relationship between corporate social responsibility and financial performance
has been empirically studied in two types.
The first type of study in which firms are
either socially responsible or irresponsible used event study methodology to
assess the abnormal return or the short-run financial impact. Negative
relationship was discovered by Wright and Ferris (1997; positive relationship
was reported by Posnikoff (1997); while Welch and Wazzan (1999) found no
relationship between CSR and financial performance.
The second type of study uses accounting or
financial measures of profitability in order to examine the relationship
between some measure of corporate social performance (CSP) and measures of long
term financial performance. This kind of studies has also mixed result for
finding out relationship between social responsibility and accounting-based
performance measures. For example, after controlling for the age of assets Cochran
and Wood (1984) located a positive correlation between social responsibility
and accounting performance. Similarly, there was no significant relation
between CSP and firm’s risk adjusted returns on assets according to Aupperle,
Carroll, and Hatfield (1985). In 1997 Waddock and Graves found a significant
positive relationship between CSP index and performance measures, such as ROA,
Measures of Corporate Social
As corporate social responsibility is related to Social
and financial performances it is therefore more complicated to relate them due
to lack of measurement methodology. In many studies subjective indicators were used,
such as a survey of business students (Heinze, 1976), or business faculty
members (Moskowitz, 1972), or even the Fortune rankings (Akathaporn and
McInnes, 1993; Preston and O’Bannon, 1997).
What these indicators measure is still unclear. In other studies,
researchers employ official corporate disclosures—annual reports to
shareholders, CSR reports. Even though there are enough sources it is still
unclear that the reveled data of corporations are under reported or over
reported. Even though there is popularity in the sources there is nothing to
test weather corporations had under reported or over reported. Few companies
verify their CSR reports externally. Therefore, corporate social performance
information is still open to questions about subjective bias. There is some
other research that uses survey instruments (Aupperle, 1991) or behavioral and
perceptual measures (Wokutch and McKinney, 1991).
Few companies verify their CSR reports externally, but it
Nepalese context there is no such index to evaluate CSR. Therefore, corporate
social performance information is still open to questions about subjective
bias. There is some other research that uses survey instruments (Aupperle,
1991) or behavioral and perceptual measures (Wokutch and McKinney, 1991).
A CSR measure lacks concreteness and thus quantitative
assessment is extremely difficult. (Kipkemoi,2010). A number of approaches can
be used to measure corporate social responsibility. Hasan et al (2011) suggest
two methods of measuring CSR. The first method is reputation index where firms
are rated on the basis of one or more dimensions of social performance. The
second method is content analysis whereby firms are rated on the basis of the
extent to which they report various CSR activities in their annual reports.
Griffin & Mahon (1997) identified social
audits. CSR processes and observable outcomes as another approach of measuring
corporate social perfomance. In this approach, a firm’s objective CSR behaviour
in such aspects as community service, environmental programs and corporate
philanthropy are assessed by a third party and used to generate toxics release
inventory (TRI) and Corporate philanthropy indices. Corporate philanthropy
index measures the extent to which a company engages in charitable activies and
compares companies against one another.
Bemhut (2002) developed a measure of corporate
social perfomance based on managerial CSR principles and values. Under this
approach, the values and principles inherent in a firm’s culture are assessed
by using triple bottom line reporting. Triple-bottom line reports are
quantitative summaries of economic, environmental and social perfomance of the
company during the preceding year.