causality between corporate social performance and ... ?· causality between corporate social...

Download Causality Between Corporate Social Performance and ... ?· Causality Between Corporate Social Performance…

Post on 29-Jul-2018

213 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • Causality Between Corporate SocialPerformance and Financial

    Performance

    Rim Makni GargouriClaude Francoeur

    Franois Bellavance

    November 12th, 2010Cirano & cole Polytechnique de Paris

    Presented by Claude FrancoeurCGA Professorship in Strategic Financial Information

  • Theoretical link between CSP and FP

    2

    CSPPositive / Negative

    Positive / Negative

    Positive / Negative Synergy

    CSP

    CSP FP

    FP

    FP

  • Theoretical link between CSP and FP(Preston & OBannon 1997)

    3

    Causality Positive Negative

    CSP => FP Social Impact Hypothesis(Freeman, 1984)

    Trade-Off Hypothesis(Vance, 1975)

    Social Impact Hypothesis(Freeman, 1984)

    FP => CSP

    Slack Resources Hypothesis(Waddock & Graves, 1997)

    Managerial OpportunismHypothesis(Preston & OBannon, 1997)

    Managerial OpportunismHypothesis(Preston & OBannon, 1997)

    CSP FP Positive Synergy(Preston & OBannon, 1997)Negative Synergy(Preston & OBannon, 1997)

  • Social Impact Hypothesis Based on the instrumental view of Stakeholder Theory. Meeting the needs of various corporate stakeholders will

    lead to favourable FP. Serving the implicit claims of stakeholders enhances a

    companys reputation which will have a positive impact on its FP.

    Conversely, disappointing these groups of stakeholders may have a negative financial impact by increasing the perceived risk and consequently, the cost of capital (Cornell & Shapiro, 1987).

    CSP => FP

    4

  • Trade-Off Hypothesis Social accomplishments involve financial costs which will

    reduce profits and comparative performance. Corporations displaying strong social credentials experience

    declining stock prices relative to the market average (Vance 1975).

    CSP => FP

    5

  • Slack Resources Hypothesis Better FP potentially results in the availability of slack

    resources that may increase a firms ability to invest in socially responsible domains such as community and society, employee relations or environment.

    FP => CSP

    6

  • Managerial Opportunism Hypothesis Corporate managers may pursue their own private

    objectives to the detriment of both shareholders and other stakeholders.

    When FP is strong, managers may reduce social expenditures in order to maximize their own short term private gains.

    Conversely, when FP weakens, managers may try to offset their disappointing results by engaging in conspicuous social programs.

    FP => CSP

    7

  • Positive Synergy Hypothesis Higher levels of CSP lead to an improvement of FP funds

    (social impact hypothesis), which offers the possibility of reinvestment in socially responsible actions (slack resources hypothesis).

    There may then be a simultaneous and interactive positive relation between CSP and FP, forming a virtuous circle.

    CSP FP

    8

  • Negative Synergy Hypothesis Corporate higher levels of CSP lead to decreased FP (trade-

    off hypothesis), which in turn limits the socially responsible investments.

    There may then be a simultaneous and interactive negative relation between CSP and FP, forming a vicious circle.

    CSP FP

    9

  • Empirical results concerning the nature of the relationship between CSP and FP are mixed.

    The largest number of investigations found a positive relationship between CSP and FP (See meta-analyses by Orlitzky et al., 2003; Allouche and Laroche, 2005b and Wu, 2006).

    Studies using perceptual based measures tend to report a stronger CSP-FP relationship (Wu, 2006).

    Past research falls short of showing a clear causal relationship between FP and CSP.

    Empirical studies

    10

  • Conceptual model

    11

    Corporate Social Performance

    Aggregate score Community and society Corporate governanceCustomersEmployeesEnvironmentHuman rights

    Financial Performance

    ROAROEMarket return

    Size Risk Industry

    Granger causality

  • Measure of CSP(MJRA Now SustainAnalytics)

    12

    COMMUNITY AND SOCIETY ENVIRONMENTReporting on Community Exposure to Environmental IssuesCharitable Donations Program Management SystemsCommunity Relations Public ReportingAboriginal Relations Impact and InitiativesImpact on Society Regulatory ComplianceCORPORATE GOVERNANCE Environmental Impact of Product/ServiceManagement Systems Other Environmental DataOther Governance Data HUMAN RIGHTSCUSTOMERS Exposure to Human Rights IssuesManagement Systems Management SystemsImpact on Customers Public ReportingEMPLOYEES Impact and InitiativesEmployee Programs and BenefitsDiversityHealth and SafetyUnion RelationsOther Employee Data

  • Granger causality model

    13

    Granger causality can measure : temporal ordering high correlation predictive abilitywhich are the necessary elements of causality (Malina, 2007).

  • Granger causality model

    14

    (1)

    (2)

  • Results

    15

    Dependent variableEnvironment in 2005

    (N = 168)Market return in 2005

    (N = 168)

    Independent variable Estimated coefficientStandard

    error p-valueEstimated coefficient

    Standard error p-value

    Intercept 1.604 0.319 0.001 0.063 0.318 0.842Environment in 2004 0.923 0.035 0.001 -0.111 0.035 0.002*Market returns in 2004 -0.051 0.073 0.489 0.149 0.073 0.042

    Natural log of assets -0.054 0.019 0.006 0.050 0.019 0.010Debt level 0.296 0.211 0.163 -0.245 0.210 0.246Beta factor 0.002 0.045 0.968 -0.074 0.044 0.099Industry

    Communications & Media -0.413 0.142 0.004 -0.280 0.141 0.049

    Consumer products -0.581 0.139 0.001 -0.035 0.139 0.801Financial services -0.497 0.116 0.001 -0.298 0.115 0.011Gold & precious metals -0.233 0.117 0.049 -0.231 0.117 0.049Industrial products -0.363 0.104 0.001 -0.096 0.103 0.352Merchandising -0.430 0.123 0.001 0.059 0.123 0.628Utilities -0.572 0.139 0.001 0.117 0.138 0.398Oil & Gaz -0.554 0.107 0.001 0.190 0.107 0.077Metals, Minerals & Paper reference reference

    R-square 0.858 0.283

  • We find a robust unidirectional and negative Granger causal relationship between the environmental dimension of CSP and all three FP measures.

    This is consistent with the trade-off hypothesis, but we do not find evidence of a vicious circle.

    Our results are consistent with environmental programmes leading to poor performance in the short term.

    Government subsidies may be necessary to compensate for the short-term negative impact on financial performance that these firms suffer.

    Conclusions

    16

  • As Ambec and Lanoie (2007) argue, augmented environmental expenses could be compensated in the long run by : increases in revenues through better access to certain markets the possibility to differentiate products and sell pollution-control

    technology and the reductions of costs related to regulations and capital

    market.

    Conclusions

    17

  • The Relationship betweenCorporate Social Performance

    and Earnings Management

    Rim Makni GargouriClaude Francoeur

    Ridha Shabou

    November 12th, 2010Cirano & cole Polytechnique de Paris

    Presented by Claude FrancoeurCGA Professorship in Strategic Financial Information

  • Generally Accepted Accounting Principles (GAAP) gives managers the flexibility to manage reported earnings.

    EM follows a continuum :

    Earnings Management (EM)

    19

    Within GAAP Violates GAAP

    Conservative Accounting

    Neutral Accounting

    Agressive Accounting

    FraudulentAccounting

    EM also goes by : Fancy accounting, Income smoothing, Cooking the books,

    Borrowing Income from the Future, Window Dressing

  • Multivariate Analysis(Population-Averaged Probit)

    20

    it 1 2 it 1 3 it 1 4 it 1 5 it 1 6 it 1

    7 it 1 8 it 1 9 it 1 10 it 1 11 i 3

    EM CSP STOCKRET SIZE DEBT BONUSRISK MBRATIO BLOCK AUDIT SECT

    = + + + + + + + + + + +

  • Results

    21

    Dependent Variable = Earnings ManagementModel 1 Model 2 Model 3 Model 4

    Variables Coeff. Prob. Variables Coeff. Prob. Variables Coeff. Prob. Variables Coeff. Prob.

    Constant 3.614 0.011** Constant 3.396 0.022** Constant 3.206 0.027** Constant 3.991 0.005***

    CSP 0.419 0.027** CG 0.090 0.356 ENV 0.317 0.033** EMP 0.229 0.085*

    STOCK-RET -0.068 0.769 STOCK-RET -0.051 0.824 STOCK-RET -0.047 0.839 STOCKRET -0.070 0.763

    SIZE -0.292 0.004*** SIZE -0.203 0.026** SIZE -0.248 0.009*** SIZE -0.263 0.009***

    DEBT -0.130 0.893 DEBT -0.292 0.761 DEBT -0.194 0.841 DEBT -0.304 0.752

    BONUS -1.000 0.168 BONUS -0.780 0.270 BONUS -0.892 0.214 BONUS -0.694 0.331

    RISK -0.180 0.344 RISK -0.198 0.296 RISK -0.224 0.239 RISK -0.183 0.338

    MB-RATIO 0.120 0.059* MB-RATIO 0.104 0.101 MB-RATIO 0.101 0.108 MBRATIO 0.114 0.073*

    BLOCK 0.004 0.458 BLOCK 0.004 0.444 BLOCK 0.006 0.284 BLOCK 0.006 0.247

    AUDIT -0.796 0.109 AUDIT -0.534 0.268 AUDIT -0.709 0.153 AUDIT -0.715 0.149

    GOLD -0.288 0.523 GOLD -0.263 0.556 GOLD -0.464 0.317 GOLD -0.236 0.601

    OIL -0.557 0.155 OIL -0.390 0.304 OIL -0.439 0.253 OIL -0.454 0.236

    CONS -1.071 0.030** CONS -1.038 0.034** CONS -1.008 0.04** CONS -1.044 0.035**

    IND -1.185 0.002*** IND -1.000 0.006*** IND -1.114 0.003*** IND -1.078 0.003***

    COM -0.541 0.248 COM -0.544 0.246 COM -0.573 0.216 COM -0.386 0.426

    MERCH -0.666 0.112 MERCH -0.644 0.123 MERCH -0.724 0.086* MERCH -0.693 0.099*

    N 162 N 162 N 162 N 162

    Wald chi-sq. 31.73 Wald chi-sq. 29.77 Wald chi-sq. 31.98 Wald chi-sq. 31.14

    Prob > chi-sq.

Recommended

View more >