How does corporate social and environmental responsibility contribute to investment efficiency and performance? Evidence from the financial sector of China

Abstract

Corporate social responsibility (CSR) and corporate environmental responsibility (CER) are important determinants of a firm’s investment efficiency and financial performance. However, there is scant literature using the financial sector, and studies have excluded the financial sector due to its different capital structure. Therefore, this study investigates the effect of corporate social and environmental responsibility on China’s financial institutions’ investment efficiency and financial performance from 2010 to 2019. The data analysis consists of multivariate Driscoll and Kraay regression analysis, while a two-stage least squares regression is also used for robustness purposes. The results show a significant positive relationship between corporate social responsibility, investment efficiency, and the performance of financial institutions. The results also show that environmentally responsible firms perform better in terms of investment efficiency and financial performance. Furthermore, for non-state-owned enterprises, this impact is higher as compared to state-owned enterprises. Therefore, managers should strategically consider corporate social and environmental responsibility to reduce agency problems and improve their investment efficiency and performance.