The Impact of Firm Performance and Corporate Governance on Corporate Social Responsibility

Abstract

Based on the behavioral aspect of the governance theory, this chapter explores the effect of the firm performance and corporate governance (CG) on corporate social responsibility (CSR) engagement by investigating their causal effects. Using annual reports of a large and extensive sample of French firms for the year 2014‐2016, we find that firm performance significantly improves that firm's social responsibility, but it has a significant and negative impact when we consider corporate government as a contingency factor. The results show that the existence of institutional administrator is in favor of CSR while it is the inverse effect when we consider the other independent administrators. However, we fail to find any significant impact of administrator's expertise. Our results suggest that pressures exerted by outsiders and corporate governance mechanisms influence CSR practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organizational legitimacy through CSR. The study findings should be of interest to regulators and policy makers.