Impact of Corporate Social Responsibility on Financial Performance of Non-Financial Firms: Evidence from Pakistan Stock Exchange

Abstract

Basic purpose of this study is to find relationship between Corporate Social Responsibility (CSR) variables and indicators of Corporate Financial Performance (CFP). Charitable Donations, Board Independence, CEO Duality and Audit Committee Independence are used as proxy for CSR. Corporate Financial Performance is measured through Tobin’s Q, Return on Assets (ROA) and Return on Equity (ROE). Firm Size, Risk and Leverage are used as control variables. Fixed and Random Effect Models are applied to examine the panel data from 2008 to 2013. Based on Hausman test, random effect model was appropriate when CFP is measured with ROA and ROE; whereas fixed effect gives plausible results in case of Tobin’s Q. Charitable donations have a significant positive impact on ROA and ROE, whereas CEO duality has a negative impact on ROA and audit committee independence has a positive relationship with ROE. CEO duality also has a negative impact on CFP when measured through Tobin’s Q. The empirical findings of the study help to safely conclude that better CSR practices enhance the corporate financial performance of non-financial firms in Pakistan.