A Comparison and Test of the Use of Accounting and Stock Market Data in Relating Corporate Social Responsibility and Financial Performance

By Davidson, Wallace N.,, III; Worrell, Dan L. | Akron Business and Economic Review, Fall 1990 | Go to article overview

A Comparison and Test of the Use of Accounting and Stock Market Data in Relating Corporate Social Responsibility and Financial Performance


Davidson, Wallace N.,, III, Worrell, Dan L., Akron Business and Economic Review


A Comparison and Test of the Use of Accounting and Stock Market Data in Relating Corporate Social Responsibility and Financial Performance

Management and finance can be enriched tremendously by research that crosses boundary lines[9, 28, 33, 38, 40]. Each field, however, may occasionally suffer from discipline bias and misunderstanding of the other. One discipline, for example, may use the tools and techniques of the other without comprehending their full ramifications.

The relationship between corporate social responsibility (CSR) and financial performance is a topic that merits careful interdisciplinary examination. In this paper we explore the problems inherent in employing accounting data as a measure of financial performance, and we test the appropriateness of using accounting data in CSR research. We compare the results of a recent stock market based study employing an event test[18] with accounting returns computed from the same sample and show that the accounting returns are not sensitive to CSR performance.

PAST CSR RESEARCH

Researchers have reached no clear consensus on the relationships between corporate social responsibility (CSR) and subsequent financial performance. Of the 25 published studies examined, 14 reported a positive association[3, 8, 10, 12, 15, 16, 25, 26, 37, 39, 41, 44, 45, 46]. Seven studies[1, 2, 6, 21, 22, 30, 35,] reported no real link between these variables.

Four studies[23, 27, 47, 50] found a negative relationship, and two[11, 48] described a U-shaped performance curve where the highest performing firms were those found in the middle range of CSR.

Reviews of these contradictory findings (Arlow and Gannon[5], Cochran and Wood[16], Ullmann[49] suggest three major explanations for the lack of consensus on this issue: (1) the use of questionable indexes of social responsibility, (2) inadequate sampling techniques, and (3) poor measures of financial performance.

The latter observation is particularly noteworthy. There appears to be a false belief in the minds of many that the "methodological complexities of developing financial performance measurements appropriate for CSR studies are now fairly well appreciated"[32, p. 3]. In the same year, Aupperle, Caroll, and Hatfield[6, p. 446] assert that "assessing profitability is a relatively clear-cut process, but assessing social responsibility is not."

The purpose of this study is to demonstrate the fallacy of this assumption in the case of accounting-determined profitability measures that have been used in the majority of the studies relating CSR to financial performance. Specifically, Abbott and Monsen[1], Aupperle, Carroll, and Hatfield[6], Bowman[10], Bowman and Haire[11], Bragdon and Marlin[12], Chen and Metcalf[15], Cochran and Wood[16], Freedman and Jaggi[22], Fry and Hock[23], Heinz[25], Ingram and Frazier[27], Kedia and Kuntz[30], McGuire, Sundgren, and Schneeweis[35], Parket and Elibirt[39], Preston[41], Spencer and Taylor[45], Spicer[46], and Sturdivant and Ginter[48] all use net income, ROE, ROA, EPS, P/E ratios and/or variations of them as at least one measure of financial performance.

Accounting measures of financial performance are inadequate for researchers making large cross-sectional comparisons across industries and across time. The problems with using accounting measures of financial performance in CSR studies fall into two categories. The first category includes general problems of accounting measures, and the second includes particular problems with specific measures of profitability.

GENERAL PROBLEMS WITH ACCOUNTING DATA

There are numerous general problems associated with the use of accounting data, particularly when cross-sectional comparisons are made. Some of these problems are discussed more completely in Merchant and Burns[36]. These problems include industry and regulatory differences, accounting and demographic differences, risk, leverage, inflation, and timing. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

A Comparison and Test of the Use of Accounting and Stock Market Data in Relating Corporate Social Responsibility and Financial Performance
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.