Customers Increase Financial Performance of Socially Responsible Firms

Abstract

Previous survey research has documented that consumers place value on socially responsible firms. This support includes the intention to be more loyal to these firms and also the willingness to pay higher prices for their products. Our study connects the customer intentions documented in survey research with actual measures of financial performance from published financial statements. The study uses gross profits scaled by total assets as a proxy for customers’ willingness to pay higher prices and sales increases as a proxy for loyalty. Additionally, the study examines differences in the aforementioned measures between customers in the business-to-business (B2B) and business-to-consumer (B2C) segments. These differences have been documented in studies that suggest customers in these segments value different characteristics of suppliers when making their purchases. Finally, customers must be made aware of a firm’s sustainability practices; therefore, the study looks at three different approaches firms use to communicate the quality of their sustainability practices. These approaches include external assurance of the social responsibility report, the auditor’s review of the firm’s internal controls, and the firm’s advertising intensity. Data used in this study includes financial performance measures of North American firms and corporate social responsibility data from disclosures collected by the Global Reporting Initiative. Using ordinary least squares, the results suggest that customers require some sort of assurance of a company’s socially responsible disclosures when making decisions about whether to support the company.