Capstone Thesis

Running head: AN EMPIRICAL STUDY OF CORPORATE SOCIAL RESPONSIBILITY
An Empirical Study of Corporate Social Responsibility and Firm Performance
Stephanie Del Valle
Organizational Management & Leadership MBA Capstone
New Jersey City University School of Business
May 2016

AN EMPIRICAL STUDY OF CORPORATE SOCIAL RESPONSIBILITY
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ACKNOWLEDGEMENTS
Achieving my Masters of Business Administration is an accomplishment I’ve dreamed of
as a child. I imagined this milestone as a self-effort attempt, but I was pleasantly proven wrong.
This thesis would not have been completed without the support and fortuitous encounters with
the people who shared this journey with me during the course of my academic career.
I would like to express the utmost gratitude to Dr. John Donnellan, whose patience,
understanding, and generous guidance allowed me to successfully carry out this assignment.
Under your leadership, you’ve encouraged me to truly work my hardest. Thank you for your
advice, direction, and faith in my work.
I also show my gratitude to Veronica Reed, Lead Tutor and Manager at the Writing
Center at NJCU. Her exceptional writing and editing skills permitted me to exhibit clarity and
cohesiveness to this thesis. Students and staff at NJCU are lucky to have her.
To Arthur Miick, Jr., I can’t thank you enough for standing by me and providing me with
emotional support. Your kind words of encouragement gave me strength to keep moving forward
for every adventure we’ve spent together, especially this one. Thank you for seeing the best in
me when I wasn’t able to see it myself. I love you.
Finally, I dedicate this thesis to my mother and father. I deeply appreciate your endless
love and aspirations to provide me with a better life and opportunities. I work hard in honor of
your sacrifices. I love you both so very much. I hope I’ve made you proud.

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ABSTRACT
The purpose of this study is to investigate the relationship between Corporate Social
Responsibility (CSR) and financial performance. In this study, the researcher develops empirical
research on CSR and financial performance between Coca-Cola and Microsoft. The empirical
study is divided into qualitative and quantitative research.
The relationship between CSR and financial performance is not fairly well understood.
Several studies provide conflicting results regarding the correlation between CSR practices and
financial performance. Some studies find a positive relationship between the two, others find a
negative relationship, and other studies do not identify a relationship at all. This study aims to
identify a relationship between CSR and firm performance.
In order to identify a relationship, the researcher presents a set of dependent and
independent variables for the empirical test. The MSCI KLD 400 Social Rating Index, a
corporate social performance (CSP) ranking, is used as the dependent variable. Net income, total
assets, total liabilities, return on assets (ROA), return on equity (ROE), and shareholder equity is
used as independent variables. The results from Anova single factor testing on small sample
relationships support the null hypothesis, which states that differences in financial data do not
impact CSP rating.
The conclusions show differences in financial performance do not impact CSP score,
indicating that there is no relationship between the two. However, Coca-Cola and Microsoft CSR
practices have proven to provide value, indicating there may be an indirect relationship to
financial performance. More research is needed to identify an indirect correlation, to determine a
legitimate measure for CSR (either tangible or intangible measures), and to test industry, large
sample size, and long term years.

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TABLE OF CONTENTS
CHAPTER ONE
Introduction……………………………………………………………………………….6
History and Background…………..………………………………………………….…12
Statement of Problem……………………………………………………………………15
Hypothesis……………………………………………………………………………….17
Purpose of Project…………………………………………………………………….….19
CHAPTER TWO
Theoretical Perspectives on CSR………………………………………………………...20
Arguments for CSR………………………………………………………………………28
Arguments against CSR………………………………………………………………….30
CHAPTER THREE
Summary of Project Purpose…………………………………………………………….33
Qualitative Study on CSR………………………………………………………………..34
Quantitative Study on CSR………………………………………………………………41
CHAPTER FOUR
Analysis………………………………………………………………………………….44
CHAPTER FIVE
Interpretation of Findings………………………………………………………………..47
Conclusion of the Study………………………………………….………………………47
Recommendations for future Research………………………………………………….48
References………………………………………………………………………………..50

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LIST OF TABLES & FIGURES
Table 1 – Industries in the sample……………………………………………………………….44
Table 2 – Top 10 Companies with Highest CSP Rating………………………………………...45
Table 3 – Microsoft Anova Single Factor……………………………………………………….45
Table 4 – Coca-Cola Anova Single Factor………………………………………………………46
Figure 1 – The Pyramid of CSR…………………………………………………………………..8

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CHAPTER ONE
Introduction
Various scholars have had a difficult time defining CSR due to its complexity. According
to Carroll (2008), CSR “refers to the general idea that corporations need to keep an eye on the
social and ethical consequences of their conducts while pursuing the bottom line.” Pinney (2001)
defined CSR as “a set of management practices that ensure the company minimizes the negative
impacts of its operations on society while maximizing its positive impacts.” Alternatively,
Hopkins (2004) has said “CSR is concerned with treating the stakeholders of the firm ethically or
in a socially responsible manner.” Stakeholders include any person or group that is affected by
the actions of a business, which also involve internal employees who work directly within the
business. In 2001, Jackson and Hawker have claimed there is simply no definition for CSR (as
cited by Dahlsrud, 2006).
In contrast, many scholars have created an abundance of definitions for CSR, but none
have provided a clear understanding because each business has a different objective, one that
cannot be accomplished if implemented through a single definition of CSR. According to Van
Marrewijk (2003), “a clear and unbiased definition and concept will be needed to lay a strong
foundation for the following steps in the development process of corporate sustainability and
especially in its implementation.”
The range of different views of CSR is compressed into three separate issues by Carroll
(1979): range of economic, legal, or voluntary responsibilities, social issues, and social
responsiveness. Along with this, Carroll provides four groups of responsibilities related to
businesses: economic, legal, ethical, and discretionary. Discretionary responsibilities are not
concrete responsibilities that an organization must follow such as the previous three

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responsibilities that are required. It is up to the discretion of management to use their judgment
to act on a voluntary basis when engaging in social concerns. Since philanthropy is defined as
“an unconditional transfer of cash or other assets to an entity…in a voluntary nonreciprocal
transfer by another entity” (Godfrey, 2005, as cited by FASB, 1993), it falls under the
discretionary category of Carroll’s model. All responsibilities must be fulfilled in order from
economic to discretionary, with economic responsibility given the most fundamental role.
When all categories of responsibilities are joined to the purpose of a business, Carroll
(1979) asserts the social responsibility of business incorporates the economic, legal, ethical, and
discretionary expectations that society has of organizations into their business practices.
To understand the foundation of CSR, companies must understand the purpose of
implementing CSR strategies. Michel Porter’s road map question can guide corporate leaders “to
provide careful thinking, a clear rational framework, evidence and intellectual argumentation for
answering the question of: ‘Why should companies do this?’” To answer this question, Carroll’s
CSR model (see Figure 1) provides a four-part conceptualization pyramid frame that describes
the responsibilities of a business.
Figure 1. The Pyramid of CSR (Carroll, 1991)

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Economic responsibilities serve as the foundation of a corporation. A company must be
profitable to in order to operate, otherwise there will not be enough fortune to spread around to
help those in need (Carroll, 1991). The second level of responsibility is legalities. A corporation
must know what is legal and illegal based on the laws of society and act within those laws. The
third level represents ethical responsibilities, which serves as a utilitarian approach to do what is
fair to all members of the organization and stakeholders. The last level of responsibility is
philanthropic, which are the strategies, contributions, or resources that contribute to the quality
of life for society, and which can be achieved once all other responsibilities are fulfilled.
Carroll’s model acts as a guide for companies who wish to implement CSR strategies.
These responsibilities provide a straightforward attempt at establishing methods toward
responsibility. Upon following this model, companies will have a successful CSR mission, which
will result into CSR actions.
Economic Responsibilities
A company must be profitable in order to spread their fortunes to others. For example,
Volvo, an auto manufacturing company, upholds this responsibility by creating value for their
customers in the products and services they offer. “We believe Volvo Group is well positioned to
create economic value that also creates value for the broader society by responding to its needs
through our innovative product and service offering” (Volvo Group Global, 2015). Economic
responsibility and profitability is the foundation for sustainability, and must be fulfilled first
before all other responsibilities.
Legal Responsibilities

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When pursuing profit, companies must act within the legal structure. Organizations must
follow the laws and guidelines provided by government agencies and regulators. For example,
companies that decide to build a new location must follow construction codes, fire hazard codes
and safety regulations. Restaurants must follow health codes when handling raw food materials
as well as labor laws for their employees.
Ethical Responsibilities
Companies must perform in ways that is fair for all members of the corporation and
whoever is affected by the corporation. The disaster of Exxon Valdez left the ship leaking oil for
three days, spilling 11 million gallons and extending for 470 miles into the waters of Prince
William Sound in Alaska, leading to a slow recovery effort (Palinkas, 2012). If Exxon operated
in an ethical approach, an effective contingency plan could have been executed in a timely
fashion, preserving Prince William Sound’s wildlife and habitat.
Philanthropic Responsibilities
The last responsibility is to improve the quality of life for society. Many corporations
offer programs to match the donations that employees give to various charities. Pepsi’s Food for
Good program offers pre-packaged meals to low income families. Their mission is to provide a
balanced diet that meets USDA standards, in the hopes of improving childhood hunger (Food for
Good, 2016).
Implementing CSR
According to McElhaney (2009), companies must create a vision for CSR that coincides
with the mission, vision, and values of the business. Businesses that follow this strategy may
recognize the societal, environmental, and business value that a CSR strategy creates. One of the
core values that CSR administers is financial benefits. Financial benefits of CSR develop by the

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increase of competitive advantage and operational costs savings. Companies who devote a
commitment to CSR practices are also successful in achieving employee satisfaction. According
to McElhaney, CSR can be used as an effective strategy to recruit and retain top talent, as
employees are more satisfied and loyal to companies who implement CSR strategies.
CSR methods should be strategically planned as any other core strategy for the company,
such as financial or marketing strategies. If the social issue chosen matches the vision of the
organization, the company’s resources and capabilities can be used to generate optimal results
for the public. A CSR initiative must have value for the organization, and in order to create
value, the CSR initiative must come from the leaders of the company. Management must define
the objectives and goals to be achieved for the firm, and create a strategy that supports those
objectives which may be communicated to lower level employees. Once communication is
established between management and employees, employee members can engage in CSR
practices which may be used as talent attraction and retention strategy (McElhaney, 2009). The
entire organization must be aware of the company’s goals and if communicated effectively, all
employees may synchronize to achieve the goals.
In order to implement CSR, a single definition is too broad for all industries to follow.
Marrewijk (2003) proposed a set of differentiated approaches that match the various ideal type
contexts in which companies operate. A company should choose between the abundance of
definitions and concepts of CSR that matches their intentions and aligns with their strategy. For
example, Google empowers a green community, a corporate effort to use resources effectively
and to save power. Using recycling methods and installing energy efficient lights will affect
Google’s bottom line. Their CSR strategy helps promote a green environment, while saving on
operational costs that could be invested in other areas of the company.

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Another example of CSR initiative is Microsoft’s Youth Spark program, which provides
adolescents with the opportunity for education, employment and entrepreneurship (Microsoft,
2015). The company partners with government, non-profit organizations, and businesses to
provide adolescents with education in computer science. Since Microsoft is a company that
constantly utilizes computer science, they’ve aligned their CSR initiatives with the overall
objective of the business, such as computational thinking and problem solving skills.
Many CSR definitions are inconclusive because they may or may not pertain to various
industries with different classifications. Using one broad definition for all industries will produce
contrary results, and will often be costly to the corporation. Management must determine the
objectives of the organization and tailor CSR practices to the target goals. Carroll’s pyramid of
CSR (1991) can be used as a guideline for companies to create CSR methods. Once companies
have identified specific economical, legal, ethical, and philanthropic responsibilities, CSR
strategies will effortlessly appear.
History and Background
CSR practices originate from the nineteenth century. In the United States, stewardship or
trusteeship, as CSR was known in the nineteenth century, was based on the business owners’
personal benevolence (Soskis, 2010). Charitable contributions were motivated by individual
incentives. In the concept of stewardship, ownership of possessions were held by trustees of
higher authority, God and the public.
John D. Rockefeller, founder of the successful Standard Oil business, believed that his
profits were a blessing from God—a reward for his generosity of granting wealth for those in
need. As Rockefeller said in an interview, “It has seemed as if I was favored and got great
increase because the Lord knew that I was going to turn right around and give it back” (Soskis,

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2010). Making money, in Rockefeller’s perspective, was a gift from God, a gift that became a
purpose: a duty to provide goodwill and allow others to prosper in wealth.
The concept of stewardship drove Rockefeller to contribute a fortune to churches,
missionary organizations, and educational institutions and to create several philanthropic
foundations. In regard to philanthropy, Rockefeller believed in providing opportunities to as
many as possible. A utilitarian approach gave Standard Oil employees the opportunity to benefit
from the abundance of jobs with remunerative wage.
Another philanthropist who believed in donating to the greater good was Andrew
Carnegie. In his 1889 essay, The Gospel of Wealth, Carnegie shares the belief that businesses and
wealthy individuals were the caretakers or stewards of their property, holding it in trust for the
benefit of society as a whole (Wulfson, 2001). The essay explains that entrepreneurial and
managerial skills are skills that make a fortune. These same skills are used to channel wealth
toward the public good (Soskis, 2010). Like Rockefeller, Carnegie felt it was his duty to increase
his revenues in order to share his wealth with the public.
Since corporate philanthropy was considered as an individualistic perspective, the scope
surrounding the concept of corporate philanthropy was very broad. According to court decision
(Soskis, 2010), IRS policy declared that a legitimate business expense could be considered if a
corporate giving cost could directly be associated with a direct benefit to the firm.
The years following World War I received the largest and widest scale corporate giving.
The American Red Cross and YMCA received more than $18 million during war years, as an
obligation for relief foundations. The end of the war did not stop corporate contributions, but in
fact continued to support welfare work (Soskis, 2010). The growth of corporate philanthropy
followed to create pension and health care programs.

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World War I also gave corporations the opportunity to contribute to “war chests,” also
known as “community chests,” which were funds reserved for the expenses of the war. In the
1920s, more than twenty percent of the funds raised by community chests came from
corporations (Center for Ethical Business Cultures, 2005). During this period the transition from
individual contributions moved towards corporate donations. According to Wulfson (2001), the
perspective of contributing to charity or aid in the concept of stewardship and transitioned into
considering all corporate stakeholders when making business decisions.
After the end of World War II, several business leaders provided a foundation for the
responsibility of a business, offering philosophical approaches to understanding corporate
responsibility. Among those leaders is Donald K. David, Dean of the Harvard Graduate School
of Business Administration, who wrote an article for the Harvard Business Review (HBR) titled
“Business Responsibilities in an Uncertain World” in 1949. Bernard Dempsey responded to
David’s article with “The Roots of Business Responsibility,” in which Dempsey provides
philosophical foundations for the arguments David provides.
Both Dempsey and David described why businessmen should respond to their
responsibilities of contributive justice, which is the obligation to contribute to the well-being of
individuals and society. Two reasons were provided: (1) They essentially argued that no man,
and no business, is an island. All are in need of a community, a well-functioning community, in
order to operate and thrive. (2) They argued that business controls substantial resources and has
great capacity to contribute to the progress of society and the well-being of individuals within
society (Center for Ethical Business Cultures, 2005).

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Statement of Problem
Problem Statement: The specific problem of interest is that the relationship between CSR and
financial performance is not currently well understood.
Various researches conducted of the relationship between CSR and firm performance
have produced contrasting results. Waddock and Graves (1997) identified a positive relationship
between CSP behaviors and financial performance. Lu, Wang, and Lee (2013) measured CSR
with the same dependent variable as Waddock and Graves’ KLD rating database and also
produced a positive correlation. Waddock and Graves’ findings are challenged by McWilliams
and Siegel (2000), who concluded that CSP results in a neutral effect on profitability when
including additional variables. McWilliams and Siegel’s conclusions are similar to those of
Aupperle, Carroll, and Hatfield (1985), who were unable to identify a relationship between
corporate social responsibility and profitability.
Due to the contrary research provided by various scholars, there has not been a definite
relationship demonstrated between CSR and firm performance. Engaging in CSR requires
management to balance the benefits to be gained against the cost of achieving those benefits
(Wulfson, 2001). However, it is rather difficult to present an unambiguous link to CSR and firm
performance because not all businesses rely on the same elements of CSR. Wang & Qian (2011)
reconciled this inclusiveness by recognizing that firms do not benefit equally from CSR
practices, and the relationship between CSR and financial performance rely on individual social
factors. Corporations cannot expect to use the same CSR practices as other industries and
achieve the same financial results. An analysis must be evaluated based on different components,
such as environmental and market share.

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By the end of this study, the researcher will identify various industries and corporations.
An examination of CSR practices will be conducted with two organizations of different
categories and their financial performance. An empirical study consisting of qualitative and
quantitative research will examine the CSR practices and financial data of Microsoft and Coca-
Cola. Finally, a correlation between CSR methods and financial performance will be determined
as positive, negative, or neutral association.

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Hypothesis
In forming a hypothesis, this research will compare financial data of two companies with
high ratings of CSP through the MSCI KLD 400 Social Rating Index. The hypothesis is based
upon whether companies with higher financial data will result in a higher CSP rating.
Positive Association (H1): Waddock and Graves (1997) proposed a stakeholder
perspective on the minimal costs of CSP which result in great benefits. Through this perspective,
managers who strategically apply core values comparable to those of stakeholders and
employees may result in a competitive advantage, which may extend to positive financial
performance. Waddock and Graves also have suggested that socially responsible companies will
incur low explicit costs as they have less of a risk to pay fines for excessive polluting. Through
this argument, socially irresponsible companies who attempt to reduce their implicit costs may
encounter circumstances detrimental to profit.
The argument for negative association supports the reasoning of Friedman (1970), who
believed CSR is not the responsibility of a corporation, but to the government. Friedman
suggested that CSR is a cost incurred on the corporation that does not coincide with the primary
responsibility of a company: to increase profits. Aupperle, Carroll, and Hatfield (1985) shared a
similar view to Friedman regarding the displacement of funds, arguing that CSR positions the
company to a competitive disadvantage. From these arguments, the researcher constructs the
hypothesis as:
H1: Differences in financial data (independent variables) results in a difference in CSP
rating (dependent variable).
Neutral Association (H0): Based on Aupperle, Carroll, and Hatfield’s (1985) analysis,
their results show that “no statistically significant relationships were found between a strong

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orientation toward social responsibility, or concern for society, and financial performance” (p.
459). Evidence to support profitability from firms who practice CSR against firms who do not
were unidentifiable. Their research also implies various methods to assess the relationship of
CSR and profitability which may include measuring manager’s behavior, commitment, or social
responsibility reputations. Aupperle, Carroll, and Hatfield imply that there are several distinct
variables to measure CSR performance, and more research must be conveyed to discover the
appropriate variable that uncovers a positive relationship. From this finding, the researcher
constructs the hypothesis as:
H0: Differences in financial data (independent variables) are not impacted by differences
in CSP rating (dependent variable).

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Purpose of Project
Purpose Statement: The purpose of this study is to investigate the relationship between CSR and
financial performance.
The purpose of this project is to examine the significance between CSR and firm
financial performance. The researcher develops the following research questions that will be
analyzed in the subsequent sections:
 Does CSR directly impact financial profit?
 Should companies solely focus on producing profits?
 Does CSR provide value to a company?
To answer these questions, the researcher begins with identifying several theoretical
perspectives on CSR, such as stakeholder, agency, instrumental, integrative, and ethical theories.
Examining different perspectives of CSR may uncover the motives and purpose for CSR
practices in an organization. Arguments for and against CSR are presented to weigh the benefits
and disadvantages of CSR activities.

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CHAPTER TWO
In the previous section the researcher introduced the complex nature of CSR. The section
produces various definitions of CSR, identifies the social responsibilities of an organization,
implementation of CSR practices, and the history and background of CSR. The researcher also
introduces the problem of identifying a relationship between CSR and firm performance, as
various scholars have produced conflicting results, such as positive, negative, and neutral
association.
The following section seeks to uncover a relationship between CSR and firm
performance by examining theoretical perspectives and arguments for and against CSR. By
exploring differences in perspectives and arguments, the researcher attempts to grasp a full
understanding of the underlying motives and intentions for CSR practices.
Theoretical Perspectives on CSR
Stakeholder Theory
Freeman (1984) defined stakeholders as “any group or individual who can affect or be
affected by the achievement of an organization’s objectives” (p. 46). This definition is
categorized as a wide sense of a stakeholder. The narrow sense of a stakeholder is defined as:
“any identifiable group or individual on which the organization is dependent for its continued
survival” (Freeman & Reed, 1983, p. 91).
The concept of stakeholder theory is to take into consideration all stakeholders of the firm
when making corporate decisions (Jensen, 2001). The role of management is to accommodate
stakeholder demands as a measure of achieving the goals of the firm. According to Ullman
(1985), a stakeholder’s influence on management to make corporate decisions is powerful when
the stakeholder has control over corporate resources.

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If stakeholders show great control over corporate resources, management will be more
inclined to respond to their demands when making decisions for the company. To examine the
correlation between social disclosure and social and economic performance, we examine
Ullman’s (1985) three dimensional model. As part of Ullmann’s model, stakeholder power
represents the first dimension, noting that companies should respond to social responsibility
demands from stakeholders. If companies view that social responsibility activities are accepted
as an effective strategy, the relationship between stakeholder power and social performance is
expected to be positively correlated.
The second dimension of Ullman’s model is the firm’s “posture” toward CSR activities.
Strategic posture, as described by Roberts (1992), describes the mode of response of a
company’s key decision makers concerning social demands. Ullman divides CSR posture as
active or passive. An active posture develops when management applies CSR practices through
stakeholders in order to build up organizational status. In contrast, a passive posture is when a
company does not address the influences of stakeholders and does not apply practices in relation
to stakeholder concerns.
The last dimension of Ullman’s model addresses the company’s past and current financial
performance. Before a company can engage in CSR activities, they must focus on achieving
profits, an economic responsibility presented by Carroll (1991). The economic performance of
an organization determines the weight of social demand and whether management has the
financial capability to respond (Ullman, 1985). If organizations have a low economic
performance, in which they are experiencing low profitability and high levels of debt, social
demands are prioritized below economic demands.

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Donaldson and Preston (1995) also have presented a perspective on stakeholder theory
and identify three aspects: descriptive/empirical, instrumental, and normative. The
descriptive/empirical element describes specific corporate characteristics and behaviors. This
aspect is meant to interpret and clarify various features of management, analyzing motives,
influences, and purpose of the business. The instrumental aspect identifies the connections, or
lack thereof, between stakeholder management and the achievement of traditional corporate
objectives (Donaldson & Preston, 1995). Based on Donaldson and Preston’s research, statistical
methodology studies on stakeholder practices may achieve performance objectives as well or
better than rival practices. Using an instrumental approach (using statistical methodologies,
observation or interviews) when implementing CSR practices supports a competitive advantage
against rivals. The normative aspect identifies the framework of the corporation: the “moral or
philosophical guidelines for the operation and management of corporations” (Donaldson &
Preston, 1995, p. 71). This aspect offers an examination of the company’s function based on the
values that have been generated into morals and philosophies. Friedman (1970) described CSR in
normative terms, indicating that CSR is the responsibility of an individual based on their own
values and beliefs.
Agency Theory
An agency relationship, as defined by Ross (1973) “has arisen between two (or more)
parties when one, designated as the agent, acts for, on behalf of, or as representative for the
other, designated the principal, in a particular domain of decision problems” (p. 134). The
principal appoints the agent to execute a task on the principal’s behalf, giving the agent the
responsibility to deliver the principal’s preferred results.

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The agency theory introduces complications within the principal-agent relationship, as
both parties may not have the same interests. According to Jensen and Meckling (1976), an agent
will not act in the best interest of the principal if both parties are utility maximizers. Incentives
must be offered to either or both parties to accomplish the same goal (Hill & Jones, 1992).
Through incentives and monitoring, the principal can control the behavior of the agent to achieve
their own interests, rather than the agent’s (Mitchell, Agle, & Wood, 1997).
Friedman (1970) argued that a corporate executive, or manager, is an agent to the owners
of a corporation, who are the principal. The manager must perform to the principal’s
expectations and achieve the primary goal of the organization: to increase profits. If a corporate
executive has social responsibilities, they are on behalf of the individual, not the business. A
manager who wishes to execute social responsibility strategies is acting as a principal; he is
taking it upon himself to spend his own time and money to fulfill these responsibilities.
An agency problem occurs when the agent puts his own interests before those of the
principal, an interest in which Friedman (1970) indicated as individual social responsibilities.
Friedman asserted that a manager who uses the resources of a company to fulfill social
responsibilities is using the money of the stakeholders and as a result, reducing returns to
stockholders, and raising agency costs.
Classifying CSR Theories
Garriga and Mele (2004) classified CSR theories into four different aspects: instrumental,
political, integrative, and ethical theories. Instrumental theories concentrate on the economic
interactions between business and society. These interactions promote wealth for the company
and CSR is accepted if those strategies produce profits. Political theories emphasize the social
power of the business, concentrating on the political aspect of this power between business and

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society. Integrative theories are directed towards social demands. Businesses that depend on
society for their growth respond to social requests. Ethical values study the relationship with
business and society through moral values.
Instrumental Theories
Friedman (1970) did not consider social responsibility to belong to a corporation. The
primary responsibility it faces is to maximize profits. Friedman delivers a quote from his book,
Capitalism and Freedom that explains how businesses should operate: “there is only one social
responsibility of business – to use its resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game…” (1970, p. 6). The game that Friedman
referred to is the legal obligations brought upon when running a business.
The agency theory coincides with the instrumental view of maximizing profits and
shareholder value. An agent who is authorized to act by the principal is assigned to use resources
and operate in ways that add value to the company and maximize profits. Porter and Kramer
(2002) believed that businesses that donate charitable contributions based on an individual
perspective of beliefs and values confirm Friedman’s view of philanthropic contributions.
Friedman’s (1970) argument on philanthropy stated that donations hinder the ability to allocate
funds to other sources – such as increase employee salary.
Porter and Kramer (2002) challenged Friedman’s view and proposed a strategy in which
philanthropic donations improve competitive advantage – so long as it is used strategically.
According to their view, philanthropic activities align social and economic goals and improve a
company’s long term business prospects. According to Porter and Kramer (2002), an increase in
societal improvements that relates to company objectives increases economic benefits as well.

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Utilizing CSR in ways that improves the company’s competitive advantage justifies
philanthropic costs, adding value to CSR practices.
Anderson & Markides (2007) contributed an additional approach regarding gaining
competitive advantage with CSR, one that has suggests management attend to low income
customers, which may result in long term profit. The strategy includes marketing to low income
consumers who are infrequent buyers and transition them into loyal customers. To accomplish
this transition, companies must develop disruptive innovation strategies to appeal to low income
consumers.
Disruptive innovation comes from established markets and emerges in a new, untouched
market. According to Christensen (1997), disruptive innovation emerges on its own course into a
new, untouched market. Combining disruptive innovation and serving the low income consumers
supports a competitive advantage for the company. Prahalad & Hammond (2002) believed that
serving the world’s poor will also improve the economic condition of society by creating jobs,
decreasing poverty, and making the world a safer place.
Integrative Theories
Businesses who apply integrative theories of CSR are responding to social demands,
“arguing that business depends on society for its existence, continuity and growth” (Garriga &
Mele, 2004, p. 57). Carroll (1979) divided integrative theories, or social responsiveness, into a
group of definitions that is more concerned with the manner or philosophy of response than with
the kinds of issues that ought to be addressed. Carroll’s emphasis is the degree and kind of
managerial action initiated for social responsibilities.
Companies that integrate social demands into business practices are searching for social
acceptance and legitimacy (Carroll & Shabana, 2010). Integrative theories concentrate on the

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organizational strategies that may be implemented in response to social demands. Ackerman
(1973) supplied an organizational guideline for companies to respond to social demands, which
includes forming policies, exploring solutions, and finally generating action. Jones (1980) also
agreed that businesses should take social concerns in consideration when making decisions. The
focal point of addressing social concerns is based on the actual means of corporate behavior,
taking steps to minimize the negative impact of corporate behavior on society. Issues
Management (IM) is a concept developed by Wartick and Rude (1986) as a measure to manage
social issues. It is defined as “the process by which the corporation can identify, evaluate, and
respond to those social and political issues which may impact significantly upon it” (p. 124).
IM serves two purposes: the first is to minimize “surprises” which accompany social and
political change by serving as an early warning system for potential environmental threats and
opportunities. The second purpose prompts more systematic and effective responses to particular
issues by serving as a coordinating and integrating force within the corporation. Utilizing IM can
positively affect corporate performance by enhancing the firm’s responsiveness to environmental
change (Wartick & Rude, 1986).
Ethical Theories
Ethics and CSR are interrelated and is considered as one of Carroll’s (1991) aspects of
responsibility. Ethical activities are derived from societal values which may shape the culture of
the organization. The morals and values of a business serve as a foundation to CSR practices,
using ethical codes of conduct as a guideline to building strategic CSR methods. Joyner & Payne
(2002) reviewed Drucker’s outlook on ethics: “he felt it was also important that management
consider the impact of every business policy and action upon society” (p. 302). Achieving a
profit is identified as the first responsibility of a business. In order to sustain that profit,

26
organizations must consider the impact of their action on society because without society
(consumers) there is no chance of profit.
Bowie (2002) offered a Kantian approach for businesses, a principle referred to as
“respect for persons,” or stakeholders in this respect. Bowie’s approach adopts philosopher
Immanuel Kant’s categorical imperative of positive freedom. Positive freedom is to treat the
humanity in a person as an end in itself. According to Bowie (2002), a business relationship
requires two things. One requirement, people in a business relationship should not be deceived or
manipulated. The second requirement is that business practices should contribute to the
development of human rational and moral capacities. If firms adopted Kant’s ethical approach,
Bowie believes this will result in meaningful work for all employees. Meaningful work
incorporates salary that permits physical survival and satisfaction, does not interfere with
individual morals, and supports rationality of human beings.
Garriga and Mele (2004) also offered a common good approach to ethics. According to
their approach, businesses, along with any other social group or individual in society, should
contribute to the common good, simply because it is a part of society. Companies should operate
within means of the impact of society, recognizing that their efforts will result in a positive form,
not in ways that will be harmful to society. Businesses may contribute to the common good by
creating wealth, providing products and services in an efficient and fair way, and respecting the
rights of the individual.

27
Arguments for CSR
Employee Turnover
CSR can be used to acquire new talent and may ultimately aid employees looking to
develop their leadership skills. Guarnieri and Kao (2008) analyzed how CSR adds to company
value that employees are seeking in the workplace. MBA students (over 94%) are even willing to
sacrifice financial benefits in order to work for a company that exhibits all of the following: cares
about employees, cares about outside stakeholders, and commits to environmental sustainability
(Montgomery & Ramus, 2003).
Employees are willing to remain loyal to a company that provides meaningful work.
Companies may then take this opportunity to transition employees into leaders by integrating
their functional tasks to CSR methods. Guarnieri and Kao (2008) believed leadership
development processes are aligned to reinforce the company’s desired values and behaviors. If
management expose employees to social and ethical philosophies and encourages employees to
participate in volunteer activities, ethics training, and CSR core competencies, it will help leaders
develop a mindset that aligns with the values of the company. This, in turn, will shape leader’s
thoughts into actions; actions which will benefit the company.
Corporate Culture
Employees, particularly Generation Y or the Millennial generation (those born between
1978 and 1994), are no longer seeking to work in a firm that just provides them a paycheck. Gen
Y or Millennials are known for their outspokenness and willingness to challenge traditional
forms of authority (Guarnieri & Kao, 2008). The members of this blooming generation that are
now entering the workforce are seeking meaning, value, and integrity in their work. These

28
employees are searching for work that makes a difference, joining a company with a culture that
administers stability, strong values and ethics.
Competitive Advantage
Companies may use CSR practices as a differentiation strategy; a way to set themselves
apart from their competitors (Carroll & Shabana, 2010). There are various approaches of using
CSR as a competitive advantage, such as cost management, philanthropy, value creation, and
reputation.
Cost management tactics are handled through cost and risk reductions. These methods
lower costs which are ineffective to the firm and reduce exposure to risk. Retaining top talent is
less costly than recruiting and training new talent. Generating equal employment opportunity
(EEO) policies reduces employee turnover rates (Smith, 2005). EEO statements establish morale
within the company, a corporate culture, and diversity. Employees are less likely to leave an
organization if they are satisfied with the values and lifestyle of a company.
To serve as a competitive advantage, companies must align philanthropic activities with
their capabilities and core competencies (Carroll & Shabana, 2010). If philanthropic activities
veer off course, expenses will be incurred for actions that do not provide value for the company.
Philanthropy, when strategically planned, improves the bottom line. Bianchi (2006) believed
strategic philanthropy produces multiple benefits for both society and organizations.
Organizations who apply strategic philanthropy learn how to apply core competencies in new
areas, improve employee morale, stimulate customer demand, and enhance their attractiveness in
the labor market.

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Arguments against CSR
Displacement of Resources and Money
If a CSR strategy does not align with a company’s mission, resources and money that
could have been spent elsewhere have now been wasted. For a CSR practice to be effective, the
action must add value to the company. According to Barney (1991), resources are considered
valuable to a company when those resources are strategically implemented to improve efficiency
and effectiveness. In order for the resources to positively affect performance, resources must
shift into strategies which will exploit opportunities or neutralize threats. If a company engages
in a CSR practice that does not provide value for the company, exploit opportunities, or
neutralize threats, then the strategy proves to be a disadvantage for the organization, which may
result in negative performance.
Social Responsibilities are for Individuals
Friedman (1970) provided a fascinating argument on social responsibility, appointing the
commitment strictly to an individual, not a corporation. Friedman questions the actions of an
individual who may have their own personal “social responsibilities,” and delivers those beliefs
into the outcome of the organization. Friedman provides several examples of personal social
responsibilities that are not in the best interest of the corporation, such as refraining to increase
the price of a product in order to contribute to the social objectives of preventing inflation.
Through this view, an individual who implements CSR strategies is doing so at the expense of
the corporation, resulting in added costs.
If a corporate executive executes CSR practices, he is spending money that does not
belong to him. The executive is spending money that could be placed elsewhere, such as
employee salary or stakeholder returns. According to Friedman (1970), if an individual carries

30
social responsibility beliefs, they should use their own time, money, and resources to accomplish
those goals, not those of an organization. Friedman argues that social responsibility issues fall
under the purpose of the government, not on the organization. When a corporate executive
spends funds on social responsibility practices on behalf of a company, “he is in effect, imposing
taxes … and deciding how the tax proceeds should be spent” (Friedman, 1970, p. 2). These types
of transactions are strictly governmental functions. Friedman argues that the government is
formulated and well prepared to handle preferences and desires of the public. Friedman separates
the functions of governments and business: the role of a corporate executive is to serve the
interest of the business and the role of governments is to control tax funds and how they will
serve the public.
Unrelated to Proper Aim
Hayek (1969) acknowledged that business must perform within the means of legal and
moral rules. Although there are certain guidelines that corporations must follow when operating
a corporation, Hayek advises that companies should not steer off course. Resources should only
be used for their “proper aim,” which is to allocate resources to their most profitable use.
Like Friedman, Hayek (1969) argued that social expenditure costs to originate from the
individual or government funds. The funds of the organization should be spent in ways that will
provide value to the organization. If an individual decides to use personal funds on social issues
that are important to them, they have the freewill to do so. Corporations, on the other hand, do
not have the same freedom. Corporations have special duties that must be satisfied and resources
have been reserved specifically to achieve those duties. Hayek (1969) asserted that management
is not entitled to use large resources for social purposes. Resources must be spent in regard to
financial value.

31
According to Hayek (1969), management who allocate resources to social responsibilities
are bestowing all of their potential abilities into a misplaced purpose. Investing an abundant
amount of time, resources, and funds into CSR practices leads the corporation further away from
the aspirations of the business. Simply put, CSR is not compelling enough to have as an
organization’s target objective. In this view, companies must operate responsibly within legal
and moral means and should not extend beyond those means.
In this section, the researcher analyzed various theories and arguments regarding CSR.
Perspectives have ranged from CSR directly benefiting the organization to dismissing CSR
completely because it wastes resources, time, and money. Upon evaluating several versions of
CSR outlooks, the researcher concludes that organizations seek to utilize methods that directly
benefit the business, whether CSR methods are involved or not.
The next section will administer an empirical analysis of CSR and financial performance.
The qualitative study will compare the CSR practices of two companies (Microsoft and Coca-
Cola) based on their CSR rating, while the quantitative study will measure CSR and financial
data as dependent and independent variables for both companies.
Microsoft and Coca-Cola were chosen because both companies have a high CSR rating.
However, each company operates in a different industry sector. The purpose of this project seeks
to compare the CSR practices of two companies in different industries with a variance in
financial data.

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CHAPTER THREE
Summary of Project Purpose
The purpose of this empirical study is to investigate the significance between CSR and
financial performance. CSP focuses on the behavior of the company regarding social
responsibility and how actions are implemented. Carroll (1979) presented three aspects of CSP
which include assessing a company’s social responsibilities, identifying the range of social issues
that must be addressed, and choosing a response philosophy. In 1988, Preston asserted that CSP
is concerned with the impact of business behavior on society and evaluating the ultimate
outcome or results (as cited by Clarkson, 1995).
A qualitative study of CSR is applied to investigate the various CSR practices from the
Top 10 highest rated companies based on their CSP score. Their CSR practices will be compared
to investigate the value those practices add to the corporation. All information is derived from
secondary data which include websites, journals, academic journals, and online data bases.
To identify a relationship between CSP and financial performance, a model must be
developed to clarify theories and concepts of CSR. In order to apply CSR theories to business
practices, those theories must prove to be relevant to financial performance. As Clarkson (1995)
suggested, “Empirical testing of a model is important to establish its validity” (p. 94). An
empirical study of CSP and financial performance is relevant to determine if addressing social
issues actually benefits financial performance or hinders it.

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Qualitative Study on CSR
The qualitative research on this study seeks to answer a fundamental question: how does
CSR provide value to an organization? The researcher will then compare the CSR practices of
some of the top 10 companies with the highest CSP score.
Value of CSR
According to McWilliams and Seigel (2000), investment in CSR promotes product
differentiation: “Some firms will produce goods or service with attributes or characteristics that
signal to the consumer that the company is concerned about certain social issues” (p. 605). Along
with product differentiation, companies who implement CSR practices establish a positive social
image that indicates to the consumer that the company is supporting a cause.
Product differentiation and company image prove valuable to an organization because
these attributes are valued by the consumer. Consumer oriented CSR practices coincide with the
responsibility that organizations have to society. Raman, Lim, and Nair (2012) were able to
discover a positive linkage between CSR and customer loyalty. Their findings are similar to
those of Neito’s “who stated that CSR imperatives can add value to all major stakeholders in a
company and this includes adding value to consumers” (as cited by Raman, Lim, & Nair, 2012,
p. 86). Consumers value companies who share similar views based on society issues and use
their resources to try to solve them. An increase in CSR develops a positive relationship with
consumer in terms of consumer loyalty (the affiliation of consumers and business leading to
repeat purchase behavior) consumer-company identity (the meaningful relationship between both
parties) and company identity attraction, (the ability of a company to create an identity unique to
customers) (Raman, Lim, & Nair, 2012).

34
CSR Strategies
CSR practices can be strategically implemented to directly benefit the organization
through advertising, brand positioning, and market positioning to add value to the organization.
Advertising
Companies who seek beneficial rewards from CSR are likely to advertise CSR practices
to the consumer. Organizations invest CSR into their products or services, making the consumer
aware of the social issues the company may be addressing. McWilliams and Siegel (2000)
presented two strategies used by companies who want to exhibit CSR methods: “Some firms will
produce goods or services with attributes or characteristics that signal to the consumer that the
company is concerned about certain social issues” (p. 605). Also, many companies will try to
establish a socially responsible image. By purchasing products from companies who engage in
CSR, consumers will also feel that they are supporting a social cause. The interaction between
the company and the consumer will allow the consumer to aid a social purpose with the help of
the organization.
Consumers who desire to be involved with current social issues will appreciate
organizations that put forth efforts to display positive CSR. When organizations prioritize the
consumer when implementing their CSR practices, consumer trust is gained as they presume the
company’s products are more reliable and of higher quality (McWilliams & Siegel, 2000). Upon
gaining the trust of a consumer, a good reputation gradually progresses.
When using advertising as a visual display of CSR methods, the reputation built from that
strategy results in a competitive advantage for the organization. The competitive advantage
results from the reputation the company has built from their advertising. “…advertising that
provides information about CSR attributes may be used to create a reputation for quality or

35
reliability or honesty…” (McWilliams & Siegel, 2000, p. 606). If the company places itself in a
position with consumers as a reliable, honest, and high quality company, for example, these
attributes are what will set them apart from their competitors and can be used as a differentiation
strategy.
Brand Positioning
Companies that integrate CSR into their positioning strategies may gain a wider
audience. Kotler and Lee (2005) proposed a link between CSR and Maslow’s Hierarchy of
Needs, consumers who are seeking self-realization from purchasing a product or service.
Consumers are now searching further from simple product function and benefits, and are probing
for how the product makes them feel. For example, an organic food company should not position
its brand based on its organic identity. To attract a broader audience, the food company may
integrate CSR aspects into their marketing. By positioning themselves into a personal benefits
category, such as a healthy lifestyle or quality food, this opens up the product for several brand
positioning elements.
Coca-Cola (2015) is attempting to reposition its brand into the healthy lifestyle trend. In
2014, the company introduced 100 additional beverage options which were reduced, low, or no-
calories. Coca-Cola’s brand positioning represents the company’s commitment to address public
health issues such as obesity and sedentary lifestyles and to meet consumer preferences.
Market Positioning
In order to gain support from consumers, a firm must serve in a high developed market. A
company’s visibility depends on the location of operation, word of mouth, or the media. In a
market with more advanced technology, media exposure, and capital markets (Wang & Qian,
2011), there is a greater flow of communication from business to consumer and stakeholder.

36
With greater lines of communication, it gives greater chances for stakeholders to react to CSR
practices.
Without operating in a high developed market, communication of a company’s efforts to
CSR practices will not be properly corresponded to stakeholders. Wang and Qian (2011)
suggested that inefficient communication results from philanthropic efforts in less developed
markets. Without appropriate media outlets being broadcasted to the public, consumers and
stakeholders will not be able to form a positive or negative opinion about the company, much
less support their cause. Consequently, if organizations operate in a high developed market, there
will be greater opportunities of communication for stakeholders to be aware of a company’s CSR
practices, which will in turn result in opinions of the company, be it favorable or unfavorable.
Coca-Cola CSR Practices
The Coca-Cola Company is known as the world’s largest beverage company, offering
more than 3,600 different products around the world (Cola-Cola, 2015). Operating in a national
and global market appoints their brand and products widely recognizable. Coca-Cola has taken
this ample opportunity to address social issues such as: active healthy living, human rights,
packaging, product and ingredient safety, and water stewardship. In the 2014/2015 Sustainability
Report, Coca-Cola announced their sustainability commitments estimated to be completed in
2020. The report specifies 12 goals in regards to the 5 social issues to be addressed. The
researcher will discuss three goals.
The first goal is in regards to active healthy living, which states: “Offer low – or no-
calorie beverage options in every market” (Coca-Cola, 2015, p. 6). To achieve this goal, Coca-
Cola expanded Coca-Cola Life, which is a reduced-calorie soda sweetened with a blend of sugar
and stevia leaf extract to a total of nine countries. Coca-Cola also introduced a smaller packaging

37
size, which addresses a combination of packaging and active healthy living social issues. By
packaging their products in smaller packages, consumers are able to choose their beverage
portion size, avoiding an overconsumption of sugar and feel in control of eating and drinking
habits.
Packaging social issues are addressed through recycling. This goal states: “Work with our
partners to recover and recycle the equivalent of 75 percent of the bottles and cans we introduce
into developed markets by 2020” (Coca-Cola, 2015, p. 38). Through The Recycling Partnership,
the company is able to focus on recycling initiatives while helping the public change behaviors
that generate litter.
Coca-Cola addresses water stewardship in hopes of maximizing water efficiency in the
production process and attempts to solve safe and sufficient water supply challenges. Their goal
states: “Safely return communities and nature and amount of water equivalent to what we use in
our finished beverages and their production” (Coca-Cola, 2015, p. 34). Through community
water partnership projects, Coca-Cola balanced 94 percent of equivalent amount of water used in
finished products.
Coca-Cola uses CSR strategies through advertising, brand positioning, and market
positioning to address social issues. By operating in a highly developed market, Coca-Cola has
the opportunity to send a positive message to a wide audience. The company advertises their
reduced sugar beverages into the packaging of drinks to health conscious consumers. Coca-Cola
has positioned their brand that was previously associated with obesity, and transitioned their
brand to the healthy lifestyle consumer. The company’s CSR practices has created value through
the consumer-company identity by strengthening the relationship.

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Microsoft CSR Practices
Microsoft’s philanthropy initiatives seeks to create meaningful impact through two
attempts: “First, we seek to empower youth around the globe by connecting them with greater
opportunities for education, employment, and entrepreneurship… Second, we work at a global
scale to donate technology to nonprofit organizations so they can do even more good”
(Microsoft, 2015, p. 32).
Microsoft offers their resources such as facilities, volunteer talent, and donations to
nonprofit organizations. Microsoft donates conference space for nonprofit organizations to hold
their meetings. The company also trains nonprofit partners on digital communications and social
media. In addition, Microsoft offers their YouthSpark program which assists youth nonprofit
organizations to encourage opportunities for education, employment, and entrepreneurship
(Microsoft, 2015). Such contributions include Office 365, which offers Microsoft Office
software free for all students and teachers as educational tools to boost learning.
As part of their YouthSpark program, Microsoft developed Technology Education and
Literacy in Schools (TEALS), which pairs computer science professionals with classroom
teachers to teach computer science in high schools across the country, either in person or in
collaboration with another Microsoft developed program, Skype in the classroom (Microsoft,
2015, p. 34). Microsoft’s emphasis on youth computer science education gives students the
opportunity to advance their education and gives future job opportunities.
Microsoft’s CSR practices has created value to the younger generation through company
identity attraction. Microsoft has positioned themselves in a highly developed youth market and
differentiated themselves against competition by developing and maintaining a relationship with

39
high school and college students. Through the YouthSpark program, Microsoft educates students
in computer science, which can benefit them in the long run as the consumer identity
attractiveness increases. The same students who take advantage of the YouthSpark program may
be eligible to work for Microsoft in the long run, utilizing the education the company has
provided to perform in the workplace.

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Quantitative Study on CSR
Measuring Financial Performance
Waddock and Graves (1997) represented financial performance as profitability, using
accounting data such as return on assets (ROA), return on equity (ROE), and shareholder equity
as measurement. More specifically, Hagel III, Brown, and Davison (2010) narrowed down
financial performance measures as ROA, which “explicitly takes into account the assets used to
support business activities.” ROA measures the returns brought in from the assets required for
running a business.
Additionally, Peloza (2009) asserted that accounting measures demonstrate how
efficiently the firm uses its assets to generate value. Peloza (2009) also confirmed the use of
accounting approaches to identify a correlation between CSP and financial performance: “70%
of accounting-based metrics demonstrated a positive relationship between CSP and financial
performance, compared to 53% of market based metrics.” (p. 1524).
Measuring CSP
Waddock and Graves (1997) identified the gap of uncertainty between CSR and financial
performance: measuring CSP. Peloza (2009) has concluded that there were no consistent metrics
to measure CSP, indicating that the variety of CSP metrics used reflects the diverse nature of
CSP itself. Past CSP studies have included one-dimensional CSP measures such as pollution
control, forced-choice survey instruments, and Fortune magazine rankings (Peloza, 2009;
Aupperle, Carroll, & Hatfield, 1985; Sledge, 2015).
Waddock and Graves (1997) measured CSP primarily from the Kinder, Lydenberg,
Domini (KLD) index: “KLD is an independent rating service that focuses exclusively on

41
assessment of CSP across a range of dimensions related to stakeholder concerns” (p. 11). KLD
focuses on measuring both past environmental outcomes and recent management actions that
may predict future outcomes (Chatterji, Levine, & Toffel, 2007).
According to McWilliams and Siegel (2000), KLD uses a combination of surveys,
financial statements, articles on companies in the popular press, academic journals, and
government reports. CSP is assessed along eleven dimensions: military contracting, nuclear
power, gambling, tobacco, alcohol, community relations, diversity, employee relations,
environment, and product quality (innovation/R&D) and non-U.S. operations. KLD constructed
the Domini 400 Social Index (DSI 400) as the equivalent of the Standard and Poors 500 Index
for socially responsible firms.
McWilliams and Siegel (2000) chose firms who are eligible for the DSI 400: “In order to
be eligible…a firm must derive less than 2% of its gross revenue from the production of military
weapons, have no involvement in nuclear power, gambling, tobacco, and alcohol” (p. 607). In
addition, the index excludes companies involved in civilian firearms, GMOs and adult
entertainment. The KLD Index has since changed to MSCI Environmental, Social, and
Governance (ESG) Index after MSCI Inc. took ownership of KLD in 2011. The equivalent index
for the DSI 400 has been renamed to “MSCI KLD 400 Social Index” (MSCI, 2016).
Control Variables
Ullman (1985) provided data from previous articles that suggest company size, risk, and
industry are used as control variables that affect both firm performance and CSP. Waddock and
Graves (1997) gave emphasis to company size variable as larger firms attract more attention
from stakeholders and will be more open to respond to stakeholder demands (Burke, Logsdon,

42
Mitchell, Reiner, and Vogel, 1986). Larger firms may have more resources to devote to CSR.
Additionally, McWilliams and Siegel (2000), suggest the investment of R&D as a control
variable as it leads to product and process innovation, which enhances productivity.

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CHAPTER FOUR
Analysis
Table 1 includes a listing of the industries, ticker symbols, and average industry CSP
ratings. A total of 398 companies were used in this sample. A high score indicates a better rating
for the industry in regards to CSR practices. Table 2 includes a list of the top 10 companies with
the highest CSP score. An Anova single factor test was used to test the hypotheses for the years
2013-2015, using net income, total assets, return on assets (ROA), returns on equity (ROE), and
shareholder equity as independent variable measurement for financial data for Microsoft and
Coca Cola. CSR is measured as a dependent variable by the KLD rating participation of DSI
400, which has since transitioned into MSCI KLD 400 Social Index in 2011.
Table 1. Industries in the sample
Industry # of companies
Avg CSP
Score Min Max
Information Technology 49 0.530 0.003 5.012
Consumer Discretionary 75 0.193 0.002 1.838
Health Care 42 0.332 0.003 1.877
Consumer Staples 25 0.510 0.024 2.748
Financials 62 0.200 0.006 0.779
Industrials 77 0.104 0.003 1.246
Energy 25 0.211 0.001 1.248
Telecommunications 5 0.604 0.009 2.577
Materials 20 0.143 0.007 0.388
Utilities 18 0.974 0.018 0.298

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Table 2. Top 10 Companies with Highest CSP rating
Table 3 represents the results for an Anova single factor for Microsoft for the years 2013-2015.
Anova: Single Factor
SUMMARY Microsoft
Groups Count Sum Average Variance
2015 6 364639.2 60773.20357 4939821566
2014 6 366842.4 61140.39565 4531708741
2013 6 306725.4 51120.90507 3069450644
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 387383775.6 2 193691887.8 0.046334148* 0.954858983 3.68232
Within Groups 62704904758 15 4180326984
Total 63092288534 17
Table 3. Microsoft Anova Single Factor significance *(0.05) **(0.01) ***(0.001)
The first observation is the comparison of F value to F crit value. The F crit value
represents the critical value of the Anova test procedure, which, in this case is F crit = 3.68232.
When comparing F value to F crit value, the F value must be greater than the F crit value (F >F
crit) in order to reject the null hypothesis. In this case, F = 0.046334148 and F crit = 3.68232,
which means the F value is less than the F crit value (F < F crit), accepting the null hypothesis.
Ticker Symbol Company Name Industry
CSP
Score
MSFT Microsoft Corp Information Technology 5.020
GOOG Alphabet Inc Class C Information Technology 2.790
PG Proctor & Gamble Consumer Staples 2.740
VZ Verizon Communications Inc Telecommunications 2.560
KO Coca Cola Consumer Staples 2.340
MRK Merck & Co Inc Health Care 1.870
PEP PepsiCo Inc Consumer Staples 1.850
DIS Walt Disney Consumer Discretionary 1.840
INTC Intel Corporation Corp Information Technology 1.820
CSCO Cisco Systems Inc Information Technology 1.720

45
The second observation compares the P-value and α. The P-value indicates a probability
from 0 to 1. The P-value number represents P[ F > F crit] = 0.954858983. If P-value is less than
α, the significance level of 0.05, the null hypothesis is rejected. In this case, the P-value is
greater than α, accepting the null hypothesis. There is a 95.48% chance of observing a difference
between sample means as large as observed even if the population means are identical.
Through both observations, it is concluded that average financials in each year are the
same between firms.
Table 4 represents the results for Anova single factor for Coca Cola for the years 2013-
Table 4.Coca-Cola Anova Single Factor significance *(0.05) **(0.01) ***(0.001)
In this observation, upon comparing the F value to F crit value, we also accept the null
hypothesis, since F value (0.000406332) is less than the F crit value (3.68232). Upon comparing
the P-value and α. We also accept the null hypothesis, since the P-value (0.999593761) is greater
than α (0.05). There is a 99.95% chance of observing a difference between sample means as
large as observed even if the population means are identical.
SUMMARY Coca Cola
Groups Count Sum Average Variance
2015 6 187537.4 31256.22821 1425472895
2014 6 191144.3 31857.38521 1431163758
2013 6 188694.4 31449.05901 1317067611
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 1130607.464 2 565303.7321 0.000406332*** 0.999593761 3.68232
Within Groups 20868521322 15 1391234755
Total 20869651929 17

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CHAPTER FIVE
Interpretation of the Findings
The results of the Anova single factor testing support the null hypothesis, which states
that differences in financial data do not impact CSP rating. Our results were analyzed by the
comparison of the F value to the F crit value and the P-value to the α (significance level).
Conclusion of the Study
This study has attempted to address whether corporate social responsibility activities are
linked to financial performance. Using financial data from 2013-2015, we compared Microsoft,
which had the highest CSP score in the information technology sector and the highest above all
398 companies, and Coca-Cola, ranking 2nd in the consumer staples sector and 5th above all
companies. The researcher used Anova test for small sample relationships.
The findings for this research are similar to the results from Aupperle, Carroll, and
Hatfield’s (1985) attempt to examine a relationship between corporate social responsibility and
profitability. Their study, as well as this research, was unable to support the notion that a
relationship between the two components exist due to insufficient evidence.
With no significant relationship acknowledged between CSR and financial performance,
the results are interpreted not to provide financial value, but to provide internal value to a
company. Surroca, Tribo, and Waddock (2009) were able to identify an indirect relationship
between CSR and financial performance through intangible resources such as innovation, human
capital, reputation, culture, and competitive advantage. Saeidi, Sofian, Saeidi, Saeidi, and Saaeidi
(2014) were also able to identify an indirect relationship between CSR and firm performance
through customer satisfaction, reputation, and competitive advantage.
Consumers have responded positively to CSR practices that are value driven (Ellen,
Webb & Mohr, 2006). Coca-Cola and Microsoft create value by strategically implementing

47
consumer oriented CSR practices into organizational actions. Consumer oriented CSR develops
positive relationships with the consumer in terms of customer loyalty, consumer-company
identity, and company identity attraction. Coca-Cola has re-positioned themselves from a
negative association with obesity to a positive association with a healthy lifestyle, strengthening
the consumer-company identity. Microsoft has attracted many new consumers through their
YouthSpark program by developing and maintaining relationships with high school and college
students, increasing company identity attraction. For Coca-Cola and Microsoft, their CSR
practices may provide an indirect link to financial performance through consumer-company
identity and company identity attraction.
Babiak and Trendafilova (2010) argued that motives for CSR are not always about
making money and provided alternative motives such as legitimacy or pressures to adapt to
societal norms. This view contradicts with Friedman’s (1970) view which asserted that the sole
responsibility of a business is to make profits. Both Coca-Cola (2015) and Microsoft (2015) steer
against Friedman’s view as both companies share the same passion of making a positive
difference in the world. To accomplish this goal, both companies have taken a stakeholder
approach to satisfy their demands and integrate CSR practices into daily actions.

48
Recommendations for further research
There is much to be learned regarding the relationship between CSR and financial
performance. The nature of CSR is viewed broadly (Godfrey, Merrill, & Hansen, 2009) and
range from various corporate activities. Since the majority of the research in this study seeks to
identify a direct correlation, additional research identifying indirect correlation to financial
performance may provide more insight to CSR and financial performance. More research is
needed to determine a legitimate measure for CSR, including both tangible and intangible
measures, in order to test it against financial independent variables. Since this research only
conducted a small sample size test for short term years, additional research may be applied to a
larger sample for long term years. It would also be useful to determine whether a relationship
between CSR and financial performance may be held consistently over time or if different
variables may interfere with the relationship. Further, additional research may be conducted to
determine whether a relationship exists for companies in different industries and different market
segments using similar criteria.

49
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