Effect of Financial Indicators on Corporate Social Responsibility: Evidence from Emerging Economies

The relationship between corporate social responsibility (CSR) and financial performance remains a subject of ongoing debate, particularly regarding the determinants of CSR in emerging economies. This study examines the effect of financial indicators on the level of corporate social responsibility. This study presents an integrated perspective to determine factors that can impact socially responsible behavior in developing and emerging countries. We drew our sample from 110 firms from 20 emerging economies from 2016 to 2020. We applied an instrumental variable estimation technique to address potential endogeneity and heterogeneity issues. The results revealed that financial performance is a weak determinant of socially responsible behavior in developing and emerging regions. Additionally, weak enforcement mechanisms and regulatory frameworks play a significant role in shaping CSR behaviors. Contrary to conventional assumptions, firms with higher organizational slack do not necessarily allocate additional resources toward CSR initiatives. This study contributes to the literature by providing empirical insights into the financial and institutional drivers of CSR in emerging markets and offers implications for policymakers, regulators, and corporate decision-makers aiming to enhance socially responsible business practices.