Responsible business practices lead to higher financial performance

Renee Pesor
Responsible business has been seen as something that steals money but does not contribute to making a profit. Renee Pesor's newly defended doctoral thesis, however, reveals the opposite - in general, there is a positive relationship between a company's social responsibility and financial results. "Making a profit and making the world a better place are not mutually exclusive, but rather essential components of long-term success."

Though it has been believed widely that a firm’s only responsibility is earning profits for its shareholders and engaging in any socially responsible activities would come at shareholders’ expense by reducing financial performance, the empirical evidence supports the opposite. 


Over half of the studies indicate a positive corporate social responsibility (CSR) and corporate financial performance (CFP) relationship, while 90% suggest that this relationship is at the very least non-negative, appears from Renee Pesor’s recently defended doctoral thesis “A Contingent Relationship Between Corporate Social and Financial Performance: The Role of Information Demand and The Signaling Environment“. 


In recent decades, corporate social responsibility (CSR) has been gaining importance due to the growing impact that companies have on society. This has also raised the question of whether CSR actions could be a consistent and integral part of companies’ profit maximization. Valuable insights into the matter can be derived from the concept of information asymmetry, according to Pesor’s research that explains how the relationship between corporate social performance (CSP) and corporate financial performance (CFP) could be shaped by the demand for corporate social responsibility (CSR) information signals and the signaling environment. 


Thus, it is not a question of whether engagement in CSR activities might lead to improved financial results for companies, but rather under which conditions this might occur, Pesor notes. 


Full thesis available here 


More info about doctoral studies in EBS here