Review Of Literature Of Financial Performance

Financial performance is measured by the return on equity (ROE) ratio, variable that is widely used in Finance and Accounting related research.

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This issue is particularly useful, not only from an academic perspective, but also for financial managing concerns with leveraging sustainable profits through an adequate use of debt, as highlighted in [14]. Section 2 explores the literature that links financial performance to social performance.

Section 3 describes the FTSE4Good sustainability index.

The relationship between social and environmental performance and financial performance in companies has been a subject widely debated in the literature but the results obtained to date are not conclusive.

This research employs the fuzzy-set qualitative comparative analysis (fs QCA) and offers new evidence on the relationship between both types of performance in a sample of companies listed in the Spanish capital market.

The purpose is to examine the effect of CSP on FP along with other characteristics of companies, such as return on assets, size, leverage, and the sector of activity in which they operate.

This study makes two contributions: the first one explains how complexity theory through fuzzy set qualitative comparative analysis (fs QCA) provides a solid ground to solve the FP puzzle.The model also incorporates other business variables that might affect the relationships between both types of performance, such as return on assets (ROA) ratio, company size, debt ratio, and industry.The results suggest that, for specific industries, return on assets is a necessary condition for companies with leverage to reduce the cost of debt due to their sustainability profile and consequently boost their ROE.In order to promote this type of investments, sustainability agencies evaluate the social and environmental impacts of business actions and then, after applying their own methodologies, offer indicators of the social and environmental performance of companies.Among these tools can be found the so called sustainability index.The extensive literature that has tried, over the last decades, to correlate corporate sustainability, measured through its social and environmental performance (CSP), to financial performance has not reached conclusive results.The conflicting findings may be related to a multitude of factors [6].In the same vein, [22] highlights the importance of integrated reporting, a disclosure standard that aims to relate financial and non-financial information, as a more comprehensive view of organizational performance.This enables an organization to develop a complete framework to ensure a proper allocation of limited resources within the firm.The term ‘triple bottom line’, developed by [1], tries to emphasize three aspects, people (social), profits (economic) and planet (environmental), which must be present in the business management.The implementation of social, environmental, and economic actions with sustainability criteria is a consequence of the deep globalization that the markets have experienced and the growing demand of stakeholders of social commitment and transparency, on the part of the companies.