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A new approach for addressing endogeneity issues in the relationship between corporate social responsibility and corporate financial performance

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  • Liu, Wei
  • Shao, Xuefeng
  • De Sisto, Marco
  • Li, Wen Helena

Abstract

This paper aims to reexamine the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) using a panel dataset of Chinese listed firms. Previous studies obtained divergent empirical evidence on the CSR-CFP relationship due to unclear, incomplete, or inappropriate consideration of endogeneity issues. By introducing a Heckman-2SLS model, we comprehensively address the main endogeneity problems (i.e., sample selection bias, reverse causality, and unobserved heterogeneity) simultaneously within the CSR-CFP relationship. Results not only indicate a robust CSR-CFP relationship after correcting for endogeneity issues but also serve as a strong case for future investigation and correction of endogeneity issues.

Suggested Citation

  • Liu, Wei & Shao, Xuefeng & De Sisto, Marco & Li, Wen Helena, 2021. "A new approach for addressing endogeneity issues in the relationship between corporate social responsibility and corporate financial performance," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s154461231931205x
    DOI: 10.1016/j.frl.2020.101623
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    8. Changhyun Kim & Yoonseok Zang & Heli Wang & Kate Niu, 2024. "When Do Corporate Good Deeds Become a Burden? The Role of Corporate Social Responsibility Following Negative Events," Journal of Business Ethics, Springer, vol. 192(2), pages 285-306, June.
    9. Bruna, Maria Giuseppina & Lahouel, Béchir Ben, 2022. "CSR & financial performance: Facing methodological and modeling issues commentary paper to the eponymous FRL article collection," Finance Research Letters, Elsevier, vol. 44(C).
    10. Guo, Mengmeng & Wang, Huixin & Kuai, Yicheng, 2023. "Environmental regulation and green innovation: Evidence from heavily polluting firms in China," Finance Research Letters, Elsevier, vol. 53(C).
    11. Feng, Bing & Sun, Kaiyang & Zhong, Ziqi & Chen, Min, 2021. "The internal connection analysis of information sharing and investment performance in the venture capital network community," LSE Research Online Documents on Economics 112731, London School of Economics and Political Science, LSE Library.
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    15. Ben Amor, Salma & Kooli, Maher, 2024. "Does overconfidence affect venture capital firms’ investment?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
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    More about this item

    Keywords

    Corporate social responsibility; Corporate financial performance; Endogeneity; Heckman-2SLS model;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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