Corporate Social Performance and Financial Performance: Sample-Selection Issues

The vast majority of extant empirical research examining the relationship between corporate social performance (CSP) and financial performance (FP) selects samples of only those firms which are observed engaging in CSP. In this study, the authors assert that firms' efforts to pursue CSP and subsequently their appearance in social-choice investment advisory (SIA) firms' ranking databases are non-random. Studying the CSP-FP link using selected samples of only those firms whose social performance is ranked by SIA firms introduces a sample-selection bias which limits generalization of results to a population of all firms, and at worst provides alternate explanations for observed relationships. The authors test these assertions on a large sample of public corporations in the United States over 6 years and find a sample-selection bias. Upon correction of this bias, this study confirms the positive impact of CSP on FP.