Exploring the linear and nonlinear impact of corporate social responsibility on firm value

Purpose: This study investigates the complex relationship between Corporate Social Responsibility (CSR) and firm value, addressing the inconsistencies in previous research. Drawing on hypotheses related to private costs, managerial deception, focus, and social impact, the study explores both linear and nonlinear effects of CSR on firm value. Design/methodology/approach: Utilising a Panel Smooth Transition Regression (PSTR) model, the research analyses data from 158 firms listed on the Tehran Stock Exchange (TSE) between 2011 and 2019. This method allows for examining potential asymmetries in the impact of CSR on firm value. Findings: The findings reveal a nonlinear relationship between CSR disclosure levels and firm value. Specifically, firm value increases as CSR disclosure rises to a threshold of 0.80, beyond which further increases in CSR disclosure negatively impact firm value. This suggests that CSR activities contribute positively to firm value up to a certain point, after which they may impose costs that outweigh the benefits. The social impact hypothesis supports the initial positive relationship, while the subsequent decline aligns with the private cost’s hypothesis. Originality/value: This study uses an advanced econometric technique to provide novel insights into the nonlinear dynamics of CSR and firm value. The results contribute to the CSR literature and offer a methodological foundation for future research on the nuanced effects of CSR in various economic contexts.