The impact of corporate social responsibility on firm financial performance: does audit quality matter?

Abstract

PurposeThe purpose of this paper is to investigate the relation between corporate social responsibility (CSR) and firm financial performance, and how audit quality moderates this relationship.Design/methodology/approachThis study uses panel dataset of 200 French firms listed during 2007–2018 period. The direct and moderating effects were tested by using multiple regression technique.FindingsThe authors find that CSR has a positive impact on firm financial performance proxy with return on assets (ROA), return on equity (ROE) and Tobin's Q (TQ), suggesting that investment in social activities helps firms to achieve better financial results. The authors also find that the improvement effect of CSR on corporate financial performance is more pronounced for firms audited by Big 4 auditors.Research limitations/implicationsOne limit of this study is the selection of independent variables. We are limited to one variable, namely CSR engagement. Further studies may consider other independent variables, such as the age of the company, the type of industry, the composition of the board of directors, etc., in order to provide an in-depth analysis of corporate financial performance drivers.Practical implicationsThe findings have practical implications that may be useful to managers in their management of the firm. They encourage all board members to seriously weigh investing in developing strategies that promote the social behavior components in order to improve overall corporate performance.Originality/valueThe research adds to the current literature on CSR by revealing the impact of external auditor quality on the CSR–financial performance relationship. In addition, it investigates not only the overall CSR ratings but also each of CSR dimensions, namely environmental, social and governance.