Corporate social performance and financial‐based brand equity

Purpose The purpose of this research is to empirically test the interrelationship between corporate social performance and financial‐based brand equity. This paper proposes that social performance leads to enhanced brand equity and, conversely, brand equity positively influences social performance. Firm size is hypothesized to play a moderating role in the interrelationship. Design/methodology/approach This paper uses cross‐sectional, secondary data of global brands. A system of equations is proposed and estimated using seemingly unrelated regression. Findings Prior social performance has a positive effect on brand equity, but brand equity only impacts future social performance among very large firms. The positive effect of prior social performance on brand equity is amplified in smaller firms. Practical implications Managers can increase brand equity by using corporate social responsibility as a strategic tool for positioning differentiation. To maintain competitive parity in social positioning and preserve brand equity, very large firms will likely need to ensure that they achieve comparable social performance as their global peer competitors. Originality/value This research offers a new perspective that looks at corporate social responsibility as a source and outcome of brand equity. The paper is the first empirical study that tests the interrelationship between social performance and financial‐based brand equity. The work offers global managers an improved understanding on how social responsibility relates to brand equity.