Author : Misbah Pathan
The objective of the study:
The objective of this research is to understand the various positive and negative impacts of CSR on business firms.

Introduction
The term CSR was coined by Bowen in 1953 which he described as “the set of moral and personal obligations that the employer must follow considering the exercise of policy decisions or courses of action in terms of objectives and values desired by society. A detailed classification is provided which suggests the following groups, the government, environmental organizations, NGO professionals’ critics or experts, and others in general the citizen locals, or those who affect or are themselves affected by companies. However, given this, no detailed study has been demonstrated whether business firms benefit from this in any way. There is a variety of different criteria that develop on these basic definitions proposed by different institutions. The topic of Corporate Social Responsibility has gained a considerable amount of attention due to its huge impact and justified outcomes in the past few decades. To benefit all the parties involved, extensive research has been initiated to investigate the impact of CSR on businesses.

Muhammad, M. R. (2021). Corporate social responsibility (CSR): Evaluating/auditing corporate social responsibility (CSR) practices. Journal of Economic and Social Thought, 8(4), 141-156. doi:http://dx.doi.org/10.1453/jest.v8i4.2261

Financial auditing and analysis
A study on the financial performances of 23 Czech insurance companies found that CSR plays a statistically significant role in shaping capital structure. There was no evidence for the influence of the other types of CSR-reporting practices. Results also indicate that CSR and the accounting measurements of the firm’s financial performance are positively related. CSR and the market-based measurements of financial performances are negatively related. This suggests that CSR positively affects a company’s profits and negatively affects future stock returns. One interpretation of this result is also that socially responsible stocks have a lower required rate of return.

Grabinska, B., Kedzior, D., Kedzior, M., & Grabinski, K. (2021). The impact of CSR on the capital structure of high-tech companies in Poland. Sustainability, 13(10), 5467. doi:http://dx.doi.org/10.3390/su13105467
Enhancement of firm’s reputation through CSR

Corporate Social Responsibility has proven to be an important strategy for companies to gain a positive reputation. This study identified the mediating role of a company’s reputation in the relationships between CSR dimensions (economic, legal, ethical, philanthropic, and environmental) and competitive advantages, and how a company directly derives a competitive advantage through the implementation of CSR. The data was collected by interviewing 869 managers, including representatives of small and medium-sized enterprises and large enterprises from manufacturing sectors in Vietnam. Least squares structural equation modeling methods were then used to process the data and test the hypotheses. The results are impressive and improve the existing literature on strategic management. The results show that the implementation of CSR activities contributes positively to increasing the company’s reputation and therefore generates a competitive advantage
Mai, N. K., An Khoa, T. N., & Nguyen, T. T. (2021). Implementation of corporate social responsibility strategy to enhance the firm reputation and competitive advantage. Journal of Competitiveness, 13(4), 96-96–114. doi:http://dx.doi.org/10.7441/joc.2021.04.06

A CSR perspective for highly polluting firms

High-polluting industries are regarded as the main sources of air pollutant emissions and the major factors that significantly destroy the ecological environment. Corporate innovation in high-polluting industries improves energy consumption efficiency and reduces the emission of air pollutants, which mitigates the conflict between the environment and the economy. Studies have found that the financialization of high-polluting firms with low financial constraints can alleviate the promotion role of CSR engagements in innovation. Meanwhile, the CSR engagements of high-polluting firms with high financial constraints play a stronger role in corporate innovation.

Xue-Zhou, Z., Chen, J., Feng-Wen, C., Wang, W., & Xia, S. (2020). How high-polluting firms suffer from being distracted from the intended purpose: A corporate social responsibility perspective. International Journal of Environmental Research and Public Health, 17(24), 9197. doi:http://dx.doi.org/10.3390/ijerph17249197

The negative influence on financial and accounting quality

The study has investigated and identified how CSR can affect the impact of corporate financial distress on earnings management. Based on the existing literature, distressed firms tend to hide their financial crises through earnings manipulation. However, as CSR can positively affect companies in terms of performance, risk reduction, and market response, the better a firm’s CSR is the fewer managers will attempt earnings manipulation even if they experience temporary distress. Consistent with the literature, few test results show that distresses increase earnings management and we confirmed that CSR weakened the positive effect of distress on earnings management.
Choi, J. H., Kim, S., Dong-Hoon, Y., & Cho, K. (2021). Can corporate social responsibility decrease the negative influence of financial distress on accounting quality? Sustainability, 13(19), 11124. doi:http://dx.doi.org/10.3390/su131911124
CSR effect on employee quality

Employees are the most valuable assets of an enterprise and the key source of its competitive advantage. Empirical results of a study show that the educational level of the workforce, as a proxy for employee quality, is positively associated with CSR, which suggests that higher education can promote CSR implementation. Knowing that a company is involved in CSR can be a sign for job seekers that it is a promising long-term opportunity for them. It shows that their company cares, and is more likely to take care of their employees through perks. A business involved in CSR is perceived by the employees as a firm that would be aware of the tax deductibles or credit that they receive.

Sun, S., Li, T., Ma, H., Li, R. Y. M., Gouliamos, K., Zheng, J., . . . Xiao-Guang Yue. (2020). Does employee quality affect corporate social responsibility? evidence from china. Sustainability, 12(7), 2692. doi:http://dx.doi.org/10.3390/su12072692

Gender diversity in relation to CSR

Corporate Social Responsibility as progressively assumed a strategic role in corporate business. A considerably debated characteristic of Board diversity is gender since women differ from men in terms of personality, communication style, and values. Therefore, analysis indicates the relationship between CSR and gender diversity. Studies suggest that the presence of women can play an important role in terms of making better CSR decisions, contributing to more social and sustainable results. It is also found that management teams with a higher female percentage are associated with better CSR scores, and firms that exhibit both a higher percentage of women on the board and on the management, team help companies improve their CSR scores.

Gaio, C., & Tiago Cruz Gonçalves. (2022). Gender diversity on the board and firms’ corporate social responsibility. International Journal of Financial Studies, 10(1), 15. doi:http://dx.doi.org/10.3390/ijfs10010015

Responsibility for the performance of businesses

In order to remain competitive in today’s marketplace, which is only growing more interwoven with social and environmental issues, businesses have taken it upon themselves as seriously as they could to practice corporate social responsibility. The finding of this analysis has different theoretical and practical implications. To the extent of theory, the current work advances the fields of enterprise management and employee wellbeing from an individual-level perspective of CSR.

Bu, X., Cherian, J., Han, H., Comite, U., Hernández-Perlines, F., & Ariza-Montes, A. (2022). Proposing employee level CSR as an enabler for economic performance: The role of work engagement and quality of work-life. Sustainability, 14(3), 1354. doi:http://dx.doi.org/10.3390/su14031354

 

Conclusion

CSR increases the attractiveness of an organization for existing and potential employees and is a key factor in employee motivation and retention. We do not find that the firm’s capital allocation efficiency is negatively affected by the overall CSR scores or its two main components, namely the environmental or social dimensions. However, our analysis exposes a challenging result for the firms in that we find strong evidence that extremely costly environmental CSR initiatives or policies could reduce the firm’s investment efficiency. Hence, firms need to follow a balancing act when contemplating CSR plans and investing in them. While investors appreciate moderate levels of investment in CSRs, they penalize those firms that invest excessively in such initiatives.