The impact of corporate social performance on financial performance : focus on the high tech manufacturing sector

Addressing a global key sector area – the high technology manufacturing sector, we examine if there is truly a benefit of corporate social responsibility on the bottom line of organizations within this sector and if stakeholders should devote more attention to this strategic topic. We posit that the innovative nature of the sector adds a sub-plot and possibly exaggerates the effect of corporate social performance on financial performance (CFP). We assess the potential effects of corporate social responsibility (CSR) with specific focus on employee and community aspects of CSR on financial performance. This effect is examined with focus on the high technology manufacturing sector which broadly includes the semiconductor, healthcare and aerospace & defense manufacturing industries. The sample consists of 405 companies operating within this sector. The social disclosure score, a constituent of the environmental, social and governance disclosure score calculated by Bloomberg Professional Services is used as a proxy for corporate social performance (CSP). An hierarchical multiple linear regression was applied to investigate possible association of CSP on firm financial performance measured by Return-on-Equity (ROE). Our results are indicative, after accounting for the influence of the control variables, the social disclosure scores account for 1.5% of the total variability in the Return on Equity (ROE). Considering company financial performance measured by ROE in our case, is a highly complex phenomenon that cannot be characterised by one single criterion, an additional variability of 1.5% on ROE by the social disclosure score indicates that it has a relatively significant impact on corporate financial performance. The significance of the value perhaps leaves room for interpretation and the degree to which financial performance is affected by social disclosure is debatable, however, it is nevertheless a positive relationship. The research is based on a specific area – the high technology (high-tech) manufacturing sector with data for a selected period (years 2011-2014) taken and particular focus on the social aspect (comprising employee and community), additionally the standard errors and inferences obtained from analysis of the data may indicate false positives, therefore results should not be generalised without consideration for these factors. This study by assessing the added value of the social dimension of CSP, offers guidance to stakeholders, both internal and external on how actions in the CSR realm may potentially affect company performance within this sector. It also provides direction on the impact improved disclosure can have on the company performance.