The paradoxical nexus between corporate social responsibility and financial performance in international construction business

Abstract

This study aims to develop and test a paradoxical link between corporate social responsibility (CSR) and corporate financial performance (CFP): CSR may be detrimental to financial performance in the short-term term (e.g. by adopting carbon reduction schemes, or taking account of fair trade) but will be conducive to improving performance in the long term (e.g. by developing reputation, or improving business relationships). Using panel data of international construction companies derived from various sources, the hypothesis is confirmed. The traditional notion that CSR will have an immediate and unchanging impact on CFP is probably flawed. In the international construction business, a short-term, negative effect of CSR on CFP is witnessed, but a positive effective of CSR on CFP can be developed if effectively involved in CSR programme for long. It takes time to materialize CSR in terms of financial performance. This research helps explain the CSR dilemma, whereby business executives’ hesitate to fully engage in CSR for long, given their pressure to effectively maximize profitability for shareholders. The research thus provides support to business executives who should be relieved from short-termism when devising proper CSR strategies in international business.