Corporate Social Responsibility and Firm Financial Performance: Evidence from America’s Best Corporate Citizens

Abstract

This paper examines the relation between corporate social responsibility (CSR) and firm financial performance—a topic that continues to generate debate among academics and practitioners. We focus on firms included in the 100 Best Corporate Citizens (BCC) rankings from 2009 to 2022, a list that highlights companies recognized for CSR transparency and performance. Using panel data regression analyses and matched sample comparison, we examine whether BCC firms outperform their peers. Our findings show that, relative to matched firms not included in the rankings, BCC firms demonstrate significantly stronger future operating performance. Among BCC firms, CSR rankings are positively associated with future operating performance, although this positive relation has diminished in more recent years. Furthermore, we find no significant association between operating performance and most individual CSR component rankings except for employee relations. Finally, our evidence indicates that more socially responsible firms engage in less tax avoidance and pay higher audit fees, suggesting that CSR-oriented firms exhibit stronger ethical considerations across a broad range of corporate activities. This study contributes to the CSR literature by providing updated empirical evidence and practical insights for stakeholders evaluating corporate behavior and outcomes through the BCC rankings.

1. Introduction

Corporate social responsibility (CSR) is commonly understood as a business approach that integrates social, environmental, and ethical considerations into company operations and stakeholder interactions. Over the past decade, CSR has garnered increasing attention from investors, policymakers, and academics. In 2019, approximately 90% of companies listed on the S&P 500 published a CSR report, up from just 20% in 2011 (Stobierski, 2021). As of early 2024, the U.S. sustainable investment market is valued at approximately USD 6.5 trillion, accounting for around 12% of all U.S. assets under professional management (US SIF Foundation, 2024).

Despite the growing recognition of CSR as a key component of corporate strategy, its financial implications remain the subject of considerable debate. The objective of this study is to empirically examine whether firms recognized for strong CSR practices demonstrate superior future financial performance. By doing so, our study contributes to the ongoing discussion on whether CSR enhances firm value or impairs firm value.

We draw on contrasting theoretical perspectives to examine the relationship between corporate social responsibility (CSR) and firm performance. Proponents argue that CSR can enhance financial outcomes by fostering stakeholder engagement and loyalty, improving operational efficiency, and reducing compliance-related costs. In contrast, critics contend that CSR may divert managerial attention and firm resources (e.g., Jensen & Meckling, 1976), enabling managers to pursue personal objectives at the expense of shareholder value (Bénabou & Tirole, 2010; Krüger, 2015). Empirical evidence on this relation remains mixed. For example, Lins et al. (2017) find that firms with high CSR engagement outperformed their peers during the 2008–2009 financial crisis. Conversely, Chen et al. (2018) show that firms subject to China’s 2008 mandatory CSR disclosure requirement experienced a subsequent decline in profitability. These competing theoretical perspectives, combined with inconclusive empirical findings, underscore the need for further research into the CSR–firm performance relation.

We measure CSR engagement by a firm’s inclusion and ranking in the 100 Best Corporate Citizens (BCC) list. The list is well regarded, publicly accessible, and based on transparent evaluation criteria, making it a credible source for assessing CSR engagement. By focusing on BCC-listed firms, our analysis provides updated insights and practical implications for stakeholders who use these rankings to guide their decision-making. The BCC list annually recognizes exceptional environmental, social, and governance (ESG) transparency and performance among the 1000 largest publicly traded U.S. companies. To evaluate firm financial outcomes over both the short and relatively long term, we measure financial performance using one-year-ahead and three-year-ahead operating income.

We empirically examine the relation between CSR and financial performance through both between-group comparisons (i.e., BCC-listed vs. non-listed firms) and within-group analyses (i.e., variation in CSR rankings among BCC-listed firms). This dual framework enables us to shed light on both general CSR engagement and the depth of CSR commitment, providing a more nuanced understanding of CSR’s relation with corporate performance.

To deepen our analysis, we investigate whether the relation between CSR rankings and financial performance evolves over time. Understanding this dynamic is important, as the impact of CSR may not be static. The prior literature offers two competing perspectives. One view suggests that CSR investments may become more efficient over time as firms gain implementation experience and as stakeholders increasingly prioritize CSR considerations (Cheng et al., 2014; Davidson et al., 2019). An alternative view argues that as CSR practices become more widespread and expected by stakeholders, their effectiveness as a source of competitive differentiation may diminish, potentially resulting in declining financial returns from CSR initiatives (Barnea & Rubin, 2010; Ferrell et al., 2016).

In addition, we explore the relation between specific CSR component rankings and future financial performance to better understand which dimensions of CSR are most impactful. Prior research suggests that governance-related CSR activities are often more strongly associated with firm performance than environmental or social initiatives, as ideologically driven CSR investments may sometimes undermine profitability (Giuli & Kostovetsky, 2014; Ferrell et al., 2016; Davidson et al., 2019). We focus on individual ESG component rankings, including employee relations, climate change, environment, human rights, governance, and financial factors.

In our final analysis, we investigate whether socially responsible firms also exhibit greater responsibility in other areas—specifically, tax avoidance and accounting quality—to provide insights into the underlying motivations for CSR engagement. If CSR activities are driven by strong ethical values, we would expect these firms to act more responsibly across a range of corporate practices (Kim et al., 2012; Hoi et al., 2013). Conversely, if CSR is primarily employed as a reputation management tool and serves as a substitute for responsible behavior in other domains, it could lead to lower standards elsewhere (Davis et al., 2016).

Our sample comprises 3298 firm-year observations spanning the period from 2009 to 2022. This includes 1125 firm-year observations for firms listed on the BCC and 2173 matched firm-year observations for non-BCC firms selected based on similar size and performance. Among the 1125 BCC firm-year observations, we identify a total of 200 unique firms, indicating that many firms are repeatedly recognized on the BCC list over time. This recurrence suggests a degree of persistence in CSR engagement and disclosure among certain firms.

Our results indicate that BCC firms outperform non-BCC firms by approximately 3.5% in operating income over the subsequent year and by 4.7% in average operating income over the following three years. These findings are both statistically and economically significant. The positive association between BCC inclusion and future operating income supports the view that CSR activities can enhance firm value and yield measurable financial benefits.

Beyond simple inclusion, we also find a significant positive association between CSR rankings and future operating performance among BCC firms. Specifically, moving from the bottom quintile to the top quintile of CSR rankings is associated with a 3.8% increase in one-year-ahead operating income.1 This result suggests that firms with more comprehensive CSR efforts tend to achieve stronger financial outcomes. Overall, the evidence supports the notion that the quality and intensity of CSR initiatives are important drivers of firm performance. This evidence reinforces the view that the quality and intensity of CSR initiatives matter for firm performance.

In addition, we find that the positive association between CSR rankings and future operating performance weakens over time and effectively disappears in the latter half of our sample period. This finding suggests that as CSR initiatives become more common and standardized, the relative financial advantage associated with stronger CSR performance diminishes.

However, when examining individual CSR components, we find no significant association between most component rankings and future operating income. The notable exception is employee relations, which is positively associated with one-year-ahead operating performance. This finding suggests that efforts aimed at improving employee relations may yield more immediate financial benefits compared to other CSR initiatives.

Finally, our results indicate that socially responsible firms engage in less tax avoidance, as reflected by higher cash and GAAP effective tax rates among BCC firms, as well as a positive association between CSR rankings and GAAP effective tax rates. We also find that BCC firms incur higher audit fees compared to non-BCC firms, suggesting that they invest in greater audit effort or expertise to achieve higher-quality financial reporting. Taken together, the evidence supports the view that CSR-oriented firms integrate broader ethical considerations into their operational and financial practices.

Our paper makes contributions to both research and practice. We extend the existing research on the relation between CSR and firm performance by providing new evidence based on the 100 Best Corporate Citizens rankings in recent years. Our finding that future financial performance is positively associated with both BCC inclusion and CSR rankings offers fresh empirical insights into the ongoing debate over whether CSR serves as a value-enhancing strategy or merely reflects a costly expression of managerial preferences.2

In addition, our study adopts a dynamic perspective on CSR’s financial impact by evaluating whether the relation between CSR rankings and firm performance evolves as firms adapt to changing ESG expectations and market conditions. Our findings suggest that the marginal benefits of strong CSR performance have declined over time, potentially due to the increasing standardization of CSR practices and their diminishing value as a source of competitive differentiation. We also seek to identify which aspects of CSR are most influential in driving financial outcomes by analyzing the individual components of the CSR rankings. While we find a positive association between employee relations and firm performance, the lack of significant relations for other CSR components may be due to limitations in disclosure precision or the possibility that their financial impact materializes over a longer horizon not captured in our sample period. These findings underscore the need for further research into the nuanced effects of specific CSR dimensions.

Our study also contributes to the literature examining whether socially responsible corporate activities act as substitutes or complements. Prior research presents mixed findings: Kim et al. (2012) and Hoi et al. (2013) report that socially responsible firms engage in less earnings management and tax avoidance, respectively, whereas Davis et al. (2016) find that such firms pay less tax and are more active in tax lobbying. Our findings that socially responsible firms exhibit higher cash and GAAP effective tax rates and pay higher audit fees suggest that ethical considerations are a core element of CSR and motivate firms to act more responsibly across multiple dimensions of corporate behavior.

Finally, our study offers practical relevance for stakeholders who rely on the 100 Best Corporate Citizens rankings to identify socially responsible firms and evaluate their performance and behavior. While the BCC list is publicly accessible and widely regarded as a valid benchmark for CSR engagement, the financial implications of BCC inclusion and rankings have remained largely unexplored. Our findings indicate that both BCC inclusion and CSR rankings are predictive of future firm performance, providing valuable insights for investors and other stakeholders who incorporate CSR considerations into their decision-making processes. Additionally, our evidence that BCC firms engage in less tax avoidance and pay a premium for audit contributes to a broader understanding of the ethical and transparent practices associated with socially responsible firms.

This paper is structured as follows. Section 2 reviews the relevant literature and develops the research hypotheses. Section 3 describes the sample and outlines the empirical design. Section 4 presents and analyzes the results, while Section 5 provides concluding remarks.

2. Literature Review and Hypothesis Development

2.1. Concept and Measurement of CSR

Corporate social responsibility (CSR) is a multifaceted and evolving concept that encompasses a wide range of practices through which firms aim to generate social and environmental value (Cheng et al., 2014; Aguinis & Glavas, 2019; Aslaksen et al., 2021). Despite its prominence in both academic and business discourse, there is no universally accepted definition of CSR (Homer & Gill, 2022; Morales-Parragué et al., 2023; Yassin & Beckmann, 2024). Scholars and practitioners conceptualize CSR in various ways—from voluntary efforts to exceed regulatory requirements to broader obligations toward stakeholders such as employees, customers, communities, and the environment. Carroll (2021) describes CSR as a layered construct incorporating economic, legal, ethical, and philanthropic dimensions, noting that it is increasingly intertwined with related ideas such as corporate citizenship, stakeholder management, business ethics, ESG, and sustainability. Ashurov et al. (2024) highlight the evolution of CSR from charitable giving to a core element of strategic management. This definitional complexity underscores the challenges in assessing CSR’s impact across different contexts and reinforces the need for ongoing research using updated data and diverse measures.

To assess CSR transparency and performance, we use the 100 Best Corporate Citizens rankings, developed by 3BL in partnership with ISS ESG (the ESG research arm of Institutional Shareholder Services). The rankings evaluate the 1000 largest publicly traded U.S. companies based on their environmental, social, and governance (ESG) transparency and performance. Originally launched in 1999 by Business Ethics Magazine and published annually in Corporate Responsibility Magazine since 2007, the rankings have been managed by 3BL since 2018.

Each year, companies in the Russell 1000 Index are evaluated and ranked based on their transparency and performance across various ESG factors spanning seven key pillars: Employee Relations, Environment, Climate Change, Human Rights, Philanthropy, Financial, and Governance.3 The rankings are based entirely on publicly available information, including corporate sustainability reports, financial filings, and reputable third-party sources such as the U.S. Environmental Protection Agency.

Unlike other CSR data sources such as Thomson Reuters ASSET4 and MSCI KLD, which require costly subscriptions, 3BL makes the Best Corporate Citizens (BCC) rankings for the years 2009 through 2024 freely accessible to the public via its website. The list is user-friendly and highlights the top 100 corporate citizens, providing both overall rankings and detailed component rankings for each company. As a structured and publicly recognized measure of CSR transparency and performance, the BCC ranking serves as a valuable benchmark for assessing CSR-related financial outcomes. It is particularly relevant for a wide range of stakeholders seeking to evaluate firms using publicly available CSR information.

By leveraging this ranking, we can assess whether firms that are included in the list—differ in financial performance from those that do not. Furthermore, among the firms on the list, we examine how CSR rankings are associated with financial outcomes, how this relation evolves over time, and which specific CSR components contribute most significantly to firm performance.

2.2. CSR and Financial Performance

A central debate in CSR research revolves around whether CSR activities enhance firm value. Theoretical perspectives are mixed regarding the relation between CSR and firm financial performance. Stakeholder theory suggests that CSR can create long-term value by addressing the interests of a broad range of stakeholders. In doing so, CSR may enhance firm financial performance by strengthening stakeholder relations, improving operational efficiency, and reducing compliance and regulatory costs.

First, CSR initiatives may strengthen relations with key stakeholders—including customers, employees, and investors who prioritize ESG issues (Dechow, 2023). CSR engagement can increase marketing effectiveness and drive demand for products and services (Navarro, 1988; Fombrun, 2005), attract and retain talented employees (Greening & Turban, 2000), and help maintain a strong investor base while lowering the cost of capital (Dhaliwal et al., 2011; Cheng et al., 2014). However, it remains unclear to what extent stakeholders favor corporate ESG engagement. While some studies find that firms with stronger ESG profiles have better access to finance (Houston & Shan, 2021), others indicate that investors do not prioritize corporate ESG performance in their investment decisions or are unwilling to forgo financial returns for societal benefits (Larcker & Watts, 2020; Moss et al., 2024).

Second, CSR activities can enhance operating efficiency. For example, while investing in ESG initiatives—such as reducing pollution through the adoption of more efficient technologies—may increase short-term costs, it can lead to improved long-term production efficiency. Superior CSR performance can also strengthen stakeholder engagement, thereby reducing the likelihood of short-term opportunistic behavior and agency costs (Bénabou & Tirole, 2010; Eccles et al., 2014). Additionally, firms with stronger CSR performance tend to provide greater CSR disclosure, creating a positive feedback loop that reinforces their commitment to transparency (Cheng et al., 2014).

Finally, CSR engagement can help reduce compliance and litigation costs. Investments in environmental initiatives, for example, can lower compliance costs by proactively addressing potential regulatory concerns. Moreover, CSR expenditures can serve as a form of reputation insurance, enabling firms to maintain goodwill among stakeholders and regulators in the face of adverse events (Peloza, 2006), and reducing the likelihood of negative regulatory or legislative actions (Hillman & Keim, 2001).

Agency theory posits that CSR may be motivated by ideological preferences rather than economic rationale, resulting in minimal or even negative financial outcomes. Critics contend that CSR activities undertaken by for-profit enterprises are inconsistent with the primary goal of maximizing shareholder value and therefore represent irresponsible use of corporate resources. For example, Campbell (2007) develops a theory suggesting that only firms with excess current resources are pressured to allocate resources toward social investments. Similarly, Hong et al. (2012) find that firms with greater financial slack in the current period are more likely to engage in CSR initiatives. The implicit assumption in both studies is that CSR activities are akin to corporate charity—undertaken without an expectation of improving the firm’s future financial performance.

Another perspective within agency theory emphasizes managerial opportunism as a key driver of CSR activities (e.g., Jensen & Meckling, 1976). From this viewpoint, CSR practices help managers gain reputation among key stakeholders, such as local politicians and labor unions, at the expense of shareholders (Bénabou & Tirole, 2010; Krüger, 2015). Moreover, when managers devote significant time to CSR activities, they may lose focus on their core managerial responsibilities (Jensen, 2001). Consistent with the agency problem argument, Masulis and Reza (2015) document that shareholders reduce their valuation of firm cash holdings as corporate giving increases and find evidence suggesting that corporate donations advance CEO interests at the expense of firm value.

The empirical evidence on the relation between CSR and financial performance is also mixed (Orlitzky et al., 2003; Arian et al., 2023; Ji et al., 2024). While some studies document a positive association between CSR and financial performance (e.g., Miller et al., 2020; Glova & Panko, 2025), others report neutral or negative associations (Chen et al., 2018; Giannopoulos et al., 2024). For example, Boukattaya and Omri (2021) find that corporate social practices positively influence financial performance in a sample of French firms. Similarly, Glova and Panko (2025) document a positive relation between ESG factors and financial metrics in the European automative industry. In contrast, Chen et al. (2018) show that firms subject to China’s 2008 mandatory CSR disclosure requirement experienced a subsequent decline in profitability. Giannopoulos et al. (2024) document a negative correlation between the ESG score and both ROA and ROE in the U.K. banking sector.

Moreover, several studies highlight that the relation between CSR and financial performance is context-dependent (e.g., Hamad & Cek, 2023). Arian et al. (2023) find that CSR yields positive financial outcomes in consumer-facing sectors but not in industrial sectors. Attia et al. (2023) find that the relation between CSR and financial performance is nonlinear and varies by financial performance metrics in the global hospitality and tourism sector. Ho et al. (2021) suggest that risk preferences and performance measurement systems moderate the CSR–firm link. Collectively, these mixed findings underscore the complexity and context-specific nature of the relationship between CSR and financial performance.

Taken together, the extant literature provides mixed theoretical and empirical evidence on the relation between CSR and future firm performance. Stakeholder theory predicts a positive association, as CSR can strengthen stakeholder relationships, enhance operational efficiency, and reduce compliance costs. In contrast, agency theory suggests a negative association, viewing CSR as driven by ideological motives or managerial self-interest rather than shareholder value maximization. Given these competing theoretical perspectives and inconsistent empirical findings, we adopt a non-directional stance and formally state our first hypothesis:

Hypothesis 1 (H1).

CSR engagement is associated with future financial performance.

We next investigate the relations between specific CSR component rankings and future financial performance, including employee relations, climate change, environment, human rights, governance, and financial performance measures. The analysis helps us to gain deeper insights into which aspects of CSR, if any, are more closely tied to firm performance. Prior research suggests that governance-related CSR activities tend to have a stronger positive association with financial performance compared to environmental or social initiatives. This pattern may arise because governance improvements often align more directly with enhancing operational efficiency and reducing agency costs, whereas ideologically driven environmental or social investments may divert resources and potentially undermine profitability (Giuli & Kostovetsky, 2014; Ferrell et al., 2016; Davidson et al., 2019). Based on this reasoning and the existing literature, we propose the following hypothesis:

Hypothesis 2 (H2).

CSR components are associated with future financial performance.

2.3. CSR and Other Socially Responsible Activities

Finally, we investigate whether firms with greater CSR engagement also exhibit more responsible behavior in other critical areas of corporate conduct—specifically, tax avoidance and financial reporting quality. This analysis offers deeper insights into the motivations underlying CSR engagement and helps to distinguish between competing perspectives on the strategic role of CSR within corporate governance.

One perspective views CSR as a genuine reflection of a firm’s ethical values and commitment to stakeholder accountability, suggesting consistent standards of responsible behavior across multiple domains. According to this view, firms with strong CSR engagement are expected to exhibit lower levels of tax avoidance and higher financial reporting quality, indicating a holistic and ethical approach to corporate governance (Kim et al., 2012; Hoi et al., 2013).

Alternatively, CSR may serve primarily as a strategic tool designed to enhance corporate image or mitigate stakeholder scrutiny—essentially functioning as a form of reputation insurance (Freund et al., 2023). From this “substitution” perspective, firms may engage in CSR initiatives to offset or distract from irresponsible practices in other areas, such as aggressive tax planning or earnings manipulation (Davis et al., 2016; Lamptey et al., 2023). This view raises concerns that CSR engagement may be positively associated with tax avoidance and negatively associated with financial reporting quality.

Based on these competing perspectives, we propose the following non-directional hypotheses:

Hypothesis 3a (H3a).

CSR engagement is associated with tax avoidance.

Hypothesis 3b (H3b).

CSR engagement is associated with financial reporting quality.

3. Sample and Research Design

3.1. Sample Selection

We collect the ranking of the 100 Best Corporate Citizens (BCC) developed by 3BL Media from 2009 to 2022. The list recognizes outstanding environmental, social, and governance (ESG) transparency and performance among the 1000 largest public companies in the United States. The ranking was first published in 1999 in Business Ethics Magazine and then by Corporate Responsibility Magazine from 2007 to 2019. In 2017, 3BL acquired Corporate Responsibility Magazine and continued to provide the ranking after the magazine was discontinued. 3BL develops the ranking of ESG in partnership with Institutional Shareholder Services (ISS) using publicly available data on firm disclosures, policies, and performance on ESG topics. We use this list as it is well regarded and publicly available for all stakeholders to reference.

The list provides overall weighted scores, overall rank, industry rank, and pillar rank out of the Russell 1000 Index for all firms selected in the 100 Best Corporate Citizens list. The overall score is computed based on seven pillars that are given different weights: Employee Relations (19.5%), Environment (19.5%), Climate Change (16.5%), Human Rights (16%), Philanthropy (12.5%), Financial (9%), and Governance (7%).4 To facilitate a preliminary understanding of the firms represented in the BCC rankings, Appendix A presents a list of companies that have appeared consistently in the rankings over time.

Panel A in

Table 1. Sample.

Panel A: Sample Composition
Details	Firm-year	Firm
Observations obtained from Best Corporate Citizens list from 2009 to 2023	1400	249
Less: Observations without required data for construct variables	275	49
Total before matching:	1125	200
Add: 1:2 match on Russell 1000 firms	2173	624
Total after matching:	3298	824
Panel B: Sample composition by industry
SIC Digit	Industry	BCC	Non-BCC
1	Mining	64	177
2	Construction	332	269
3	Manufacturing	312	488
4	Transportation, Communications, Electric, Gas, and Sanitary Services	165	479
5	Wholesale Trade	59	190
6	Retail Trade	55	254
7	Finance, Insurance, and Real Estate	90	234
8	Services	28	54
9	Public Administration	20	28
Total		1125	2173

Notes: Industries are classified according to the first digit of a firm’s SIC code. BCC refers to firms included in the 100 Best Corporate Citizens list. Non-BCC refers to matched firms not included in the list.

presents our sample selection procedures. Our initial sample consists of 1400 firm-year observations from 249 firms recognized as Best Corporate Citizens between 2009 and 2022.5 After excluding 275 firm-year observations from 49 firms due to missing data required for constructing key variables, we retain 1125 firm-year observations from 200 firms. Given that firms on the BCC list tend to be larger and profitable, we employ propensity score matching to pair each BCC firm with two non-BCC firms from the Russell 1000 Index that are similar in size (total assets) and current performance (return on assets). This matching process yields an additional 2173 firm-year observations from 624 firms. As a result, our final sample comprises 3298 firm-year observations across 824 unique firms.

Panel B in Table 1 presents the distribution of firm-year observations across industries, categorized by the first digit of each firm’s SIC code. The firms in our sample represent a broad range of industries, with the highest concentration in construction, which accounts for 332 BCC firm-years and 269 non-BCC firm-years, followed closely by manufacturing, with 312 and 488 firm-years, respectively. Together, these two sectors represent nearly 20% of the total sample. Additional substantial representation comes from the transportation, communications, and electric, gas, and sanitary services sectors, which collectively contribute 165 BCC firm-years. In contrast, industries such as public administration (20 BCC and 28 non-BCC firm-years) and services (28 and 54 firm-years, respectively) are less represented. Overall, the sample exhibits broad industry coverage, supporting the generalizability of our findings across sectors.

3.2. Research Design

3.2.1. CSR and Operating Performance

We conduct both between-group and within-group analyses to examine the relation between CSR and firm financial performance. Specifically, we compare the future operating performance of firms included in the BCC list to that of non-BCC firms, and we analyze how variations in CSR rankings among BCC firms are associated with future operating outcomes. To formally test this relation, we estimate the following regression model:

OPerf_i,t+n = β₀ + β₁CSR_i,t + β₂LogTA_i,t + β₃ROA_i,t + β₄BM_i,t + β₅LEV_i,t + β₆R&D_i,t
+ β₇SG&A_i,t + β₈Sale_i,t + β₉Liquidity_i,t + ΣIND_i + ΣYEAR_t + ϵ_i,t

(1)

where OPerf_i,t+n denotes two alternative measures of future operating performance: OPerf_t+1 is measured as operating profit before taxes and depreciation divided by the sum of the book values of long-term debt and equity in year t + 1; and OPerf_t+1,_t+3 is measured as the average operating performance over the next three years. CSR captures various measures of corporate social responsibility, including (1) BCC, an indicator variable equal to one if the firm is included in the list of the 100 Best Corporate Citizens and zero otherwise; (2) CSR, the overall CSR rankings computed based on individual CSR component scores; and (3) component rankings, rankings for fix individual CSR components—Employee, Climate, Environment, Human Rights, Governance, and Financial.

Employee measures how companies treat and invest in their workforce, incorporating metrics such as workplace safety, health policies, diversity and inclusion, gender pay equity, union rights, and labor standards. Climate measures a company’s strategy, transparency, and performance regarding climate-related issues. Environment measures environmental stewardship in areas such as water usage, waste management, and biodiversity. Human Rights measures company policies and practices to protect human rights across operations and supply chains. Governance measures the strength and transparency of a company’s leadership, oversight, and ethical standards. Financial measures responsibility and stability, particularly in relation to sustainable practices. The overall CSR ranking and component rankings are expressed as annual quintile rankings, scaled to a range from 0 to 1.

Following prior research on the relation between CSR and firm performance (e.g., Davidson et al., 2019), we include the following control variables: firm size (LogTA), measured as the natural logarithm of total assets; current return on assets (ROA); book-to-market ratio (BM); financial leverage (LEV); innovation intensity (R&D); operating expenses (SG&A); firm sales (Sale); and short-term liquidity (Liquidity). Detailed definitions for all variables are provided in Appendix B.

The model also incorporates industry and year fixed effects to control for unobserved heterogeneity across sectors and macroeconomic periods. In order to control for heteroscedasticity and autocorrelation, the model is estimated using pooled regression with robust standard errors clustered at the firm level.

3.2.2. CSR and Other Socially Responsible Activities

We estimate the following regression to examine the relation between CSR and tax avoidance.

ETR_i,t+1 = β₀ + β₁CSR_i,t + β₂LogTA_i,t + β₃BM_i,t + β₄LEV_i,t + β₅OCF_i,t + β₆EQINC_i,t
+ β₇NOL_i,t + β₈ΔNOL_i,t + β₉FI_i,t + β₁₀PPE_i,t + β₁₁INTANG_i,t + β₁₂R&D_i,t +
β₁₃ABSDA_i,t + ΣIND_i + ΣYEAR_t + ϵ_i,t

(2)

where ETR represents two tax avoidance measures: cash effective tax rate (Cash ETR), measured as income taxes paid divided by pre-tax income minus special items, and GAAP effective rates (GAAP ETR), measured as income tax expense divided by pre-tax income minus special items. CSR represents measures of corporate social responsibility: BCC, an indicator variable equal to one if the firm is included in the list of the 100 Best Corporate Citizens and zero otherwise, and CSR, the overall CSR rankings computed based on individual CSR component scores.

Following the prior literature on tax avoidance (Law & Mills, 2015; Chyz et al., 2019), we include the following control variables: firm size (LogTA), firm growth (BM), financial leverage (LEV), operating cash flow (OCF), equity income (EQINC), net operating loss carryforward (NOL), change in net operating loss carryforwards (ΔNOL), foreign income (FI), property, plant, and equipment (PPE), intangible assets (INTANG), research and development expenditures (R&D), and discretionary accruals (ABSDA).

We estimate the following regression to examine the relation between CSR and financial reporting quality:

FRQ_i,t+1 = β₀ + β₁CSR_i,t + β₂LogTA_i,t + β₃Sale_i,t + β₄OCF_i,t + β₅BM_i,t + β₆LEV_i,t +
β₇Big4_i,t + β₈Delay_i,t + β₉ICW_i,t + β₁₀Liquidity_i,t +ΣIND_i + ΣYEAR_t + ϵ_i,t

(3)

where FRQ represents four different measures of firm financial reporting quality: absolute value of performance-adjusted discretionary accruals (ABSDA); real activity manipulation (RAM), measured as abnormal cash flow minus abnormal production cost plus abnormal discretionary expenses as in Roychowdhury (2006); internal control weakness (ICW); and audit fees (AuditFee). CSR represents measures of corporate social responsibility: BCC, an indicator variable equal to one if the firm is included in the list of the 100 Best Corporate Citizens and zero otherwise, and CSR, the overall CSR rankings computed based on individual CSR component scores.

Following Kim et al. (2012), we include the following control variables that may influence firm reporting quality: firm size (LogTA), firm sales (Sale), operating cash flow (OCF), book-to-market ratio (BM), firm leverage (LEV), an indicator variable for big 4 auditor (Big4), audit report lag (Delay), internal control weakness indicator for the current year, and short-term liquidity (Liquidity).

4. Results

4.1. BCC Inclusion and Operating Performance

4.1.1. Descriptive Statistics

Panel A of

Table 2. Descriptive statistics of BCC and non-BCC firms.

Panel A: Descriptive Statistics
	BCC = 1			BCC = 0			Differences
	Obs.	Mean	Median	Obs.	Mean	Median	Mean	Median
OPerft+1	1125	0.263	0.225	2173	0.205	0.176	0.058 ***	0.049 ***
OPerft+1,t+3	937	0.268	0.227	1640	0.199	0.175	0.069 ***	0.053 ***
LogTA	1125	10.240	10.313	2173	9.952	9.978	0.288 ***	0.335 ***
ROA	1125	0.068	0.064	2173	0.060	0.048	0.009 ***	0.016 ***
BM	1125	0.353	0.284	2173	0.430	0.383	−0.077 ***	−0.099 ***
LEV	1125	0.256	0.246	2173	0.285	0.268	−0.029 ***	−0.023 ***
R&D	1125	0.028	0.009	2173	0.020	0.000	0.007 ***	0.009 ***
SG&A	1125	0.157	0.139	2173	0.106	0.066	0.051 ***	0.073 ***
Sale	1125	0.774	0.645	2173	0.693	0.521	0.081 ***	0.124 ***
Liquidity	1125	0.130	0.096	2173	0.115	0.072	0.014 ***	0.024 ***
Panel B: Pearson Correlation Matrix
		(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
(1)	OPerft+1
(2)	OPerft+1,t+3	0.482
(3)	LogTA	−0.004	−0.008
(4)	ROA	0.459	0.219	−0.069
(5)	BM	−0.195	−0.082	0.314	−0.166
(6)	LEV	0.024	0.011	0.158	−0.114	−0.203
(7)	R&D	−0.149	−0.129	−0.285	−0.231	−0.248	−0.178
(8)	SG&A	0.117	0.068	−0.415	0.103	−0.350	−0.165	0.374
(9)	SALE	0.306	0.129	−0.187	0.281	−0.171	−0.114	−0.102	0.440
(10)	LIQUIDITY	−0.075	−0.022	−0.392	−0.087	−0.272	−0.263	0.594	0.355	−0.030

Notes: OPerf_t+1 is one-year-ahead operating profit before taxes and depreciation divided by the sum of the book values of long-term debt and equity; OPerf_t+1,t+3 is the average three-year-ahead operating performance; BCC is an indicator of the Best Corporate Citizens; LogTA is the natural logarithm of total assets; ROA is return on assets; BM is the book-to-market ratio; LEV indicates financial leverage; R&D represents research and development expenses; SG&A entails selling, general, and administrative expenses; Sale refers to sales revenue scaled by total assets; and Liquidity is calculated as cash and short-term investment divided by current liabilities. Detailed definitions of the variables are provided in Appendix B. In Panel A, ***, **, and * denote statistical significance in tests of differences in means (t-test) and medians (Wilcoxon rank tests) at the 1%, 5%, and 10% levels, respectively. In Panel B, correlations that are significant at the 10% level are highlighted in bold.

provides a comparative analysis of firm characteristics between BCC firms and non-BCC firms, revealing that CSR-reporting firms exhibit superior future operating performance, with higher mean OPerf_t+1 (0.263 vs. 0.205) and OPerf_t+1,t+3 (0.268 vs. 0.199), suggesting a positive link between CSR engagement and financial performance. Additionally, BCC firms are relatively larger and more profitable in the current year despite the fact that we use matched BCC firms with non-BCC firms based on current size (total assets) and performance (ROA). They are also less leveraged, investing more in R&D and allocating greater resources to SG&A. BCC firms demonstrate higher liquidity and a lower book-to-market ratio, possibly reflecting stronger commitments to innovation and stakeholder engagement.

Panel B of Table 2 presents the Pearson correlations among key variables. Future operating performance is positively correlated with current return on assets (correlation = 0.459), Sales (correlation = 0.306), and SG&A (correlation = 0.117). Conversely, future operating performance is negatively correlated with book-to-market ratio, R&D investment, and firm liquidity, indicating that growth-oriented and innovation-focused firms may experience weaker short-term returns.

4.1.2. Regression Results

Table 3. Relation between BCC inclusion and future operating performance.

Variables	(1)	(2)
	OPerft+1	OPerft+1, t+3
BCC	0.035 ***	0.047 ***
	(3.48)	(4.56)
LogTA	0.013	0.006
	(1.55)	(1.16)
ROA	0.705 ***	0.658 ***
	(5.71)	(7.16)
BM	−0.083 ***	−0.067 ***
	(−3.09)	(−2.63)
LEV	0.054	0.044
	(1.23)	(1.14)
R&D	−0.032	−0.507 **
	(−0.09)	(−2.39)
SG&A	0.026	0.092
	(0.23)	(1.19)
Sale	0.114 ***	0.098 ***
	(5.38)	(4.66)
Liquidity	−0.024	0.043
	(−0.29)	(0.82)
Year	YES	YES
Industry	YES	YES
Observations	3298	2577
Adj. R-squared	0.328	0.432

Notes: OPerf_t+1 is one-year-ahead operating performance; OPerf_t+1,t+3 is the average three-year-ahead operating performance; BCC is an indicator variable that equals one if a firm is included in the list of 100 Best Corporate Citizens and is zero otherwise. All variables are defined in Appendix B. Robust t-statistics are presented in parentheses. ***, **, * indicate significance level of 1%, 5%, and 10%, respectively (two-tailed tests).

presents the regression results examining the relation between BCC inclusion and future operating performance. The coefficient on BCC is positive and significant (0.035, t = 3.48) when the dependent variable is one-year-ahead operating income (OPerf_t+1), and positive and significant (0.047, t = 4.56) when the dependent variable is the average operating income over the next three years (OPerf_t+1,t+3). These results indicate that BCC firms outperform non-BCC firms in operating performance in both the short term and over a relatively longer horizon. The outperformance is both statistically and economically significant. The positive association between BCC inclusion and future performance is consistent with H1, which posits that CSR is associated with firm future performance. More specifically, it supports the view that CSR activities can enhance firm value by strengthening stakeholder relations, improving operational efficiency, and/or lowering regulatory costs. Our empirical evidence aligns with prior studies that document a positive relation between CSR and firm performance (e.g., Miller et al., 2020; Glova & Panko, 2025) and contrasts with those reporting a negative relation (e.g., Chen et al., 2018; Giannopoulos et al., 2024).

Alternatively, it is possible that firms expecting stronger future performance may also choose to increase CSR disclosures and activities (Lys et al., 2015). However, as shown in Appendix A, the persistence of CSR engagement among certain firms suggests it is unlikely that companies would continue to invest in CSR initiatives if such efforts did not generate financial benefits. While we are unable to definitively distinguish between these two explanations, the positive association we document provides additional empirical evidence on the relation between CSR and future performance using recent data and offers useful insights for users who rely on the 100 Best Corporate Citizens list to evaluate firms.

4.2. CSR Rankings and Operating Performance

4.2.1. Descriptive Statistics

Panel A in

Table 4. Descriptive statistics of firms with CSR rankings.

Panel A: Descriptive Statistics
Variable		Obs.			Mean			Std. Deviation		First Quartile			Median		Third Quartile
OPerft+1		1125			0.263			0.179		0.154			0.225		0.316
OPerft+1,t+3		937			0.268			0.195		0.157			0.227		0.310
CSR		1125			109.72			42.15		75.55			97.03		146.55
Employee		1125			103.72			96.91		32.00			77.00		145.00
Climate		1125			94.91			83.30		30.00			71.00		136.00
Environment		1125			89.14			86.89		28.00			68.00		125.00
Human Rights		1125			104.73			100.57		31.00			72.00		157.00
Governance		1125			225.35			224.74		29.00			184.00		343.00
Financial		1125			287.63			214.12		112.00			247.00		420.00
LogTA		1125			10.240			1.120		9.477			10.313		11.148
ROA		1125			0.068			0.071		0.031			0.064		0.106
BM		1125			0.353			0.297		0.149			0.284		0.495
LEV		1125			0.257			0.152		0.159			0.246		0.336
R&D		1125			0.028			0.042		0.000			0.009		0.039
SG&A		1125			0.157			0.131		0.052			0.139		0.221
Sale		1125			0.774			0.482		0.446			0.645		0.999
Liquidity		1125			0.130			0.125		0.037			0.096		0.176
Panel B: Pearson Correlation Matrix
		(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	(14)	(15)	(16)
(1)	OPerft+1
(2)	OPerft+1,t+3	0.85
(3)	CSR	0.14	0.09
(4)	Employee	0.03	0.02	0.34
(5)	Climate	0.08	0.03	0.41	0.04
(6)	Environment	−0.01	−0.02	0.42	0.10	0.33
(7)	Human Rights	0.06	0.02	0.42	0.06	0.17	0.24
(8)	Governance	0.09	0.08	0.24	−0.02	−0.01	−0.09	0.06
(9)	Financial	0.12	0.12	0.14	−0.10	−0.12	−0.15	−0.14	0.05
(10)	LogTA	−0.10	−0.11	0.13	0.07	0.16	0.05	0.06	0.06	−0.06
(11)	ROA	0.51	0.42	0.11	0.00	0.07	−0.02	0.04	0.03	0.18	−0.02
(12)	BM	−0.49	−0.47	−0.10	0.03	−0.06	0.03	−0.06	−0.03	−0.15	0.11	−0.47
(13)	LEV	0.03	0.04	−0.14	−0.05	−0.06	−0.07	−0.05	−0.03	−0.05	−0.05	−0.06	−0.23
(14)	R&D	0.03	0.01	0.10	0.08	0.07	0.22	0.09	0.03	−0.11	−0.02	0.12	−0.24	−0.11
(15)	SG&A	0.32	0.28	0.16	0.19	0.03	0.05	0.13	0.05	−0.07	−0.30	0.31	−0.39	−0.05	0.34
(16)	Sale	0.47	0.45	0.02	0.01	−0.04	−0.08	0.05	0.03	0.11	−0.32	0.34	−0.27	−0.14	−0.08	0.49
(17)	Liquidity	0.16	0.13	0.11	0.12	0.00	0.10	0.11	0.09	−0.01	−0.09	0.20	−0.20	−0.21	0.49	0.35	0.09

Notes: In Panel A, CSR represents the weighted overall score provided by 3BL. Employee, Climate, Environment, Human Rights, Governance, and Financial refer to the raw rankings (out of Russell 1000 firms) assigned by 3BL for the respective components: employee relations, climate change, environmental impact, human rights, governance, and financial performance. In Panel B, CSR, Employee, Climate, Environment, Human Rights, Governance, and Financial represent the annual quintile rankings of each variable, scaled to a range from 0 to 1. All variables are defined in Appendix B. Correlations that are significant at the 10% level are highlighted in bold.

reports descriptive statistics for the sample of firms included in our analysis of CSR rankings and future performance. CSR, calculated as a weighted average of individual CSR component rankings, has a mean of 110 and a standard deviation of 42. The mean and median rankings for the six components (out of the Russell 1000 firms) are as follows: Employee (mean = 104, median = 77), Climate (95, 71), Environment (89, 68), Human Rights (105, 72), Governance (225, 184), and Financial (288, 247). The weighting scheme assigns greater importance to employee relations, climate change, and environmental performance than to governance and financial metrics. As a result, firms with stronger performance in these highly weighted areas are more likely to appear on the BCC list, while lower rankings in governance and financial categories have less influence on inclusion.

Panel B in Table 4 presents Pearson correlation coefficients among key variables. OPerf_t+1 is significantly positively correlated with overall CSR rankings, as well as several individual CSR components, including Climate, Human Rights, Governance, and Financial. Most CSR components are significantly positively correlated with one another. However, Financial is significantly negatively correlated with Employee, Climate, Environment, and Human Rights, consistent with the notion that investment in these socially responsible areas may consume financial resources.

4.2.2. Regression Results

Panel A in

Table 5. Relation between CSR overall ranking and future operating performance.

Panel A: Main Effects
	(1)	(2)
Variables	OPerft+1	OPerft+1, t+3
CSR	0.038 **	0.026
	(2.11)	(1.37)
LogTA	0.000	0.003
	(0.03)	(0.28)
ROA	0.628 ***	0.397 ***
	(4.94)	(3.47)
BM	−0.161 ***	−0.186 ***
	(−3.75)	(−3.80)
LEV	0.099	0.055
	(1.49)	(0.79)
R&D	−0.577 *	−0.845 **
	(−1.73)	(−2.18)
SG&A	0.076	0.133
	(0.60)	(0.95)
Sale	0.134 ***	0.115 **
	(3.09)	(2.54)
Liquidity	0.000	0.045
	(0.00)	(0.58)
Year	YES	YES
Industry	YES	YES
Observations	1125	937
Adj. R-squared	0.533	0.507
Panel B: Interaction with Time
	(1)	(2)
Variables	OPerft+1	OPerft+1, t+3
CSR	0.060 ***	0.038
	(2.66)	(1.64)
Time	−0.063 **	−0.062 *
	(−2.36)	(−1.80)
CSR x Time	−0.049 *	−0.036
	(−1.84)	(−1.26)
LogTA	−0.000	0.002
	(−0.05)	(0.21)
ROA	0.623 ***	0.391 ***
	(4.96)	(3.46)
BM	−0.162 ***	−0.187 ***
	(−3.80)	(−3.86)
LEV	0.100	0.054
	(1.57)	(0.79)
R&D	−0.566 *	−0.839 **
	(−1.72)	(−2.18)
SG&A	0.073	0.130
	(0.58)	(0.92)
Sale	0.133 ***	0.114 **
	(3.05)	(2.53)
Liquidity	0.001	0.047
	(0.01)	(0.61)
CSR + CSR x time	0.011	0.002
F-test	0.25, p = 0.617	0.01, p = 0.920
Year	YES	YES
Industry	YES	YES
Observations	1125	937
Adj. R-squared	0.535	0.507

Notes: OPerf_t+1 is one-year-ahead operating performance; OPerf_t+1,t+3 is the average three-year-ahead operating performance; CSR is CSR annual quintile rankings, scaled to a range of 0 to 1; Time is an indicator variable that equals 1 for years after 2016 and zero otherwise. All variables are defined in Appendix B. Robust t-statistics are presented in parentheses. ***, **, and * indicate significance level of 1%, 5% and 10%, respectively (two-tailed tests).

presents regression results examining the relation between CSR overall ranking and future operating performance. The coefficient on CSR is positive and statistically significant (0.038, t = 2.11) when the dependent variable is OPerf_t+1, but is positive and statistically insignificant (0.026, t = 1.37) when the dependent variable is OPerf_t+1,t+3. Column (1) indicates that moving from the bottom to the top CSR quintile is associated with a 3.8% increase in operating income one year ahead. The positive association between CSR rankings and near-term operating income provides further support for the view that CSR engagement—both in terms of scope and strength—contributes meaningfully to firm financial performance.

Panel B reports whether the relation between overall CSR ranking and performance changes over time. Time is an indicator variable that equals 1 for years after 2016 and 0 otherwise, where 2016 is the median year of the sample period spanning from 2009 to 2022. This analysis is motivated by two competing perspectives. CSR investments may become more efficient over time as firms accumulate implementation experience and as stakeholder increasingly prioritize ESG considerations (Cheng et al., 2014; Davidson et al., 2019). Over time, firms may better integrate CSR into their strategies, leading to greater operational efficiencies, risk management benefits, and reputational gains. Increased stakeholder awareness may also strengthen the effect of CSR in attracting consumers, employees, and investors. In this case, the positive effects of CSR on firm performance would strengthen in more recent years. Conversely, as CSR practices become more standardized and widespread across industries, its competitive strategic value may diminish. When CSR becomes an expected baseline rather than a point of differentiation, the positive association between CSR and firm performance would weaken in more rent years (Barnea & Rubin, 2010; Ferrell et al., 2016).

In Column (1), where the dependent variable is OPerf_t+1, the coefficient on CSR is positive and statistically significant (0.060, t = 2.66), while the interaction term CSR × Time is negative and significant (−0.049, t = 1.84). This indicates that CSR is positively associated with one-year-ahead operating performance in the earlier years of the sample, but this relation weakens over time. An F-test confirms that the sum of CSR and CSR × Time is statistically insignificant in the latter half of the sample period, suggesting that the positive effect of CSR on performance effectively disappears. These findings suggest that as CSR practices become more widespread and standardized, their ability to confer a relative financial advantage diminishes.

Table 6. Relation between CSR component rankings and future operating performance.

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
Variables	OPerft+1
Employee	0.382 *						0.038 *
	(1.75)						(1.79)
Climate		0.014					0.013
		(1.14)					(1.11)
Environment			0.010				0.004
			(0.53)				(0.20)
Human Rights				−0.002			−0.009
				(−0.17)			(−0.47)
Governance					0.013		0.015
					(0.71)		(0.82)
Financial						0.000	0.003
						(−0.02)	(0.24)
LogTA	0.001	0.002	0.003	0.003	0.003	0.003	0.000
	(0.10)	(0.25)	(0.34)	(0.41)	(0.33)	(0.36)	(−0.03)
ROA	0.638 ***	0.627 ***	0.631 ***	0.630 ***	0.635 ***	0.633 ***	0.632 ***
	(5.05)	(4.92)	(4.94)	(4.94)	(5.00)	(4.95)	(5.01)
BM	−0.165 ***	−0.162 ***	−0.163 ***	−0.161 ***	−0.160 ***	−0.161 ***	−0.165 ***
	(−3.69)	(−3.69)	(−3.68)	(−3.68)	(−3.72)	(−3.57)	(−3.66)
LEV	0.087	0.090	0.089	0.089	0.088	0.089	0.089
	(1.34)	(1.40)	(1.37)	(1.35)	(1.33)	(1.35)	(1.39)
R&D	−0.593 *	−0.585 *	−0.590 *	−0.583 *	−0.588 *	−0.589 *	−0.593 *
	(−1.79)	(−1.70)	(−1.70)	(−1.71)	(−1.70)	(−1.71)	(−1.78)
SG&A	0.074	0.080	0.086	0.089	0.091	0.095	0.074
	(0.58)	(0.64)	(0.68)	(0.72)	(0.73)	(0.74)	(0.57)
Sale	0.132 ***	0.133 ***	0.132 ***	0.132 ***	0.131 ***	0.132 ***	0.129 ***
	(3.10)	(3.07)	(3.06)	(3.04)	(3.08)	(3.00)	(3.07)
Liquidity	−0.006	0.009	0.004	0.005	0.000	0.005	−0.009
	(−0.09)	(0.12)	(0.06)	(0.08)	(0.00)	(0.07)	(−0.12)
Year	YES	YES	YES	YES	YES	YES	YES
Industry	YES	YES	YES	YES	YES	YES	YES
Observations	1125	1125	1125	1125	1125	1125	1125
Adj. R-squared	0.5331	0.5281	0.5283	0.5280	0.5286	0.5281	0.5323

Notes: OPerf_t+1 is one-year-ahead operating performance; OPerf_t+1,t+3 is the average three-year-ahead operating performance; Employee, Climate, Environment, Human Rights, Governance, and Financial represent the annual quintile rankings (scaled from 0 to 1) of each corresponding CSR component: employee relations, climate change, environmental impact, human rights, governance, and financial performance. All variables are defined in Appendix B. Robust t-statistics are presented in parentheses. ***, **, and * indicate significance level of 1%, 5% and 10%, respectively (two-tailed tests).

examines the relation between individual CSR component rankings and firm operating performance. Columns (1) through (6) evaluate each component separately, while Column (7) includes all components in a single model. The results show no significant association between most components and future operating income, with the notable exception of employee relations. Employee exhibits a positive and significant relation with one-year-ahead operating performance, both when included alone (Column 1) and when controlling for other components (Column 7). While our finding on employee relations aligns with prior research suggesting that employee satisfaction enhances firm performance (Yassin & Beckmann, 2024), our overall results do not support H2, which posits that individual CSR components are significantly associated with firm financial performance. However, we caution that the absence of significant results for other components may reflect limitations in disclosure precision or the possibility that their financial impact unfolds over a longer horizon not captured within our sample period.

4.3. CSR and Other Socially Responsible Activities

4.3.1. CSR and Tax Avoidance

Panel A in

Table 7. Relation between CSR and tax avoidance.

Panel A: BCC Inclusion and Tax Avoidance
	(1)	(2)
Variables	Cash ETRt+1	GAAP ETRt+1
BCC	0.037 **	0.036 **
	(2.54)	(2.17)
LogTA	0.007	0.012
	(1.08)	(1.48)
BM	−0.078 **	−0.015
	(−2.47)	(−0.61)
LEV	−0.048	−0.038
	(−1.02)	(−0.83)
OCF	0.093	0.484 ***
	(0.79)	(3.96)
EQINC	0.010	0.033 **
	(0.70)	(2.26)
NOL	−0.078	0.022
	(−1.49)	(0.35)
ΔNOL	0.032	0.047
	(0.93)	(0.92)
FI	0.034	−0.396 **
	(0.19)	(−2.49)
PPE	−0.108 **	−0.227 ***
	(−2.05)	(−3.66)
INTANG	0.090	0.273
	(0.49)	(1.04)
R&D	−0.614 ***	−0.752 **
	(−2.83)	(−2.40)
ABSDA	−0.085 *	0.170 *
	(−1.73)	(1.79)
Year	YES	YES
Industry	YES	YES
Observations	3298	3298
Adj. R-squared	0.1690	0.1300
Panel B: CSR Ranking and Tax Avoidance
	(1)	(2)
Variables	Cash ETRt+1	GAAP ETRt+1
CSR	−0.002	0.030 **
	(−0.09)	(2.07)
LogTA	0.017 *	0.004
	(1.93)	(0.59)
BM	−0.046	−0.018
	(−1.21)	(−0.52)
LEV	−0.019	−0.027
	(−0.30)	(−0.59)
OCF	−0.140	0.311 **
	(−0.83)	(2.28)
EQINC	1.300	2.350 **
	(0.67)	(2.07)
NOL	−0.051	0.088 *
	(−1.13)	(1.79)
ΔNOL	−0.015	−0.054 *
	(−0.43)	(−1.66)
FI	−0.284	−0.385 **
	(−1.23)	(−2.16)
PPE	−0.119	−0.153 **
	(−1.42)	(−2.51)
INTANG	0.639 ***	0.306
	(2.61)	(1.57)
R&D	−0.936 ***	−0.954 ***
	(−2.99)	(−3.86)
ABSDA	−0.040	0.028
	(−0.80)	(0.72)
Year	YES	YES
Industry	YES	YES
Observations	1125	1125
Adj. R-squared	0.153	0.148

Notes: Cash ETR is calculated as income taxes paid divided by pre-tax income minus special items; GAAP ETR is calculated as income tax expense divided by pre-tax income minus special items; BCC indicates whether a firm is included in the list of the 100 Best Corporate Citizens; CSR is CSR annual quintile rankings, scaled to a range of 0 to 1. All variables are defined in Appendix B. Robust t-statistics are presented in parentheses. ***, **, and * indicate significance level of 1%, 5%, and 10%, respectively (two-tailed tests).

presents results on the relation between BCC inclusion and tax avoidance. The coefficient on BCC is positive and statistically significant in both models—Cash ETR (coef. = 0.037, t = 2.54) and GAAP ETR (coef. = 0.036, t = 2.17)—indicating that BCC firms have cash and GAAP effective tax rates that are 3.7% and 3.6% higher, respectively, than those of non-BCC firms. Panel B examines the association between CSR rankings and tax avoidance. While the coefficient on CSR is insignificant when Cash ETR is the dependent variable, it is positive and statistically significant (0.030, t = 2.07) when GAAP ETR is used. These results indicate that socially responsible firms are less likely to engage in tax avoidance, particularly as reflected in their GAAP effective tax rates, providing some support to H3a, which posits that CSR engagement is related to tax avoidance. The results are consistent with Hoi et al. (2013)’s finding that socially responsible firms engage in less tax avoidance, yet inconsistent with Davis et al. (2016)’s finding that socially responsible firms engage in more tax avoidance.

4.3.2. CSR and Financial Reporting Quality

Panel A in

Table 8. Relation between CSR and financial reporting quality.

Panel A: BCC Inclusion and Financial Reporting Quality
	(1)	(2)	(3)	(4)
Variables	ABSDAt+1	RAMt+1	ICWt+1	AuditFeet+1
BCC	−0.005	0.050	−0.002	0.165 ***
	(−1.10)	(0.79)	(−0.38)	(5.55)
LogTA	−0.007 ***	−0.052 *	−0.003	0.598 ***
	(−2.84)	(−1.75)	(−1.28)	(35.26)
Sale	0.021 ***	−0.466 ***	0.002	0.279 ***
	(3.17)	(−4.67)	(0.31)	(5.82)
OCF	−0.001	1.646 ***	−0.065 *	−1.111 ***
	(−0.03)	(4.33)	(−1.79)	(−5.30)
BM	0.016 *	−0.249 ***	−0.022	−0.063
	(1.70)	(−3.22)	(−1.27)	(−1.64)
LEV	0.032	−0.122	−0.020	0.373 ***
	(1.48)	(−0.51)	(−1.46)	(3.39)
Big4	0.002	0.221	−0.007	0.413 **
	(0.09)	(1.07)	(−0.31)	(2.01)
Delay	−0.014 ***	−0.016	−0.010 **	−0.417 ***
	(−3.28)	(−0.35)	(−2.14)	(−3.95)
ICW	0.001	−0.373 *	0.373 ***	0.160 **
	(0.04)	(−1.68)	(6.28)	(2.04)
Liquidity	−0.037	0.881 ***	−0.015	−0.106
	(−1.64)	(4.04)	(−0.74)	(−0.75)
Year	YES	YES	YES	YES
Industry	YES	YES	YES	YES
Observations	3298	3298	3298	3298
Adj. R-squared	0.335	0.113	0.141	0.696
Panel B: CSR Ranking and Financial Reporting Quality
	(1)	(2)	(3)	(4)
Variables	ABSDAt+1	RAMt+1	ICWt+1	AuditFeet+1
CSR	−0.001	0.214	−0.008	0.044
	(−0.06)	(1.15)	(−0.80)	(1.15)
LogTA	−0.007 *	−0.064	−0.000	0.597 ***
	(−1.688)	(−1.19)	(−0.06)	(18.84)
Sale	0.014	−0.630 ***	0.026 *	0.306 ***
	(1.39)	(−3.21)	(1.69)	(3.56)
OCF	−0.021	0.900	0.019	−0.862 *
	(−0.39)	(0.85)	(0.22)	(−1.96)
BM	0.015	−0.660 ***	0.033	−0.119
	(0.75)	(−3.23)	(1.36)	(−1.32)
LEV	0.011	−0.491	−0.000	0.594 ***
	(0.47)	(−0.79)	(−0.01)	(3.16)
Big4	0.002	0.004	−0.041	0.038
	(0.09)	(0.02)	(−1.00)	(0.25)
Delay	−0.001	0.076	0.017	0.027
	(−0.14)	(1.01)	(1.59)	(0.60)
ICW	−0.028	−0.416	0.428 ***	0.221 **
	(−1.40)	(−1.09)	(4.74)	(2.48)
Liquidity	−0.005	1.404 ***	0.027	−0.314
	(−0.18)	(3.54)	(0.78)	(−1.39)
Year	YES	YES	YES	YES
Industry	YES	YES	YES	YES
Observations	1125	1125	1125	1125
Adj. R-squared	0.465	0.167	0.212	0.813

Notes: ABSDA is the absolute value of performance-adjusted discretionary accruals; ICW is an indicator variable that equals 1 if the company had internal control weakness and is 0 otherwise; Audit Fee is the natural logarithm of audit fees; RAM is the aggregate measure of real earning management; BCC indicates whether a firm is included in the list of the 100 Best Corporate Citizens; CSR is CSR annual quintile rankings, scaled to a range of 0 to 1. ***, **, * indicate significance level at 1%, 5%, and 10%, respectively (two-tailed tests).

examines the relation between BCC inclusion and financial reporting quality. Overall, we find no significant association between BCC and most measures of financial reporting quality, with the exception of audit fees. When Audit Fee is the dependent variable, the coefficient on BCC is positive and statistically significant (0.165, t = 5.55), indicating that BCC firms, on average, pay 16.5% higher audit fees than non-BCC firms. Panel B investigates the relation between CSR rankings and financial reporting quality, revealing no significant associations across the measures considered. Taken together, the results offer modest evidence that firms included in the BCC list may be willing to pay an audit fee premium—potentially for enhanced audit effort or expertise—to support higher-quality financial reporting. These results provide some support to H3b, which posits that CSR engagement is related to financial reporting.

4.4. Econometric Diagnostic Tests

We conduct a series of diagnostic tests to validate our regression assumptions and justify the use of fixed-effects models. First, Breusch–Pagan tests reject the null hypothesis of homoskedasticity, and Wooldridge tests indicate the presence of serial correlation within panels. To address these issues, all t-statistics reported in our tables are based on firm-clustered standard errors, which account for both heteroskedasticity and autocorrelation. Additionally, we re-estimate our models using heteroskedasticity-robust standard errors and find that the results remain consistent, with generally larger t-statistics, confirming the robustness of our findings.

We also assess multicollinearity using variance inflation factors (VIFs), all of which are below 4, indicating no serious multicollinearity concerns. The corresponding 1/VIF values further confirm that the explanatory variables are sufficiently distinct and that the coefficient estimates are stable. Finally, Hausman tests comparing fixed- and random-effects models support the use of fixed effects, which we employ in our main analyses.

5. Conclusions

This study examines the relation between corporate social responsibility (CSR) and firm performance using the 100 Best Corporate Citizens (BCC) rankings. We find that firms included in the BCC list outperform those not on the list and those with higher CSR rankings exhibit stronger future operating performance than those with lower rankings. In addition, the financial benefits associated with CSR have diminished in recent years. At the component level, we find that employee relations are the only dimension consistently associated with improved financial outcomes, underscoring the critical role of internal stakeholder management. Finally, socially responsible firms have higher GAAP effective tax rates and pay higher audit fees, indicating lower tax avoidance and a stronger commitment to high-quality financial reporting.

We caution against overinterpreting some of our findings. The lack of significant effects for several CSR components underscores the need for more granular data and suggests that certain CSR-related benefits may materialize over longer time horizons not captured within our sample period. Our evidence on the relation between CSR and tax avoidance/financial reporting quality is limited in that it does not consistently hold across commonly used empirical proxies.

Our study contributes to the CSR–financial performance debate by providing updated evidence that CSR can function as a value-enhancing strategy. By tracking how this relationship evolves over time, we show that CSR’s strategic value may decline as practices become more standardized and less differentiating, offering new insights into the strategic relevance of CSR in the context of shifting market dynamics and regulatory environments. Beyond firm performance, our findings suggest that CSR activities often complement, rather than substitute for, other forms of ethical corporate behavior, such as reduced tax avoidance and improved financial reporting quality.

Our results offer practical value for investors, regulators, and other stakeholders who rely on the BCC rankings to evaluate corporate responsibility and performance. By demonstrating that BCC inclusion and CSR rankings are predictive of both financial and ethical outcomes, our study reinforces the credibility of the BCC list as a meaningful signal of responsible corporate conduct. In doing so, we contribute to a more comprehensive understanding of how CSR engagement shapes both firm value and broader corporate behavior.

We acknowledge several limitations of our study. First, our reliance on BCC rankings as a proxy for CSR may overlook internal or qualitative initiatives not captured by publicly available data. Second, the focus on U.S. firms from 2009 to 2022 may limit the generalizability of our findings, as CSR practices and effects can vary across time periods and institutional settings. Third, despite controlling for observable firm characteristics and using matched samples, we cannot fully eliminate concerns about endogeneity, as unobserved factors like management quality may influence both CSR and performance.

Building on our findings, future research could explore several extensions. First, alternative CSR metrics, especially those less accessible but potentially more precise as used in prior research, could be used to validate and extend our results. Second, cross-country studies could examine how institutional, regulatory, and cultural factors shape the CSR–performance link, including longer time horizons. Finally, future work could investigate non-financial outcomes of CSR, or its impact on specific stakeholder groups like employees, customers, and regulators.