Article2019

Does corporate social responsibility lead to improved firm performance? The hidden role of financial slack

Woon Leong Lin · Jo Ann Ho · Siew Imm Ng

86 citations0/0 files storedSocial Responsibility Journal

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Corporate Social Responsibility Reporting Corporate Identity and Reputation Corporate Governance and Financial Management

Abstract

Purpose The purpose of this study is to investigate the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP), as the findings on the relationship have been inconsistent and have led to calls to further examine this relationship. However, instead of investigating the connection between CSR and CFP, academics have stated that a contingency viewpoint must be used for uncovering the context and conditions which catalyse the relationship between both constructs. Design/methodology/approach This study acquired the CSR data from 100 companies listed in Fortune’s most admired US companies between 2007 and 2016. These data were used to investigate the CSR–CFP link with the help of the dynamic panel data system, which is the generalised method of moments (GMM) estimator. Findings The results indicate that CSR and CFP have a neutral relationship which characterises the effect between CFP and CSR. However, this study found that financial slack positively affected the CSR–CFP relationship, implying that companies will only benefit from CSR activities if they have excess financial resources. Originality/value This study offers a very distinctive perspective regarding the CSR–CFP link according to the financial slack perspective.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1998Initial conditions and moment restrictions in dynamic panel data models 1995Another look at the instrumental variable estimation of error-components models 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1995Initial conditions and moment restrictions in dynamic panel data models 1979A Three-Dimensional Conceptual Model of Corporate Performance 1996Agency costs of free cash flow, corporate finance, and takeovers 1995The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications

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