Do socially responsible business practices influence the value of your company? Research says yes.
Plenty of research over the years has focused on the relationship between social performance and various aspects of firm value. Adding to the literature, research published recently by the Conference Board studied over 1,000 companies from 2008 to 2012 to see if corporate citizenship contributes to brand equity. Using CSRHub’s ratings and Brand Finance’s Brand Strength Index (BSI) for analysis, the study finds a positive correlation between brand value and corporate citizenship. This held true across all of the dimensions studied with employment dimensions being most strongly correlated.
This study contributes to a growing body of empirical evidence that illustrates a relationship between corporate financial performance and social performance. Some other recent studies are summarized below:
Research in the field suggests that firms with better CSR performance experience various benefits such as lower barriers on their access to capital and better economic/financial performance. One of the largest data sets in support of the relationship between corporate social performance (CSP) and corporate financial performance (CFP) comes from a meta-analysis of 30 years of research. This research discovered that when different measures of CFP – investor returns, accounting returns, or reputational measures – are matched with CSP measures – including disclosures, ratings, social audits, or observable outcomes- there is support for the managerial strategy of pursuing CSP as part of a strategy for attaining high CFP.
REPUTATION AND BRAND VALUE
A recent study from the Journal of Finance and Accountancy indicates that corporate reputation adds value in explaining high market to book ratios- companies with higher brand value and corporate reputation ratings have higher market to book ratios than companies with lower ratings. In a more specific examination, environmental performance reputation was found to be important for investment activity. While, overall, shareholders reacted positively to announcements of eco-friendly initiatives and negatively to announcements of eco-harmful behavior (measured by cumulative abnormal returns), researchers found that over time, the positive reaction to announcements of eco-friendly behavior decreased, while the negative reaction to eco-harmful behavior increased. As such, it can be assumed that investors might not reward good behavior, but they are likely to punish for bad behavior. In other instances, while they may not be rewarded for good behavior, their reputation could act as insurance during a negative event. There are certain conditions though- first, the public must be aware of the activity either through reporting by the firm or the reports and analysis of others. Second, corporate citizenship engagement must be substantial enough to create a credible and reasonable declaration of positive intention. No matter the case, a good reputation based on corporate citizenship practices offers great value.