Does Corporate Social Performance Impact Firm Performance? Moderating Role of Corruption: evidence from Pakistan

Abstract

Financial performance and its contributing factors have been one of the most important considerations for any firm. This study examines the impact of corporate social performance (CSP) on the financial performance with and without moderating role of corruption. Proxies for financial performance are return on asset (ROA) and return on equity (ROE). Proxy for CSP is Donations or Charity while the proxy for corruption is Corruption Perception Index (CPI). Nineteen major companies were selected from sugar industry and data were collected for the period 2005-2020. Fixed effect method was used for the analysis. In the first phase, the effect of CSP on ROA was examined. Firm age, Leverage, Growth and Stock Returns were selected as controlled variables. The estimates were computed and their statistical significance was tested. The results indicate that CSP has a positively significant impact on ROA and when moderating effect of corruption was applied, more positive significant impact of CSP on ROA was observed. In the second phase, effect of CSP on ROE was determined with and without the moderating role of CPI. The results revealed that the moderating effect has increased the impact of CSP on ROE. Furthermore, it is evident from the analysis that firm age, firm growth and stock returns are directly associated with the financial performance while the leverage has an inverse relation with ROA and ROE.