Abstract
As discussed in Chap. 2, awareness and practices of corporate social responsibility (CSR) have significantly changed since the 2000s by globalization of business and stock ownership structure. Owing to the prolonged economic stagnancy since the beginning of 1990s, revitalization of the Japanese economy became the top agenda for government policy, and the economic responsibility of corporations was interpreted as their primary responsibility. Since the beginning of the 2000s, Japanese corporations seem to have begun to review CSR activities to find a new path to stakeholder relationships in revitalization of business. Interesting research questions are how CSR activities link to economic performance and risk management, and how stakeholder management contribute to performance and risk in the context of Japanese firms in the 2000s.
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Notes
- 1.
The earliest data from the CSR database are from 2006 but the form of the questionnaire was significantly revised in 2007. Toyo Keizai Incorporated sent the questionnaire to the firms at the beginning of July and retrieved responses by the end of September.
- 2.
Although Toyo Keizai publishes its own CSR scores, they are not classified by stakeholder relationships in a theoretical perspective.
- 3.
Fama and French (1992) show that standard CAPMs cannot explain cross-sectional variation in returns for US stocks. This trend is supported by Japanese data in Jagannathan et al.’s (1998) report that standard CAPM poorly estimates cross-sectional variation in stock returns and that conventional beta is sometimes negatively related to excess return on Japanese stocks. Therefore, we do not use standard CAPM as a benchmark pricing model in this study.
- 4.
To compute ROS, ROE, ROA, and CFOTA, we use data from firms’ financial statements. To compute GSLS and GTA, we use data from the past 6 years, because an additional year is necessary to compute growth rates. To compute HRET and Alpha, we use stock returns from the 60-month range between October of year t − 5 and September of year t. We use this range because firms sent their questionnaires back to Toyo Keizai Incorporated at the end of September.
- 5.
Toyo Keizai has conducted annual surveys on CSR since 2005 but the 2005 and 2006 surveys are excluded from our CSP data because the questionnaire changed significantly thereafter.
- 6.
We use the definition of sectors proposed and used in Kubota and Takehara (2007).
- 7.
We conduct the Wu-Hausman’s test for endogeneity and Sargan’s over-identification test before the two-stage least-squares analysis. The results of these tests are available upon request. In most cases, the null hypothesis in the Wu-Hausman’s test is not rejected.
- 8.
The sector definitions are the same as in Table 4.1.
- 9.
Because we use short panel data in this research, we employ a regression model with sector dummy and year dummy variables instead of a two-way fixed effects model to avoid a large decrease in the degree of freedom.
- 10.
We first run an ordinary least square regression and consider observations with standardized residuals greater than 3.0 or smaller than −3.0 to be outliers. In the subsequent two-stage least square analysis, we exclude these firm-year observations in the panel data.
- 11.
Standard errors are corrected by the two-way cluster error correction method proposed by Petersen (2009).
- 12.
Suto and Takehara (2016) further estimate the CSP of non-respondents under certain assumptions of CSP-CFP relations and confirm that the CSP of non-respondents could be much lower than that of respondents.
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Appendices
Appendix 1: Adopted Questions from CSR Survey of Toyo Keizai CSR Database
Evaluation point | Weights | |
|---|---|---|
Employee relations (EMP) | 39.200 | |
1 | Ratio of female employees to total employees | −0.199 |
2 | Ratio of female managers to total managers | −0.161 |
3 | Ratio of handicapped employees to total employees | −0.281 |
4 | Ratio of old employees (60 years old and over) to total employees | −0.308 |
5 | Average years of continuous employment | −0.127 |
6 | Labor turnover rate | −0.347 |
7 | Average salary for a 30-year-old | −0.319 |
8 | Overtime hours | −0.326 |
9 | Overtime wage per hour | −0.311 |
10 | Rate of paid holidays taken | −0.295 |
11 | Frequency rates of industrial injuries | −0.262 |
12 | Flexible work arrangement (flexi-time, short working hours, on-site child care, etc.) | −0.284 |
13 | Incentive program (internal venture, bonus plan, education program, etc.) | −0.288 |
Environment preservation (ENV) | 49.281 | |
1 | Environmental planning department, director in charge of environmental affairs, etc. | −0.506 |
2 | Environmental accounting, disclosure, and auditiing. | −0.605 |
3 | Ratio of environment-related business to total revenue | −0.290 |
4 | Promotion of procurement of eco-friendly goods and services | −0.481 |
5 | Ecolabelling (ISO14020 series, etc.) | −0.244 |
6 | Environment-related compliance (environmental disasters, law violation, etc.) | −0.053 |
Social contribution (SC) | ||
1 | Comprehensive evaluation (CSR department, director in charge, CSR document, etc.) | −0.385 |
2 | Corporate ethics (guidelines, business ethics document, etc.) | −0.319 |
3 | Department of social actions | −0.792 |
4 | Social expenditure per employee | −0.340 |
5 | Matching gift and volunteer grant programs | 0.083 |
Security of the firm and product safety (SS) | 76.388 | |
1 | Specialty divisions on investor relations, consumer affairs, cooperation with NPO | −0.244 |
2 | Whisle-blower policy | −0.669 |
3 | Specialty department for managing quality and safety of products and services | −0.645 |
4 | Ratio of domestic business offices with ISO9000 certification | −0.217 |
5 | Ratio of foreign business offices with ISO9000 certification | −0.174 |
Internal governance and risk management (IG) | 83.056 | |
1 | Comprehensive evaluation (whisle-blower protection, CSR manual, complaint DB, etc.) | −0.214 |
2 | Existence/non-existence of compliance department | −0.547 |
3 | Existence/non-existence of CIO | −0.528 |
4 | Existence/non-existence of CFO | −0.546 |
5 | Information systems (security policy, internal/external auditiing, etc.) | −0.218 |
6 | Comprehensive evaluation (fair trade, compliance, closed down in the past 3 years, etc.) | −0.174 |
Appendix 2: Definition of Profitability/Risk Measures
Variable name | Firms’ profitability measures and their definitions | Data Period | |
|---|---|---|---|
ROS | Return on sales | =(Net Income t )/(Sales t ) | Past 5-year average |
ROE | Return on equity | =(Net Income t )/(Book Valuet-1) | Past 5-year average |
ROA | Return on assets | =(Net Income t )/(Total Assett-1) | Past 5-year average |
CFOTA | Cash flows to total assets | =(Cash-flows from Operations t )/(Total Assett-1) | Past 5-year average |
GSLS | Growth rate of sales | =(Sales t )/(Salest-1)-1 | Past 5-year average |
GTA | Growth rate of total assets | =(Total Asset t )/(Total Assett-1)-1 | Past 5-year average |
HRET | Historical stock return | Historical average of realized monthly returns | Past 60 months’ data |
Alpha | Jensen’s alpha | Computed based on Fama and French (1993) | Past 60 months’ data |
Variable Name | Firms’ risk measures and their definition | ||
ROSSD | Past 5-year standard deviation of return on sales (ROS) | ||
ROESD | Past 5-year standard deviation of return on equity (ROE) | ||
ROASD | Past 5-year standard deviation of return on assets (ROA) | ||
CFOSD | Past 5-year standard deviation of cash flows to total assets (CFOTA) | ||
GSLSSD | Past 5-year standard deviation of growth rate of sales (GSLS) | ||
GTASD | Past 5-year standard deviation of growth rate of total assets (GTA) | ||
HVOL | Past 60 months’ historical volatility | ||
Omega | Residual volatility (standard deviation of residual term) computed based on Fama and French’s three-factor model | ||
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Suto, M., Takehara, H. (2018). Corporate Social Performance and Corporate Financial Performance. In: Corporate Social Responsibility and Corporate Finance in Japan. Advances in Japanese Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-8986-2_4
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