Revealing the Social Pillar under the Lens of Materiality: Corporate Social Performance, Corporate Financial Performance, and Organizational Benefits

Abstract

This study examines the corporate social performance (CSP)-corporate financial performance (CFP) relationship under the lens of materiality, focusing on the social pillar. Based on a theoretical and empirical framework, we identify employee and product-related issues as material (i.e., directed towards primary stakeholders) and issues concerning communities and diversity as immaterial (i.e., directed towards secondary stakeholders). We empirically test the relevance of primary and secondary CSP on both CFP and organizational benefits (OB). Applying Refinitv social pillar ratings of U.S. firms listed in the S&P 500 from 2006 to 2019 as CSP proxies, we run static and dynamic panel data regressions. The results show that primary CSP (i.e., directed towards primary stakeholders) provides OB and leads to superior accounting-based CFP, while no such effect exists for secondary CSP. With our findings, we contribute to prior materiality research by providing a first approach to examine the structural relations (i.e., OB) that lead to superior CFP when increasing primary CSP. Consequently, this study provides relevant implications for managers, policymakers, and practitioners alike.

Keywords: Corporate Social Performance (CSP), Materiality, Organizational Benefits, Corporate Financial Performance (CFP)

JEL Classification: M14