Corporate Social Responsibility and Firm Financial Performance: A
Moderating Effect of Economic Policy Uncertainty
Abstract
Assessing the impact of CSR has recently gained momentum over the world.
Most related literature examines how CSR investments affect financial
performance without considering the nexus under commonly uncertain
times. The study uses Indian data to extend the nascent literature on
CSR and EPU by examining the impact of CSR on firm financial performance
during commonly uncertain times. The Panel-Corrected Standard Error
econometric technique has been employed to explore the influence of CSR
on ROE across ten years for NIFTY 100 firms. Besides, System GMM
estimation has been used to deal with the endogeneity bias. Evidence
suggests that during ordinarily uncertain periods, CSR investments act
as a social capital reservoir and improve firm financial performance.
Moreover, the results show that the positive influence of CSR during
times of uncertainty is greater for firms belonging to high visibility
and more sensitive sectors. These novel findings would help corporate
policymakers, individual investors, and managers to better understand
and minimize the losses due to uncertainty. Keywords: CSR, firm
financial performance, Economic policy uncertainty, System GMM, ROE JEL
Codes: G34, G30, D80