CHAPTER 1: INTRODUCTION

1.1 Introduction and Background

Businesses are becoming aware of their responsibility in relation to changes in the economic

climate as a result of rising activity levels among people and groups (Brinkman and Ender,

2019). “Corporate Social Responsibility (CSR)” has become a major concern for businesses as it

plays an increasingly important role in management oversight, especially after the 2008-2009

financial crisis, when interest in non-financial details surged (Velte, 2017). According to Smith

et al. (2010), businesses are making a big difference in the fight to improve the climate because

of the short-term effects of impulsive actions and the long-term benefits that have an impact on

the environment in some way.

According to Taliento et al. (2019), a company's responsibility to a fair way of behaving that

considers the financial, social, and natural results of its work can be summarized by the

following definition of CSR: the obligations of partnerships towards networks or society at large

in terms of advancing education, medical services, ecological circumstances, good cause, moral

work practices, and so on. To paraphrase Vilain (2010), CSR refers to a company's methods for

dealing with the people who will be directly or indirectly affected by the company's pursuit of

material gain. They look at a company's track record before deciding to acquire stock in it, when

investors find if a company is socially conscious (Hafidzi and Qomariah, 2020).

Stocks are securities traded on a stock exchange that provide ownership rights or signal the

value support of a person or an asset inside a company. Organizational benefits, both monetary

(such as capital increases and profits) and otherwise, are set by investors. According to Ardekani

et al. (2012), a stock price is the value that appears on the trading platform at a certain moment.
They also deduced that investor demand and seller supply determine the direction and velocity of

price changes for stocks on the capital market. The public's perception of a company may be

swayed in many ways, such by the company's profit statement, mergers and acquisitions, the

composition of its governing body, its CSR initiatives, and so on.

The terms "corporate social execution (CSE)” and CSR are sometimes used interchangeably;

both include both social and environmental initiatives. Actions that appear to additional some

friendly great, beyond the interest of the company and what is legally essential," as defined by

McWilliams and Siegel (2001), are indicative of CSR. Beyond avoiding internal power conflicts,

"actions which minimize the degree of externalized costs" are highlighted as another definition

of CSR (Heal, 2005).

Investors, company leaders, and other partners have been paying attention to ESG execution

as of late since it is a noticeable and increasingly important way to increase a company's value.

CSR and “Environmental, Social, and Governance (ESG)” immediately raises a company's

market value (Malik, 2015). When ESG implementation is included into the management

practices of a company, that company gains value (Rezaee, 2016). Due to the massive role of

financial industry sectors in supporting many social activities, ESG data is beneficial for

financial backers and society (Shiller, 2013). According to research by Van Duuren et al. (2016),

most investors make additional purchases based on information about an investment's social and

environmental performance. According to Slager et al. (2012), only a small percentage of

businesses initiate an ESG review and share the results with those who are directly engaged.

Since high-management enterprises are better prepared for the long haul and more likely to

attract long-term financial supporters, Eccles et al. (2014) argue that companies should

communicate their statistics to both investors and partners.

 ESG refers to the management of a company's activities in terms of their effects on the

environment, society, and the company's bottom line. Investors, whether private and

institutional, are always on the lookout for profitable opportunities that also benefit society and

the environment. These days, businesses are more concerned than ever with communicating their

ESG concerns to the public at large. According to Nguyen and Trinh (2020), companies should

balance the costs and benefits of CSR since CSR activities are profitable even for enterprises at a

low level of CSR when a non-straight link occurs, as is the case with energy firms in Vietnam.

Using data from the “Financial Times Stock Exchange Group (FTSE)” 350 list-recorded

company, this analysis will hone in on the effect of CSR on stock performance in the UK.

Additional evidence and analysis of the potential effects of inadequate CSR practices on the

stock performance of the FTSE 350 listed companies. In addition, suggestions that may be

helpful in mitigating the challenges that may be identified will be discussed.

1.2 Problem Statement

High financial execution (productivity) is no longer a necessary factor in determining a

company's success, but Gracia, Lopez, and Rodriguez (2007) argue that showing interest in CSR

establishes a foundation of benefit through creating value and meeting the needs of business

partners. Because a road or speculation model provides information to partners, especially

financial backers, to make educated decisions by evaluating the non-monetary presentation of

organizations, corporate scandals like Enron, Parmalat, satyam, Carillion, Cadbury Nigeria Plc,

etc. have prompted organizations to embrace drives of social responsibility (Shrestha, 2020).

Shrestha also deduced that businesses are investing in CSR projects to win over partners who are

keeping a close eye on their activities and who keep on asking for transparency about businesses'

CSR and investment plans to ensure a favorable public image. Today, CSR is no more an option
but rather a must in the business sector (Thorton, 2018). Thus, businesses engage in CSR

initiatives to gain their partners' trust and support. Investors are considered to be interested in and

responsive to firms' non-financial presentation, therefore this advances study on the influence

CSR will have on stock execution.

According to the World Bank, "Corporate Social Responsibility" (CSR) is "the

responsibility of business to contribute to sustainable financial outcomes by engaging with

employees, their families, the local community, and society at large to improve their personal

satisfaction in ways that are good for business and good for global outcomes. Overall, what is

vital and amazing when using this attentive technique is that it provides a glimpse into what

choosing a socially competent stance may signify for a corporation, while the extent and

limitations of corporate social duty are, tragically, also not fully evident? Attempting to shed

light on this topic, the "Global Standards Organization (ISO)" developed a universal benchmark

for the ethical responsibilities of private businesses and public service organisations. ISO 26000

outlines seven core topics related to social responsibility:

There is a hierarchical structure in place, and local communities benefit from and

contribute to the overall effort. Fundamental rights of Human Beings Labour practises; the

environment; equal employment opportunities in the workplace; consumer protection concerns

However, many in the CSR industry group these concerns into more useful categories using the

initials ESG, such as natural, social, and administrative, Sandberg argues that this is not always

the case (2009). The purpose of this section is to explain the background and rationale behind

this suggestion. First, a framework for improving corporate social responsibility is established,

and then the essential philosophical notions are discussed. 'The commercial case for CSR,' under

which most ebb and flow research belongs, and 'friendly duty in the real world' are treated as
separate sections since the bulk of the proposal is based on instrumental observational technique.

Given that critics of CSO do exist, this section concludes with a section exploring CSO in

contrast to CSO in order to provide a balanced perspective.

In recent decades, companies have been encouraged by a wide range of stakeholders to

assess the impact of their operations on wider communities and the environment, as well as to

take steps to mitigate the negative impacts their activities have. In response to this shift in

American culture, the concept of CSR emerged during the first part of the 20th century (Clark,

1939). Many proponents of CSR argue that businesses should do more than just maximize profits

for their shareholders; they should also work to improve the well-being of their communities and

the environment by taking on socially and environmentally conscious initiatives that go above

and beyond what is required by law or their core business objectives. This view builds on the

firm belief that businesses can and should incorporate moral principles into their operations, as

well as the underlying belief that doing so is morally right.

Several studies have investigated the impact of trustworthy corporate practices and non-

financial data (manageability exposure) on company performance, with varying findings. A large

analysis found that socially responsible business practices positively affected company

performance, leading to gains including lower operating costs and financial risks, higher levels

of efficiency and productivity, and a higher profile and more consumer trust in the brand.

Investors should be discouraged from supporting companies that engage in risky or illegal

behavior, since this, in the opinion of those who share it, is common knowledge. To increase a

company's value, it must adopt practices that are both socially responsible and compliant with

the law. Yet other research has highlighted the existence of a negative relationship between the

aforementioned components, assuring that socially competent techniques simply lead to inflated
expenses and a consequent reduction in corporation return. However, this does not mean that

businesses shouldn't engage in socially responsible practices; some managers believe that doing

so is necessary to maintain healthy relationships with partners and investors, who increasingly

demand CSR strategies for ethical or moral reasons despite the fact that doing so may result in

lower returns. Certain scholars claim that some businesses incur the additional costs of socially

conscious tactics for purely commercial motives and not so much out of altruism.

1.3 Rationale and Significance of Study

The impacts of CSR on business execution (with respect to benefit, board viability, and so

on) have been studied at length in developed countries, with the UK at the forefront of this

inquiry. According to King and Lenox (2002), there is a growing consensus that governments

risk missing out on profit opportunities if they don't do their share to protect the environment via

CSR. In any way, limited exams have been conducted to investigate the influence CSR has on

stock execution in situations of unpredictability, market worth and profit per share. Therefore,

this investigation is essential for comprehending the impact of moral practices on the stock

performance of FTSE 350 companies.

CSR has started to become the cornerstone of modern business success, and firm productivity

is no longer the exclusive measure of success. Partners are persuading businesses to behave

responsibly and implement a beneficial change in the environment, society, and the globe as a

result of recent corporate embarrassments and dishonest strategic strategies. Companies are

investing heavily in CSR-related initiatives, and the transparency of their CSR efforts has

increased dramatically in recent years. One conclusion of this analysis is that businesses may

gain from CSR initiatives. Previous studies that have looked at the link between CSR and

financial performance have shown mixed findings. While much has been written about the link
between CSR and a company's bottom line, very less attention has been paid to the correlation

between CSR and, say, a company's long-term operational performance or stock price.

Particularly, past investigations looking at the impact of CSR file's re-compositing on businesses'

monetary performance concentrate around instantaneous stock return and are from a single

nation/market. As CSR becomes more visible on a global stage, there has been a surprisingly

narrow emphasis on increased geographical inclusion (including emerging business sector).

Similarly, CSR is a key factor in shaping both the culture and the direction of different

businesses. Therefore, it is also crucial to examine the potential for variation in the CSR-CFP

link across businesses and geographic regions.

1.4 Research Question

Does CSR have a positive or negative effect on the stock performance on FTSE 350 listed

companies?

1.5 Research Aim

This study aims to determine “the effect of corporate social responsibility (CSR) on stock

performance of FTSE 350 listed companies”.

RO1: To determine the effect that CSR has on stock performance in terms of market value, EPS

and volatility of FTSE 350 listed companies

RO2: To identify and analyses the challenges that can arise in the stock performance of the

FTSE 350 listed companies due to poor CSR practices

RO3: To identify and suggest recommendations that will be beneficial for mitigating the

challenges that may be identified in RO2.

1.6 Summary of Chapters

Chapter 1: The chapter one is of the introduction which is going to be the main chapter of the

study as this is going to explain the aims and the research question and the basis of the entire

research.

Chapter 2: The chapter two is of the literature review. This chapter is going to explain the

research conducted by the other scholars that will help in the present research.

Chapter 3: The chapter three of the thesis is the methodology section. This section or it can be

referred to as the chapter have explained the method through which the research and the relevant

data is going to be gathered.

Chapter 4: The chapter 4 of the research is the result section. The result section predicts the

findings of the research that is collected after performing the methodology in the proper way.

Chapter 5: The chapter 5 of the research is the discussion. In this section, with the help of the

existing literature and the result of the study, the research is evaluated in the section.

Chapter 6: The chapter 6 of the research is the section of the conclusion. In this section, the

researcher is going to summarize the findings of the research.

 CHAPTER 2: LITERATURE REVIEW

2.1 Theory of CSR and Stock Performance

In spite of the fact that CSR's popularity grew in the last decades of the 20th century, its

conceptual origins go back much longer. Character, especially how strongly one believes in

values like honesty, fairness, and kindness, are at the centre of the study of excellence morality.

All three of these ancient thinkers Plato in The Republic (2000), Aristotle in Nicomachean Ethics

(2000), and Confucius in the Analects (2000) believed that morality should be based on ideals,

with the ultimate determination of what is good depending on the context in which an action is

performed. Ideas like teleology and deontology, on the other hand, are more tractable; the former

decides if an action is right based on whether it produces an ideal result, while the latter

maintains that one should keep to ethical commitments regardless of the consequences.

The utilitarian hypotheses of Jeremy Bentham and John Stuart Mill are supported by a

teleological view with its emphasis on results because of the consequentialist nature of these

hypotheses. The goal of this philosophical logic, as described by Bentham (1815), is to maximise

the utility or happiness of the greatest possible number of people. A good performance may be

defined as one that increases utility, and this would apply to businesses as well as other

entertainers, as contrary to uprightness morality actions are neither good nor bad in and of

themselves but only as far as the benefits they generate. Taking a utilitarian viewpoint, the focus

of corporate social responsibility is on the level of financial and social support received by

corporations from the government. Assuming that individual liberties are being destroyed by the

majority, utilitarianism may be the enemy of progressive. This view has been used to justify

abuse by radical institutions in the past. Dangerous working conditions and resource pay are

acceptable according to this theory if they contribute to greater overall benefit.

 Equity denies that the deficiency of opportunity for some is made right by a more notable

great enjoyed by others," writes John Rawls (1971) to refute this goal. John Locke and Jean-

Jacques Rousseau's conception of a "common agreement," in which society is founded on and

cannot function without specific agreements between members, provides a second line of

reasoning for the cutting-edge concept of corporate social duty. This social conservatism flows

into regular regulation, which in turn gives rise to individual liberties like the right to life, liberty,

and property, all of which are inalienable and must be protected.

These two schools of thought provide a never-ending supply of CSR-related theories and

views. They may be seen as having to do with business as a whole, the interaction between

society and business, or both. For example, Secchi (2007) categorises CSR theories under the

topics of utility, society, and management. The next sections then demonstrate and discuss each

of these perspectives to provide insight into how CSR is now understood in the business world.

The most important questions and theories are discussed

Three tactical approaches portfolio analyses, event studies, and eight longer-term

(miniature) econometric approaches can be used to disentangle the correlation between CSR and

financial performance at corporations. Common portfolio analyses in this area compare the risk-

adjusted stock returns of sets of stocks that include only partnerships with a high environmental

or social presentation to sets that include only stock businesses with a low natural or societal

execution. Recent studies have relied heavily on assessing alphas inside multidimensional

models such as the Carhart four-factor model. The analyst may use real assets or fictitious ones

in their portfolio analysis. While portfolio analyses may examine the benefits of incorporating

CSR into investment decisions, they do have certain drawbacks. One clear example is how the

capability of the asset executives underpins the stock display of already existent assets. Another
major flaw in real-world and hypothetical portfolio analyses is that they tend to include just the

average financial performance of all companies whose stocks are included in the portfolios.

Therefore, more sophisticated econometric approaches are required to provide recognisably

causal evidence of the effects of CSR on the financial performance of corporations.

Many authors highlight the presence of an impact of socially mindful ways of behaving

on monetary execution taking into account the compromise between CSR costs and returns and

as indicated by the benefit augmenting hypothesis. Accordingly, a total of 122 research

published between 1971 and 2001 examined the correlation between CSR and financial

performance. While the reviews themselves provide conflicting information on the effects, this

debate may be broken down into three main categories.

Several authors have attest to a good correlation between corporate social responsibility

and financial performance. In light of the fact that the advantages connected with CSR activities

are more prominent than the connected expenses, organizations that are exceptionally focused on

CSR matters may acquire greater profits from their ventures, for example in terms of picture and

notoriety or with regards to positive influence on their expense of obligation and thus, higher

monetary outcomes. Accordingly, the potential benefits that a trustworthy firm may retain due to

improved relationships with employees, increased confidence, and increased efficiency rates

more than the costs of having a high level of interests in CSR. It has define the period of years

(3) strongly influenced by changes in CSR, focusing on the growth in deals and the profit from

deals, while it highlight that a decent CSR conduct improves on the connection with partners

generally.

The second group of authors argues that CSR has little effect on business success. For

instance, it is justified the impartial connection with the monetary market's inability to place
monetary value on firms' competent methods of acting. However, the impact of CSP on business

and portfolio exhibits is difficult to assess using existing market models (Derwall et al. 2005).

The third line of thought contends that CSR has a detrimental impact on performance,

and it is based on empirical studies and pledges that make allusions to theories of managerial

gain. It have been concluded that the Partner Hypothesis "actually obliterates business

responsibility... because a business that is responsible to all is really responsible to none."

Accordingly, the difficulty in articulating the notion of relationship among CSR and company

performance stems from the fact that the results of these research are essentially "information

hunting for a hypothesis." In particular, the discrepancies in findings may be attributed to the

large cluster of measurements used in precise focusses on CSR and the variety of company

execution's definitions; however, the topic remains open

Empirical Review for the Relationship between the CSR and Stock Performance
The empirical literature connecting the ecological aspect of CSR to stock performance

can be broken down into three groups: studies that examine the short-term effects of social or

ecological execution intermediaries on volatile stock prices; studies that attempt to lay out a

cross-sector connection between CSR and stock returns; and studies that investigate the benefits

of incorporating CSR into investment decisions. Event studies have so far provided the most

direct evidence between a company's ecological execution and stock prices. Furthermore,

evidence suggests that an increase in stock price in response to good natural data about the

business is more robust than a reduction in price in response to unfavourable news. A fascinating

explanation for why financial supporters are open to bad information is provided. Their case

study reveals that a company's market value drops after an environmental violation at a rate that

is proportional to the severity of the company's legal penalty. These two analyses, when used
together, provide a defence against the idea that investors anticipate only short-term financial

losses from environmentally dubious company behaviour and no long-term cost

recommendations associated to strengths in with/ecological management.

According to Waddock and Graves (1997), a sense of social duty is strongly linked to

both present and future monetary execution, with a more solid relationship to the former. Despite

the fact that the philosophy they use to depict this is flimsy, benefit is an impulse for social

responsibility following this sensible circle, regions of strength for happen developed competent

workouts, which thus generates better benefits. Although CSR and corporate financial

performance (CFP) are often measured at annual stretches, this does not imply that they occur at

yearly stretches, as Granger (1969) argues that putting financial performance before social

performance necessitates separate occasions. Because of the overlap in time, it's hard to tell

which factor initiated the decline in social and economic capital over the course of many years.

Similarly, Surroca et al. (2010) endorse the cautious circle hypothesis, but highlight the difficulty

in establishing a causal relationship between friendly duty and advantages due to the presence of

unobserved factors.

Executives generate a competitive advantage and greater rewards by fostering theoretical

resources such as research and development, the board's and employees' competence, a

hierarchical corporate culture, and the company's socially capable reputation. The authors point

out that it is difficult to accurately estimate such intangible characteristics, so they are typically

left out of precise models. However, if a variable addressing CSR is remembered for the model,

it may act as a proxy for the disregarded credits, leading to an exaggeration of the significance of

social responsibility. The authors use instrumental variables to disentangle the relationship, with
the conclusion that friendly duty and financial performance are not directly related but are

instead linked via intangible assets.

Given that, in a market economy, monetary impetuses are likely to be the main predictor

of organisation conduct, financial execution must be integrated as a possible determinant of 49

CSR. Companies with higher energy consumption and a greater reliance on client altruism are

likely to be more motivated to be socially responsible, but the impact of CSR on productivity

nonetheless plays out differently depending on the characteristics of a firm, such as the

assumption that CSR prompts energy efficiency and more generosity from customers. Therefore,

the suppliers, customers, and functional systems of a company all have a substantial influence on

the amount of community service a business is able to provide, and this may be represented as an

industry impact.

According to several authors businesses in the financial and administrative sectors reveal

more information about their social and local activities than those in the extractive sector (which

includes mining, oil, and synthetic substances). The next parts will discuss the unique

characteristics of the sector and how they relate to social responsibility. Useem (1988)

discovered that businesses that dealt directly with consumers, such as retail, security, and

banking, donated more money to non-profits than businesses that dealt with other businesses.

Consumers make purchases for a variety of reasons, including moral considerations, while

business purchasing managers must justify their decisions to colleagues, which often leads to a

greater focus on price and less consideration of social concerns.

Mature companies provide things that have been available for quite a long, there are not

many late specialised innovations, the items will generally be standardised and customers are

competent about the thing they are getting. As a result, price competition is fierce, prompting
some companies to join forces in order to lock in economies of scale while others try to split the

market by selling several versions of the same product. By providing a means for businesses to

set themselves apart from the competition, Fombrun and Stanley (1990) argue that involvement

in a mature sector serves as a spur to social responsibility. The kind of industry also affects the

degree of data disparity between customers and businesses.

Nelson (1974) categorised products into "search," "insight," and "belief," depending on

the level of information consumers have about the quality and character of the goods they are

considering purchasing. Even after using the service, the customer has no clue how much the

insurance product they purchased is really worth. This is especially true for health and financial

services. Social duty, as Siegel and Vitaliano (2007) suggest, may serve as a go-between for

establishing the reliability and validity of information. They discover that CSR is more prevalent

among businesses that market confidence items and powerful experience products, such as

financial administrations and 50 automobiles. This shows that CSO is most beneficial for

organisations that rely on customer trust.

Despite popular belief, research indicates that CSR has a little effect on stock returns. It

has been shown that CSR influences stock returns under certain conditions, according to the

literature. This research synthesizes many perspectives on how CSR affects stock prices. The

suggested CSR efficiency hypothesis is based on the premise that the impact of CSR on stock

prices changes with business value. The data suggests that only the most valuable companies can

complete their CSR to the satisfaction of their stakeholders, maintain their business as usual, and

see a considerable rise in their stock price. That is, our findings are consistent with the social

impact hypothesis under situations of high commercial value. Investing in CSR won't help

companies with a lower market value raise their worth or stock returns, but it will increase their
expenses and reduce their profitability. That is, when the firm's worth is low, our findings

corroborate the trade-off theory. Whether a company's market cap is $5 million or $5 billion,

choosing and executing the right techniques to enact social responsibility is critical to attaining

increased stock returns through the development and consolidation of a sustainable business

model. However, when company value is high, investing in CSR is more successful in improving

societal welfare and producing good stock returns. If they want to satisfy investors and maximize

stock returns, they should stick to what they do best. Therefore, the government should provide

subsidies to incentivize CSR activity by businesses with low corporate value.

Gap in the Research and the Conceptual Framework

The Research is lacking is some of the factors that includes, that the data collected is

according to the performance of the stock and its effects on the CSR. However, this is the only

variable which is going to be studied in this research in spite other factors can also be taken into

accordance for example the financial indicators, the environmental impact and the other

monetary variables. Also, only FTSE 350 companies located in the UK is selected however other

companies or other sectors can also be the part of this study which is lacking. The entire research

have only talked about the stock performance. The research is conducted in order to find out the

effects of the CSR on the performance of the stocks for the FTSE 350 listed companies located

in the UK. The study is going to find out the relationship between the independent variable

which is the market value that is the stock prices over there movements with the Earning per

share. And the dependent variables is measured via the activities of the CSR.