Does CSR Actually Hurt Profitability? A Study on the Impact of US Firms' Corporate Social Responsibility Performance on Accounting and Market Metrics of Financial Profitability

Abstract: Researchers have long investigated the relationship between firms' corporate social responsibility (CSR) performance and corporate financial performance (CFP) without reaching a consensus. Several scholars highlight the multiple economic benefits that firms increasing CSR performance can enjoy. Nevertheless, executives are often hesitant when engaging in sustainability-related projects, believing they can distract the firm from its profit maximization objectives and hurt financial performance. Therefore, this research investigates the impact of firms' CSR performance on accounting- and market-based indicators of CFP, both with a short and long time horizon. A sample of 529 US-listed companies is collected for a five-year period and analyzed using fixed-effects regression models. This study adopts four different indicators of CFP: ROA and ROE for accounting performance; CAPM Alpha and Fama-French Five-Factor Alpha, two measures of excess returns, for market performance. What emerges from the findings is that CSR performance positively impacts the CFP of US firms, both in terms of accounting- and market-based CFP. However, this relationship is dependent on both the particular financial indicator used and the time horizon. Further, an additional exploratory analysis highlights how the relationship does not hold for firms in the consumer goods industry. This study's findings provide a modest contribution to the CSR and CFP literature while suggesting a few implications for managers, investors, and governments.