Chapter 1

The Economic Impact of Corporate Social

Responsibility

1.1 Relevance of Measuring the Impact of CSR

Subsumed under the umbrella term Corporate Social Responsibility (CSR), the
assumed duties of business in society have been an increasingly debated topic in
academic research,1 business practice,2 politics3 and media.4 Especially within the
scientific discussion, two contradicting positions can be distinguished: on the one
hand, there is the argument that resources spent on other than economic goals are
an illegitimate waste of resources, because they are contradictory to a firm’s respon-
sibility to its shareholders and therefore even to the very function of business in
modern societies.5 On the other hand, proponents of CSR try to champion their idea
by emphasising the so-called business case for CSR. Arguing that CSR can come
along with certain benefits that might outweigh its costs, they see CSR engagement
as a necessity for business, not least for the sake of its own economic interest.6

1 Cf. Crane et al. (2008); Crane and Matten (2004); Hansen and Schrader (2005); Kakabadse
and Morsing (2006); Küpper (2006), p. 175; Schneider and Steiner (2004); Werther and Chandler
(2006).
2 See for instance German corporate initiatives such as CSR Germany (www.csrgermany.de) or

Econsense (www.econsense.de), and CSR Europe (www.csreurope.org) or Business for Social

Responsibility (www.bsr.org) on an international level.
3 Cf. European Commission (2001); European Commission (2002); European Commission (2006);

Riess (2006) for a recent overview.

4 Throughout the last years, newspapers and magazines of all kinds have regularly published

articles, surveys and special issues on CSR (e.g. The Economist, The Financial Times and
Handelsblatt. For a comprehensive overview of CSR in the media, see www.csr-news.net).
Moreover, the media has engaged in CSR rankings, cf. the Manager Magazin’s ‘Good Company
Ranking’ and the issue from Capital (02/17/2005), including a similar ranking.
5 Most prominently, Levitt (1958); Friedman (1962), p. 133; Friedman (1970); and – within the

German context – Schneider (1990). For more recent arguments, see also Jensen (2002), p. 242;
Henderson (2001); Sundaram and Inkpen (2004).
6 Cf. Bowen (1953), p. 5; Brown and Fraser (2006); Drucker (1984); Freeman (1984); Hansen

and Schrader (2005), pp. 383 et sqq.; Hoenicke (2002), p. 128; Kotler and Lee (2005), p. 21;
Lohrie and Merck (2000), p. 44; Mintzberg (1983); Pierer (2002), p. 53; Porter and Kramer (2006);

P. Schreck, The Business Case for Corporate Social Responsibility, 1

Contributions to Management Science.
c 2009 Physica-Verlag Heidelberg
2 1 The Economic Impact of Corporate Social Responsibility

This notion is of particular importance, because if CSR and profit maximising

interests could indeed be shown to go hand in hand, two conflicts could be resolved.
First, on a conceptual level, (economists’) arguments against CSR as an illegitimate
expenditure would lose their basis and two conflicting positions would eventually
be united. Second, managers in practice could justify CSR expenses to the share-
holders not only due to their moral quality but also with reference to their economic
benefits. Similarly, investors would not have to worry about a trade-off between
their hope for a maximum return on their investment on the one hand, and their
ethical considerations on the other. However, as long as this parallelism of societal
engagement and private business interests lacks empirical support, it risks corre-
sponding to its advocates’ wishful thinking rather than to a reliable fact that can
serve as the ground for management decisions. Consequently, a profound under-
standing of CSR’s economic impacts is highly relevant to both academic debate as
well as practice.7
Given the importance of this question, it is not surprising that throughout the
past decades a significant amount of research has been conducted on the empiri-
cal link between a firm’s social and its financial performance (CFP/CSP-link).8 In
spite of its long-lasting tradition, however, this empirical research has not conclu-
sively proven the aspiration that engagement in CSR unconditionally results in a
win–win situation. In contrast, results of empirical studies have been very mixed
so far.9 As will be argued later, this ambiguity can be explained with reference to
both the data employed in these studies and certain methodological differences that
are so serious that they render the respective empirical results incomparable. Nev-
ertheless, (meta-) studies have often treated previous results without taking these
differences into account. Furthermore, this thesis will consider the search for a uni-
versal link between social and financial performance to be a misconception, which
makes inconclusive results expectable rather than surprising. Taken together, this
leaves room for further conceptual and empirical investigations into the conditions
under which a positive link might exist.

1.2 Research Aim and Structure of the Thesis

The goal of this thesis is twofold. First, it aims at developing a thorough under-
standing of the mechanisms underlying the business case for CSR. This involves
the analysis of why and under what circumstances investments into improved
stakeholder relationships can be expected to come along with positive monetary

SustainAbility (edt., 2006), pp. 14 et sqq.; Utting (2005), pp. 378 et sqq.; World Business Council
for Sustainable Development (2000).
7 Considering the above said, talking about ‘economic impacts’ only refers to effects on the firm

level, not all (macro-) economic effects possibly conceivable.

8 Cf. Sect. 2.2.3.
9 See for instance Utting (2000), p. 20; or the discussion about a positive correlation between

corporations’ corporate social and its financial performance in Margolis and Walsh (2003).