What drives the efficiency of corporate social responsibility activities? Evidence from targeted poverty alleviation projects

Purpose To investigate the efficiency of a specific corporate social responsibility (CSR) activity using a unique setting in China that provides both the input and outcome of the CSR activity. Design/methodology/approach We use the archival methodology to examine factors that affect the association between the number of people lifted out of poverty by targeted poverty alleviation (TPA) projects and the expenditure on those projects. This unique seting provides both the input and output of a specific corporate social responsibility (CSR) activity, allowing us to examine its efficiency from a firm-level perspective within a top-down policy context. Findings We find that while firms under greater political pressure spend more on TPA, they are less efficient in lifting people out of poverty. The results hold after controlling for the difficulty of the TPA projects. In addition, firms required to issue CSR reports and firms more efficient in their business operations manage their TPA projects more efficiently. Research limitations/implications The study uses data from China, where the government plays a central role in economic and social policy. Thus, our findings on political pressure might not directly apply to other institutional contexts. Our analysis is limited to TPA projects with measurable outputs, excluding those that provide significant social benefits but lack measurable and comparable outputs (e.g. education). Also, firms do not consistently disclose the locations of their TPA projects, which limits our ability to control local macroeconomic factors. Practical implications Our findings reveal decreased efficiency when firms are compelled to undertake CSR initiatives. Rather than urging expenditure on CSR, stakeholders should prioritize CSR outcomes and devise alternative mechanisms to foster voluntary participation. Our results suggest that current global initiatives to mandate sustainability reporting have the potential to promote efficient CSR practices. Social implications Our findings could help stakeholders make more informed CSR decisions, leading to enhanced social outcomes at a reduced cost. Our paper has significant policy implications, highlighting the role of business enterprises in fulfilling social goals. Originality/value We provide the first evidence on the efficiency of an individual CSR activity using firm-level data. Compared to papers on CSR’s financial outcomes, research on the social outcomes of CSR activities is limited. By examining the efficiency with which a CSR activity achieves its stated social goal, we expand the CSR research to meet the demands of a broader set of stakeholders.