The Relationship between Corporate Social and Financial Performance : Evidence from Chinese Heavy-polluting Industries

Abstract: This study investigates the relationship between corporate social performance (CSP)and corporate financial performance (CFP) within the context of a particular CSPelement: environmental investment. Two models of the determinants of companies’environmental investment are estimated in order to capture the difference betweenfirms’ actual and expected level of environmental investment. The regressionresiduals are used as our measure of corporate social performance. Both market-basedand accounting-based measures of financial performance are applied to representcorporate financial performance. With the analysis of a sample encompassing 223Chinese heavy-polluting companies, we have found that it is more likely to observe asignificantly positive relationship between firms’ environmental endeavors and theiraccounting-based financial performance among firms that are more active to disclosecorporate information. Besides, building on our empirical findings that corporatesocial performance is positively correlated with accounting-based financialperformance but has no correlation with market-based financial performance, wesuggest a priority for managers from Chinese heavy-polluting industries when theyfulfill social demands of various stakeholders.