Highlights - July 2017

Comments Off on Highlights - July 2017
Highlights - July 2017 LoadingADD TO FAVORITES

New research published in the Journal of Corporate Finance, concludes that companies that try to “do good” are likely to find that Corporate Social Responsibility (CSR) is bad for their bottom lines.  The analysts at Florida Atlantic University’s College of Business found that emphasizing Corporate Social Responsibility is not good for shareholders.  If you’re an investor, you should think twice before you invest in those firms that emphasize CSR.

For the purpose of the study, CSR is defined as strategies that appear to foster some social good, including programs that benefit community engagement, diversity, the environment, human rights and employee relations.  The study found that focusing on CSR strategies imposes costs on firms in the form of foregone investment opportunities that in the long run leads to losses for their shareholders.

The empirical analyses using a large sample of firms for the period 1992 to 2014, found that CSR reduces a firm’s overall performance and investment efficiency.  To maximize shareholder value investment should follow growth opportunities, and CSR distorts this relationship because it diverts a firm’s resources from its core practices.  However, that distortion was found to be lower in firms where the CEO’s compensation is tied to the stock price as well as in firms that are rich in resources.

And it’s not only about money; it’s about time.  If you’re a CEO you should be focusing on finding growth opportunities.  If instead you spend your time and your energy to find CSR initiatives, it diverts your time and your energy to something else that’s not focusing on building shareholder wealth.

While companies around the world have adopted CSR strategies — a trend that has gained traction in recent years — it hasn’t always been popular.  As the economist Milton Friedman said of CSR back in 1970, “a corporation’s responsibility is to make as much money for the stockholders as possible.”

Most firms don’t have unlimited resources. If you invest in socially responsible activities then you won’t have enough resources to invest in more profitable projects, which is not good.  It might be good for society.  It might be good for...

To continue reading, become a paid subscriber for full access.
Already a Business Briefings subscriber? Login for full access now.

Subscribe for as low as $135/year

  • Get 12 months of Business Briefings that will impact your business and your life
  • Gain access to the entire Business Briefings Research Library
  • Optional Business Briefings monthly CDs in addition to your On-Line access
  • If you do not like what you see, you can cancel anytime and receive a 100% pro-rata refund