The impact of corporate social responsibility on financial performance: Evidence from business in Taiwan

Several research studies have examined corporate social responsibility (CSR) and its effects on business performance, but their results vary widely. This may stem from flawed analyses by regressing financial performance on corporate social performance, and/or perhaps from several inadequately controlled variables. Previous studies did not recognize investment in research and development as a critical variable because there is considerable empirical evidence to indicate that it has a strong positive impact on profitability. This misidentification creates biased estimates of the financial impact of CSR.Between 2002 and 2004, we examined 1000 Taiwanese cases in which firms include their R&D expenditures as one of their business strategies for sustainable development; they also identify their charitable expenditures as contributions to CSR. Based on theoretical assertions and empirical evidence in the literature, we identified a positive relationship between CSR and financial performance. When the model is properly specified, we found that while CSR does not have much positive impact on short-term financial performance, it does offer a remarkable long-term fiscal advantage.