Corporate Social Responsibility and Firms’ Financial Performance: A Conceptual Framework

Amin Ullah Khan, Haseeb Ur Rahman, Zafir Ullah Khan, Muhammad Zubair

Abstract


This paper conceptually analyses the impact of corporate social responsibility
(CSR) on firms’ financial performance. CSR is considered as an important business strategy that achieves a steady growth in firms’ profitability through improving their image. It includes all those strategies which account for are an ethical conduct and society friendly approach beneficial for the development of society. In addition to profit-maximization, the firm is also supposed to undertake activities which uplift the life of employees and the general public. In this regard, the conceptual framework of the current study shows that firms spend on awarding scholarships to needy students, health activities such as health awareness program, free medical camps, environmental protection awareness programs and sports activities. The conceptual framework also
highlights that firms with large capital spend more on CSR activities owing to an
increased pressure of the government, public, media and other stakeholders. Based on the previous extant literature, it is also assumed that firms which earn higher profits spend more on CSR in the coming year/s that have positive impacts on their profitability. However, by following theoretical postulations, it is assumed the relationship between CSR and firms’ profitability may be endogenous. Accordingly, this study proposes dynamic GMM estimation that is a preferred technique, particularly in the presence of endogeneity.


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ISSN 2521 – 5515