Orlitzky, Schmidt, and Rynes (2003)
Orlitzky, Marc, Frank L. Schmidt, and Sara L. Rynes. "Corporate social and financial performance: A meta-analysis." Organization Studies, 24, 2003.
This ambitious study (based on Orlitzky's 1998 doctoral disseration) is a meta-analysis of 52 studies examining the relationship between corporate social performance (termed CSP in the study) and financial performance (CFP). There is considerable variation in the definitions of both variables. Social performance data sources include: KLD, Council on Economic Priorities, and many reputational surveys, as well as some indiosyncratic measures. Corporate financial performance metrics include stock market returns, P/E ratio, ROE, ROA, ROA-T-bill rate, and many others. The studies were performed during the 1972-1997 time period.
Using meta-analysis statistical techniques (which Schmidt helped pioneer), the authors conclude that "there is a positive association between CSP and CFP across industries and across study contexts" ("True Score" r = .3648) and that this relationship "varies (from highly positive to modestly positive) because of contingencies, such as reputation effects, market measures of CFP, or CSP disclosures." Importantly, CSP was a better predictor of CFP using accounting measures than market-based ones.
The study does an unusually thorough job of analyzing possible confounding issues. For example, some analysts have expressed concern about availability bias - i.e., that studies failing to show a positive relationship between social responsibility and financial performance are unlikely to be published. The authors conduct a "file drawer" analysis demonstrating that the number of such studies would have to be very high (as many as 1,000) to change their overall conclusions. The direction of causality, another difficult question, is addressed directly using several different statistical techniques: "the causation seems to be that CSP and CFP mutually affect each other through a virtuous cycle: financially successful companies spend more because they can afford it, but CSP also helps them become a bit more successful."
A detailed discussion of the results interprets the findings in the context of current management theories about corporate social responsibility.
LK comment: This study won the 2004 Moskowitz Prize.
Link (published version): http://journals.sagepub.com/doi/abs/10.1177/0170840603024003910