Financial and Corporate Social Performance in the UK Listed Firms: The Relevance of Non-Linearity and Lag Effects

54 Pages Posted: 1 Mar 2018

Date Written: February 21, 2018


Using environmental, social and governance (ESG) scores compiled by Reuters Datastream for each company’s corporate social performance (CSP), we examine the relationship between CSP and corporate financial performance (CFP) of 314 UK listed companies over the period 2002 to 2015. We further evaluate the relationship between prior and subsequent CFP and prior and subsequent CSP. Based on the system-GMM estimation method, we provide direct evidence that suggests that while CFP and CSP can be linked linearly; however, when we examine the impact of CSP on CFP, the association is more non-linear (cubic) than linear. Our results suggest that firms periodically adjust their level of commitment to society, in order to meet their target CSP. The primary contributions of this paper are testing i) the non-monotonous relationship between CSP and CFP, ii) the lagged relationship between the two and the optimality of CSP levels, and iii) the presence of a virtuous circle. Our results further suggest that CSP contributes to CFP better during post-crisis years. Our findings are robust to year-on-year changes in CFP and CSP, financial versus non-financial firms, and the intensity of corporate social responsibility (CSR) engagement across industries.

Keywords: Corporate social responsibility · Corporate financial performance, Corporate social performance, Slack resources theory, UK firms

JEL Classification: G34, M14

Suggested Citation

Adegbite, Emmanuel and Guney, Yilmaz and Kwabi, Frank and Tahir, Suleiman, Financial and Corporate Social Performance in the UK Listed Firms: The Relevance of Non-Linearity and Lag Effects (February 21, 2018). Review of Quantitative Finance and Accounting, 2018. Available at SSRN:

Emmanuel Adegbite

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Yilmaz Guney (Contact Author)

University of Hull ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://

Frank Kwabi

De Montfort University ( email )

The Gateway
Leicester, LE1 9BH
United Kingdom

No contact information is available for Suleiman Tahir

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