Communication about corporate social responsibility practices and return on equity

Abstract

We have analysed the importance of companies’ corporate social responsibility (CSR) and how the relationship between CSR and financial performance has been scientifically studied. It is clear that the literature offers contradictory results. This debate is particularly relevant in the hotel sector due to the intense relationship and dependency this industry has on its environmental setting.

This paper has shown a neutral relationship between the CSR and return on equity (ROE), which means introducing CSR measures stop short of having a negative effect on shareholders’ profits. Therefore, based on the results of this study, we encourage the hotel sector to introduce CSR practices into its strategy, as CSR produces new competitive advantages that have neutral effects on financial performance. The conclusions were not different once we distinguished between family or non family firms.

One of the most common excuses business owners and executives use to justify having no CSR policies is that they cannot afford to spend money on these activities, as they will affect their companies’ profitability. This study has demonstrated that CSR has a neutral relationship with ROE, and, consequently, other benefits (e.g. reputation and competitiveness) will arise from applying those practices, without weakening ROE.