In recent years, there have been a growing number of companies that have an explicit Corporate Social Responsibility (CSR) plan. As stated by European Commission (2001), CSR is defined as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” It is believed that the motives for CSR are gradually converting from philanthropic rationale to performance-driven orientation, but the question of better company performance resulting from the implementation of CSR has often been the centre of debate. The purpose of this paper is to examine how CSR can positively contribute to company performance, which refers to the quantitative values such as profits and stock price. This paper begins by reviewing how investors and managers perceive CSR as a value-creating tool. It will then go on to discuss how CSR helps to build employer-employee relationship and customer loyalty.
Companies with CSR initiatives have better access to finance in capital markets that is essential for firms to produce goods and generate profits. Earlier study by Mcguire, Sundgren and Schneeweis (1988) reports that contributions to the environment and society are an important factor when banks and institutional investors are evaluating investment opportunities. Moreover, enterprises pursuing CSR practices tend to widely publicize their socially responsible behavior and thus become more transparent and understandable. Higher levels of transparency minimize the asymmetric information between the company and investors so investors become less aware of the risks associated with the investment projects (Cheng, Ioannou, & Serafeim, 2014). Consequently, more sources of funds may be available, potentially increasing the market value of those companies.
Managers use CSR measures as a way to reduce direct costs of doing business. PricewaterhouseCoopers (2002) surveyed senior executives from 140 large US companies, 73 percent of the respondents revealed that cost reduction was one of the top three reasons for taking CSR measures. Berman, Wicks, Kotha and Jones (1999) propose that “being proactive on environmental issues can lower the costs of complying with present and future environmental regulations ... [and] ... enhance firm efficiencies and drive down operating costs.” Being environmentally proactive diminishes the time and effort to adapt to new rules. For example, General Mills saved more than US$600,000 after installing meters to monitor energy usage on several pieces of equipment at its Covington, Ga., plant (General Mills, 2011).
CSR measures can also reduce cost by heightening the motivation and commitment of employees. Employees’ personal identities are partly linked with the companies they work for. Their association with socially responsible behaviour reflects positively on them increasing their levels of job satisfaction and commitment. Stawiski, et al....