The financial consequenses of being responsible – An Emphirical study of the relationship between corporate social responsibility and profitability

Abstract

The aim of this thesis is to investigate if there is a relationship between CSR and profitability in American companies within the pharmaceutical industry, the bank industry and the oil and gas industry, and if this relationship is affected by industry belonging. During the last several decades, interest in CSR has increased and it is today a central part of the business environment. Although the demand for environmentally friendly and socially conscious products has increased, companies are having trouble seeing a link between CSR and profitability. Previous research investigating this relationship is inconclusive and by addressing shortcomings of the existing literature, the authors aspire to shed further light on the subject. To accomplish this, the authors used the Bloomberg ESG-Disclosure Score as a measure of CSR and accounting-based financial measurements to measure profitability. The relationship was analyzed with consideration to the endogeneity problem identified by the authors. The results of the empirical analysis support the notion of a positive short-term relationship and a potential long-term negative relationship. In addition, the analysis found that different levels of scrutiny between industries might be an important moderator of the relationship between CSR and profitability.