Abstract
The concept of Corporate Social Responsibility has become more popular in recent years. Lots of companies begin to engage in activities of social responsibility and hope the positive image built upon the activities can bring corresponding profits. Previous studies that assess the relationship between Corporate Social Responsibility and Corporate Financial Performance show that the relationship between these two variables varies depending on firms’ location, type and size. This study uses the Granger Causality Test to clarify the causal relationship between Corporate Social Responsibility and Corporate Financial Performance for companies in Taiwan. Based on a sample of 72 Taiwanese firms, their CSR ranking provided by Common Wealth magazine from 2007 to 2014 and related measures of Corporate Financial Performance, the Granger Causality test shows a significant positive impact of Return on Asset and Return on Equity, that are accounting-based measures, on Corporate Social Responsibility. That is, a well performance on accounting-based measures of Corporate Financial Performance would precede their socially responsible investments. However, Corporate Social Responsibility has a significant positive impact on market return which is a market-based measure of Corporate Financial Performance. This means that investors may expect that firms will attain a good reputation from investing social responsibility activities. These results imply that the government should supervise firms to invest in social responsibilities. Besides, it should advocate the importance of social responsibility to consumers and let them form a pressure on firms of engaging in socially responsible activities more aggressively.