Corporate Social Responsibility and “De-noised” Financial Performance: An Empirical Exploration of the Interactive and Inter-temporal Effects

This paper conducts an empirical analysis of the interactive and inter-temporal effects between corporate social responsibility (CSR) and “de-noised” financial performance under the system GMM method framework. Since the extant studies produce no conclusive findings, it is important to detail CSR’s different impacts utilizing the Rankins CSR Ratings (RKS) and to adjust financial performance indicators so that there exist no disturbances from real earnings management behaviors. The research samples are obtained from A-share listed Chinese corporations that published their social responsibility reports from 2009 to 2015, as the Shanghai Stock Exchange issued a circular on enhancing the CSR of listed companies in mid-2008 and after 2015 almost all companies reported their CSR hence eliminating the interactive effect. The research findings demonstrate that corporate social responsibility, despite the inclusion of its lagged variables up to two periods, exerts a significant positive influence on current financial performance. Additionally, financial performance lagging by one period significantly positively impacts corporate social responsibility in the current phase. These results contribute to the literature by enhancing our comprehension of the correlation between CSR and financial performance in various scenarios, elevating firms’ consciousness of social responsibility and ultimately compelling them to diligently fulfill their social obligations.