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AbstractR&D intensity has been highlighted as an important factor in analyzing the relationship between corporate social (CSP) and corporate financial performance (CFP). However, the underlying mechanisms of how R&D intensity influences the CSP‐CFP relationship have caused a great deal of confusion: first, while controlling for R&D intensity, studies have continued to report ambiguous results and, second, many studies have found R&D intensity to be negatively related to CFP. Motivated by insights from the innovation literature, we revise the functional relationship and examine moderation effects of R&D intensity. Accordingly, we find a u‐shaped relationship between R&D intensity and CFP. We conclude that this functional relationship is an essential finding for future CSP‐CFP studies in order to avoid misspecifications. Further, we cannot find empirical support for a moderation effect of R&D intensity. Thus, we conclude that R&D intensity and CSP should not be considered to be mutually reinforcing drivers of CFP.

AbstractFor many decades, there has been a debate about the relation between corporate social/environmental performance (CSP) and corporate financial performance (CFP). Our study presents a review of academic research on this topic by applying a second‐order meta‐analysis. The data sample combines 25 previous meta‐analyses yielding a sample size of one million observations. Our results demonstrate a highly significant, positive, robust, and bilateral CSP‐CFP relation. The relation is positive regardless of whether firms focus on ecological or social aspects, though corporate reputation turns out to be a key CSP determinant. We find a particularly strong CSP‐CFP relation for operational CFP. Furthermore, we add a new perspective on potential biases resulting from the studies' publishing source: social issues‐oriented journals and methodological weaker papers do not distort the positive CSP‐CFP relation. Our conclusion is: Based on the extant literature, the business case for being a good firm is undeniable. © 2018 The Authors. Corporate Social Responsibility and Environmental Management published by ERP Environment and John Wiley & Sons Ltd.

Good corporate social responsibility (CSR) ratings can increase a firm's legitimacy and reduce its default risk. Yet, the interpretation of CSR varies between different countries. We investigate whether CSR ratings have a risk-mitigating effect across different institutional contexts. We find that good CSR ratings have a general risk-mitigating effect. Yet, we also find that the effect decreases when the rating agency is embedded in the institutional context of its home country and the rated firm operates in a country with a different culture or regulatory system. This suggests that a rating agency's country of origin and its embeddedness in that country's context play an important role in the relationship between CSR ratings and default risk. Managerial Summary In this article, we investigate to what extent CSR rating agencies signal organizational legitimacy across institutional contexts. Specifically, we evaluate how institutional distance between the rating agency and the rated firm moderates the negative effect of the CSR rating on the firm's default risk. We compare two CSR rating agencies, OEKOM, which is strongly embedded in its institutional context, and ASSET4, which operates across diverse institutional contexts. Based on a panel of 604 firms in 13 countries from 2011 to 2016, we show that CSR ratings from both rating agencies have a risk-mitigating main effect. Yet, only in the case of OEKOM is the effect negatively moderated by regulatory and cultural distance. Thus, the legitimating effect of institutionally embedded CSR rating agencies decreases with institutional distance.