How does corporate social responsibility influence firm financial performance?

Abstract

Purpose This paper has three main purposes. First, this paper aims to study the effect of corporate social responsibility (CSR) on firm financial performance. Second, this study aims to examine how mandatory CSR disclosure impacts financial performance. Further, this paper aims to investigate the intervening role of capital structure decisions on the relationship between CSR and financial performance. Design/methodology/approach Based on a sample of French non-financial listed companies over the period 2006–2017, this study uses structural equations modeling and a difference-in-differences approach to highlight these effects. Findings This paper finds that CSR has a significant positive association with financial performance. In addition, although the mandate does not require firms to spend on CSR, the socially responsible firms experience an increase in profitability subsequent to the mandate. Finally, this study argues and finds evidence that the relationship between CSR and financial performance is mediated through the capital structure channel. Originality/value This paper contributes to the literature in several ways. First, the study provides a new research stream by examining the effect of mandatory CSR disclosure on firm financial performance. Second, is to knowledge the first to examine whether and how CSR affects financial performance through the capital structure channel.