Are Corporate Social Responsibility endeavours by firms necessarily profit sacrificing? - Abay Mulatu
Corporate social responsibility (CSR) has gradually gained traction both in business and corporate governance, as well as in academia and policy circles. However, Mulatu points out that questions still surround the reality of CSR: Why do firms engage in CSR? Can and do firms voluntarily engage in CSR sustainably? Is CSR necessarily profit sacrificing?
Existing research offers mixed evidence. The traditional view holds that corporate social engagement will involve profit sacrificing in the interest of social welfare. A contrasting view suggests that CSR may pay off in terms of profit by enhancing a company's reputation by appealing to socially minded consumers.
Mulatu evaluates these two views by asking: are firms with higher corporate social performance/standard more or less efficient than other firms?
"The findings suggest that there is no evidence of a trade-off between economic performance and CSR compliance measures. If anything, certain CSR compliance measures appear to ameliorate cost efficiency... The results should encourage policymakers and managers not to be deterred from embracing CSR."
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The brief is based on the paper: Binh, T. V., Mulatu, A., & Xu, B. (2022). «Corporate Social Responsibility & Firm Efficiency: Evidence from Endogenous Cost Inefficiency Stochastic Frontier Analysis.» Applied Economics (In-Press). https://doi.org/10. 1080/00036846.2022.2063790.
