Abigail McWilliams and Donald Siegel discuss if there is a correlation between Corporate Social Responsibility and finance, or if it just misspecified due to limited and empirical research. The approach is made that the studies at that time had models that misspecified the correlation by eliminating important variables, with one variable being R&D (Research and Development) and the investment of it by a firm. There are two sets of studies involved: one set involving assessing the short-term financial impact if a firm were to commit socially responsible and irresponsible acts, and another set evaluating the nature of CSP (Corporate Social Performance, which is a measure of CSR) and long-term financial impact. These studies used event study methodology, a statistical method evaluate the effect of an event on a firm and its value. Results for the short term assessment were mixed, with some researches noting negative results, some researches noting positive results, and some noting no relationship between CSR and financial performance. Results for the long-term assessment were also mixed. McWilliams and Siegel expected these inconsistent results and instead believed there was a strong correlation between R&D and CSR. Testing this hypothesis by using a misspecified model by Waddock and Graves (1997) and adding R&D intensity to this model, and using CSP as a measure, they found that CSP and R&D had a strong correlation, debunking the idea that the two did not have a correlation.

This research by McWilliams and Siegel does provide a valid resource, due to the fact that they debunked the idea that CSR and financial performance did not have a strong correlation, whereas they did. Most CSR articles focus on just if there is a connection between the two, but this article proved a little different. While they did prove it did have a correlation, they presented a different side to it, basing their whole article on the question on whether or not CSR and finance were linked, and then went to prove it did. This article was cited by almost 3000 people, so it goes to show how reliable the article is. It was an interesting read because McWilliams and Siegel presented a huge aspect in the fact that many studies on CSR and finance lacked an important variable, which was R&D and then tested it to show that it was a significant variable in these studies.

Source: Mcwilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal,21(5)