Labour reputation and financial performance: is there a causal relationship?
| Date | 02 January 2018 |
| DOI | https://doi.org/10.1108/ER-04-2017-0093 |
| Pages | 43-57 |
| Published date | 02 January 2018 |
| Author | María Dolores Odriozola,Antonio Martin,Ladislao Luna |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations,Employment law |
Labour reputation and financial
performance: is there a
causal relationship?
María Dolores Odriozola, Antonio Martin and Ladislao Luna
Business Administration, Universidad de Cantabria, Santander, Spain
Abstract
Purpose –The purpose of this paper is to analyse if there is a circular relationship of causality between the
labour dimension of corporate social performance (CSP) and corporate financial performance (CFP).
Design/methodology/approach –The sample is formed by the best companies to work for in Spain
accordingto the labour reputation (LR) rankingdeveloped by MERCO from 2006 to2013. This study overcomes
the limitationsof previous studies using the paneldata methodology (System generalised method of moments)
and the Granger causality test.
Findings –The results suggest that the labour dimension of CSP cause CFP, but there is not causality in the
opposite direction.
Originality/value –Studies about the relationship between dimensions of CSP and CFP demonstrated that
there are divergences in the results depending on the dimension analysed. Despite managers and employees
are interested in the impact of labour dimension of CSP on CFP, there are few studies about it and they have
important limitations.
Keywords Corporate social performance, Corporate social responsibility, Human resource management,
Corporate financial performance, Labour reputation
Paper type Research paper
1. Introduction
The use of economic resources from companies to achieve social objectives is a growing
trend in society in response to social demands made by their stakeholders. Investment in
corporate social responsibility (CSR) is the preamble to what is known as corporate social
performance (hereafter CSP), which is the configuration of a business organisation with
social responsibility principles and policies, programmes and observable results about
social relations of the company (Wartick and Cochran, 1985). The results of CSP are
assessed by the stakeholders. The reputation of the firm serves as a tool to know how well
the organisation is satisfying the stakeholders’demands and expectations on it (Figure 1).
The inclusion of social demands in business strategy has generated great interest and
controversy in the academic literature. Increasing the economic results of the company is a
priority objective, and higher economic resources are useful to invest and growth. However,
the conditions under the corporate financial performance (CFP) are obtained affect the
sustainability of the company. Stakeholder’s theory argues that, in addition to get benefit, if
companies respond to social demands they legitimise their activity and thus maintain a
sustainable growth over time. For this reason, the line of research in the academic literature
to study the relationship between CSP and CFP has been relevant from the 1970s until
today. Furthermore, the concept of CSP is defined as a multidimensional construct, as it
brings together different social areas (environmental, labour, products, customers, etc.).
Thus, in the academic literature, there are studies on the relationship between the specific
social dimensions of CSP and CFP, and not all dimensions have the same effect on financial
performance. In addition, not all dimensions of CSP have received the same attention,
and there is a big difference in the number of studies related to each dimension.
Labour dimension of CSP has received less attention despite managers and employees are
concerned about the quality of working life (QWL), and it has a critical role in many of
Employee Relations
Vol. 40 No. 1, 2018
pp. 43-57
© Emerald PublishingLimited
0142-5455
DOI 10.1108/ER-04-2017-0093
Received 21 April 2017
Revised 12 September 2017
Accepted 13 September 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0142-5455.htm
43
LR and
financial
performance
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