porter and Kramer (2006)
investigated whether a strategic CSR activity
enhances the competitive advantage of the
firms. Baron (2008) argued that CSR activities
could be a productive investment. He
concluded that CSR helps firms to attract
consumers who value CSR expenditures but do
not mind paying more for the corporate
executives or the employees whose personal
values are aligned with CSR. On the other
hand, Besley and Ghatak (2007) found that
breaking CSR promises will result in lower
profits, whereas more responsible firms will
earn higher profits due to their reputational
premium. Inthis regard, Benabou and Tirole
(2010) raised the question as to whether CSR
helps the firm in the long run. Margolis et al.
(2007) found that CSR engagement helps firms
to gain a competitive advantage. They reported
a positive relation between CSR and
performance except in two percent of cases.
The role of governance in CSR is also
important. Several studies found the
importance of sustainable development issues,
such as stakeholder dialogue and core values,
and of embedding these issues into the firm’s
strategy. Baron (2008) suggested that some
investors might value CSR more, even though
it could lower financial profit in the short-run,
because they are satisfied by owning such a
firm that makes socially responsible
expenditures. The study of Beltratti (2005), as
well as that of Jamali et al. (2008), found a
positive relationship between CSR and
corporate governance. Beltratti (2005)
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Page 3 of 11
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 01
January 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 61
concluded that by ensuring the protection of the
stakeholders, firms are more likely to survive in
the long term. Jamali et al. (2008) found that
CSR and corporate governance strengthen each
other. Furthermore, Aras and Crowther (2008)
stressed the significance of the corporate
governance and the subsequent sustainability of
firm. In an empirical analysis on a sample of
179 publicly held Canadian firms Makni,
Francoeur and Bellavance (2009) found no
significant relationshipbetween a composite
measure of a firm's CSR and FP, except for
market returns. Karagiorgos (2010) made a
research on 39 Greek companies listed on the
Athens Stock Exchange. The presented results
showed that companies which adopt CSR
strategy and
practices may obtain higher stock values due to
the fact that shareholders evaluate positively
these activities.
Corporate social responsibility should be an
integral part of each company and be present in
every process and each activity (Horvat et al.,
2014). A definition brought by Selvi, Wagner
and Türel (2010) states that CSR is when
companies take into account the impact of their
decisions on society and the environment.
There is a lot of inconsistency in the results of
previous research and many authors approach
to the relationship between corporate social
responsibility and financial performance with
different views. So far, presented research data
have shown a positive, negative, and neutral
impact of corporate social responsibility on
financial performance. As one of the reason for
this inconsistency authors usually refer to
empirical analysis (McWilliams, Siegel, 2012).
Rapti and Medda (2012) in their research
present a negative or nonexistent relationship
between CSR and FP according to the
commonly used ratios in the air transport
industry - EBITDA and Net Assets. Also, it is
important to notice that there are some research
papers in which CSR is perceived as a
marketing strategy (D’Arcimoles, Trebucq,
2002) and CSR has a growing part in the
marketing literature. One of the first data were
from 1984 in the research paper from Cochran
and Wood who found out that average age of
corporate assets are highly correlated with
social responsibility ranking.
Flammer (2013b) found out in her research that
CSR is a very valuable resource for the
company which leads to higher financial
performance. Also in her previously research
Flammer (2013a) found out that companies
experience an extreme stock price increase
upon the announcement eco-friendly initiative.
Fasanya and Onakoy (2013) observed primarily
and secondary data about Nigerian companies
and they found out that CSR could be a key
instrument to the financial development and
that profit making is the most important for
growth trends in corporate social responsibility
performance. Servaes and Tamayo (2013)
conducted a research about the connection
between the existence of CSR of the company
and business value of companies that have
highly conscious consumers. They performed a
set of different studies and their results show
that the existence or, on the other hand, the lack
of social responsibility, influences the company
business success. But still there is some
evidence of negative and neutral relationship.
Mahoney and Roberts(1997) in their research
on a sample of Canadian firms found no
significant relationship between CSR activities
