Stakeholder Ratings and Corporate Financial Performance: Socially Responsible for What?

Abstract

This paper aims at empirically supporting, in a cross-country and cross-industry analysis, the instrumental role of stakeholder management by adopting a disaggregated approach to the corporate social performance measurement. By using a sample of 250 European industrial listed firms, from 10 European countries, in the period 2001-2003 (i.e. 523 firm-year observations), we find the following evidence: the firm is not socially responsible towards all stakeholders, but invests more in key-stakeholders, those who are (perceived as) more influential on its business and have a more valuable impact on its financial performance; a null or weak significance of the relationship between corporate social performance (CSP) and corporate financial performance (CFP) in the whole sample seems to hide highly significant opposite relationships in two separate sub-samples (i.e. firms with positive and negative relationship, respectively): the sign of the CSP-CFP link cannot be expected to be univocal, since the marginal reward-cost equilibrium of social investment is firm-specific. Furthermore, methodological suggestions for future research could be derived.

Keywords: instrumental role of stakeholders management, corporate social performance, corporate financial performance, European listed firms

JEL Classification: G30, G34, M14