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Corporate social responsibility and firm financial performance: the moderating effects of size and industry sensitivity

Abstract

This paper investigates the influence of corporate social responsibility on firm performance by integrating simultaneously the moderating effects of the firm size and its industry profile. To conduct our study, we use annual environmental, social and governance (ESG) data on 407 European firms listed in STOXX Europe 600 Index during the period 2002–2018. Results reveal that the moderating effect of size is positive for environmentally sensitive industries and negative for environmentally non-sensitive industries. We conclude that in environmentally non-sensitive industries, large firms engage in symbolic CSR practices, while smaller ones implement substantive CSR actions. However, in environmentally sensitive industries, in order to meet stakeholders’ requirements, large firms engage in effective CSR initiatives, while smaller ones, being forced to involve in costly CSR practices, would be harmed and lose all interest in CSR implementation. This study has implications for policymakers, investors and corporate managers in various industries for evaluating and controlling the effectiveness of CSR practices and initiatives.

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Notes

  1. http://www.gsi-alliance.org/trends-report-2018/.

  2. https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0681:FIN:EN:PDF.

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Appendix: Variables definition

Appendix: Variables definition

Variables Abbreviation Definition
Firm financial performance Tobin’s Q
ROA
ROE
\(\frac{Market\,value\,of\,common\,equity+Total\, liabilities}{Total\,assets}\)
\(\frac{Net\,earnings}{Total\,assets}\)
\(\frac{Net\,earnings}{Total\,equity}\)
CSR scores SocEnvScore
SocScore
EnvScore
SocEnvGovScore
The equally weighted average of the social and environmental annual scores
The social score
The environmental score
The equally weighted average of the social, environmental and governance annual scores
Liquidity ratio Liquidity \(\frac{Short\,term assets}{Total\,assets}\)
Firm leverage Leverage \(\frac{Total\, liabilities}{Total\,assets}\)
Firm Size Lnassets
Lnmktcap
The natural logarithm of total assets
The natural logarithm of market capitalization
Sales growth SalesGrowth \(\frac{{Firm\,sales}_{t}-{Firm\,sales}_{t-1}}{{Firm\,sales}_{t-1}}\)
Crisis period D-crisis A dummy variable that equals one for years 2007, 2008 and 2009, and zero otherwise
GDP per Capita GDP/Capita The natural logarithm of GDP per capita for each country
Rule of law R-law The World Bank measure of the rule of law for each country provided by Worldwide Governance Indicators
Political stability Pol.Stab The World Bank measure of political stability for each country provided by Worldwide Governance Indicators

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Zaiane, S., Ellouze, D. Corporate social responsibility and firm financial performance: the moderating effects of size and industry sensitivity. J Manag Gov (2022). https://doi.org/10.1007/s10997-022-09636-7

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Keywords

  • Corporate social responsibility (CSR)
  • Financial performance
  • Size and industry moderating effects
  • Europe