The Paradoxical Link between Corporate Social Responsibility and Financial Performance: Evidence from International Construction Business

Department: Real Estate and Construction
Research Centre: Ronald Coase Centre for Property Rights Research
Active Dates: November 2012 - April 2016

Principal Investigator: Wilson W.S. LU
Funding body: GRF

Abstract

Corporate social responsibility (CSR) has gradually become the Quadruple Bottom Line in business. To provide the legitimacy of CSR, researchers have endeavored to find a link between CSR and corporate financial performance (CFP). This study offers and tests a “paradoxical link” between CSR and CFP—CSR may be detrimental to financial performance in the short term (e.g. by reducing carbon emission, or taking account of fair trade) but will be conducive to improving performance in the long term (e.g. by developing reputation, or improving business relationships). Drawing on CSR theories, this study will develop an empirically plausible model to reflect the paradoxical CSR-CFP link. A large set of longitudinal panel data of international construction companies (ICCs) will be derived from various sources including Engineering-News Record, Fortune, and annual reports of ICCs along with their CSR disclosures. Cross-sectional regression and lagged analyses will be conducted to test the hypothesis. The research project will have profound academic and practical values. Academically, the research may provide fresh answers to the moot question regarding the CSR-CFP link. Practically, it will help explain some CSR dilemmas, such as executives’ hesitation to fully engage in CSR despite the rhetorical exhortations of its benefits.

Objectives

  1. To model the paradoxical link between Corporate Social Responsibility (CSR) and Corporate Financial Performance (CFP);
  2. To empirically test the CSR-CFP model by putting it into the rich context of international construction business;
  3. To identify a set of business cases that can help interpret the CSR-CFP link by using international construction companies (ICCs) as case studies.

Results

  1. Explore the key trends in CSR reporting by top international construction companies, with a view to examining its convergence to reporting guidance such as the Global Reporting Initiative (GRI);
  2. Empirically test the revert U relationship between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP);
  3. Empirically test the paradoxically relationship between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP).

Outputs
Selected peer-reviewed journal papers

  • Wang, H., Lu, W.S., Ye, M., and Chau, K.W. (2016). The curvilinear relationship between corporate social performance and corporate financial performance: evidence from the international construction industry. Journal of Cleaner Production. Under review
  • Xiong, B., Lu, W.S., Skitmore, M., Chau, K.W., and Ye M. (2016). Virtuous nexus between corporate social performance and financial performance: A study of construction enterprises in China. Journal of Cleaner Production. Under review
  • Lu, W.S., Ye, M., Flanagan, R., and Ye, K. (2015). Corporate Social Responsibility Disclosures in International Construction Business: Trends and Prospects. Journal of Construction Engineering and Management, 142(1), 04015053.
  • Lu, W.S., Ye, K., Flanagan, R., and Jewell, C. (2013). Nexus between contracting and construction professional service businesses: Empirical evidence from international market. Journal of Construction Engineering and Management, 140(2), 04013049.
  • Lu, W.S. (2014). Corporate Social Responsibility (CSR) in international construction, pp 198-217. In Liu, J.Y. (ed.) Frontiers and Key Trends in Construction Management Research. China City Press: Beijing (in Chinese)
  • Lu, W.S., Chau, K. W., Wang, H., and Pan, W. (2014). A decade’s debate on the nexus between corporate social and corporate financial performance: a critical review of empirical studies 2002–2011. Journal of Cleaner Production, 79, 195-206.
  • Lu, W.S. (2014). Reliability of Engineering News-Record international construction data. Construction Management and Economics, 32(10), 968-982.

 

Figure 1: Illustrated Conceptual ModelFigure 2: The graphic presentation of the relationship between CSP and ROAFigure 3: CSR performance indicators disclosed by ICCs (2008-2012)
UNIVERSITY OF HONG KONG
FACULTY OF ARCHITECTURE