The Relationship Between Corporate Social Responsibility and Corporate Financial Performance: A Moderating Effect of Economic Policy Uncertainty

Hongwei Cheng,Van-Thi Dao,Manh-Trung Phung

doi:10.5430/ijfr.v11n5p304

Abstract

Within recent decades, researches on corporate social responsibility (CSR) has been receiving more attention over the world. The existing literature on CSR is very diverse, both in evaluating the performance of CSR activities as well as and the relationship between CSR disclosure and firms’ outcome. This paper extends the literature of the latter case, that is, not only it aims to purely examine the relationship between CSR disclosure activities and corporate financial performance (CFP), but also consider this nexus under economic policy uncertainty (EPU) context. Our primary data is collected from more than 500 listed companies in the Vietnamese stock market from 2013 through 2017, while secondary data (CSR and EPU) are self-calculated under serial criteria. Our results support the hypothesis that the more companies intensively disclose CSR, the higher financial performance (both ROA and Tobin’s Q) they could obtain. More interestingly, we find that while EPU seems to weakly moderate the relationship between CSR disclosure and “internal financial performance” (ROA), it will significantly diminish the effect of CSR toward “external financial performance” (Tobin’s Q). The research shed light on an approach to measure CSR disclosure indexes for the emerging market as in Vietnam. Our findings encourage the firm’s managers to pay more attention to CSR disclosure activities due to the positive benefit that their firm could obtain and suggest policymakers to maintain a stable economic background for a sustainable market.

Highlights

Within recent decades, corporate social responsibility (CSR) disclosure activities have been increasingly attracting the attention of investors, customers, suppliers, employees, and governments around the world, especially, after some global corporate scandals, such as those of Nike (1997), Gulf of Mexico (2010) and Volkswagen (2015) (Note 1)
CSR has become a standard for business management at a global level, with international reference standards set by the United Nations, the European Union (EU), the World Business Council for Sustainable Development (WBCSD), Organization for Economic Co-operation and Development (OECD) and International Labor Organization (ILO) conventions
The main objective of this study is to examine the relationship between CSR disclosure activities and corporate financial performance (CFP) under independent and economic policy uncertainty (EPU)-moderating-effect contexts

Summary

Introduction

Corporate social responsibility (CSR) disclosure activities have been increasingly attracting the attention of investors, customers, suppliers, employees, and governments around the world, especially, after some global corporate scandals, such as those of Nike (1997), Gulf of Mexico (2010) and Volkswagen (2015) (Note 1). Some traditional studies reveal a negative influence of CSR disclosure activities on corporate financial performance (CFP) and explain this by problems of agency cost theory (Barnea and Rubin, 2010), that is, CRS activities may benefit firm‟s managers through corporate charity while they would harm stockholders‟ return due to the CSR disclosure expenses. Researchers following stakeholders‟ perspective believe that an increase in social expenditure and disclosure corresponds to the improvement of external relationships (e.g. with other stakeholders, government, consumers, or environmental policymakers). The utility of these activities was evident that they can offset and cheapen operation expenses (Freeman, 1994)

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