The paper highlighted today from Jahidur Md Rahman and Fang Yu, both from the Wenzhou-Kean University, claims to be a first.
Research elsewhere in the world has produced mixed results on whether or not an attention to Corporate Social Responsibility (CSR) results in higher profits, or not; but in this study of A-share listed Chinese companies from 2011~2017 the results are unequivocal. Better CSR = higher net income.
A few caveats from me. The researchers went looking for a direct link between CSR and net income, and found one. I suspect the link may not be as clear as they’d like to believe.
My second concern is time frame of observation. CSR awareness improved over the study period but so did a whole host of other governance practices as the China market generally ‘grew-up’.
Finally, the researchers come close to concluding, based on their observation, that more CSR will produce more net income and that’s, intuitively, a difficult reach, for me at least.
Whatever, there’s no doubt that better governance, whether it’s based on CSR or ESG criterion results in better firms who, by their very nature, tend to be more profitable. However, this observation could equally be condensed as follows; ‘seek good companies, shun bad ones’.
That’s something conscientious investors have been doing for years anyhow; and, I’d argue more effectively, without putting narrow, prescriptive, faddish, or ultimately game-able criteria into the mix.
You can access the paper in full via the following link Relationship Between CSR and Performance.
Happy Sunday.