The effects of corporate social responsibility on profitability: The moderating roles of differentiation and outside investment

The purpose of this paper is to determine the effects of corporate social responsibility (CSR) on financial performance in firms in the Korean manufacturing industry. In addition, the authors examine the moderating role of differentiation and outside investment in the same relationship.

The mixed methods are used in this study. The authors first take an analytical modeling approach, in which the authors assume that CSR has a positive effect on consumer perceptions, which in turn can improve firm performance. Subsequently, the authors verify the propositions with data from the Korean manufacturing industry. Additionally, the authors explore the moderating roles of various factors in the CSR-financial performance relationship.

The results of the analysis demonstrate that the positive relationship between CSR and financial performance depends on the levels of product differentiation and outside investment. Specifically, these contingent variables magnify the effects of CSR on financial performance.

This study is particularly useful to supply chain managers. According to the results, CSR may provide benefits for both manufacturers and retailers. As brand reputations can be source for competitive advantage, the analytical model suggests that products made by socially responsible firms are attractive to consumers.

To the authors’ knowledge, there are few studies that examine the multiple moderating effects of differentiation and outside investment on the relationship between CSR and financial performance (return on assets). The authors thus provide a clearer understanding of the effects of CSR activity on firm profitability using these business strategies.