We find that long-term investors do increase the value to shareholders of CSR activities, not through higher cash flow but rather through lower cash flow risk. … Our findings suggest that CSR activities can create shareholder value as long as managers are properly monitored by long-term investors.
In this framework, CSR activities create shareholder value if they increase future cash flows (profits) or reduce the risk of those cash flows. In today’s environment, many CSR activities can directly improve financial performance by reducing costs, increasing revenues or reducing risks.
They have the potential to increase long-term company valuation and shareholder value. Based on empirical evidence, high CSR performance increases customer loyalty, boosts employee productivity and lowers financing costs, all of which contribute to the economic value of innovation and shareholder wealth.
Still lots of work can be done in this area. It is very clear from Figure 6 why CSR matters so much for the shareholders. A good CSR image or practices helps the organizations in building good brand reputation, helps in motivating employees, in making better market position, and also helps in minimizing risk.
Shareholder value is the value delivered to the equity owners of a corporation due to management’s ability to increase sales, earnings, and free cash flow, which leads to an increase in dividends and capital gains for the shareholders.
How do CSR attract investors?
CSR shows a sign of accountability to investors.
Businesses that are socially responsible can also appear more attractive to investors. In my experience, investors in a business have one common goal: to have greater returns than invested funds.
The main responsibilities of business towards shareholders are: … To provide a fair and adequate return on shareholders’ investment. To provide correct and regular information of financial and other transactions. To maximize the value of capital investment through optimum utilization of resources.
The potential benefits of CSR to companies include:
- better brand recognition.
- positive business reputation.
- increased sales and customer loyalty.
- operational costs savings.
- better financial performance.
- greater ability to attract talent and retain staff.
- organisational growth.
- easier access to capital.
The ultimate purpose of CSR is to maximize shared value among organizations, employees, customers, shareholders, and community members. While the precise value looks different for each of these stakeholders, the mutually beneficial nature of CSR initiatives can still be sustained.
What Is Corporate Citizenship? Corporate citizenship involves the social responsibility of businesses and the extent to which they meet legal, ethical, and economic responsibilities, as established by shareholders.
How is CSR bad?
The main disadvantage of CSR is that its costs fall disproportionally on small businesses. Major corporations can afford to allocate a budget to CSR reporting, but this is not always open to smaller businesses with between 10 and 200 employees.
The study concludes that corporate social responsibility significantly affects the firm’s financial performance by developing a positive image among the stakeholders and decreasing overall costs. This study will help management of organizations to realize the importance of corporate social responsibility.