The effect of corporate social performance on the financial performance of business‐to‐business and business‐to‐consumer firms

There exists a widespread managerial belief that higher corporate social performance (CSP) increases both firm value and sales. Although numerous studies provide evidence of a positive effect of CSP on firm value, whether CSP can impact sales remains largely unknown. Can CSP influence sales? Is this effect contingent on the product‐market profile, that is, on whether firms operate in business or consumer markets? We use a panel dataset comprising 23,769 firm‐year observations to help address these questions. We find that higher CSP has a strong negative effect on sales for business‐to‐consumer firms but an insignificant or economically trivial effect for business‐to‐business firms. However, we also find that higher CSP has a positive effect on firm value for both types of firms. Taken together, these results demonstrate that higher CSP results in higher firm value but can hurt sales. We discuss the theoretical contributions and managerial implications of these findings.