Financial inclusion, corporate social responsibility and firm performance – analysis of interactive relationship

Abstract

Purpose Prior studies on corporate social responsibility (CSR) and performance have frequently used unidirectional, single-equation regression although the literature recommends the reciprocal association of CSR with firm performance. This paper aims to elucidate the interactive relationship of CSR spending with financial inclusion (FI) and firm performance. The study also explores the moderating impact of the level of FI on the CSR-firm performance relationship. Design/methodology/approach This study uses a simultaneous equations model to capture the FI, CSR and firm performance relationships and apply a three-stage regression approach and generalised method of moments approach to address possible endogeneity. Findings The results confirm a positive association of CSR spending with performance but a negative relationship of FI with performance. This paper also finds that FI negatively moderates the CSR spending-performance relationship. Practical implications The positive impact of CSR spending and the negative impact of FI on performance in mandatory CSR regimes provides valuable input in policy formulation. The results of the study will also be useful to national and international organisations, such as the International Monetary Fund and the World Bank. Originality/value This study uses a simultaneous equations model to capture the reciprocal association of CSR spending with firm performance, whereas prior studies on CSR and performance have frequently used unidirectional, single-equation regression. This paper also finds that FI negatively moderates the CSR spending- performance relationship. Including FI and exploring the moderating impact of the level of FI on the CSR-firm performance relationship is novel.

Guest editorial: A short review of the role of ESG activities in business and research

“…While some studies observe a positive relation between ESG and financial performance indicators (e.g. Bhattacharyya and Khan, 2023;Bose et al, 2017;Jahmane and Gaies, 2020;Miller et al, 2020), others find a negative association between the variables or no significant relation (Hasan et al, 2022;Lee et al, 2009;Price and Sun, 2017;Soana, 2011). To reconcile the observed inconsistencies, Friede et al (2015) analyze about 2,000 papers published since the 1970s and conclude that 90% of studies find a nonnegative relationship between ESG and firm performance indicators that is stable over time.…”

“…While some studies observe a positive relation between ESG and financial performance indicators (e.g. Bhattacharyya and Khan, 2023; Bose et al ., 2017; Jahmane and Gaies, 2020; Miller et al ., 2020), others find a negative association between the variables or no significant relation (Hasan et al ., 2022; Lee et al ., 2009; Price and Sun, 2017; Soana, 2011). To reconcile the observed inconsistencies, Friede et al .…”

ESG and financial variables: a systematic review

“…The same worries about additional expenses apply to social activities as to environmental ones. Various studies have supported a positive relation (Anders en et al, 2020;Babajee et al, 2021;B atae et al, 2021;Bhattacharyya and Khan, 2021;Bose et al, 2017;Jahmane and Gaies, 2020;Martinez-Conesa et al, 2017;Miller et al, 2020) and specifically in financial crises (Cornett et al, 2016); on the other hand, studies do have evidence of immaterial influence or negative relation (Hasan et al, 2022;Lee et al, 2009Lee et al, , 2018Price and Sun, 2017;Soana, 2011); some have both perspectives (Kuo et al, 2021). A company's financial success is primarily measured by Tobin's Q and ROA.…”

“…Rodgers et al (2013) point out that, on average, investors perceive the social performance of firms positively. Firms that meet essential diversity and nature conservation criteria are most aggressive in employee relationships and are most valued by the market (Bird et al, 2007). Not all studies have advocated a favourable perception of investors regarding CSR/ESG.…”

A Bibliometric Analysis of Financial Inclusion and Future Research Opportunities

“…Based on data processed from 929 articles on financial inclusion, there are only 23 articles that directly relate their relationship to performance. Among them are linking financial inclusion to performance from a banking perspective(Al-Chahadah et al, 2020; Bhattacharyya et al, 2021; Bhattacharyya & Khan, 2021; Damayanti et al, 2020; FH Shihadeh et al, 2018; F. Shihadeh & Liu, 2019)then performance from the company perspective[37],[43],[44]and just research Ratnawati, (2020) and Wirdiyanti et al, (2022) which examines the impact of financial inclusion on MSMEs. Whereas about 90% of businesses and more than 50% of jobs worldwide are the majority of MSMEs give important contributors to job creation and economic development (world bank, 2022).…”