Corporate Social Responsibility and Firm Performance in GCC Countries: A Panel Smooth Transition Regression Model

Wafa Ghardallou and Noha Alessa
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Wafa Ghardallou: Department of Accounting, College of Business Administration, Princess Nourah bint Abdulrahman University, P.O. Box 84428, Riyadh 11671, Saudi Arabia
Noha Alessa: Department of Accounting, College of Business Administration, Princess Nourah bint Abdulrahman University, P.O. Box 84428, Riyadh 11671, Saudi Arabia

Sustainability, 2022, vol. 14, issue 13, 1-21

Abstract: There is evidence for mixed effects of corporate social responsibility (CSR) on corporate financial performance. In particular, evidence is reported to be positive, negative, and insignificant. These controversies are generally explained by two opposing schools of thought, which are the social impact hypothesis and the shift of focus hypothesis. This paper attempts to contribute to the ongoing debate by investigating whether the relationship between CSR and firm financial results is nonlinear. Therefore, this research relies on a panel smooth transition regression (PSTR) model in order to calculate the value transition threshold of CSR in 70 Gulf Cooperation Council (GCC) firms from 2015 to 2020, using the CSR composite index and various CSR dimensions, which include environmental, social, and governance transition dimensions. Empirical findings indicate that investment in CSR does not help to boost corporate value until it exceeds the value transition threshold. However, when the marginal benefit exceeds the cost, CSR investment becomes a positive contributor to corporate performance. Furthermore, results indicate that the nonlinear relationship persists when using the individual CSR dimensions, i.e., governmental, social, and environmental CSR measurements. Finally, an interesting finding shows that the social CSR dimension is associated with the highest threshold level. Hence, firms should invest more in the social aspects of CSR in order to see their profitability increase.

Keywords: corporate social responsibility; panel smooth transition regression model; Gulf Cooperation Council countries; firm performance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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