The link between corporate social performance and financial performance: empirical evidence from Japanese firms

Since the globalisation of business and stock ownership in the 2000s, Japanese firms' relationships with shareholders and the policies related to corporate social responsibility (CSR) have significantly changed. This study adopts a stakeholder relationship approach to examining these changes and investigates the channels that link corporate social performance (CSP) and corporate financial performance (CFP) in the Japanese context. We found that the composite measure of CSP and a large part of dimensional CSP are significantly negatively related to all risk measures employed in this study. With respect to dimensional CSP, it is remarkable that environment and social contribution showed a strong negative relationship with market-based risk measures. However, the effects of CSP on profitability are mixed, and only the employee relationship is positively associated with profitability measures. These findings suggest that risk reduction through CSR activities holds more significance in creating long-term value for Japanese firms.