The impact of internal vs. external CSR actions on firm’s financial performance in the luxury sector

In modern times, sustainability has become an imperative issue for the luxury industry. By challenging the traditional incompatibility associated to ‘luxury’ and ‘sustainability’ concepts, recent research has provided burgeoning evidence of the great potential of alignment between these two realms. However, what the financial impact of the firm’s CSR engagement within this peculiar industry is, remains an open question. The present study aims to fill this gap by leveraging on the distinction between internal and external CSR actions, drawn upon stakeholder theory, to test their effects on firm’s financial performance (FP). Such categorization is consistent with the debate about the different impact elicited by different types of CSR activities on luxury consumers’ perceptions (Amatulli et al., 2018; Sipilä et al., 2021). Results from the regression analysis conducted show that, while employee-related CSR actions provide financial benefits in terms of operational efficiency, sales profitability and capital markets’ evaluations, those oriented toward the community (i.e., donations and charitable initiatives) are negatively associated with FP. We propose that, due to the past endurance shown by luxury firms to engage in CSR practices and the mere symbolic value that can derive from and be associated with philanthropic actions, pursuing organizational legitimacy through company-external good causes may not be suited to enhance financial performance. The study contributes to the broad CSR literature by providing empirical evidence from a still under-explored business and enriches the ongoing debate on luxury brand management and responsible practice at a strategic level.