The bidirectional CSR investment – economic performance relationship

Abstract

Purpose

This paper aims to investigate the following two research questions: Do corporate social responsibility (CSR) investments enhance a firm’s economic performance? Does the firm’s economic performance influence CSR investments? That is, the bidirectional relationship between CSR investments and economic performance.

Design/methodology/approach

This paper analyzes three types of CSR investments (environmental, labor-related and social investments) using a simultaneous equations model with a data set of 185 Japanese firms.

Findings

Environmental investments reduce economic performance, labor-related investments do not significantly affect economic performance and social investments increase economic performance. Moreover, strong economic performance decreases environmental investments but increases social investments. Labor-related investments are chosen considering economic performance in both the present and previous terms.

Practical implications

For managers, environmental and labor-related investments are not effective for improving economic performance. However, eradicating them completely might harm corporate reputation. In contrast, social investments have now become important. For policymakers, different approaches may be adopted to encourage firms to increase CSR investments. In some cases, policymakers can rely on firm initiatives instead of regulating or encouraging CSR activities.

Originality/value

First, the authors empirically examine the bidirectional relationship between CSR investments and economic performance. Second, they clarify the determinants of CSR by specifying the investment function of each type of CSR. Third, they consider three types of CSR investments, with interrelations among them allowed in the model, and determine how each type affects firm performance.

Citation

Nakamura, E. (2015), "The bidirectional CSR investment – economic performance relationship", Journal of Global Responsibility, Vol. 6 No. 1, pp. 128-144. https://doi.org/10.1108/JGR-05-2014-0021