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The Impact of Social Variables on Financial Performance

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  • Christopher Lim

    (Lucas College and Graduate School of Business)

Abstract

In recent years, the discussion on corporate social responsibility has surged and firm management are seen to devote more efforts and resources towards improving their social image. Even under such intense public scrutiny, product recalls in the electronics, automotive, and healthcare sectors have not declined. Quality issues persist due to the severe competitive pressure to meet time to market’ product launches. Carbon emissions and green-house gases generated by industrial manufacturing, waste disposal, and automotive vehicles also continue to rise. The research purpose was to investigate the impact of individual social variables on financial performance. This research paper used multiple linear regression to assess the relationship between key indicators of corporate social responsibility and financial performance from 372 corporations in 2014. The theoretical foundation was Freeman’s stakeholder theory. Environment, community, human rights, diversity, employee relations, product quality, and corporate governance were measures of social performance. Return on assets was used to measure financial performance. When independent social variables were evaluated with corporate financial performance, employee relations and product quality in the healthcare sector, and community in the financial sector, were found to be positively significant. Environment, product quality, and corporate governance in the financial sector, and employee relations in the consumer and energy sectors, were found to be negatively significant. This research revealed that the relationship between some social variables and financial performance are significant, but not always in a positive direction. Based upon the findings established in this paper, managers can use the findings to evaluate their firm’s social position, develop strategies to address gaps, and undertake actions to enhance their firm’s social performance, thereby creating positive social change in the community.

Suggested Citation

  • Christopher Lim, 2019. "The Impact of Social Variables on Financial Performance," Proceedings of the 12th International RAIS Conference, April 3-4, 2019 2CL, Research Association for Interdisciplinary Studies.
    • Handle: RePEc:smo:cpaper:2cl
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    References listed on IDEAS

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    1. Francesco Perrini & Angeloantonio Russo & Antonio Tencati & Clodia Vurro, 2011. "Deconstructing the Relationship Between Corporate Social and Financial Performance," Journal of Business Ethics, Springer, vol. 102(1), pages 59-76, March.
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    5. Zhi Tang & Clyde Eiríkur Hull & Sandra Rothenberg, 2012. "How Corporate Social Responsibility Engagement Strategy Moderates the CSR–Financial Performance Relationship," Journal of Management Studies, Wiley Blackwell, vol. 49(7), pages 1274-1303, November.
    6. Harrison, Jeffrey S. & Wicks, Andrew C., 2013. "Stakeholder Theory, Value, and Firm Performance," Business Ethics Quarterly, Cambridge University Press, vol. 23(1), pages 97-124, January.
    7. Olaf Weber & Michael Diaz & Regina Schwegler, 2014. "Corporate Social Responsibility of the Financial Sector – Strengths, Weaknesses and the Impact on Sustainable Development," Sustainable Development, John Wiley & Sons, Ltd., vol. 22(5), pages 321-335, September.
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    Cited by:

    1. Izabela Diana Hada, 2020. "Considerations Regarding the Assessment and Measurement of Financial Performance," Book chapters-LUMEN Proceedings, in: Carmen NÄ‚STASE (ed.), 16th Economic International Conference NCOE 4.0 2020, edition 1, volume 13, chapter 11, pages 115-129, Editura Lumen.

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    Keywords

    social variables; corporate social responsibility; financial performance; stakeholder theory;
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