CSR–Performance Relationship Paradox: The Moderating Effect of Organization Structure

Building on social capital theory and shareholder value theory, this study re-examines the paradoxical impact of corporate social responsibility investments on firm performance in light of the organizational structure. In this research, the unit of analysis is limited to Indian manufacturing firms that are publicly listed on the Bombay Stock Exchange. Using panel data from 2015 to 2022 gathered from the Prowess database, this study has established empirical proxies for corporate social responsibility, organizational structure (business group vs. standalone firm), firm performance and other pertinent variables. Subsequently, panel data regression analyses have been utilized to address the research questions. More importantly, all models incorporate industry and year effects and robust standard errors to account for heteroscedasticity. While corporate social responsibility investments create social capital and enhance performance, the results offer a striking contrast—business group firms exhibit significantly higher corporate social responsibility investments yet experience lower financial returns compared to their standalone counterparts. This paradoxical phenomenon arises from business group affiliation negatively moderating the relationship between corporate social responsibility and performance. Building on social capital theory, this research suggests that firms need to consider their organizational structure when developing corporate social responsibility strategies to maximize both financial and social performance.