Corporate Social Performance and Over-investment. Evidence from Germany

Journal of Global Responsibility, Forthcoming

Posted: 9 Jun 2021

See all articles by Florian Habermann

Florian Habermann

Catholic University of Eichstaett-Ingolstadt - Ingolstadt School of Management

Date Written: June 5, 2021


Purpose: With the Green Deal and Sustainable Finance Taxonomy, the European Union is driving forward its ambition for a modern, resource-efficient, and competitive economy. For this reason, we contribute to the ongoing discussion by examining how overall corporate social performance (CSP) and the respective environmental, social, and governance (ESG) pillar performance affects corporate financial performance (CFP). In addition, the study presents novel insights by testing a theoretically derived CSP over-investment theory empirically for the German market.

Design/methodology/approach: The final sample includes firms listed on the German Prime Standard (DAX30, MDAX, and TecDAX) from 2015 to 2019. The study includes a correlation and regression analysis using fixed effects on 363 firm-year observations to investigate the CSP-CFP relationship. We apply accounting and market-based CFP measures and use Thomson Reuters (TR) ESG scores to measure CSP.

Findings: Overall CSP, social pillar, and governance pillar performance improve CFP for firms listed on the German Prime Standard. However, the study provides evidence for a value-destroying effect of CSP over-investment in the social pillar.

Originality/value: The paper contributes to CSP literature by revisiting the CSP-CFP relationship and debuting a CSP over-investment hypothesis on the German market. The results are highly relevant for practitioners, policymakers, and society since the study provides an empirical framework to evaluate CSP properly and reveals the importance of materiality in stakeholder management.

Implications/significance: The implications of the study are ambiguous. First, firms can improve CFP when doing good, i.e., increase CSP. Second, however, CSP is a concept of decreasing marginal benefits. Consequently, managers can respond to increasing pressure from investors to be “sustainable” with the argument of CSP over-investment. Policymakers must consider materiality as a potential explanation for the over-investment phenomena when framing sustainable development programs, i.e., the EU Green Deal and regulations such as the Directive 2014/95/EU and the Regulation EU 2020/852. Moreover, the study sensitizes society that sustainability efforts do not exclusively affect CFP positively.

Suggested Citation

Habermann, Florian, Corporate Social Performance and Over-investment. Evidence from Germany (June 5, 2021). Journal of Global Responsibility, Forthcoming, Available at SSRN:

Florian Habermann (Contact Author)

Catholic University of Eichstaett-Ingolstadt - Ingolstadt School of Management ( email )

Auf der Schanz 49
Ingolstadt, 85049

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics