Social responsibility in business and finance

The term “Social Responsibility” (SR) is mentioned regularly during conversations and debates among corporate leaders, investors, politicians, and scholars. It is not a new or exclusive concept with examples traced back to centuries ago and from all over the world. Nevertheless, the definition and implications of SR have been debated throughout its history. In this book chapter, we provide a brief review of the finance, accounting, and management literature on the motivations and value implications of SR from both corporate and investor perspectives. We identify the pecuniary and non-pecuniary incentives for corporations and investors to assume SR based on the modern theory of the firm, covering the purpose of business, the shareholder-stakeholder dichotomy, and strategic motivations. We also discuss whether corporate social responsibility and socially responsible investing can pay off financially, although empirical evidence is inconclusive. Despite widespread disagreement about its concept, definition, and impact, it is indisputable that SR will continue to be an important and indispensable aspect of business and finance.