The impact of corporate social responsibility on corporate financial performance

Abstract

This study analyzes the relationship between corporate social responsibility (CSR) and the corporate financial performance of companies listed on the Toronto Stock Exchange (TSX 60 Companies). Environmental, social, and governance disclosure scores are used to measure CSR based on three dimensions; Environmental (ENV), social (SOC), and governance (GOV) performance. Return on asset (ROA), return on equity (ROE) and earnings per share (EPS) were used to measure corporate financial performance. I used a partial least squares path modelling package in RStudio to analyze the relationship between the dependent and the independent variables for the period 2018–2022. The results revealed that ENV has a significant positive relationship with ROA and SOC has a significant negative relationship with ROA. Whereas ENV has a significant negative relationship with ROE and SOC has a significant positive relationship with ROE. Also, ENV has a significant negative relationship with EPS; no significant relationship was found between SOC and EPS. GOV does not exhibit a significant relationship with ROA, ROE, and EPS. However, I found that the relationship between the three dimensions of CSR and the measure of corporate financial performance is moderated by company size and risk. These findings highlight that various CSR activities impact different aspects of company performance in unique ways. This result can guide managers in prioritizing implementing CSR activities based on their desired financial outcomes.