Social Responsibility and Financial Performance: The Case of STOXX Europe Index

The main objective of this study is to analyze whether companies that pursue corporate social responsibility (CSR)-based policies have a higher level of financial performance compared to those that do not. Additionally, we study the effect of the last financial crisis on the relationship between CSR and financial performance in order to figure out whether or not companies sharing these environmental and social concerns had higher financial performance than their peers. To do so, three empirical models are designed, combining both traditional accounting measures (return on equity and return on assets) and a measure sensible to market values (Tobin's Q) to assess the financial performance. A sample of 266 listed companies, from 15 European countries and 14 industries, listed on the STOXX Europe 600, is analyzed. Results suggest that companies pursuing CSR policies financially outperform their peers, and these results are supported even during the financial crisis period. This study highlights the idea that companies pursuing CSR policies put a considerable effort on building a stronger corporate reputation which in turn generates short- and long-term benefits, leaving behind the idea of the traditional companies that focused only on financial performance.