Moderating role of firm characteristics on the relationship between corporate social responsibility and financial performance: evidence from India

Purpose - The effect of corporate social responsibility (CSR) on corporate financial performance (CFP) is shown to depend on both firm-specific and external factors. This study investigates the moderating role of two firm-specific factors – the firm life-cycle stage and ownership structure – on the CSR–CFP relationship in a developing economy setting – India. Design/methodology/approach - The study covers 1,419 listed companies in India during 2015–21. The firm lifecycle is represented using firm age and future growth prospects. Ownership is represented through a dummy variable and promoters’ holding percentages. Return on assets (RoA) is used as a measure of CFP, while CSR intensity, i.e. the ratio of CSR expenditure to profit after tax (PAT), is used to represent CSR. Fixed effect panel regression and generalized method of moments (GMM) models are used for data analysis. Findings - CSR expenditure has a significant negative impact on CFP. Firm age and future growth prospects amplify this negative impact, indicating that the firm life-cycle has a significant negative moderating effect on the CSR–CFP relationship. Furthermore, the impact of CSR on CFP is worse for government companies than private ownership. Promoters’ holdings have a positive impact on the CSR–CFP relationship. Research limitations/implications - The results question the validity of mandatory CSR expenditure on companies operating in developing countries and call for a differentiated policy approach to CSR expectations based on firm characteristics. This study also enhances the existing literature on CSR–CFP. Originality/value - The growing research on CSR–CFP has limited coverage of firm characteristics as contributing factors. Hence, this paper helps in enhancing the existing literature on CSR–CFP and makes it more relevant to firms with specific characteristics.