American Journal of Business: Article Information

American Journal of Business
Corporate Social Responsibility and Firm Financial Performance: Comparison Analyses across Industries
and CSR Categories
Mingming Feng, Xiaodan "Abby" Wang, Jerry Glenn Kreuze,
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Mingming Feng, Xiaodan "Abby" Wang, Jerry Glenn Kreuze, "Corporate Social Responsibility and Firm Financial
Performance: Comparison Analyses across Industries and CSR Categories", American Journal of Business, https://
doi.org/10.1108/AJB-05-2016-0015
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Corporate Social Responsibility and Firm Financial Performance:
Comparison Analyses across Industries and CSR Categories
Abstract
Purpose - Despite the intensive research on CSR and firm financial performance, little is known
about how the linkage between CSR and firm financial performance is heterogeneous across
industries and how the performance implications are differentiated among specific categories of
CSR activities. This study explores how the association between a firm’s engagement in CSR
and firm financial performance is heterogeneous across industries and CSR categories.
Design/methodology/approach - Using a sample of 17,083 firm-year observations representing
1,877 firms from the largest 3,000 U.S. companies during years 1991 and 2011, we compare the
association between CSR and firm financial performance across ten industry sectors defined by
Global Industry Classification Standard (GICS) and across the four CSR categories classified by
Mandl and Dorr (2007).
Findings - The authors find that the association between the overall CSR activities and firm
performance is heterogeneous across industries. CSR has significant positive implications for
firms from most, but not all, industries. Comparing the performance implication of CSR practices
targeting different stakeholder groups, the empirical results indicate that different types of CSR
have varying influences on financial performance of firms from different industry sectors.
Research limitations/implications - This study provides new angles for managers in
maximizing firm performance through CSR activities and suggests an important and interesting
direction for researchers who engage in CSR research. Due to its heterogeneous nature, the
CSRperformance relationship needs to be examined more specifically - across industries and
different CSR categories. Findings from studies incorporating both company industrial sector and
CSR categories would provide more meaningful and practical implications for managers.
Practical implication - This study provides important managerial implications. First, to
maximize firm performance through CSR activities, managers must interpret the linkage between
CSR and firm financial performance from the perspective of a specific industrial sector and
acknowledge the importance of CSR practices across different CSR categories. Second, our
findings suggest that CSR practices aiming at different stakeholder groups generate different
financial returns in different industries. Firms engage in CSR to satisfy different stakeholder
groups. When budgets are tight, managers may give higher priority to the CSR practices that
have stronger effects on firm financial performance.
Originality/value - This study advances our understanding of the CSR-financial performance
relationship by exploring its heterogeneous nature across industry sectors and across specific
categories. To obtain the biggest gain from CSR spending, managers must have a good
understanding how a specific CSR category can contribute to the financial performance of their
particular company in their particular industry.
Keywords – Corporate social responsibility, firm financial performance, CSR categories,
industrial sectors.
Paper type – Research paper
1
Corporate Social Responsibility and Firm Financial Performance: Comparison
Analyses across Industries and CSR Categories
Introduction
The association between corporate social responsibility (hereafter CSR) and firm financial
performance has been examined in the literature on strategic management (Siegel and Vitaliano,
2007), organizational behavior (Bauman and Skitka, 2012), and sustainability (Aguinis and
Glavas, 2012; Devinney, 2009). Peters and Mullen (2009), extending and broadening the
Waddock and Graves study (1997), revealed that firms engage in CSR to maintain their
reputation, standing and financial performance. Because of the positive implications of CSR on
firm performance, more and more firms, all over the world, big or small, are increasing their
engagement in CSR. As Grant Thornton (2008) claims, CSR becomes a necessity, not a choice,
for all businesses.
A primary goal of CSR is to satisfy a firm’s various stakeholders. Stakeholder theory
states that a company owes social responsibility to a wide group of stakeholders (Donaldson and
Preston, 1995; Freeman, 1984). Stakeholders refer to different groups of people involved in the
actions of a business, including employees, customers, suppliers, creditors, shareholders,
competitors and the wider community. Roberts (1992) tested the ability of stakeholder theory to
explain one specific corporate social responsibility – social responsibility disclosure. His
empirical results suggested that stakeholder theory is appropriate to analyze corporate social
decisions. Stakeholder theory emphasizes the importance of building and maintaining good
relationships with diverse stakeholders who “bear some form of risk as a result of having
invested some form of capital, human or financial, something of value, in a firm” (Clarkson,
2
1995, p.5). “The expectations of stakeholders in the firm and societal issues will determine the
ability of the firm to sell its products” (Freeman, 1984, p.107). As such, stakeholder
management is a never-ending task of balancing and integrating multiple relationships and
multiple objectives. According to Freeman (1984), the purpose of stakeholder management was
to devise methods to manage the myriad groups and relationships that resulted in a strategic
fashion. Strategic management argues that managers need to understand the concerns of
stakeholders in order to develop objectives that stakeholders would support. This support is
necessary for a firm’s long-term success. Therefore, management should actively explore its
relationships with all stakeholders in order to develop business strategies.
Industries, however, differ in stakeholder composition and expectation and face a variety
of concerns from stakeholders. Prior research has illustrated the industrial effects on the
adoption of CSR practices (Sweeney and Coughlan, 2008; Brammer and Millington, 2003). In
studying the impacts of CSR engagement on corporate and social outcomes, researchers usually
include industry dummies to control for the potential industrial influence (e.g. Kang, 2013;
Graves and Waddock, 1994). Nevertheless, to date, no study has comprehensively documented
the potential variations in the association between CSR and financial performance across
industries. One study (Omar and Zallom, 2016) attempted industry investigation by analyzing
26 companies in three industry sectors in one country, Jordan. The results were inconsistent,
and the authors suggested an extension of the study to include other industries and other
countries. Therefore, the relevant issue - in which industries do we observe a positive, negative
or insignificant association between CSR and financial performance - still remains an
underexplored question.
In addition, CSR activities can be classified into four categories – employees-oriented
3
CSR, environment-oriented CSR, society-oriented CSR, and market-oriented CSR (Mandl and
Dorr, 2007). These CSR dimensions focus on addressing concerns of different stakeholder
groups. Given that different industries face different stakeholder expectations, the effects of these
four categories of CSR on firm financial performance are likely to vary across industries. Toward
this end, this study further explores how the association between CSR engagement and firm
financial performance is heterogeneous across industries and across CSR categories.
Using a sample of 17,083 firm-year observations representing 1,877 firms from the largest 3,000
U.S. companies during the years 1991 to 2011, we examine the association between
CSR and firm financial performance across ten industrial sectors defined by Global Industry
Classification Standard (GICS) and across the four CSR categories classified by Mandl and Dorr
(2007). We found that CSR has significantly positive implication on financial performance for
firms in most, but not all, industries. Two industry exceptions are energy and utilities firms. The
comparison of regression results of models using disaggregated CSR activities shows that CSR
targeting different stakeholder groups have different influences (e.g. positive, negative or
insignificant influence) on financial performance of firms from different industrial sectors. We
also found differential effects of each CSR category on financial performance for firms from
different industries.
This study makes several important contributions. First, extant literature has primarily focused
on the implications of CSR on firm performance but paid less attention to the specific industry
differences. This study responds to Godfrey and Hatch’s (2007) call for more research on
potential heterogeneity of CSR’s impact on firm performance across industries, advancing our
understanding of the association between CSR and financial performance by exploring its
heterogeneous nature across industry sectors. Second, this study extends the CSR literature by
differentiating the overall CSR into four specific categories. While many studies have examined
4
the association between the overall CSR engagement and firm financial performance, if and how
each CSR category affects firm financial performance remains an open question. If CSR
categories differ in their impact on financial performance, managers, to fill Milton Friedman’s
ideas, can concentrate on those categories which generate the greatest benefits. This study fills
this gap in the literature. Furthermore, managers, facing the increasing demands by employees,
customers, suppliers, creditors, community and society for CSR, must allocate limited corporate
resources effectively and strategically in order to satisfy these stakeholders (Morgeson et al.,
2013). Overall, our study provides important performance implications for managers on resource
allocation.
Prior Literature
What is CSR?
According to Aguinis (2011, p.855), CSR refers to “context-specific organizational
actions and policies that take into account stakeholders’ expectations and the triple bottom line
of economic, social, and environmental performance.” The motivation to engage in CSR
behavior is unclear at times. One argument advanced by Gibson (2000) is that businesses are
moral agents, entrusted with direct obligations of all of society and thus businesses engage in
CSR out of moral commitments. Alternatively, American Nobel Laureate, Milton Friedman
(1970) argued that businesses are created to make profits, and that managers should only
expend scarce resources on CSR if that performance will lead to improved firm financial
performance. Similarly, Porter and Kramer (2006) stated that companies should identify,
prioritize and address those social issues that matter most, or upon which they can make the
largest impact. They suggest companies should start with generic social impacts simply by
5
being good citizens, improving relationships with local authorities and bringing pride to
employees. Secondly, they should identify, and seek to mitigate, the various forms of social
harm arising out of their value chain activities. Finally, strategic CSR involves pioneering
innovations to benefit both society and a company’s own competitiveness. To be sure,
corporations with poor CSR records experience significant negative repercussions when their
negative records become public, and these firms frequently become a part of consumer
watchdog groups’ name-and-shame publicity programs (Becker-Olsen et al., 2006).

CSR and Firm Financial Performance
If and how CSR contributes to firm performance have attracted lots of attention from both
academia and practitioners. According to Porter and Kramer (2006), CSR can be a source of
opportunity, innovation and competitive advantage when used appropriately. Particularly, firms
can simultaneously enhance their competitiveness in the markets and advance the economic and
social conditions in the communities when adopting policies and practices aiming at creating
“shared value” (Porter and Kramer, 2006, 2011). However, empirical studies have generated
mixed results regarding the CSR-firm performance relationship.
Margolis et al. (2009) conducted a meta-analysis of 251 studies on the link between
corporate social performance and corporate financial performance and found that the overall
effect is positive but small. Peloza (2009) reviewed 128 studies on CSR and financial
performance and reported that 75 studies (about 58.6%) found a positive association between
CSR and financial performance, 34 studies (about 26.7%) found a mixed or neutral association,
and 19 studies (about 14.7%) found a negative association. Prior studies view CSR engagement
as a long-term investment focusing on building and maintaining strong relationships with
stakeholders and thus improving firm performance. For example, Martin et al. (2009) argued that
6
CSR activities are valuable in helping companies develop and maintain their reputations,
reinforcing their commitment to stakeholders, and maintaining their long-term business success.
CSR can boost internal employee morale and commitment within a firm (Godfrey, 2005;
McGuire et al., 1990) and attract and retain capable employees (Grow et al., 2005). Both
McGuire et al. (1988) and Houston and Johnson (2000) found that CSR helps promote external
social benefits, such as public goodwill outside the firm, enhancing the firm’s reputation, even in
the presence of corporate scandals or regulatory scrutiny. Luo and Bhattacharya (2006)
suggested that CSR engagement help increase customers’ satisfaction levels, leading to higher
market returns. In addition, Jo and Harjoto (2011) found that CSR engagement increases firm
value and some CSR activities that address internal social enhancement within the firm (such as
employee diversity, firm relationship with its employees, and product quality) enhance firm
value more than other CSR activities. Furthermore, Zeng (2016) reported the results of a study
where the higher CSR ranking of the firm, the less likely a firm is to engage in tax
aggressiveness, and the firm experienced enhanced market value.
Some studies found a negative association between CSR and firm performance. Firms
may face a trade-off between social responsibility and financial performance, placing them in a
disadvantageous cost position. CSR initiatives may also incur agency costs as managers obtain
private benefits from building the reputation as good social citizens (such as a good career
outcome) at the expense of shareholders. Jo and Harjoto (2011) found that CSR commitment
may have value-decreasing effects when there is a high level of managerial entrenchment,
supporting the notion by Barnea and Rubin (2010) that a firm’s insiders (such as managers and
large blockholders) may overinvest in CSR for their private benefit or to cover up corporate
misconduct (Kotchen and Moon, 2012; Hemingway and Maclagan, 2004).
7
Besides the above explanations based on agency costs argument, the mixed results of the
CSR-firm performance relationship may also be attributed to the non-discriminative application
of CSR practices across firms operating in different industries that ignores the specific industrial
conditions and firm strategies. Actually, successful strategic integration of sustainability
initiatives requires good understanding of both market needs and social needs that a specific
industry’s business activities can satisfy (Ballou et al., 2012; Porter and Kramer, 2006 and 2011).
Industrial Effects of the Overall CSR Practices on Firm Financial Performance

Researchers have conducted ample studies on the link between CSR and corporate
outcomes, such as financial performance, in specific industries. For example, Chih et al. (2010)
studied the determinants of CSR in 520 financial firms across 34 countries during years 2003 and
2005. Simpson and Kohers (2002) found a positive association between social performance and
financial performance in the banking industry. Ogden and Watson (1999) examined the corporate
performance and stakeholder management in the U.K. privatized water industry. Baron et al.
(2009) found a positive association between corporate social performance and corporate financial
performance for consumer industries and a negative association for industrial industries. Jo et al.
(2015) examined the association between corporate environmental responsibility and firm
performance in the financial services sector and found that by effectively investing in corporate
environmental responsibility, executives can decrease their firms’ environmental costs, thereby
enhancing operating performance. Analyzing 26 companies in three industry sectors (Chemical,
Food and Beverage, and Pharmaceutical and Medical) in one country, Jordan, Omar and Zallom
(2016) found inconsistent results on the association between CSR and market value.
The influence of industrial characteristics on CSR and its effects has also attracted much
research attention. For example, Hull and Rothenberg (2008) examined how industrial
8
advertising intensity moderates the association between CSR and corporate financial
performance. Barnett (2007) proposed the relationship between industries and the variability of
financial returns to CSR and called for more research of potential heterogeneity of CSR’s impact
on firm performance across industries. Simnett et al. (2009) identified certain industries (such as
mining, production, utilities, and finance industries) to be more exposed to environmental and
social risks and therefore firms in these industries possess a greater need to increase user
confidence in the credibility of their reported sustainability activities.

According to stakeholder theory, building and maintaining good relationships with
diverse stakeholders is of significance for business success (Clarkson, 1995). Companies use
CSR to help recognize and satisfy their stakeholders’ needs, understand the needs’ risks and
opportunities, and respond to those needs publicly and consistently (PwC, 2015). Since industries
differ in stakeholder composition and expectation, we would expect that how CSR practices
affect firm financial performance tend to be different across industries.
Differential Impacts of CSR Categories on Firm Financial Performance
Moreover, most studies use the aggregate measure of CSR, a composite index of several
categories of CSR using KLD (Kinder, Lydenberg, Domini & Co) data. For example, Waddock
and Graves (1997) examined corporate social performance and financial performance, using the
aggregate measure of KLD data. Hull and Rothenberg (2008) used the aggregate measure, taking
each item of potential social concern into account, with those categories (e.g., community) that
have many distinct subcategories receiving proportionally greater weight than those (e.g.,
tobacco) that have only one subcategory. Servaes and Tamayo (2013) explored how customer
awareness moderates the association between CSR and firm performance, again, using the
aggregate measure of several KLD categories.
9
The use of the aggregate measure of KLD categories has been criticized. For instance,
Mitchell et al. (1995) emphasized that an aggregate CSR measure without a sound theoretical
background is flawed. Scott et al. (2014) claimed that aggregate measures of KLD are arithmetic
tools with weaker statistical basis. Besides, Paredes-Gazquez et al. (2016) and Paruolo et al.
(2013) mentioned that the weighting of indicators are the main concern when constructing a
composite index.
CSR is a multi-dimensional concept and should thus be more preferably measured in

disaggregated aspects. One notable example is a study by Wang and Berens (2015) who
examined how a firm that engages in different types of corporate social performance (CSP) can
create a favorable corporate reputation among its stakeholders, and thus achieve a good financial
performance. The four types of CSP examined were economic, legal, ethical, and philanthropic
social performance (Carroll, 1979 and 1991). They found that the four types of CSP affect
financial performance differently, and their effects are mediated by public reputation and
financial reputation. However, they note that since KLD ratings were not developed as an
operationalization of Carroll’s four types of corporate social performance, only some KLD
indicators were used to measure the four dimensions.
In this study, we disaggregated the overall CSR into four categories – employees-oriented
CSR, environment-oriented CSR, society-oriented CSR, and market-oriented CSR (Mandl and
Dorr (2007). These categories refer to the CSR activities that focus on different stakeholder
groups. According to Mandl and Dorr (2007), employees-oriented CSR activities focus on the
primary internal stakeholders, the employees, dealing with the workplace health and safety, labor
right, flexible working hours, better working conditions, training and development, equal
opportunities and diversity, and work and life balance. Environment-oriented CSR activities
focus on the protection of the environment and sustainable development, the efficient use of
10
natural resources, and waste and pollution management. Society-oriented CSR activities focus on
community relations and engagement, social integration, and working with local community
organizations, institutions and the wider society. Lastly, market-oriented CSR activities include
responsible supply chain management, activities to improve the quality or safety of products,
innovation, fair pricing or ethical advertising. Examples of specific CSR activities are presented
in Appendix 1. Since each CSR category focuses on addressing concerns of different stakeholder
groups, we would expect differential impacts of CSR categories on firm financial performance.
Our expectations on the association between CSR and firm financial performance across
industries and across CSR categories are discussed next.
Expectations on the Association between CSR and Firm Financial Performance across
Industries and across CSR Categories
Employees-oriented CSR Employees-oriented CSR refers to the efforts a company take to
target CSR for the benefit of employees, who are viewed as a company’s valued asset, by
providing a safe and supportive working environment, fair pay, reasonable work hours, and
work-life balance support, which enhance employee development, commitment and satisfaction.
These practices would help promote employees’ commitment and productivity, and motivate
them to put forth more effort towards the company’s overall organizational goals (Feng et al.,
2015). Therefore, employees-oriented CSR can benefit a firm not only in recruiting and retaining
employees, but also in value creation through employees. Satisfied and happy employees are
more likely to generate higher productivity and present more corporate citizenship behaviors
(Harter et al., 2002), which are particularly important for firms whose employees play critical
roles in generating corporate financial performance. We thus expect the employees-oriented CSR
practices to enhance firm performance in labor-intensive manufacturing industries where
11
employee productivity is the key, such as Energy, Materials, Industrials, Consumer Discretionary
and Consumer Staples.
Employees-oriented CSR is also likely to strengthen firm performance in service
industries such as Health Care, Financials, IT and Telecommunication Services that involve
considerable interaction with customers. For service organizations, the employee-customer
linkage is a powerful tool and drives the effectiveness of service provided (Pugh et al., 2002). A
satisfied workforce will provide better service to customers and be more patient in addressing
their concerns, leading to positive customer satisfaction (Jeon and Choi, 2012). Therefore, the
effect of employees-oriented CSR may vary depending on their proximity to end consumers.
Compared with other service providers, Utilities firms are less proximate to their end consumers
and do not interact with the end consumers as intensively as do firms in other service sectors. As
such, employees of Utilities firms may not play as important a role as those of other service firms
in attracting and retaining customers. Therefore, we do not expect that engagement in employees-
oriented CSR would contribute significantly to firm financial performance in the Utilities sector.
In fact, large investments in those CSR activities may even result in a negative impact on
performance when the incurred costs exceed the benefits received.
Environment-oriented CSR Environment-oriented CSR refers to the efforts a company
takes to measure its environmental footprint and to mitigate its negative impact on the
environment, such as adopting processes and practices that are more energy-efficient and
generate fewer pollutants. In the last decade, more and more profit-oriented businesses have
begun to engage in and espouse environmentally-friendly strategies, policies, and activities to
protect the natural environment (Raiborn et al., 2013). The environment-oriented CSR practices
are especially important for environmentally sensitive industries due to the potential
environmental damage resulting from their business activities (Jenkins and Yakovleva, 2006).
12
We expect the environment-oriented CSR to enhance firm performance in environmentally
sensitive industries that are exposed to more environmental and social risks and greater public
scrutiny, such as Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, and
Utilities. For firms in these industries, the visibility of both socially responsible behaviors and
socially irresponsible behaviors is amplified due to the public attention (Banerjee et al., 2003).
Therefore, successfully addressing stakeholder concerns is more likely to enable firms to realize
financial returns for CSR engagement in these industries. For example, industries having the
following features are likely to achieve positive financial returns for environment-oriented CSR:
1) producing a large amount of greenhouse gas emissions; 2) extracting non-renewable resources
with major environmental consequences; and 3) producing significant amount of industrial
waste.
These industries are often blamed for resulting climate change and environmental pollution.
When firms in these industries take on their social responsibility by adopting green energy,
improving production process to reduce pollutant emission, recycling industrial waste, and using
renewable resources, both the product market and the stock market are likely to show positive
responses (Konar and Cohen, 2001; Klassen and McLaughlin, 1996).
In contrast, in less environmentally sensitive industries consuming less energy and
generating fewer pollutants (e.g. service sector), stakeholders tend to pay less attention to the
environmental impact of firm activities. Engagement in environment-oriented CSR may not
bring significant benefit to firms in these industries. Therefore, we expect an insignificant or a
negative association between environment-oriented CSR and firm performance in less
environmentally sensitive industries, such as Health Care, IT, and Telecommunication Services.
We also expect a positive association between environmental-oriented CSR activities and
firm performance for the Financials sector. According to Jo et al. (2015), by effectively investing
13
in corporate environmental responsibility, executives in the financial services sector can decrease
their firms’ environmental costs, thereby enhancing operating performance. Besides, the positive
association between EnvironmentCSR and firm financial performance in financials companies
may possibly be attributed to their efforts on the promotion of good practice in the field of
environmental protection. For example, in year 2006, the International Finance Corporation (IFC)
adopted IFC’s Sustainability Framework which includes several performance standards on
environmental issues. The fulfilment of these standards of performance would increase these
financials companies’ competitive advantages and bring new opportunities for development
(Matei and Voica, 2013).
Society-oriented CSR Society-oriented CSR refers to the efforts firms take to improve
their relations with the communities in which they are embedded, such as dialogue and
partnership with the communities in mitigating the potential impacts of business operation, in
involvement in community development, and in financial contribution to community well-being.
We expect that society-oriented CSR would improve firm performance in most industries since
the efforts on society-oriented CSR could help improve firm reputation, increase support from
local communities, and attract and retain customers. However, we do not expect the positive
association between society-oriented CSR and firm performance exists in Energy and Utilities
sectors. Energy and Utilities sectors contain companies such as energy, electricity, gas, and water
firms and integrated providers. The products and services of Energy and Utilities sectors are
essential in stabilizing population and are the vital inputs for economic and social development
of a country (Omer, 2008). With such perception, people may expect less contribution to
communities from other forms of CSR among firms in these two sectors. Actually, research has
found that compared with other industries, firms in Utilities sectors perform less community
involvement activities (Brammer and Millington, 2003). As such, “extra” efforts of serving the
14
community many have a marginal effect on performance improvement for Energy and Utilities
firms. Furthermore, the substantial costs associated with society-oriented CSR activities may
easily offset such negligible positive effect. When firms in Energy and Utilities sectors make
substantial investment in this CSR category, the overall costs are likely to exceed the financial
benefits stemmed from the investment, resulting in a negative impact on firm financial
performance.
Market-oriented CSR Corporate marketing efforts would also influence

perceptions of a firm’s stance on CSR (Stanaland et al., 2011). For example, market-oriented
CSR focuses on responsible supply chain management, activities to improve the quality or safety
of products, innovation, fair pricing or ethical advertising. Targeting on consumers, these market-
oriented CSR activities would contribute to corporate branding efforts, enhancing brand image in
consumers’ eyes. Therefore, one can reasonably expect a firm’s engagement in marketoriented
CSR to lead to better financial performance. However, the extent to which marketing efforts
influence firms’ financial performance differs across industries (Zott and Amit, 2008). In
industries offering commodities, there is little room for a firm to differentiate itself from its
competitors. As such, market-oriented CSR, which aims to improve brand or product image, is
likely to have different impacts on firm financial performance across industries depending on
product differentiation opportunities.
For example, we expect market-oriented CSR to positively influence financial
performance for Consumer Discretionary firms but that a significant association may not exist for
Consumer Staples firms. First, Consumer Discretionary firms deal with non-essential goods, such
as automobiles, high-end clothing, restaurants, hotels, and luxury goods and services.
15
Second, the degree of product or service differentiation tends to be greater among Consumer
Discretionary firms compared to Consumer Staples firms. Therefore, Consumer Discretionary
firms tend to invest more on the market-oriented CSR to improve the reputation of their products
and services to attract more people and thus improve firm financial performance. Whereas
Consumer Staples firms sell essential and basic household products including food, drugs,
beverages, and so forth. People constantly demand these products and are unable or unwilling to
cut these items out of their budgets (Deaton and Muellbauer, 1980). Consequently, investment on
market-oriented CSR may have minimal influence on firm financial performance among
Consumer Staples firms.
Similarly, for Energy and Materials firms that provide commodity-type products, the
performance enhancing effect of market-oriented CSR is likely to be insignificant. Utilities firms
are also less likely to benefit much from market-oriented CSR given that they face some of the
most restrictive regulations and operate in a regulated industry with little room for product
differentiation (Booth et al., 2002). For firms in the sectors where differentiation represents a key
competitive advantage, not all firms equally enjoy the opportunity of differentiating through
market-oriented CSR. Firms in the Industrials sector that manufacture machinery or electrical
equipment or carry on engineering and construction projects can benefit substantially from
market-oriented CSR activities such as responsible supply chain management, product
innovation and quality or safety control, all important aspects firms can distinguish themselves
from the competition. In contrast, such opportunity may be limited for service providers. Given
the nature of their business, service providers such as Health Care, Financials, IT, and
Telecommunication Service firms are unlikely to derive many benefits from market-oriented
CSR. In fact, significant investment in this CSR category may even negatively influence firm
financial performance for these firms. Overall, we expect market-oriented CSR would improve
16
firm performance in Consumer Discretionary and Industrial sectors, but not in the other eight
sectors.
Methodology
Variable Measurement
In this study, we focus on the effect of CSR practices on long-term financial performance
and use Tobin’s Q in year t as our primary measure of corporate financial performance (Servaes
and Tamayo, 2013; Jo and Harjoto, 2011; Palia, 2001; Luo and Bhattacharya, 2006; Mehran,
1995). Tobin’s Q is calculated as the market value of equity plus the book value of assets minus
the sum of book value of common equity and deferred taxes, all deflated by the book value of
assets.
Besides, CSR decisions are long and complicated processes to be justified with
consideration of the interests of the company itself and its various stakeholder groups. The
implementation of CSR activities could take several fiscal periods, and thus the actual impact of
CSR activities on firm financial performance might be recognized in the following years.
Therefore, we further conduct several additional tests using alternative measures of corporate
financial performance.
Kinder, Lydenberg, and Domini (KLD) Research & Analytics, Inc. rates corporate social
responsibility of the largest 3,000 U.S. companies on seven primary dimensions - corporate
governance, community relations, diversity, employee relations, environment, human rights and
product. This database has been employed in numerous studies, such as Servaes and Tamayo
(2013), Hillman and Keim (2001), Berman et al. (1999), Johnson and Greening (1999), and
Waddock and Graves (1997). For the purpose of our study, we constructed the scores of CSR
17
categories by matching the six CSR items (Employee Relations, Diversity, Human Rights,
Environment, Community Relations, and Product) from the KLD data with the four CSR
categories defined by Mandl and Dorr (2007) based on the “target group” or beneficiaries
described in the definitions. Specifically, the employees-oriented CSR score (EmployeesCSR) is
constructed as total strengths minus total concerns in the Employee Relations, Diversity, and
Human Rights categories provided by the KLD data. The environment-oriented CSR score
(EnvironmentCSR) is constructed as total strengths minus total concerns in the Environment

category provided by the KLD data. The society-oriented CSR score (SocietyCSR) is constructed
as total strengths minus total concerns in the Community Relations category provided by the
KLD data. Similarly, the market-oriented CSR score (MarketCSR) is constructed as total
strengths minus total concerns in the Product category provided by the KLD data. The overall
CSR score (OverallCSR) is constructed as the sum of the above four CSR categories.
Industries are defined as the first two-digit Global Industry Classification Standard (GICS)
codes. The GICS methodology has been commonly accepted as an industry analysis framework
for research of corporate sustainability performance, financial performance, investment, portfolio
management and asset allocation (Ameer and Othman, 2012; Artiach et al., 2010; Standard &
Poor’s Indices, 2008; Baum and Wally, 2003). The GICS classification system currently consists
of ten sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health
Care, Financials, IT, Telecommunication Services, and Utilities.

We further control for several firm characteristics found to be associated with firm
performance. Firm size (Size) is measured as the natural logarithm of total assets, since larger
firms tend to have greater financial performance (Roberts and Dowling, 2002). Firm growth
(Growth) is measured as the increase in this year sales from prior year sales divided by prior year
sales. Firm age (Age) is measured as the total number of years the firm has been filing with the
18
SEC, since older firms tend to have higher levels of inertia, which may decrease firm
performance (Hannan and Freeman, 1984). Risk has also been found to be associated with firm
performance (Waddock and Graves, 1997). Firm risk (Risk) is measured as the long-term
liabilities divided by total assets (Bhandari, 1988). Using 2-digit SIC codes, we include HH
(Herfindahl-Hirschman Index) to proxy for the level of market competition (Flammer, 2014). HH
is calculated by summing the squares of the percentage market shares held by the respective
firms. The number of employees (Emp) is included as another control variable since it was
recognized as a determinant of financial performance (Surroca et al., 2010; Waddock and
Graves, 1997). Emp is calculated by the natural logarithm of the total number of employees.
Finally, Year dummies (Year) are included to control for year fixed effects. A detailed
description of variables is included in Appendix 2.
Model Specification
To investigate the heterogeneousness of the association between a firm’s engagement in CSR
and firm financial performance across industries and across different CSR categories, we
estimate the following Model 1 for each industry sector and for each CSR category.
Tobin’s Q=α0+α1CSR+α2Size+α3Growth+α4Age+α5Risk+α6HH+α7Emp+αiYear+ε
(1) CSR represents the overall CSR or one of the four CSR variables: EmployeesCSR,
EnvironmentCSR, SocietyCSR, and MarketCSR. Our primary variable of interest is the
coefficient on each CSR variable, α1.
19
Empirical Results
Sample and Data
We combine the KLD data with financial data obtained from COMPUSTAT for the years
1991-2011. After merging these two databases and excluding 227 firm-year observations with
missing data in CSR variables, Tobin’s Q and/or control variables, we obtain a final sample of
17,083 firm-year observations representing 1,877 unique firms (when using Tobin’s Q in year t).1
Descriptive Statistics and Correlations

[Insert Table 1 Here]
Descriptive statistics of all variables are reported in Table 1. The mean (median) values of
Tobin’s Q are 1.8980 (1.4812) respectively. The mean (median) values of Age are 28.8681
(25). The mean values of the overall CSR (OverallCSR), employees-oriented CSR
(EmployeesCSR), and society-oriented CSR (SocietyCSR) are all positive (0.5672, 0.6727, and
0.1464, respectively), indicating that firms generally have more strengths than concerns in these
CSR categories. The mean values of environment-oriented CSR (EnvironmentCSR) and
marketoriented CSR (MarketCSR) are negative (-0.0405 and -0.2114, respectively), indicating
that firms generally have more concerns than strengths in the environment-oriented and
marketoriented CSR categories.

Table 2 presents the correlations among variables. Tobin’s Q is positively correlated with
the overall CSR (OverallCSR) (Corr.=0.0951, p<0.01) and all four CSR categories, providing
some initial evidence on the positive implication of CSR on firm performance. Significantly
positive correlations are reported among most of the CSR categories. However, MarketCSR is
found to be negatively correlated with EmployeesCSR (Corr.=-0.0134, p<0.1) and SocietyCSR
1
In additional tests, the sample size is reduced when using the year ahead data of Tobin’s Q in years t+1, t+2, and
t+3.
20
(Corr.=-0.0515, p<0.01). These results suggest the potential for some conflicting interests and
benefits between the investment on market-oriented CSR and the investments on
employeesoriented and/or society-oriented CSR activities. HH is positively correlated with
OverallCSR (Corr.=0.0900, p<0.01), EmployeesCSR (Corr.=0.1180, p<0.01), SocietyCSR
(Corr.=0.0464, p<0.01), and negatively correlated with EnvironmentCSR (Corr.=-0.0444,
p<0.01) and MarketCSR (Corr.=-0.0182, p<0.05). These results provide some initial evidence on
the differences of CSR practices among industries. In interpreting these correlation coefficients,
caution must however be exercised since firm characteristic variables were not controlled. Next,
the results of multivariate analyses are investigated.
Industry Distribution
Table 3 reports the industry distribution of the sample firms. The top five representative
industries are IT (359 firms, 19.1%), Consumer Discretionary (317 firms, 16.9%), Financials
(309 firms, 16.5%), Industrials (253 firms, 13.5%), and Health Care (227 firms, 12.1%).
Key Findings on Industrial Effects of the Overall CSR Practices on Firm Financial Performance
Table 4 Panel A reports our results of the regression analysis on the association between
the overall CSR practices and firm financial performance (measured by Tobin’s Q in year t)
across the ten GICS industry sectors. Applying Model 1, we conduct the OLS analysis with
robust standard errors, and report the results on the entire sample in column 1. The coefficient on
OverallCSR (coeff.=0.0710, p<0.01) loads positively, supporting that firms with more
engagement on CSR activities have greater firm performance. As reported in columns 2 to 11,
the results on the association between OverallCSR and firm financial performance do vary across
21
sectors. OverallCSR is positively associated with firm performance in most sectors with two
exceptions - OverallCSR is not significantly associated with firm performance among Energy
firms (coeff.=-0.0051) and Utility firms (coeff.=-0.0001).
Energy and Utilities companies are often quite regulated and generally face a number of
significant challenges. These companies need to address the growing demands of customers and
regulators while keeping consumer costs affordable and maintaining the reliability of the energy
and utilities systems in an aging infrastructure. Energy and Utilities companies also need to
ensure occupational safety, improve environmental performance by limiting waste emissions,
and addressing their industry challenges while achieving regulatory compliance and mitigating
operational risks (Enablon, 2016). Given all these challenges, the positive influence on firm
performance might only be found in certain CSR categories, but not in the other CSR categories.
In fact, as reported in Table 6 Panel A, the coefficients on EnvironmentCSR load positively for
Energy (coeff.=0.0272, p<0.05) and Utilities firms (coeff.=0.0064, p<0.1), suggesting that more
engagement in environment-oriented CSR would positively impact firm performance. However,
the coefficients on SocietyCSR load insignificantly for Energy (coeff.=-0.0244) and negatively
for Utilities firms (coeff.=-0.0169, p<0.01), suggesting that more engagement in society-oriented
CSR would negatively impact firm performance. These will be discussed further in the later
section.
Overall, the results reported in Table 4 Panel A suggest that the association between the
overall CSR activities and firm financial performance is heterogeneous across industries. CSR
has significantly positive implications for firms from most, but not all, industries. To provide
further evidence on the implication of CSR on firm financial performance, it is important to
explore the impact of CSR across industries and across CSR categories.
Key Findings on Differential Impacts of CSR Categories on Firm Financial Performance

22
Table 5 Panel A reports the results of analyzing the differential impacts of CSR
categories on firm financial performance (measured by Tobin’s Q in year t) on our entire sample.
In column 1, we report the regression results of the coefficient on OverallCSR in column 1 and
the coefficients on the four CSR categories in columns 2 to 5. The coefficients on OverallCSR
(coeff.=0.0710, p<0.01), EmployeesCSR (coeff.=0.1190, p<0.01), EnvironmentCSR
(coeff.=0.0832, p<0.01) and SocietyCSR (coeff.=0.1684, p<0.01) load positively, whereas the
coefficient on MarketCSR is negative (coeff.=-0.0458, p<0.01). These results suggest that
engagement in the market-oriented CSR may negatively impact firm financial performance.
Hence, investments on the market-oriented CSR should be conducted with caution and not with
the intention of improving firm performance.
Key Findings on the Association between CSR and Firm Financial Performance across Industries
and across CSR Categories
Table 6 Panel A reports our analyses on the association between CSR and firm financial
performance (measured by Tobin’s Q in year t) across industries and across CSR categories.
Throughout columns 1 to 10, we run Model 1 on each GICS industry sector and report the
regression results of the coefficient on each CSR category. The key findings are discussed as
follows.
Employees-oriented CSR Consistent with our expectations, we find significantly positive
associations between EmployeesCSR and firm performance in four labor-sensitive manufacturing
industries, such as Materials (coeff.=0.0309, p<0.01), Industrials (coeff.=0.0555, p<0.01),
Consumer Discretionary (coeff.=0.0977, p<0.01), and Consumer Staples (coeff.=0.1707,
p<0.01). Significantly positive associations between EmployeesCSR and firm performance are
23
also found in four service industries, such as Health Care (coeff.=0.1713, p<0.01), Financials
(coeff.=0.0498, p<0.01), IT (coeff.=0.0953, p<0.01) and
Telecommunication Services (coeff.=0.0339, p<0.1). As expected, there is a negative association
between employees-oriented CSR and firm financial performance in Utilities firms (coeff.=-
0.0058, p<0.05), probably due to the smaller proximity to end consumers in Utilities firms.
Contrary to our expectation, there is a negative association between EmployeesCSR and firm
performance in the Energy sector (coeff.=-0.0193, p<0.1). Companies in the energy industry
(such as oil and gas companies) face environmental risks, safety risks, liability risks, and
reputational risks (Spence, 2011). The energy companies are expected to meet stringent standards
of environmental regulations and are committed to comply with these standards (Hine and
Preuss, 2009). With limited resources, these companies might prioritize the environmentoriented
CSR, which directly addresses the environment-related issues and is critical to the corporations’
long-term success. Therefore, the energy companies’ engagement in the other categories of CSR
(such as employees-oriented CSR) may not significantly affect firm performance.
Environment-oriented CSR Consistent with our expectations, significantly positive
associations between EnvironmentCSR and firm performance are found in six environmentally
sensitive sectors, such as Energy (coeff.=0.0272, p<0.05), Materials (coeff.=0.0297, p<0.05),
Industrials (coeff.=0.0773, p<0.01), Consumer Discretionary (coeff.=0.1225, p<0.01), Consumer
Staples (coeff.=0.1642, p<0.01), and Utilities (coeff.=0.0064, p<0.1). A positive association is
also found in Financials sector (coeff.=0.0960, p<0.01). Significantly negative or insignificant
associations between EnvironmentCSR and firm performance are found in two less
environmentally sensitive sectors, such as Health Care (coeff.=-0.0429) and Telecommunication
Services (coeff.=-0.0687, p<0.1).
24
Contrary to our expectation, a positive association between EnvironmentCSR and firm
performance are found in one less environmentally sensitive sector – IT (coeff.=0.0808, p<0.05).
Information technology (IT) companies face the environmental concerns on reducing carbon
emissions and thus are increasing the computing efficiency of data equipment to reduce the
environmental risk. Therefore, more engagement in environment-oriented CSR may also result in
greater firm performance for the IT sector.
Society-oriented CSR Consistent with our expectations, positive associations between

SocietyCSR and firm performance are found in four sectors, such as Industrials (coeff. =0.1478,
p<0.01), Consumer Discretionary (coeff.=0.1987, p<0.01), Consumer Staples (coeff.=0.2567,
p<0.01), and Health Care (coeff.=0.3626, p<0.01). Significantly negative or insignificant
associations between SocietyCSR and firm performance are found in Energy (coeff.=-0.0244) and
Utilities (coeff.=-0.0169, p<0.01). These results are consistent with our expectations that the
primary goal of Energy and Utilities firms is to serve consumers and the community and these
firms may be more viewed as a necessity and not a contributing part of society. When these firms
make a substantial investment in society-oriented CSR, the effect of that CSR financial
commitment to improve firm performance is diminished. That is, the incremental contribution of
society-oriented CSR engagements tend to be negligible for Utility and Energy firms.
Contrary to our expectations, there is no significant association between SocietyCSR and
firm performance in the Materials, Financials, IT, and Telecommunication Services sectors.
Because of the tight budgets and smaller proximity to end consumers, companies in these
industries might prioritize the other categories of CSR (such as employees-oriented CSR) to
promote strong customer relationships and to provide better service to customers. Therefore,
these companies’ engagement in the society-oriented CSR may not significantly affect firm
performance.
25
Market-oriented CSR Consistent with our expectations, the coefficient on MarketCSR is
significantly positive for Consumer Discretionary firms (coeff.=0.0889, p<0.05), but not
significant for Consumer Staples firms (coeff.=-0.0143). That is, engagement in market-oriented
CSR would benefit Consumer Discretionary firms but not Consumer Staples firms, probably due
to the different characteristics of the products and the different degrees of product differentiation
in these two industries. The coefficient on MarketCSR is positive for Industrial firms
(coeff.=0.1227, p<0.01), and negative or insignificant for the other six sectors - Energy,
Materials, Health Care, Financials, IT, and Telecommunication Services. Contrary to our
expectation, there is a significantly positive association between MarketCSR and firm
performance for Utilities firms (coeff.=0.0333, p<0.01).
The above inferences remain unchanged when using Tobin’s Q in years t+1, t+2, and t+3
as additional measures of firm financial performance (untabulated).
Post-hoc Tests
While the relationship between CSR and long-term corporate financial performance
(measured by Tobin’s Q) is the focus of this study, we believe it is worthwhile to supplement our
primary analyses with post-hoc tests using measures of short-term corporate financial
performance. Specifically, we use returns on assets (ROA), a common measure of short-term
corporate financial performance, to test our expectations (Servaes and Tamayo, 2013; Waddock
and Graves, 1997; Preston and O’Bannon, 1997). ROA is calculated as net income divided by
average total assets. In general, these post-hoc tests generate results consistent to those from our
primary analyses, supporting our conclusions. However, some results are not as consistent as we
expected. We briefly discuss these results as follows.
Table 4 Panel B reports the results of using ROA in year t as the alternative measure of
firm financial performance to test industrial effects of the overall CSR practices. Consistent with
26
the results of using Tobin’s Q, the coefficient on OverallCSR (coeff.=0.0025, p<0.01) loads
positively. In columns 2 to 11, OverallCSR is positively associated with firm financial
performance in all sectors except for Energy (coeff.=0.0013) and Utilities (coeff.=0.0004). The
results of using ROA in years t+1, t+2, and t+3 as additional measures of firm financial
performance (untabulated) do not change our inferences.
Table 5 Panel B reports the results of using ROA in year t as the alternative measure of
firm financial performance to test differential impacts of CSR categories. Consistent with the
results of using Tobin’s Q, the coefficients on OverallCSR load positively in columns 1 to 4 load
positively. In column 5, the coefficient on MarketCSR is insignificant (coeff.=-0.0006),
confirming that investments on the market-oriented CSR need to be conducted with caution. The
results of using ROA in years t+1, t+2, and t+3 as additional measures of firm financial
performance (untabulated) do not change our inferences.
Table 6 Panel B reports our analyses on the association between CSR and short-term
corporate financial performance (measured by ROA in year t) across industries and across CSR
categories. The results of using ROA in year t are generally consistent with our expectations.
First, in eight out of the nine unexpected occasions (highlighted in Table 6 Panel B), the signs of
the coefficients on CSR variables are consistent with our expectations, but not significant. A
potential explanation of these insignificant results is that ROA captures short-term corporate
financial performance while the effects of CSR on corporate financial performance may take
longer time to emerge. In fact, when using ROA in years t+1, t+2, and t+3, some of these
coefficients turn out to be significant. For example, when using ROA in year t, the coefficient on
EmployeesCSR is positive for Energy firms (coeff.=0.0020) in column 1, but insignificant. When
using ROA in year t+1, the positive coefficient on EmployeesCSR becomes significant for Energy
firms (coeff.=0.0050, p<0.01). Second, the coefficient on SocietyCSR for Materials firms is
27
negative (coeff.=-0.0033) and insignificant. This result is consistent with the one of using Tobin’s
Q in year t. As mentioned earlier, due to the limited budgets and smaller proximity to end
consumers, Materials firms might prioritize the other categories of CSR to promote strong
customer relationships and to provide better service to customers. These inferences remain
unchanged when using ROA in years t+1, t+2, and t+3 as additional measures of firm financial
performance (untabulated).
We believe that these supplementary tests arise some interesting findings and represent
potentially fruitful future research directions. For example, some research questions that deserve
exploring are: How long will the effect of CSR practices on firm financial performance be
recognized? Within one year, two years, or even longer? Does the time frame needed for the
effect of CSR practices to be recognized vary across industries?
Discussion and Conclusion
As suggested by Porter and Kramer (2006), it is better to think of CSR in the way that is
most appropriate to each firm’s strategy rather than in generic ways. In light of this argument,
this study examines how the association between a firm’s engagement in CSR and firm financial
performance is heterogeneous across industries and across CSR categories. Specifically, we
investigate the performance implications of CSR practices targeting different stakeholder groups
among firms in different industrial sectors. Overall, the results of our study indicate that different
types of CSR practices do not equally benefit firms operating in different industries that engage
different stakeholder groups, providing support to Porter and Kramer’s argument.
We found that the effect of the overall CSR practices on firm financial performance vary
across ten industrial sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer
28
Staples, Health Care, Financials, IT, Telecommunication Services, and Utilities. We also found
the differential impacts of employees-oriented CSR, environment-oriented CSR, society-oriented
CSR, and market-oriented CSR on firm financial performance. Further, we found that the
association between CSR and firm financial performance are heterogeneous across industries and
across CSR categories. More importantly, we make expectations on the association between CSR
and firm financial performance for each industry and each CSR category. Except for several
unexpected occasions, our results generally agreed with our expectations. We also provided some
explanations for the unexpected results.
This study contributes to the literature on CSR and firm performance. First, this study
echoes the findings of previous work and provides further support for the notion that CSR
practices impact a firm’s financial performance. Second, historically, there is a dearth of research
analyzing the effect of CSR on firm financial performance across industries and across CSR
categories. While recent studies increasingly acknowledge the usefulness of engaging in CSR to
improve financial performance (McWilliams et al., 2006), few studies have examined how the
association between CSR and firm financial performance is heterogeneous across industries. In
one notable study, Omar and Zallom (2016) found a correlation between environmental,
community and product activities to market value, but no relationship for human resources in the
food and beverage industry. Community was correlated to market value in the pharmaceutical
and medical industry, but not the other three themes had no impact on market value. The four
themes had no market value impact in the chemical industry. This study, however, only
investigated three industries for 26 companies in Jordan.
In addition, extant studies on CSR have primarily used the aggregate measure of CSR
calculated as the total scores using KLD data instead of differentiating among different
29
categories of CSR activities. While some researchers recently started to explore differential
effects of different CSR categories (e.g. Wang and Berens, 2015), few studies have incorporated
both CSR types and industrial membership. This study fills these two important gaps in the
literature, providing a more comprehensive picture of the association between CSR and financial
performance and revealing the significant variation in the association between CSR and firm
performance across industries and across CSR categories. Third, as companies are increasingly
involved in CSR, this study suggests an important and interesting direction for researchers who
engage in CSR research. Due to its heterogeneous nature, the association between CSR and
financial performance needs to be examined more specifically - across industries and across
different CSR categories. Findings from studies incorporating both CSR categories and company
industrial sector would provide more meaningful and practical implications for managers.
This study bears important practical implications for managers. First, to maximize firm
performance through CSR activities, managers must interpret the linkage between CSR and firm
financial performance from the perspective of a specific industrial sector. Our findings show the
positive association between overall CSR practices and firm performance in most industries, but
not with Energy and Utilities firms. For Energy and Utilities firms, significant investing in CSR
is not as beneficial. One potential explanation for the negative association between CSR
engagement and firm financial performance in the Energy sector is the lower expectation of the
general public for energy providers to contribute to societal welfare other than providing needed
electricity and gas; kind of a necessary evil mentality. Managers must fully understand their
industry and which CSR practices are important to firm performance. Those important CSR
practices should be promoted and communicated to stakeholders. Stakeholders must be apprised
of CSR policies to provide appropriate firm value impacts.
30
Second, our findings suggest the necessity of identifying the importance of CSR practices in
each category for firms across different industries. For example, engagement in the
marketoriented CSR in some industries may negatively impact firm financial performance.
Hence, managers need to be cautious when making investments on the market-oriented CSR.
Third, our findings provide important guidance for managers on resource allocation by
illustrating that CSR practices aiming at different stakeholder groups generate different financial
returns in different industries. Firms engage in CSR to satisfy different stakeholder groups. When
budgets are tight, managers may give more weight or higher priority to the CSR practices that
have stronger effects on firm financial performance by allocating scarce resources wisely. For
example, firms in most labor-sensitive manufacturing sectors (such as Materials, Industrials,
Consumer Discretionary and Consumer Staples) and service sectors where there is greater
proximity to the end consumers (such as Health Care, Financials, IT, and Telecommunication
Services) have greater firm performance when they engage more in employees-oriented CSR
activities. Firms in environmentally sensitive sectors (such as Energy, Materials, Industrials,
Consumer Discretionary, Consumer Staples, and Utilities) and in Financials sector have greater
firm performance when they engage more in environment-oriented CSR activities. More
engagement in society-oriented CSR are beneficial for most firms. However, the incremental
contribution of society-oriented CSR engagements tend to be negligible for Energy and Utility
firms, as these firms may be viewed more as a necessity than a contributing part of society. More
engagement in market-oriented CSR would benefit some sectors (such as Consumer
Discretionary and Industrials), but not the other sectors (such as Energy, Materials, Health Care,
Financials, IT, Telecommunication Services). We found and provided some explanations for the
unexpected results, which point towards several fruitful and future research avenues. Individual
31
firms may wish to analyze their relationships, since the impacts seem to vary by industry, size of
firm, and concentration in the industry. Only then can proper resource allocations take place.
We acknowledge that this study is subject to several limitations upon which we propose
promising directions for future research. First, it may be fruitful to explore how long the effect of
CSR practices on firm financial performance will be recognized and whether and how the time
frame needed for the effect of CSR practices to be recognized varies across industries. Second,
the endogenous issues on the association between CSR and corporate financial performance
would also point towards fruitful and future research avenues. Third, our results may not
necessarily be generalized to firms operating outside of the U.S.
In summary, despite the widely acknowledged, both academically and professionally,
importance of CSR as a critical factor of corporate success, not all types of CSR practice equally
contribute to firm financial performance. Firms operating in different industrial sectors should
appropriately weigh each CSR category in their overall corporate strategy. To obtain the biggest
gain from CSR spending, managers must have a good understanding how a specific CSR
category can contribute to the financial performance of their particular company in their
particular industry. That is, managers need better understand the linkage between specific CSR
practices and firm performance in their respective industry sectors. Especially when facing a
tight budget, instead of cutting back investment in CSR practices indiscriminately, managers may
want to spend the limited resources on the CSR practices that can generate the best financial
returns and temporarily reduce spending on the CSR practices that are less likely to result in
positive financial returns.
32
Appendix 1: Examples of Corporate Social Responsibility Activities
Example 1. Employees-oriented CSR

In year 2013, the Coca Cola Company reinforced its commitment to active, healthy living and
well-being of employees in the global market with activities such as lunchtime walks with senior
leaders, Tai Chi classes, presentations on balanced living, and the promotion of employeedriven
well-being ideas. In addition, its workplace culture was advanced through a comprehensive, by
providing employee training programs, such as the introduction of 2020 Leadership Behaviors,
Millennial Voices program, Start-up Weekends and a new experiential learning program. The
investment in employees and efforts to build a strong workplace culture were rewarded in the
global marketplace for attracting and retaining outstanding and innovative employees. In 2013,
the Coca Cola Company was on Top 26 lists, including the World’s 25 Best Multinational
Workplaces (The Coca Cola Company, 2014).
Example 2. Environment-oriented CSR

The Nikon Corp. believes in the importance of using resources efficiently and preventing
environmental pollution in order to pass on a sustainable and healthy planet to future generations.
Nikon has formulated the Nikon Basic Environmental Management Policy and strives to protect
the global environment. To prevent global warming, Nikon, in 2014, increased the number of
shots per battery charge for the D5500 Nikon DX format digital SLR camera by 36.7% compared
to D5300. To conserve forest resources, the amount of copy or printout paper purchased was
reduced by 20.6% compared to the amount for year 2013 (Nikon, 2015).
Example 3. Society-oriented CSR

The Starbucks Corp. has been supporting local non-profit organizations in their efforts to
provide the training and education useful to eradicate the cycle of poverty for this generation of
33
young people. Since opening the first community store in 2011, Starbucks has opened eight
stores and has raised over $900,000 toward local non-profits focused on providing opportunities
to young people in those communities. In 2014, Starbucks worked with non-profit organizations
to bring their partners, customers, and community leaders together and contributed more than
520,000 hours of volunteer service around the world. During Starbucks fourth annual Global
Month of Service in April, nearly 60,000 volunteers contributed over 232,000 hours in more than
30 countries. Altogether, the projects benefitted an estimated 1.4 million people with a value of
$5.2 million for communities (Starbucks, 2014).
Example 4. Market-oriented CSR

The Romanian micro education and training institute “SC BORDERLINE SERVICES
SRL” has been active in providing courses for Romanians wishing to start a career within EU
institutions. To gain considerable media coverage, the company engaged in market-oriented CSR
activities to provide free information via internet and allow people with low income to participate
in the classes and workshops free of charge. Only six months after taking up its business
activities, the company realized more than 3,500 subscribers to the newsletter and had 300
visitors to the web page daily. Consequently, these market-oriented CSR activities contributed to
corporate branding efforts and increased the number of consumers (Mandl and Dorr, 2007).
Appendix 2: Variable Measurement
Dependent Variables:
Tobin’s Q = the sum of total assets and market value of equity minus book
value of equity, divided by total assets.
ROA = Net income divided by average total assets.
Variables of Interest:
OverallCSR = the sum of Strengths minus the sum of Concerns in the Employee
Relations, Diversity, Human Rights, Environment, Community
Relations, and Product categories provided by the Kinder,
Lydenberg, Domini & Company (KLD) data. KLD is a social-
choice investment advisory firm that objectively rates the largest
3,000 U.S. companies by market capitalization on major qualitative
issue areas of social performance.
EmployeesCSR = the sum of Strengths minus the sum of Concerns in the Employee
Relations, Diversity, and Human Rights categories provided by the
KLD data.
EnvironmentCSR = the sum of Strengths minus the sum of Concerns in the
Environment category provided by the KLD data.
SocietyCSR = the sum of Strengths minus the sum of Concerns in the Community
Relations category provided by the KLD data.
34
MarketCSR = the sum of Strengths minus the sum of Concerns in the Product
category provided by the KLD data.
Control Variables:
Size = natural logarithm of total assets.
Growth = the sales growth from year t-1 to t, calculated as the increase in this
year sales from prior year sales divided by prior year sales.
Age = firm age, the total number of years the firm has been filing with the
SEC.
Risk = long-term debt divided by total assets.
HH = Herfindahl-Hirschman Index, calculated by summing the squares
of the percent market share held by each firm in the industry (using
the 2-digit SIC code).

Emp = natural logarithm of the total number of employees.
References
Aguinis, H. (2011), “Organizational responsibility: doing good and doing well”, in Zedeck, S.
(Ed.), APA handbook of industrial and organizational psychology 3, American Psychological
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Table 1. Descriptive Statistics

Variables Mean Median Std. Dev. Minimum Maximum
Tobin’s Q 1.8980 1.4812 1.3147 0.4006 39.1188
ROA 0.0499 0.0493 0.1008 -2.9053 2.3192
OverallCSR 0.5672 0 3.2763 -9 18
42
Employees_CSR 0.6727 0 2.6960 -6 15
Environment_CSR -0.0405 0 0.9102 -5 5
Society_CSR 0.1464 0 0.6466 -2 5
Market_CSR -0.2114 0 0.7048 -4 2
Size 8.0017 7.8887 1.6670 2.9631 14.6484
Growth 0.1283 0.0766 1.2036 -4.82551 92.5982
Age 28.8681 25 15.9995 1 61
Risk 0.5820 0.5798 0.2414 0.0159 2.8491
HH 1590.66 1005.23 1558.69 217.1520 10000
Emp 1.8971 1.9160 1.6792 -5.1160 7.6962
The sample is comprised of 17,083 firm-year observations representing 1,877 unique firms. This table shows the
descriptive statistics of the entire sample. All variables are defined in Appendix 2.
43
Table 2. Correlations
Variables Tobin’s Q ROA Overall Employees Environment Society Market Size Growth Age Risk HH
CSR CSR CSR CSR CSR
Tobin’s Q 1
ROA 0.3877*** 1
OverallCSR 0.0951*** 0.0675*** 1
Employees 0.0623*** 0.0531*** 0.8976*** 1

CSR
Environment 0.0642*** 0.0430*** 0.4152*** 0.0756*** 1
CSR
Society 0.0547*** 0.0418*** 0.4873*** 0.2875*** 0.2319*** 1
CSR
Market CSR 0.0710*** 0.0167** 0.2320*** -0.0134* 0.1369*** -0.0515*** 1
Size -0.2207*** -0.0590*** 0.1521*** 0.2436*** -0.0618*** 0.2293*** -0.3555*** 1
Growth 0.0547*** 0.0234*** 0.0005 -0.0018 -0.0022 -0.0008 0.0127* -0.0105 1
Age -0.1763*** 0.0013 0.0620*** 0.1322*** -0.0835*** 0.0763*** -0.1795*** 0.3593*** -0.0492*** 1
Risk -0.2554*** -0.1693*** 0.0421*** 0.1015*** -0.0685*** 0.0792*** -0.1766*** 0.5217*** 0.0290*** 0.2109*** 1
HH 0.0016 0.0456*** 0.0900*** 0.1180*** -0.0444*** 0.0464*** -0.0182** 0.0274*** -0.0017 -0.0100 0.0436*** 1
Emp -0.0432*** 0.0683*** 0.2016*** 0.2655*** -0.0135* 0.2197*** -0.2624*** 0.6108*** -0.0330*** 0.3964*** 0.2488*** 0.2408***
The sample is comprised of 17,083 firm-year observations representing 1,877 unique firms. This table shows the Pearson correlation coefficients among all
variables. Correlation coefficients are reported at the 0.01 (***), 0.05 (**), or 0.1 (*) levels using two-tailed t-test. All variables are defined in Appendix 2.
44
Table 3. Industry Distribution
Number of Percentage Number of Percentage
Industrial Sectors firm-year of unique firms of
observations firm-year unique firms
observations
Energy 930 5.4% 100 5.3%
Materials 1,213 7.1% 114 6.1%
Industrials 2,647 15.5% 253 13.5%
Consumer Discretionary 3,078 18.0% 317 16.9%
Consumer Staples 984 5.8% 95 5.1%
Health Care 1,791 10.5% 227 12.1%
Financials 2,546 14.9% 309 16.5%
IT 2,818 16.5% 359 19.1%
Telecommunication Services 187 1.1% 25 1.3%
Utilities 889 5.2% 78 4.1%

All firms 17,083 100% 1,877 100%
This table reports the industry distribution of firm-year observations and unique firms. Industry is defined according
to GICS classification (S&P Indices, 2008).
45
Table 4. Industrial Effects of the Overall CSR Practices on Firm Financial Performance Panel
A: Firm Financial Performance is measured as Tobin’s Q in year t
1. 2. 3. Materials 4. 5. 6. 7. 8. 9. IT 10. 11.
All Firms Energy Industrials Consumer Consumer Staples Health Financials Telecommunication Utilities
Variables
Discretionary Care Services
OverallCSR 0.0710*** -0.0051 (- 0.0203*** 0.0538*** 0.0793*** (9.71) 0.0903*** (7.98) 0.0849*** 0.0266*** 0.0592*** 0.0200* (2.57) -0.0001 (-
(21.61) 0.79) (2.64) (7.52) (5.18) (3.79) (4.87) 0.08)
Size -0.1596*** (- -0.0866*** -0.1090*** -0.1654*** -0.1477*** (- 0.0191 (0.32) -0.0905* (- -0.2001*** 0.1060** -0.3795*** (-4.42) -0.0483***
17.95) (-4.84) (-3.69) (-6.59) 6.57) 1.86) (-7.84) (2.50) (-4.43)
Growth 0.0558*** (2.05) 0.0108 0.3620*** 0.8706*** 0.1093** (2.08) 1.0443** (2.50) 0.1813*** 0.0012 0.0310 -0.0839 (-0.89) 0.0267*
(0.54) (4.31) (6.44) (4.36) (0.29) (0.81) (1.77)
Age -0.0107*** (- -0.0042*** 0.0018* -0.0061*** -0.0235*** (- 0.0076*** (3.47) 0.0156*** -0.0037*** -0.0285*** -0.0070*** (-2.71) 0.0003
16.28) (-3.53) (1.77) (-5.56) 14.97) (5.24) (-3.35) (-12.36) (0.34)
Risk -0.9388*** (- -0.7275*** -0.7869*** -0.7656*** 0.2269* (1.72) -0.2737 (-1.14) -0.9575*** (- -0.7269*** -0.6792*** 0.5227*** (4.93) -0.1136 (-
13.81) (-5.57) (-6.24) (-5.05) 4.66) (-5.91) (-3.95) 1.49)
HH -0.0000*** (- -0.0000*** -0.0000 (- 0.0002 -0.0000 (-0.16) -0.0001*** (-4.38) -0.0001*** (- 0.0001*** 0.0000 -0.0022*** (-4.48) -0.0001***
6.42) (-5.04) 0.79) (1.55) 3.55) (5.92) (0.54) (-4.62)
Emp 0.0987*** 0.0899*** 0.0628** 0.1160*** 0.1067*** (5.94) -0.1182** (-2.44) -0.2921*** (- 0.1231*** -0.0838** (- 0.3546*** (3.86) 0.0311***
(14.87) (4.66) (2.53) (4.57) 6.50) (6.80) 2.38) (2.67)
Year Dummies Included Included Included Included Included Included Included Included Included Included Included
Adj. R2 16.54% 24.93% 14.65% 15.76% 16.87% 17.99% 26.91% 25.18% 22.83% 39.31% 17.19%
# of firm-year obs. 17,083 930 1,213 2,647 3,078 984 1,791 2,546 2,818 187 889
# of unique firms 1,877 100 114 253 317 95 227 309 359 25 78
47
Panel B: Firm Financial Performance is measured as ROA in year t

1. 2. 3. Materials 4. 5. 6. 7. 8. 9. IT 10. 11.
All Firms Energy Industrials Consumer Consumer Staples Health Financials Telecommunication Utilities
Variables
Discretionary Care Services
OverallCSR 0.0025*** (9.73) 0.0013 0.0012* 0.0036*** 0.0023*** (3.44) 0.0045*** (6.97) 0.0047*** 0.0009** 0.0031** 0.0058*** (2.36) 0.0004
(1.47) (1.61) (7.03) (3.57) (2.25) (2.30) (1.36)
Size -0.0034*** (- 0.0075*** -0.0087*** -0.0014 (- -0.0090*** (-4.33) 0.0028 (0.89) -0.0037 (- -0.0113 (- 0.0060 -0.0738*** (-3.64) -0.0027 (-
3.96) (2.60) (-2.64) 0.88) 0.89) 6.85) (1.27) 1.44)
Growth 0.0022 (1.61) 0.0009 0.0801*** 0.0836*** 0.0063** (2.50) 0.0626*** (2.96) -0.0039 (- -0.0000 (- 0.0035 -0.0299 (-0.90) 0.0135***
(0.59) (6.26) (6.73) 1.60) 0.01) (1.04) (2.90)
Age 0.0000 (0.63) 0.0001 0.0002 0.0000 -0.0011*** (-7.68) 0.0005*** (3.42) 0.0004 -0.0003*** -0.0001 (- 0.0003 (0.52) 0.0004***
(0.56) (1.44) (0.14) (1.48) (-2.82) 0.31) (3.41)
Risk -0.0745*** (- -0.1493*** -0.0990*** -0.0857*** -0.0683*** (-5.23) -0.0562*** (-3.65) -0.1438*** -0.0839*** -0.0819*** -0.0276 (-0.45) -0.0535***
10.86) (-7.57) (-6.87) (-8.08) (-3.47) (-9.78) (-4.31) (-3.90)
HH 0.0000*** (2.94) -0.0000 (- -0.0000*** -0.0000*** -0.0000 (-0.44) 0.0000 (0.64) -0.0000 (- 0.0000*** 0.0000 -0.0003*** (-2.94) -0.0000***
0.20) (-4.70) (-2.74) 0.57) (5.57) (1.44) (-2.17)
Emp 0.0075*** 0.0007 0.0126*** 0.0014 0.0128*** (6.31) -0.0098*** (-3.48) 0.1358** 0.0080*** 0.0066** 0.0664*** (3.18) 0.0017
(12.56) (0.21) (3.96) (1.02) (2.10) (6.64) (1.97) (0.83)
Year Dummies Included Included Included Included Included Included Included Included Included Included Included
Adj. R2 7.1% 22.19% 17.97% 16.75% 12.62% 13.26% 10.57% 30.50% 10.77% 16.38% 20.95%
# of firm-year obs. 17,083 930 1,213 2,647 3,078 984 1,791 2,546 2,818 187 889
# of unique firms 1,877 100 114 253 317 95 227 309 359 25 78
This table reports our results of the regression analysis on the industrial effects of the overall CSR practices on firm financial performance. Firm financial
performance is measured as Tobin’s Q (ROA) in year t in Panel A (Panel B). Coefficient estimates and t-statistics computed using cluster robust standard errors (in
parentheses) are reported in the table. ***, ** and * indicate statistical significance at the 1%, 5% or 10% levels using two-tailed t-test. All variables are defined
in Appendix 2.
48
Table 5. Differential Impacts of CSR Categories on Firm Financial Performance
Panel A: Firm Financial Performance is measured as Tobin’s Q in year t

Variables 1. All 2. All 3. All 4. 5.
Firms Firms Firms All Firms All Firms
OverallCSR 0.0710***
(21.61)
EmployeesCSR 0.1190***
(22.07)
EnvironmentCSR 0.0832***
(12.35)
SocietyCSR 0.1684***
(11.71)
MarketCSR -0.0458*** (-
2.97)
Size -0.1596*** (- -0.1842*** (- -0.1362*** (- -0.1529*** (- -0.1459*** (-
17.95) 20.43) 15.21) 16.93) 15.78)
Growth 0.0558*** 0.0552** (2.04) 0.0566** (2.06) 0.0594** (2.07) 0.0563** (2.06)
(2.05)
Age -0.0107*** (- -0.0115*** (- -0.0108*** (- -0.0110*** (- -0.0114*** (-
16.28) 17.53) 16.20) 16.49) 17.17)
Risk -0.9388*** (- -0.9258*** (- -0.9867*** (- -0.9722*** (- -0.9932*** (-
13.81) 13.74) 14.26) 14.08) 14.33)
HH -0.0000*** (- -0.0000*** (- -0.0000*** (- -0.0000*** (- -0.0000*** (-
6.42) 6.54) 7.16) 7.41) 7.60)
Emp 0.0987*** 0.1009*** 0.1022*** 0.1013*** 0.1062***
(14.87) (15.21) (15.29) (15.15) (15.81)
Year Dummies Included Included Included Included Included
49
Adj. R2 16.54% 17.01% 15.05% 15.37% 14.80%

# of firm-year obs. 17,083 17,083 17,083 17,083 17,083
# of unique firms 1,877 1,877 1,877 1,877 1,877

Variables 1. All 2. All 3. All 4. 5.
Firms Firms Firms All Firms All Firms
OverallCSR 0.0025***
(9.73)
EmployeesCSR 0.0042***
(9.81)
EnvironmentCSR 0.0032***
(4.88)
SocietyCSR 0.0043***
(5.08)
MarketCSR -0.0006 (-0.55)
Size -0.0034*** (- -0.0043*** (- -0.0026*** (- -0.0031*** (- -0.0028*** (-

3.96) 4.75) 3.03) 3.53) 3.17)
Growth 0.0022 0.0022 0.0023 0.0022 0.0022
(1.61) (1.60) (1.63) (1.63) (1.63)
Age 0.0000 0.0000 0.0000 0.0000 0.0000
(0.63) (0.01) (0.60) (0.34) (0.15)
Risk -0.0745*** (- -0.0740*** (- -0.0761*** (- -0.0758*** (- -0.0764*** (-
10.86) 10.77) 11.12) 11.05) 11.16)
HH 0.0000*** 0.0000*** 0.0000** (2.55) 0.0000** (2.42) 0.0000** (2.35)
(2.94) (2.90)
Emp 0.0075*** 0.0075*** 0.0076*** 0.0076*** 0.0078***
(12.56) (12.71) (12.71) (12.73) (13.00)
50
Year Dummies Included Included Included Included Included

Adj. R2 7.1% 7.2% 6.8% 6.8% 6.7%
# of firm-year obs. 17,083 17,083 17,083 17,083 17,083
# of unique firms 1,877 1,877 1,877 1,877 1,877
This table reports our results of the regression analysis on the differential impacts of CSR categories on firm financial performance. Firm financial performance is
measured as Tobin’s Q (ROA) in year t in Panel A (Panel B). Coefficient estimates and t-statistics computed using cluster robust standard errors (in parentheses)
are reported in the table. ***, ** and * indicate statistical significance at the 1%, 5% or 10% levels using two-tailed t-test. All variables are defined in Appendix 2.
Table 6. The Association between CSR and Firm Financial Performance across Industries and across CSR Categories
Panel A: Firm Financial Performance is measured as Tobin’s Q in year t

1. 2. 3. Industrials 4. 5. 6. 7. Financials 8. IT 9. 10.
Energy Materials Consumer Consumer Health Telecommunication Utilities
Variables
Discretionary Staples Care Services
EmployeesCSR + -0.0193* (- + 0.0309*** + 0.0555*** + 0.0977*** + 0.1707*** + 0.1713*** + 0.0498*** + 0.0953*** + 0.0339* (1.97) - -0.0058** (-
1.77) (2.85) (5.47) (7.59) (9.74) (6.83) (4.21) (5.64) or 2.07)
/
EnvironmentCSR + 0.0272** + 0.0297** + 0.0773*** + 0.1225*** + 0.1642*** - -0.0429 (- + 0.0960*** - 0.0808** - -0.0687* (-1.83) + 0.0064*
(2.04) (2.20) (5.18) (6.15) (4.75) or 1.02) (4.41) or (2.40) or (1.80)
/ / /
SocietyCSR - -0.0244 (- + -0.0054 (- + 0.1478*** + 0.1987*** + 0.2567*** + 0.3626*** + 0.0032 + 0.0950 + 0.0539 (1.09) - -0.0169*** (-
or 0.86) 0.20) (4.71) (5.91) (4.93) (4.36) (0.20) (1.56) or 2.95)
/ /
MarketCSR - -0.0210 (- - 0.0191 (0.62) + 0.1227*** + 0.0889** - -0.0143 (- - -0.0690 (- - -0.0611*** (- - -0.1010 (- - 0.0141 (0.38) - 0.0333***
or 0.59) or (3.92) (2.49) or 0.30) or 1.42) or 2.68) or 1.52) or or (4.54)
/ / / / / / / /
# of firm-year 930 1,213 2,647 3,078 984 1,791 2,546 2,818 187 889
obs.
# of 100 114 253 317 95 227 309 359 25 78
unique firms

1. 2. 3. Industrials 4. 5. 6. 7. Financials 8. IT 9. 10.
Energy Materials Consumer Consumer Health Telecommunication Utilities
Variables
Discretionary Staples Care Services
51
EmployeesCSR + 0.0020 + 0.0016 + 0.0039*** + 0.0029*** + 0.0097*** + 0.0074*** + 0.0022*** + 0.0054*** + 0.0090 (1.20) - -0.0002 (-
(1.35) (1.30) (4.78) (3.14) (10.19) (3.53) (2.97) (2.89) or 0.39)
/
EnvironmentCSR + 0.0025 + 0.0022 + 0.0061*** + 0.0051** + 0.0058*** - 0.0035 + 0.0057*** - 0.0030 - -0.0202** (- + 0.0019***
(1.59) (1.34) (4.96) (2.02) (2.81) or (1.12) (3.41) or (0.86) or 2.59) (3.39)
/ / /
SocietyCSR - -0.0010 (- + -0.0033 (- + 0.0075*** + 0.0033* + 0.0087*** + 0.0106*** + 0.0002 + 0.0012 + 0.0340*** - -0.0006 (-
or 0.33) 1.15) (3.64) (1.66) (3.26) (2.62) (0.02) (0.25) (3.46) or 0.62)
/ /
MarketCSR - 0.0033 - 0.0037 + 0.0072*** + 0.0020 (0.64) - -0.0005 (- - 0.0032 - -0.0059*** (- - -0.0071 (- - -0.0054 (-0.78) - 0.0014
or (0.69) or (1.28) (3.88) or 0.13) or (1.08) or 3.08) or 1.43) or or (1.41)
/ / / / / / / /
# of firm-year 930 1,213 2,647 3,078 984 1,791 2,546 2,818 187 889
obs.
# of 100 114 253 317 95 227 309 359 25 78
unique firms
This table reports our results of the regression analysis on the association between CSR and firm financial performance across industries and across the four CSR
categories. The positive sign (+) represents an expected significantly positive association between CSR category and firm financial performance in each industrial
sector. The negative sign (-) or / sign represents an expected significantly negative or insignificant association between CSR category and firm financial
performance in each industrial sector. Firm financial performance is measured as Tobin’s Q (ROA) in year t in Panel A (Panel B). Coefficient estimates and t-
statistics computed using cluster robust standard errors (in parentheses) are reported in the table. ***, ** and * indicate statistical significance at the 1%, 5% or
10% levels using two-tailed t-test. All variables are defined in Appendix 2.
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for all businesses.

A primary goal of CSR is to satisfy a firm’s various stakeholders. Stakeholder theory

actions of a business, including employees, customers, suppliers, creditors, shareholders,

management is a never-ending task of balancing and integrating multiple relationships and

relationships with all stakeholders in order to develop business strategies.

or insignificant association between CSR and financial performance - still remains an

In addition, CSR activities can be classified into four categories – employees-oriented

financial performance is heterogeneous across industries and across CSR categories.

insignificant influence) on financial performance of firms from different industrial sectors. We

According to Aguinis (2011, p.855), CSR refers to “context-specific organizational

of economic, social, and environmental performance.” The motivation to engage in CSR

innovations to benefit both society and a company’s own competitiveness. To be sure,

watchdog groups’ name-and-shame publicity programs (Becker-Olsen et al., 2006).

CSR and Firm Financial Performance

mixed results regarding the CSR-firm performance relationship.

as a long-term investment focusing on building and maintaining strong relationships with

aggressiveness, and the firm experienced enhanced market value.

misconduct (Kotchen and Moon, 2012; Hemingway and Maclagan, 2004).

CSR-firm performance relationship may also be attributed to the non-discriminative application

conditions and firm strategies. Actually, successful strategic integration of sustainability

Industrial Effects of the Overall CSR Practices on Firm Financial Performance

enhancing operating performance. Analyzing 26 companies in three industry sectors (Chemical,

confidence in the credibility of their reported sustainability activities.

According to stakeholder theory, building and maintaining good relationships with

affect firm financial performance tend to be different across industries.

Differential Impacts of CSR Categories on Firm Financial Performance

aggregate measure of several KLD categories.

CSR is a multi-dimensional concept and should thus be more preferably measured in

indicators were used to measure the four dimensions.

industries and across CSR categories are discussed next.

Employees-oriented CSR Employees-oriented CSR refers to the efforts a company take to

practices to enhance firm performance in labor-intensive manufacturing industries where

and Consumer Staples.

Employees-oriented CSR is also likely to strengthen firm performance in service

considerable interaction with customers. For service organizations, the employee-customer

performance when the incurred costs exceed the benefits received.

Environment-oriented CSR Environment-oriented CSR refers to the efforts a company

begun to engage in and espouse environmentally-friendly strategies, policies, and activities to

1) producing a large amount of greenhouse gas emissions; 2) extracting non-renewable resources

with major environmental consequences; and 3) producing significant amount of industrial

responses (Konar and Cohen, 2001; Klassen and McLaughlin, 1996).

In contrast, in less environmentally sensitive industries consuming less energy and

environmental impact of firm activities. Engagement in environment-oriented CSR may not

bring significant benefit to firms in these industries. Therefore, we expect an insignificant or a

negative association between environment-oriented CSR and firm performance in less

We also expect a positive association between environmental-oriented CSR activities and

association between EnvironmentCSR and firm financial performance in financials companies

adopted IFC’s Sustainability Framework which includes several performance standards on

(Matei and Voica, 2013).

involvement in community development, and in financial contribution to community well-being.

Market-oriented CSR Corporate marketing efforts would also influence

product differentiation opportunities.

For example, we expect market-oriented CSR to positively influence financial

Discretionary firms compared to Consumer Staples firms. Therefore, Consumer Discretionary

Consumer Staples firms.

performance enhancing effect of market-oriented CSR is likely to be insignificant. Utilities firms

market-oriented CSR activities such as responsible supply chain management, product

described in the definitions. Specifically, the employees-oriented CSR score (EmployeesCSR) is

(EnvironmentCSR) is constructed as total strengths minus total concerns in the Environment

for research of corporate sustainability performance, financial performance, investment, portfolio

Care, Financials, IT, Telecommunication Services, and Utilities.