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CSR and
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Table I.
IJLMA
54,6
478
coefcients and related p-values are provided. Both Pearson and Spearman correlations
indicate a positive and signicant association between CSR (KLD) and nancial
performance (ROA). This association provides initial evidence supporting a positive
association between CSR and nancial performance. Table II also indicates that CSR
(KLD) is positively and signicantly ( p , 0.0001 under both Pearson and Spearman
correlation) related to total assets. This suggests that larger rms have better CSR
performance than smaller rms. Results in Table II reveal a positive and signicant
( p , 0.0001 under both Pearson and Spearman correlation) association between CSR
and the age of assets (ASSETAGE). This nding suggests that rms with younger
assets demonstrate better CSR performance than rms with older assets.
Results
Consistent with prior research, I predict a positive association between CSR and
nancial performance. As shown in Table III, the interaction between CSR and
nancial performance (ROA) is positive and statistically signicant ( p , 0.0001),
supporting a positive relation between CSR and nancial performance. This suggests
that rms have better nancial performance also do better in CSR activities.
The regression model includes four additional variables to control for size
(ASSETS), risk (LEV), industry (IND), and the age of long-term assets (ASSETAGE).
Results indicate a signicantly positive relation between CSR and rm size (ASSETS)
and the age of long-term assets (ASSETAGE), and a signicantly negative association
between CSR and risk (LEV). The above ndings suggest that:
KLD ROA ASSETS SALES COGS LEV ASSETAGE
KLD 0.0682 0.0468 20.0641 20.1124 20.0893 0.0944
(,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001)
ROA 0.0754 0.0202 0.0623 0.0423 20.1918 0.0722
(,0.0001) 20.0502 (,0.0001) (,0.0001) (,0.0001) (,0.0001)
ASSETS 0.0731 0.0914 0.4629 0.3498 0.1525 0.0738
(,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001)
SALES 20.0715 0.2044 0.8962 0.9728 0.1073 0.0791
(,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001)
COGS 20.1034 0.1429 0.8425 0.9672 0.1059 0.0781
(,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001)
LEV 20.1145 20.0963 0.4685 0.4151 0.4417 0.0442
(,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001)
ASSETAGE 0.0823 0.0653 0.2375 0.1535 0.1527 0.1006
(,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001) (,0.0001)
Notes: Pearson correlation is above and Spearman correlation is below the diagonal; p-values based on
two-tailed tests are in parentheses; variable denition: KLD
it
corporate social responsibility (CSR)
score of rmi in year t; ROA
it
return on asset ratio of rmi in year t [operating income (Compustat item
13) depreciation and amortization (Compustat item 14)]/total assets (Compustat item no. 6);
ASSETS
it
total assets (Compustat item no. 6) of rm i in year t; SALES
it
total net sales (Compustat
itemno. 12) of rmi in year t; COGS
it
total cost of goods sold (Compustat itemno. 41) of rmi in year t;
LEV
it
leverage ratio [total liabilities (Compustat itemno. 9 no. 34)/total assets (Compustat itemno. 6)]
of rm i in year t; ASSETAGE
it
net value of property, plant and equipment (Compustat item no. 8) of
rm i in year t/gross value of property, plant and equipment (Compustat item no. 7) of rm i in year t
Table II.
Correlations among
selected variables
CSR and
nancial
performance
479
.
Larger rms demonstrate better CSR performance than smaller rms. This
nding is consistent with Udayasankar (2007), which suggests small rms and/or
large rms are equally motivated to participate in CSR activities. However,
compared to smaller rms, larger rms tend to do better in CSR, due to higher
visibility, greater resource access, and better internal operating system.
.
Firms with lower leverage ratios demonstrate better CSR performance than rms
with higher leverage ratios.
.
Firms with younger assets demonstrate better CSR performance than rms with
older assets.
This association between CSR and the age of long-term assets is consistent with the
ndings in Cochran and Wood (1984). One explanation is that rms with older assets
may simply be less responsive in social dimensions than rms with younger assets.
Specically, managers of rms with younger assets are more likely to engage in CSR
activities than managers of rms with older assets.
Another explanation is that rms with older assets may build plants or purchase
equipment in a period when regulatory constraints were less severe than they are
today. For example, government agencies, like Environmental Protection Agency,
impose tougher environmental regulations on companies. Thus, rms with younger
assets can deal with tougher regulations better than rms with older assets, since
younger/newer assets may have already been designed to meet the regulatory needs.
On the other hand, rms with older assets may need to spend more to upgrade their
facilities to satisfy regulatory needs.
Conclusion
In this study, I extend Cochran and Wood (1984) by using a larger and more recent
sample to examine the association between nancial performance and CSR of a rm.
Model:KLD
it
a
0
a
1*
ROA
it
a
2*
ASSETS
it
a
3*
LEV
it
a
4*
ASSETAGE
it
a
5219*
IND 1
it
Variable Parameter estimate SE t-value Pr . jtj
Intercept 20.9036 0.4739 21.91 0.0566
ROA 1.3244 0.2018 6.56 ,0.0001
* * *
ASSETS 4.31 10
26
1.01 10
26
4.28 ,0.0001
* * *
LEV 20.6402 0.1002 26.39 ,0.0001
* * *
ASSETAGE 0.8717 0.1708 5.10 ,0.0001
* * *
IND Omitted Omitted Omitted Omitted
Adj. R
2
0.0601
Notes: Signicant at:
*
p , 0.1,
* *
p , 0.05, and
* * *
p , 0.01; observation: 11,432; period: 1999-2009;
variable denition: KLD
it
corporate social responsibility (CSR) score of rm i in year t; ROA
it
return on asset ratio of rm i in year t [operating income (Compustat item 13) depreciation and
amortization (Compustat item 14)]/total assets (Compustat item no. 6); ASSETS
it
total assets
(Compustat item no. 6) of rm i in year t; LEV
it
leverage ratio [total liabilities (Compustat item
no. 9 no. 34)/total assets (Compustat item no. 6)] of rm i in year t; ASSETAGE
it
net value of
property, plant and equipment (Compustat item no. 8) of rm i in year t/gross value of property, plant
and equipment (Compustat item no. 7) of rm i in year t; IND a dummy variable to control for
industry effect
Table III.
Regression analysis
IJLMA
54,6
480
I also investigate whether the age of long-termassets is highly related to CSR. Regression
analysis reveals a positive and signicant association between CSR and nancial
performance, after controlling for size, risk, industry, and the age of long-termassets. This
evidence, consistent with many prior studies, suggests doing CSR can bring benets to
rms. In addition, the signicant association between CSRand the age of long-termassets
suggest that future CSR studies need to include the age of long-term assets in their
regression analysis. This study has several limitations. First, rms often participate in
CSRactivities gradually, and the stages of such participation can be difcult to determine.
Second, this study, like other prior studies, may be subject to selection bias. That is, rms
selected and rated by KLD database may already be good CSR performers.
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Corresponding author
Li Sun can be contacted at: lsun@bsu.edu
(The Appendix follows overleaf.)
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Appendix
Category Strengths Concerns
Community Generous giving Investment controversies
Innovative giving Negative economic impact
Housing support Indigenous people relations
Education support Tax disputes
Peoples relations Other concerns
Non-US giving
Voluntary programs
Other strengths
Corporate governance Limited compensation High compensation
Ownership strength Ownership concern
Transparency strength Transparency concern
Accountability strength Accountability concern
Public policy strength Public policy concern
Other strengths Other concerns
Diversity CEO Controversies
Promotion Non-representation
Board of directors Other concerns
Work-life benets
Women and minority
Employment of the disabled
Gay and lesbian policies
Other strengths
Employee relations Union relations Union relations
No-layoff policy Health and safety concern
Cash prot sharing Workforce reductions
Employee involvement Retirement benets concern
Retirement benets Other concerns
Health and safety
Other strengths
Environment Benecial products Hazardous waste
Pollution prevention Regulatory problems
Recycling Ozone depleting chemicals
Clean energy Substantial emissions
PPE Agriculture chemicals
Other strengths Climate change
Other concerns
Human rights Positive record in S. Africa S. Africa
Indigenous people relations Northern Ireland
Labor rights strength Burma concern
Other strengths Mexico
Labor right concern
Indigenous people relations concern
Other concerns
Products Quality Product safety concern
R&D, innovation Marketing-contracting concern
Benets to economically disadvantages Antitrust
Other strengths Other concerns
Others Alcohol concern
Gambling concern
Tobacco concern
Firearms concern
Military concern
Nuclear concern
Table AI.
List of the strengths
and concerns in
KLD database
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