Financial Rewards for Social Responsibility

Abstract

This study empirically examines the effects of publicly traded U.S. restaurant companies' social responsibility activities on the following two financial performance measures: accounting performance (return on equity) and value performance (total shareholder return). Results show that responsibility activities have a U-shaped effect on accounting performance, whereas they have no impact on a firm's value performance. Those results imply that restaurant companies in the United States may increase their investment in socially responsible activities to improve their accounting performance over the long term. While the study did not investigate communication mechanisms, it may be that restaurant companies should promote their social responsibility activities to consumers (and the financial market) as a means of enhancing the effects of those activities on their value performance.

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