Article2021

The impact of corporate social responsibility on firm financial performance: does audit quality matter?

99 citations0/0 files storedJournal of Applied Accounting Research

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Corporate Social Responsibility Reporting Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to investigate the relation between corporate social responsibility (CSR) and firm financial performance, and how audit quality moderates this relationship. Design/methodology/approach This study uses panel dataset of 200 French firms listed during 2007–2018 period. The direct and moderating effects were tested by using multiple regression technique. Findings The authors find that CSR has a positive impact on firm financial performance proxy with return on assets (ROA), return on equity (ROE) and Tobin's Q (TQ), suggesting that investment in social activities helps firms to achieve better financial results. The authors also find that the improvement effect of CSR on corporate financial performance is more pronounced for firms audited by Big 4 auditors. Research limitations/implications One limit of this study is the selection of independent variables. We are limited to one variable, namely CSR engagement. Further studies may consider other independent variables, such as the age of the company, the type of industry, the composition of the board of directors, etc., in order to provide an in-depth analysis of corporate financial performance drivers. Practical implications The findings have practical implications that may be useful to managers in their management of the firm. They encourage all board members to seriously weigh investing in developing strategies that promote the social behavior components in order to improve overall corporate performance. Originality/value The research adds to the current literature on CSR by revealing the impact of external auditor quality on the CSR–financial performance relationship. In addition, it investigates not only the overall CSR ratings but also each of CSR dimensions, namely environmental, social and governance.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1991The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders 2001Corporate Social Responsibility: A Theory of the Firm Perspective 1981Auditor size and audit quality 2010The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice 2013Corporate social responsibility and access to finance 2001Shareholder value, stakeholder management, and social issues: what's the bottom line?2006Corporate Social Responsibility: Strategic Implications*

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