Impact of Corporate Social Responsibility on Financial Performance of Corporations: Evidence from Pakistan

Abstract

This paper estimates the relationship of corporate social responsibility, financial performance, market value of the share and financial leverage . In this particular study, 156 listed companies on Karachi Stock Exchange (KSE) from textile sector, chemical sector, cement sector and the tobacco sector are taken. The observations are taken for the entire period of 2010 and 2011 from the published resources of state bank of Pakistan. In aggregate, the results of the study conclude that corporate social performance (CSR) has no effect on financial performance (CFP) . It is obvious from the results that CSR has negative effect on the market value of the share but no relationship to D/E behavior of the firm, significantly. Moreover, the investors do not have the same level of information as the information is captured by the management about the company affairs. In addition, the debt singling hypothesis indicates that the further incorporation of debt into capital structure should influence the behavior of the investor, regarding to the investment in the shares positively, but due to information asymmetry, it is negative. This study further provides the room to test the model of effect of CSR on stock returns in a portfolio construction.

Does Corporate Social Responsibility Lead to Improve in Firm Financial Performance? Evidence from Malaysia

“…Nevertheless, corporation still embrace in CSR as it contribute benefit to corporate public relations, media campaigns and reputation management (Boesso, Kumar, & Michelon, 2013). Furthermore, being socially responsible may direct corporation to better resource, increase employee motivation, lead to effective marketing; this entire factor will result creation of unforeseen opportunities within the industry (Iqbal et al, 2012).…”

“…However, most measures of CFP divided into two broad categories; accounting based measure (Bayoud, Kavanagh, & Slaughter, 2012;Iqbal et al, 2012;McWilliams & Siegel, 2000;Mishra & Suar, 2010;Mwangi & Jerotich, 2013) and market based measure (Lioui & Sharma, 2012). Some researcher adopts both of this measure (Ehsan & Kaleem, 2012).…”

“…One important aspect need to be taking into consideration by corporation is that being socially or environmentally responsible will definitely add costs to the organization which in turn reduce the level of company profitability (Iqbal, Ahmad, Basheer, & Nadeem, 2012;Khanifar et al, 2012). Nevertheless, corporation still embrace in CSR as it contribute benefit to corporate public relations, media campaigns and reputation management (Boesso, Kumar, & Michelon, 2013).…”

“…Most of the financial measures are obtain from company financial statement inside company annual report. Most researchers typically used accounting-based measures (Aras, Aybars, & Kutlu, 2010;Saleh, Zulkifli, & Muhamad, 2011;Sun, 2012;Bayoud, Kavanagh, & Slaughter, 2012;Iqbal et al, 2012) and market or stock based measure (Boesso, Kumar, & Michelon, 2013) as CFP measurement. The accounting measures provide most positive correlation result from analysis on relation between CSR and CFP (Dkhili & Ansi, 2012).…”

“…KLD provides rating data in seven qualitative areas namely community, corporate governance, diversity, employee relations, environment, human rights and product. Iqbal et al (2012) measure CSR by developing and computing index based on corporate governance, business ethical principle, environmental compliance, social compliance,…”