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.

Citation

Bhattacharyya, A. and Khan, M. (2023), "Financial inclusion, corporate social responsibility and firm performance – analysis of interactive relationship", Meditari Accountancy Research, Vol. 31 No. 2, pp. 417-440. https://doi.org/10.1108/MEDAR-12-2020-1121