Imperfect information and the reputational proximity spillovers issue in the product-related CSR–CFP relationship: A study of 125 major listed European companies from 2010 to 2018

In the corporate social responsibility (CSR)-corporate financial performance (CFP) relationship, the stakeholder dimension coupled with the intangible nature of CSR generates an imperfect information environment with manipulation and misperception risks. In this context, reputation enters the relationship as a signal to fill the informational gap and reduce uncertainty. However, there are multiple reputation sources, including firm, product, industry, and country-of-origin (C-O-O) sources, with strong interdependence and therefore spillover effects. This study introduces the hypothesis of the reputational proximity spillover effect across industries and countries of origin in the empirical CSR-CFP relationship. Using a social distance weight matrix for assessing proximity, reputational spillovers are estimated with a dynamic system GMM on a panel of 125 major listed European corporations operating in four sectors, namely construction, consumer goods, energy, and engineering, is observed from 2010 to 2018. Focusing on product-related CSR, spillover contamination effects are very robustly demonstrated regardless of whether return on assets (ROA) or return on equity (ROE) is used for estimating financial performance.