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Financial and corporate social performance in UK listed firms: the relevance of non-linearity and lag effects

Adegbite, Emmanuel; Guney, Ylmaz; Kwabi, Frank; Tahir, Suleiman

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Authors

EMMANUEL ADEGBITE EMMANUEL.ADEGBITE@NOTTINGHAM.AC.UK
Professor in Accounting and Corporate Governance

Ylmaz Guney

Frank Kwabi

Suleiman Tahir



Abstract

Using environmental, social and governance (ESG) scores compiled by Reuters Datastream for each company’s corporate social performance (CSP), we examine the relationship between CSP and corporate financial performance (CFP) of 314 UK listed companies over the period 2002 to 2015. We further evaluate the relationship between prior and subsequent CFP and prior and subsequent CSP. Based on the system-GMM estimation method, we provide direct evidence that suggests that while CFP and CSP can be linked linearly; however, when we examine the impact of CSP on CFP, the association is more non-linear (cubic) than linear. Our results suggest that firms periodically adjust their level of commitment to society, in order to meet their target CSP. The primary contributions of this paper are testing i) the non-monotonous relationship between CSP and CFP, ii) the lagged relationship between the two and the optimality of CSP levels, and iii) the presence of a virtuous circle. Our results further suggest that CSP contributes to CFP better during post-crisis years. Our findings are robust to year-on-year changes in CFP and CSP, financial versus non-financial firms, and the intensity of corporate social responsibility (CSR) engagement across industries.

Citation

Adegbite, E., Guney, Y., Kwabi, F., & Tahir, S. (2019). Financial and corporate social performance in UK listed firms: the relevance of non-linearity and lag effects. Review of Quantitative Finance and Accounting, 51(1), 105-158. https://doi.org/10.1007/s11156-018-0705-x

Journal Article Type Article
Acceptance Date Feb 19, 2018
Online Publication Date Feb 19, 2018
Publication Date Jan 2, 2019
Deposit Date Aug 29, 2018
Publicly Available Date Feb 20, 2019
Journal Review of Quantitative Finance and Accounting
Print ISSN 0924-865X
Electronic ISSN 1573-7179
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 51
Issue 1
Pages 105-158
DOI https://doi.org/10.1007/s11156-018-0705-x
Keywords Corporate social responsibility; Corporate financial performance; Corporate social performance; Slack resources theory; UK firms
Public URL https://nottingham-repository.worktribe.com/output/1051525
Publisher URL https://link.springer.com/article/10.1007/s11156-018-0705-x
Additional Information This is a post-peer-review, pre-copyedit version of an article published in Review of Quantitative Finance and Accounting. The final authenticated version is available online at: http://dx.doi.org/10.1007/s11156-018-0705-x
Contract Date Aug 29, 2018

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