Strategic Use of CSR as a Signal for Good Management

Abstract

More than thirty years of research exploring the link between corporate social responsibility (CSR) and corporate financial performance (CFP) could not provide a satisfying resolution to the tension exists between economic and social objectives. In this paper, we have contributed to the existing CSR literature both theoretically and empirically. On the theoretical side, we challenged the assumption that managers consider all stakeholders equally important and we contend that managers prioritize stakeholders instead. We also extend agency theory by suggesting that CSR may actually reduce monitoring costs since it has informative value about the quality of management. On the empirical side, we proposed a stakeholder-weighted CSR which will alleviate the "stakeholder misalignment" problem which is articulated to be one of the reasons why there are inconclusive results about the relationship between CSR and CFP.

Keywords: Corporate social responsibility, corporate financial performance, stakeholder-agency theory