The first article is titled, “The Causal Effect of Corporate Governance on Corporate Social Responsibility”. The authors are Jo Hoje and Maretno A. Harjoto. The purpose of the study it examines the association between corporate governance and corporate social responsibilities. The author’s statement is that establishing the causality between corporate governance and corporate social responsibility will address the empirical relationship between CSR, CG, and corporate financial performance. The exploration of how CSR engagement affects CFP, providing a measurement of the firm’s value and operating performance. The second article is titled, “A decade’s debate on the nexus between corporate social and corporate financial performance: a critical review of empirical studies 2002-2011.” The authors are Lu Weisheng, K.W. Chau, Hondi Wang, and Wei Pan. The purpose of the study is to determine the nexus of CSR, CG, and CFP. The study is important to validate the impact of CSR to CG and CFP.
Research Questions
The first study conducted by Jo Hoje and Maretno A. Harjoto formulated two hypothesis to validate or disprove. “Hypothesis 1(a) If the overinvestment hypothesis (based on agency theory) is correct, then we expect that the CSR engagement is inversely associated with CG mechanisms after controlling for confounding factors” (Hoje & Harjoto, 2012). The second research question is “Hypothesis 1(b) If the conflict-resolution hypothesis (based on stakeholder theory) is correct, then we expect a positive association between the CSR engagement and CG mechanisms” (Hoje & Harjoto, 2012). The second study concluded by Weisheng, Chau, Wang, and Pan found a similar research question. The research focus is finding the overall relationship between CSR and CFP. The question is whether the findings are positive, negative, and non-significant.
Sample Populations
Hoje and Harjoto used a sample population from the IRRC director database. The selection contains quarterly information on their common-stock position of 10,000 shares or $200,000 with more than a hundred million in securities. “This sample procedure produces a combined sample of 12,527 firm-year (2,952 firms) observations from 1993 to 2004. If there are any (no) observations in the KLD ratings, then we view them as firms with (no) CSR engagement” (Hoje & Harjoto, 2012). Weisheng et al. conducted five different studies. “The five studies examined 234, 230, 157, 68 and 87 samples respectively, therefore the total effective sample size for examining the relationship between CSP disclosure and market-based CFP is 776” (Weisheng et al., 2014). The authors used the weighted mean effective size and homogeneity to calculate the findings.
Results
Hoje & Harjoto found that CSR composite scores that lagged one year had no effect on corporate governance during the current period. The study rejected the null hypothesis that there is no relation between CG and CSR. “Our finding provides supporting evidence that corporations that practice stakeholder management, in fact, perform better on their conventional corporate performance (profitability and maximizing shareholders wealth)” (Hoje & Harjoto, 2012). Heckman provides two-stage treatment effect models that advise CSR engagement positively affects the industry. Regardless of the specific CSR dummies or their composite CSR scores, there is still a positive association with corporate social responsibilities. The study uses information from past and present; therefore time is not a factor in finding the outcome of the study.
Weisheng et al. used studies dated from 1972-2011. The growth of CSR has been evidently clear in the study. The results found that “empirical examinations of the CSP-CFP relationship have continued to proliferate, irrespective of the previous calls for a moratorium on CSP-CFP research” (Weisheng et al., 2014). The study found that there was a significant correlation between financial performance and corporate social responsibilities. The eighty-four studies provided a clear view of positive, negative, and neutral effects of corporate social responsibilities. There have been a numerous amount of studies that yielded the same findings, and the study concluded that there is a vital need for additional parameters to be established for a clearer cause and effect.
Conclusion
Hoje & Harjoto found that there is limited empirical evidence that establishes the endogeneity issues between CSR and CG. They found that managers often overinvest in the CSR and thus has created a positive correlation between CSR and CG. They also examined the potential for how CSR engagement promotes CFP by controlling the endogeneity and causality. “According to the overinvestment hypothesis, we expect that CSR negatively affects CFP. In contrast, the conflict-resolution hypothesis predicts that CSR positively affects CFP” (Hoje & Harjoto, 2012). The authors found that companies who engage in CSR within their environment, community, and employee promoted a positive enhancement for CFP.
Weisheng et al. concludes that over the past decade there have been significant endeavors to establish a link between corporate social responsibilities and corporate financial performance. The purpose was to establish justification for participating in CSR. The studies that have been conducted over the past forty years have a vast amount of parameters for the guideline and have yielded many different results. “It is found that, despite the enormous number of relevant studies, the CSP-CSR Nexus is still a line of inquiry that remains inconclusive” (Weisheng et al., 2014). The limitation that are provided are based on existing literature and consist of significant practical values. It takes time for CSR to have an effect on CFP and reverse, which has created a need for an executive to take into consideration the need to participate in corporate social responsibilities.
- Hoje, Jo and Maretno A. Harjoto. (2012). The Causal Effect of Corporate Governance on Corporate Social Responsibility. Journal of Business Ethics, 106:53–72.
- Weisheng, Lu; K.W. Chau; Hondi Wang; and Wei Pan. (2014). A decade’s debate on the nexus between corporate social and corporate financial performance: a critical review of empirical studies 2002-2011. Journal of Cleaner Production, 79, 195-206.
