Institutional Quality and the Financial Returns of Social Supply Chain Practices

ABSTRACT Social supply chain practices (SSCP) have become increasingly relevant as firms seek to support sustainable development and respond to stakeholder expectations. This study examines the association between SSCP and corporate financial performance (CFP) and investigates the moderating role of country‐level institutional quality. Drawing on resource dependence, legitimacy, and institutional theories, we constructed a composite SSCP index based on 11 binary indicators and applied fixed‐effects panel regressions to global firm‐level data from 2018 to 2023. The results show that SSCP is negatively associated with return on assets (ROA) and Tobin's Q , while their association with market capitalization is not statistically significant. The interaction between SSCP and country‐level institutional quality is positive and significant across all three CFP measures, indicating that the estimated SSCP–CFP association becomes more favorable as institutional quality increases. However, the conditional pattern differs across the three CFP measures. For market capitalization, the association becomes positive and statistically significant at high levels of institutional quality, whereas for ROA and Tobin's Q , it becomes statistically indistinguishable from zero and does not become significantly positive within the observed range. Thus, by combining a social‐specific measure of supply chain practices, multiple dimensions of CFP, and country‐level institutional quality in a global sample, this study provides a more integrated examination of the SSCP–CFP association. These findings show that the SSCP–CFP association varies across financial measures and institutional governance contexts, highlighting country‐level institutional quality as an important boundary condition in this association.