Department of Banking and Insurance

MBA (Evening) program

Faculty of Business Studies
University of Dhaka

A Report

On

“Measuring and accessing the casual relationship between corporate financial performance
and corporate social responsibility’’

Course Title: Management Fundamentals

Course Code: FB-504

Submitted To:
Md. Khaled Bin Amir
Assistant Professor
Department of Banking and Insurance
Faculty of Business Studies
University of Dhaka

Submitted By:
Md. Mizanur Rahman
ID: 52044065
Batch: 44

Date of Submission: 13.05.2023

Introduction:
The relationship between corporate social responsibility (CSR) and financial performance has
been studied in different ways that CSR and financial performance are positively connected.
Corporate social responsibility is important and fundamental to the sustainable operations of
corporations. Similarly financial performance is undoubtedly fundamental to the continuing
operating of any corporation. The role of business in the society has been discussed and debated
over heavily for decades and the overwhelming consensus leans towards companies not only
earning profit but adding value to the community, or at least taking care that its activities do not
negatively affect the surrounding community. For that purpose, many companies have begun to
report different between corporate social responsibility (CSR) activities to show their interest and
investments into social welfare. Also companies are interested to better monitor and measure
their social responsibility activities. These investments in social welfare have also raised the
question whether between corporate social responsibility (CSR) activities may lead to better
financial benefits or is it only a cost item. Therefore, the aim of this paper is to study if, and what
kind of Measuring and accessing Relationship impact corporate social responsibility (CSR) has
on financial performance

The relationship between corporate social responsibility and financial performance is reexamined
using a new methodology, improved technique, and industry-specific control groups. Average
age of corporate assets is found to be highly correlated with social responsibility ranking. After
controlling for this factor, there still is some correlation between corporate social responsibility
and financial performance
Financial performance of the company financial performance exists at different levels of the
organizations. Traditionally, financial performance measures are split into the following
categories.
 Profitability
 Liquidity/Working capital
 Activity Analysis Ratios
 Capital Market Analysis Ratios
Measuring the casual Relationship Between corporate social responsibility (CSR) has Impact on
financial performance:

There are a wide variety of different ways to measure the connection between corporate social
responsibility and financial performance. The scales measuring CSR performance of individuals
focus on different interest groups however its limitation is the difficulty to provide scale
measurement for CSR performance. The three most commonly used financial performance
measures are;

a) Accounting based measures

b) Market based measures
c) Combination of accounting and market based measures

Accounting based measures:

The accounting based measures are often return on equity (ROE) and Return on Assets (ROA)
applied other accounting measures such as Return on sales (ROS), Return on investment (ROI)
and Profit margin.

Market based measures:

Market based measures are market return, price to earnings ratio, and market value to book value
used stock market performance as the Relationship Between Corporate Social Responsibility.

Combination of accounting and market based measures:

The combination of accounting and market based measures and concluded that the use of the
combination method may predict the relationship better and result the positive association between
CSR and financial performance.
Corporate social responsibility and access to finance:
It is generally assumed that common stock investors are exclusively interested in earning the
highest level of future cash-flow for a given amount of risk. This view suggests that investors
select a well-diversified portfolio of securities to achieve this goal. Accordingly, it is often
assumed that investors are unwilling to pay a premium for corporate behavior which can be
described as “socially-responsible”. We investigate whether superior performance on corporate
social responsibility (CSR) strategies leads to better access to finance can be attributed to;
I. Reduced agency costs due to enhanced stakeholder engagement

II. Reduced informational asymmetry due to increased transparency

We provide evidence that both better stakeholder engagement and transparency around CSR
performance are important in reducing capital constraints. The results are further confirmed
using several alternative measures of capital constraints, a paired analysis based on a ratings
shock to CSR performance.

Conclusion:
In this area has provided little guidance to how we should measure the financial impacts of their
corporate social responsibility (CSP) strategies. Commonly used market measures, such as share
price, or accounting measures, such as return on equity, are impacted by a host of other variables.
These metrics do not provide the necessary level to establish which is an optimal level of
corporate social responsibility (CSP) investment for their company.