The impact of corporate social responsibility scandals on company`s financial performance

Abstract

Corporate social responsibility (CSR) has quickly grown to be a phenomenon among the companies. The rapid growth can be seen in awareness of responsibility among societies companies are operating in, but also in headlines of corporate scandals. Companies are able to utilize corporate social responsibility to improve financial performance. Often poor operation in social performance could lead to corporate scandal, which can affect financial performance negatively.

The relationship between corporate social responsibility and corporate financial performance has been frequently studied, however the relationship remains uncertain. Especially, concerning the effects of corporate scandals on financial performance. This thesis tries to find the main effects on financial performance after the occurrence of a scandal. Additionally, this thesis tries to discover how companies are able to recover from these scandals. This study utilizes financial performance indicators such as ROA, Current Assets, Earnings per share and Price-to-book ratio to find a solution for the relationship. The empirical study is based on the before mentioned financial metrics for airline companies, while taking one scandal incident as a baseline for comparison.

The financial metrics for the case company was compared against three other airlines operating in the United States of America during the time frame of the scandal. The study findings show contradictory results, as some negative effects were found for the financial performance which are in accordance with the theories, still no significant conclusion or long-term effects for the financial performance can be drawn from the data, without impacting the data reliability.