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Corporate
Corporate social responsibility social
investment, third-party assurance responsibility
investment
and firm performance in India
The moderating effect of financial leverage 303

Kofi Mintah Oware and Thathaiah Mallikarjunappa Received 13 August 2018

Revised 25 December 2018
Department of Business Administration, Mangalore University, Konaje, India 26 February 2019
20 May 2019
1 August 2019
Abstract Accepted 4 August 2019

Purpose – Corporate social responsibility (CSR) has evolved since the nineteenth century and is becoming
mandatory for firms. However, the association between CSR and financial performance remains fluid. The
purpose of this paper is to examine the mediating effect of third-party assurance (TPA) and the moderating
effect of financial leverage in CSR – financial performance relationship.
Design/methodology/approach – Panel and hierarchical regression models are used to analyse data
covering 29 companies in the Indian stock market for the period, from 2010 to 2017.
Findings – The study shows that CSR has a positive association with financial performance (ROA (return on
assets) and ROE (return on equity)) of listed firms in India. The second finding shows that TPA has a negative
association with financial performance (ROA and ROE) and negatively mediate the association between CSR
and financial performance (ROA and ROE). Further, the findings also show that financial leverage has a
negative association with ROA but no association with ROE, and is unable to moderate the association
between CSR and financial performance. Lastly, financial leverage has no association with TPA and unable to
moderate the association between CSR and TPA.
Research limitations/implications – The scope of the study is limited to large firms submitting
sustainability reports based on the Global Reporting Initiative (GRI) guidelines, and this criterion is likely to
limit the generalisation of the findings.
Practical implications – Capital market investors look for new markets to invest, and CSR results show a
positive return for equity investors, which may encourage capital market investments in a mandatory CSR
environment. The mediating effect of TPA has the potential to force managers to undertake CSR activities,
which leads to a user-friendly environment and improved social sustainability.
Originality/value – Previous studies show a mix association between CSR and financial performance.
Nevertheless, some of the possible reasons for the mix association have not received scholarly attention.
Hence, the role of the mediating effect of TPA and the moderating effect of financial leverage in CSR-financial
performance relationship.
Keywords Financial leverage, Corporate social responsibility, Financial performance, CSR investment,
Natural Resource-based view, Third-party assurance reporting
Paper type Research paper

1. Introduction
Corporate social responsibility (CSR) includes the activities of businesses that are
economically profitable, legal, ethical and socially undertaken in communities and has
evolved through different definitions to include responsibility of every person in the society to
make the environment user friendly (Spector, 2008; Carroll, 1979; Eilbert and Parket, 1973;
Davis and Blomstrom, 1966). An understanding and application of CSR require a theoretical
framework to give meaning to CSR associations. Natural resource-based view (NRBV ) by
Hart (1995) makes it possible to understand the relationship between CSR and financial
performance from a theoretical perspective (Salehi et al., 2018; Kim et al., 2018; Al-Malkawi and
Javaid, 2018; Geetika and Shukla, 2017; McWilliams and Siegel, 2000).
South Asian Journal of Business
Managers struggle to balance profitability and CSR objectives because empirical Studies
evidence on CSR and financial performance relationship is mixed (Kim et al., 2018; Vol. 8 No. 3, 2019
pp. 303-324
Buallay, 2018; Qui et al., 2016; KPMG, 2011. Past authors believe an inconclusive consensus © Emerald Publishing Limited
2398-628X
on the underlying factors and measurement errors causes mix results (Alshehhi et al., 2018; DOI 10.1108/SAJBS-08-2018-0091
SAJBS Waddock and Graves, 1997; Aupperle et al., 1985). For example, CSR disclosure accuracy
8,3 relies on what to include by the researcher hence an inconsistency among research inclusion
criteria (Waddock and Graves, 1997; Aupperle et al., 1985). Despite the above, most
researchers agree that there is a positive linear association between CSR and financial
performance in terms of its covariance properties (Mikołajek-Gocejna, 2016).
CSR responds to social needs in a sustainability report of firms and firms use
304 sustainability reports to communicate to society and stakeholders on firm contribution
towards global sustainable development goals advocated by UN (UN, 2018; GRI, 2006;
Elkington, 1999). An assured sustainability report increases the confidence of
stakeholders in firm social activity verification (Akisik and Gal, 2014). However, the
presence of third-party assurance (TPA) to ensure a firm honours its social responsibility
to citizens and as well as its effects (third-party assurance) on firm performance needs
further investigation.
An assessment of the financial position in terms of financial leverage has the likelihood
to affect the relationship between CSR, TPA and financial performance. Financial leverage
measures the ratio of total liabilities to total assets of a firm (Cormier et al., 2011).
Most decisions require finance, and Hategan et al. (2018) ask a relevant question. Do firms
continue to undertake CSR even in the wake of loses on their balance sheets? Different
authors examine the relationship between financial leverage and financial performance (see,
e.g. Zeitun and Saleh, 2015; Alcock et al., 2013). However, the moderating effect of financial
leverage has not received much attention in the CSR-financial performance relationship.
The motivation for this study is investigating the role of TPA in the relationship between
CSR and financial performance in an emerging economy and also how financial leverage
influences a CSR-financial relationship of a firm. Hence the research objective investigates
the association between CSR and financial performance, the mediating effect of TPA and the
moderating effect of financial leverage in India. The study uses India because the
government amended its CSR requirements for large firms in the Companies Act 2013,
section 135, from voluntary in 2009 to mandatory in 2013. The Act makes it mandatory for
companies with at least Rs 5 crores net profit or Rs 1,000 crores turnovers or Rs 500 crores
net worth to spend at least 2 per cent of the average net profits of three years, immediately
preceding the financial year on CSR agenda (MCA, 2009, 2013).
The rest of the study is in the following sections – Section 2 covers the related literature
and hypotheses development. Section 3 describes data and methodology. Section 4 deals
with empirical results and discussions and Section 5 documents the conclusions and
implications of the study.

2. Literature review and hypotheses development

Currently, many theories, including the NRBV, are explaining CSR and firm performance.
However, the NRBV is appropriate and consistent with the intent of this study because it
addresses the effect of the environment. Literature by other authors on CSR, third-party
assurance, financial leverage and financial performance are also discussed.

2.1 Theoretical framework – natural resource-based view and CSR

The resource-based view (RBV ) contends that future profit is associated with the
competitive advantage of a firm and competitive advantage is linked to firm resources in
the form of tangible, intangible, personnel-based resources and its internal capabilities
that are difficult to copy (Grant, 1991; Barney, 1991). The RBV supports the ability of a
firm to organise its internal competencies and resources to achieve a competitive
advantage in the pursuit of current and future profit (Grant, 1991). The omission
of the natural environment renders RBV theory incomplete especially in the time of
global awareness of environmental degradation and fast depletion of natural resources
(United Nations, 2013; Das and DiRienzo, 2010; Hart, 1995). Hence the NRBV covers the Corporate
interrelation between firm resources, capabilities, and sources of competitive advantage social
as well as the limitation that natural environments pose to current and future profits responsibility
(Hart, 1995). TPA forces firms to act in an environmentally appropriate manner consistent
with sustainability reporting and sustainable development goals (Maas et al., 2018), a investment
pillar in NRBV and may also contribute to CSR-financial performance relationship.
305
2.2 CSR and financial performance
Managers struggle to balance firm activities and CSR needs (Russo and Fouts, 1997; Wood,
1991) because results on CSR and financial performance relationship are mix (e.g. Kim et al.,
2018; Al-Malkawi and Javaid, 2018; Salehi et al., 2018; Geetika and Shukla, 2017; Qui et al.,
2016; Nakamura, 2015; Rakotomavo, 2012; Shen and Chang, 2009; McWilliams and Siegel,
2000). Reasons for mix results include measurement error and problems of CSR variables
(Waddock and Graves, 1997; Aupperle et al., 1985). Previous quantitative CSR research use
CSR disclosures as a proxy (see Syamni et al., 2018; Buallay, 2018; Liu and Zhang 2017;
Qui et al., 2016). A critical analysis of CSR disclosure as a measurement scale mostly shows
mix results because of weak characteristics of disclosure measurement compared to ratio scale
measurement (Hair et al., 2013; Waddock and Graves, 1997). Actual CSR expenditure incurred
or investment is hoped to cure the measurement errors associated with CSR proxy
(Nakamura, 2015; Aupperle et al., 1985).
In the context of India, there are both qualitative (Kumar et al., 2018; Gon and Mititelu,
2016) and quantitative studies on CSR (Maqbool and Zameer, 2018; Geetika and Shukla,
2017; Singh and Ahuja, 1983), but the quantitative studies are limited. Studies by Geetika
and Shukla (2017) and Maqbool and Zameer (2018) show a positive association between CSR
and financial performance of banks in India, even with the pressure of migration from
voluntary to mandatory CSR (Vijita and Aruna, 2019). Nevertheless, can a non-bank firm
which is limited by natural resource still leverage its internal competence to achieve future
profits, when the government has CSR, which is mandatory? There is a need for further
studies in all other sectors apart from the banks in the context of CSR voluntary and
mandatory policies:
H1. There is a positive association between CSR and financial performance (ROA and
ROE) of listed firms in India.

2.3 Mediating effect of third-party assurance

Previous studies show a positive association between CSR and financial performance
(Salehi et al., 2018; Amini and Bianco, 2017). However, TPA to influence the association
between CSR and financial performance has still not received much attention. Reeve (2003)
defines sustainability assurance as “auditing, verification, and evaluation of the quality of
public reports, management systems and the competencies that deliver required information
which underpins an organisation’s performance”. TPA ensures that CSR reporting for
stakeholders are accurate and gives social legitimacy to firm operations as well as puts
pressure on the firm to act appropriately (Weber, 2018; Akisik and Gal, 2017; Jones and
Solomon, 2010; Hodge et al., 2009; Owen and O’Dwyer, 2004; Hedberg and Malmborg, 2003).
Credibility separates trusted firms from untrusted firms and gives importance, especially
when sustainability quality is low (Priyanka and Ajay, 2018; Weber, 2018; Park and
Brorson, 2005; Hedberg and Malmborg, 2003; Owen and O’Dwyer, 2004). A firm legitimacy
is also enhanced in the communities of operations as a result of the relevance of TPA
(Akisik and Gal, 2014; Hodge et al., 2009; Hedberg and Malmborg, 2003). TPA through
third-party firms, which is outside the control of management affects NRBV in giving
SAJBS pressure and ensure the trustworthiness of a firm as environmentally friendly is known and
8,3 rewarded by stakeholders.
A firm that engages TPA falls into a category of high accountability to the public on its
sustainability efforts, and the report from a third-party firm increases information quality.
The information quality is a competitive advantage, as proposed by NBRV (Maas et al.,
2018; Hart, 1995). A competitive advantage leads to high profitability (Hart, 1995). A firm
306 with high profitability potentially spends more on CSR initiatives making the world a better
place (United Nations, 2013; UNEP, 2005). The output from an assurance report reflects an
accurate sustainability report to stakeholders (Gomes et al., 2015; Maas et al., 2014). The
evidence of an assurance report prevents a firm from wanting whitewash reports to please
the public as environmentally and socially responsible ( Javed et al., 2016) and differentiates
a firm that is transparent and committed to society and the community (Ballou et al., 2018).
TPA as a mediating variable (Aguinis and Glavas, 2012; Hasan et al., 2008) from the
aforementioned is an important concept in the CSR- financial performance relationship and
the lack of evidence of TPA in CSR-financial performance needs scholarly attention.
Therefore, the below hypothesis:
H2. TPA mediates the association between CSR and financial performance of listed
firms in India.

2.4 Moderating effect of financial leverage

Financial leverage measures the ratio of total liabilities to total assets of a firm and has the
strategic implication of impacting negatively on CSR and financial performance (Cormier et al.,
2011; Teece et al., 1997; Hart, 1995). Different studies show mix relationship between financial
leverage and financial performance (see e.g. Harjoto, 2017; Zeitun and Saleh, 2015; Mishra and
Modi, 2013; Alcock et al., 2013). Previous studies also show that financial leverage is
associated with different variables, for example, real estate variable (Alcock et al., 2013), firm
valuation (Bae et al., 2017), CSR (Mishra and Modi, 2013) and or financial performance (Goela
et al., 2015). The importance of financial leverage cautions managers in decision-making
(Goela et al., 2015; Zeitun and Saleh, 2015; Mishra and Modi, 2013), but the importance of
financial leverage as a moderator has not received the needed attention. Hategan et al. (2018)
ask a relevant question. Should firms continue to undertake CSR even in the wake of loses on
their balance sheets?
Financial leverage does affect not only CSR but also affects TPA (Md Borhan and Thi,
2019; Harjoto, 2017; Mishra and Modi, 2013; Broye and Weill, 2008). Financial leverage has a
direct impact on the resource capacity of a firm, and a combination of CSR and TPA can
mitigate the constraints posed by the natural environment and increase profitability
(Hodge et al., 2009; Grant, 1991). Based on the above, this study tests the moderating effect of
financial leverage in the CSR financial performance nexus as well as the CSR TPA nexus:
H3a. Financial leverage moderates the association between CSR and financial
performance of listed firms in India.
H3b. Financial leverage moderates the association between CSR and TPA of listed
firms in India.

3. Data and methods

3.1 Sample and data sources
3.1.1 Sample and sample selection. Listed firms in India stock market that produces
sustainability reports with GRI guidelines form the sample to test the mediating and
moderating variables of TPA and financial leverage in CSR-financial performance relationship.
Green Clean organisation reports on firms in India that produce sustainability reports Corporate
based on the Global Reporting Initiative (GRI) guidelines (Green Clean Guide, 2011). social
A total of 35 listed firms use GRI guidelines since 2010, but five are banks and excluded responsibility
because of the regulations that govern their operations, consistent with non-banking
institutions studies (Macve and Chen, 2010; Schultz et al., 2010; Dittmar and Mahrt-Smith, investment
2007). The remaining 30-listed firms cover nine industries and data collection exercise
shows not all firms have data for relevant periods. Hence, this study uses a panel of 29 307
firms with 232 firm-year observations, which meets the threshold recommended by
Roscoe (1975). The period of study is from 2010 to 2017. In 2009, the Government of India
introduced voluntarily reporting on CSR, where listed firms were encouraged to report on
CSR activities voluntarily (MCA, 2009). Further, legislation was passed in 2013, to change
voluntarily reporting CSR to mandatory reporting (MCA, 2013) and hence, the availability
of data on CSR investments of firms for the study period.
3.1.2 Data source. The integrated financial reporting of listed firms practising
sustainability reporting based on GRI guidelines are available on each firm’s web page or
India stock market. The integrated financial reporting is made up of yearly annual reports
which comprise, board chairman’s report, corporate governance report, sustainability
reports (based on GRI), standalone annual financial statements and consolidated financial
statements. The calculated ROA and ROE are from stand-alone annual reports. CSR
investment and TPA variables are from sustainability reports and computed financial
leverage is also from standalone annual financial statements. Control variables are from the
integrated financial statement. This study uses audited stand-alone annual financial reports
for financial data for each year ending 31 March.

3.2 Variables
3.2.1 Dependent variable. Extant studies use return on equity (ROE) and return on asset
(ROA) as the dependent variables to represent financial performance (Geetika and Shukla,
2017; Liu et al., 2014; Graves and Waddock, 1994). ROE is the net income over shareholder
equity, and it measures how a firm uses shareholders’ funds to generate profits. ROA is
equal to net income divided by total assets of the firm, and it shows how efficiently firms can
turn their assets around to generate profit over an accounting period.
3.2.2 Independent and control variables. The explanatory variables in the study include
CSR investment, TPA and financial leverage:
(1) CSR investment is a proxy for CSR. The monetary values of CSR are in the
sustainability report of firms, which is part of a firm integrated financial reporting to
stakeholders and captured under social performance. CSR investment is monetary
values converted into natural logarithms form, which is consistent with other studies,
and the expected sign is positive (Geetika and Shukla, 2017; Nakamura, 2015).
(2) TPA reporting represents assurance on sustainability reports given to
stakeholders. Assurance report forms part of sustainability reports of listed
firms. The measure is a qualitative response variable of 1 for the presence of an
assurance report and 0 for the absence of an assurance report, consistent with
other studies (Akisik and Gal, 2014).
(3) Financial leverage measures the ratio of total liabilities to total assets. The
calculated is on the stand-alone audited financial statement, which is part of the
integrated financial reporting of firms to stakeholders at the end of each accounting
period. Previous studies mostly show a negative association of financial leverage
with the financial performance or CSR (Mishra and Modi, 2013; Cormier et al., 2011;
Brammer and Pavelin, 2008; Clarkson et al., 2008).
SAJBS (4) In line with previous studies (Liao et al., 2018; Li et al., 2017; Inoue and Lee, 2011;
8,3 Jackson and Apostolakou, 2010), we add the following control variables. Industry
type has effects on firm financial performance and CSR because some industries
are more prone to hazardous waste than others and it is a dummy variable (see
Shabana et al., 2017; Jackson and Apostolakou, 2010; Patten, 1991). Firm size
influences a firm’s capacity to undertake CSR activities. Hence we include the
308 logarithm of total assets in our model to control for the effects of firm size (see
Mishra and Suar, 2010; Clarkson et al., 2008). Board size measures the number of
directors serving on the board and mostly shows a significant positive association
with financial performance (Liao et al., 2018; Inoue and Lee, 2011), and added as a
control variable. CEO duality is measured as one when the CEO is not the
chairman of the board and zero otherwise. The separation between CEO and
chairman position is more likely to impact the engagement of TPA (Zou et al., 2015;
Forker, 1992) so we add it as a control variable. Sales growth is measured by the
natural logarithm of sales of the current period to previous period multiplied by
100 per cent and is included as a control variable to reduce the impact of
substantial sales revenue of firms (see McGuire et al., 1988). Year indicator dummy
represents the timing effect, and uses a dummy variable in the model to control the
year effect (see Qui et al., 2016) and independent directors is measured as the
number of independent directors serving on the board, which mostly has a
significant positive effect on financial performance (Li et al., 2017), is added as a
control variable.

3.3 Method
The relationship between CSR, third-party assurance, financial leverage, and financial
performance are discussed and analysed using Stata 15.0 under two methods, panel
regression (fixed effects (FE) and random effects (RE)) model and hierarchical regression
(HR) model.
3.3.1 Panel regression (FE and RE) models. This study applies panel regression (FE and
RE) to test the proposed hypotheses. TPA can be a mediator variable if it meets the
conditions specified in Zhao et al. (2010) and Baron and Kenny (1986). First, a significant
association between CSR and financial performance, second, a significant association
between TPA and financial performance and lastly a significant association between CSR
and third-party assurance. However, a modern approach proposed by Zhao et al. (2010)
has also been applied to determine the mediating character of third-party assurance.
Zhao et al. (2010) argue the existence of mediation when the indirect effect (i.e. path a × b)
is significant and Sobel–Godman test (Zhao et al., 2010; Sobel, 1986; Goodman, 1960)
produces the direct effect and indirect effect of the mediation analysis. A competitive
mediation occurs when an indirect path and direct path are significant, but the sign of
significance goes in the opposite direction (Zhao et al., 2010). Sobel–Godman test bases are
on Baron and Kenny (1986) conditions. A variable is a mediator when first the
independent variable significantly affects the mediator. Second, the independent
variable significantly affects the dependent variable when there is no mediator. Third,
the mediating variable has a significant effect on the dependent variable, and finally, the
effect of the independent variable on the dependent variable reduces when the equation
adds the mediator (Sobel, 1986; Goodman, 1960).
This study employs panel data because the data set is a combination of cross-sectional
and time-series characteristics. Panel data set has the advantage of giving more degrees
of freedom, more variability, more information and less multicollinearity among the
variables and also has a possibility of controlling for individual or time heterogeneity
(Hsiao, 2014; Hans-Jürgen et al., 2013; Baltagi, 2005): Corporate
social
Financial Performanceit ¼ b0 þb1 CSR investmentit þb2 Thirdparty assuranceit
responsibility
þb3 Fiancial leverageit þb4 CEO dualityit investment
þb5 Independent board sizeit þΒ6 Board sizeit
309
þb7 Firm sizeit þ b8 Year effectit þb9 Industry typeit
þb10 Growth salesit þeit ; (1)

Thirdparty assuranceit ¼ b0 þb1 CSR investmentit þb2 Financial leverageit

þb3 CEO dualityit þb4 Independent board sizeit

þb5 Board sizeit þb6 Firm sizeit þb7 Year effectit
þb8 Industry typeit þb9 Growth salesit þeit : (2)
3.3.2 Hierarchical regression model. The HR model is used to test H3a and H3b, which is
consistent with existing studies (see Xie et al., 2017; Zhang, 2012). A variable is a moderating
variable when the interactive variable of “CSR investment × financial leverage” is
significant (Baron and Kenny, 1986) in an association with dependent variables of financial
performance or third-party assurance. Moderating variable strengthens the association
between two variables (Baron and Kenny, 1986) in a study. Hence, we test to see if the
moderating variable of financial leverage strengthens the relationship between CSR and
financial performance or CSR and TPA (dependent variable). The rationale for the
introduction of moderating variables is due to an inconsistent relationship between CSR and
financial performance reported in previous studies. Data analysis process includes the
following steps. In the first step, we enter the control variables. In the second step, we add
the independent variable, CSR investment. In the third step, we add the moderating variable
of financial leverage, and in the fourth step, we add the interactive variable of combined CSR
investment and financial leverage.

4. Empirical results and discussion

This section presents the findings of the study on CSR, third-party assurance, financial
leverage and financial performance of listed firms on the Indian stock exchange.

4.1 Descriptive and correlation analysis

Table I presents the mean, standard deviation and correlation analysis of variables. The
descriptive statistics show that 84 per cent of the firms under study use the services of TPA
providers. CSR investment, a proxy to CSR is not distributed evenly, because the average
mean is 5.32, and the standard deviation of 1.88 deviates by 35 per cent from the average
mean. Financial leverage with an average mean of 0.47 and a standard deviation of 0.17 is
not fairly even among the firms under study. Further results from correlation analysis show
that CSR and financial leverage are significant and correlate with financial performance.
TPA is significantly correlated with CSR but not significantly correlated with financial
performance. Based on the “rule of thumb” test as proposed by Hair et al. (1995), any
correlation coefficient exceeding 0.8, indicates a potential problem of multicollinearity.
However, all independent variables are lower than 0.8 and are consistent with other studies
(see Zhang, 2012; Eng and Mak, 2003).
 8,3

310

Table I.
SAJBS

Descriptive and
correlation analysis
Mean SD 1 2 3 4 5 6 7 8 9 10 11 12

Variables
1. ROA 1.81 0.95 1
2. ROE 2.42 0.95 0.92*** 1
3. CSR inv. 5.32 1.88 0.39*** 0.29*** 1
4. Third-party ass. 0.84 0.36 −0.03 −0.07 0.44*** 1
5. Financial lev. 0.47 0.17 −0.72*** −0.46*** −0.42*** −0.04 1
6. CEO duality 0.68 0.47 0.11 0.06 −0.09 −0.24*** −0.23** 1
7. Indep. BOD 6.09 1.84 0.27*** 0.21** 0.33*** 0.21** −0.17** −0.14* 1
8. Board size 11.57 2.58 0.22*** 0.20** 0.46*** 0.25*** −0.16* −0.06 0.73*** 1
9. Firm size 12.35 1.48 0.01 0.05 0.74*** 0.54*** 0.00 −0.13** 0.20** 0.43*** 1
10.Year effect 13.50 2.30 −0.15** −0.23*** 0.21** 0.12** −0.14** 0.05 −0.14** −0.04 0.16** 1
11. Industry type 0.24 0.43 −0.12* −0.01 0.42*** 0.21** 0.17** −0.13** −0.18** 0.06 0.60*** −0.00 1
12. Growth sales 0.85 0.59 −0.11* −0.13* 0.17** 0.29*** 0.00 −0.01 0.04 0.06 0.26*** 0.23*** 0.04 1
Notes: n ¼ 232. *p o0.10; **p o0.05; ***p o0.01 (two-tailed)
4.2 Panel regression test Corporate
Poolability is a test for Pooled ordinary least square (OLS) vs FE, and the Hausman test social
determines model appropriateness between RE and FE (Baltagi, 2005; Hausman, 1978). F-test responsibility
is the test applied to choose between Pooled OLS and FE (Baltagi, 2005). The comparison is on
restricted and unrestricted least squares. F-test is equal to ðR2UR R2R Þ=m divided by investment
ð1R2UR Þ=ðnkÞ, where R2UR is R2 of unrestricted regression, R2R is R2 of restricted regression,
m is a number of restrictions, n is the number of observations and k is the number of 311
parameters. A null hypothesis is where Pooled OLS is appropriate, and p-values are not
significant at 5 per cent level of significance. Hausman test chooses between RE and FE for
model appropriateness after the poolability test between Pooled OLS, and FE has shown that
Pooled OLS is not appropriate (Hausman, 1978). Poolability test using F-test under ROA
shows F (28,194) ¼ 5.27 and is significant at 1 per cent ( p-value is equal to 0.000), hence Pooled
OLS is rejected. Using a Hausman test to choose between FE and RE shows p-value is equal to
0.2554, which is not significant, hence RE is appropriate for the ROA model. Poolability test
using F-test under ROE shows F(28,194) ¼ 5.66 and is significant at 1 per cent ( p-value is
equal to 0.000), hence Pooled OLS is rejected. Using a Hausman test to choose between FE and
RE, the p-value is equal to 0.1774, which is not significant; hence, RE is appropriate for the
ROE model. Under TPA as a dependent variable in the Hierarchical regression, Hausman test
chooses RE because the p-value is equal to 0.1294 and is not significant, hence RE is
appropriate. In summary, the Models in Tables II and IV use the RE model because there are
significant differences in terms of its cross-sectional nature and temporal effect between
companies. The significant differences between companies are mixed, accounting for the
reason why the data in this study were not pooled together in an OLS regression, but rather
RE effect is used for the analysis.

4.3 Regression results

The regression results are shown in Table II. H1 states that there is a positive association
between CSR (CSR investment) and financial performance (ROA and ROE). Model 1 shows a
statistically significant relationship between control variables (year dummy (β ¼ −0.057*)
and sales growth (β ¼ −0.182***)) and ROA. Model 2 adds CSR investment to the equation.
The results show that CSR investment (β ¼ 0.199**) has a positive, statistically significant
effect on ROA. Therefore, H1a is supported. Model 4 shows a statistically significant
relationship between control variables (year dummy (β ¼ −0.109***), sales growth
(β ¼ −0.199***), firm size (β ¼ 0.212*)) and ROE. Model 5 adds CSR investment to the
equation. The results show that CSR investment has a positive, statistically significant
effect on ROE. Thus, CSR investment (β ¼ 0.115**) is positively statistically significant with
ROE. Therefore, H1b is supported.
H2 states that TPA mediates the association between CSR (CSR investment) and
financial performance (ROA and ROE). The mediation regression results are shown in
Tables II and III. Based on conditions by Baron and Kenny (1986), the results in Table II
reject TPA as a mediating variable for ROA and ROE because condition three is unsatisfied.
Thus, CSR investment and TPA are not statistically significant in Model 8 (β ¼ 0.025).
However, the study supports Zhao et al. (2010) mediation analysis, as shown in Table III.
According to Zhao et al. (2010), the distribution of the product of the indirect effect (i.e. path
a × b) matters and Sobel test achieves the objective. Mediation analysis in Table III under
ROA, shows that path c, where ROA regressed on CSR investment has a coefficient and
standard error (β ¼ 0.195 and SE ¼ 0.031) that are statistically significant at 1 per cent.
The path a, where TPA regressed on CSR investment has a coefficient and standard
error (β ¼ 0.124 and SE ¼ 0.078) that are statistically significant at 1 per cent. Path b and c,
where ROA regressed on CSR investment and TPA have coefficients and standard
errors (β ¼ 0.247 and SE ¼ 0.033) and (β ¼ −0.424 and SE ¼ 0.109) respectively and are
 8,3

312

results
Table II.
SAJBS

Panel regression
RE-ROA RE-ROE RE-TPA
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Control variables
CEO duality 0.178 [0.147] 0.218 [0.159] 0.201 [0.156] 0.126 [0.135] 0.145 [0.152] 0.114 [0.180] −0.058 [0.117] −0.017 [0.064]
No. Indep Dr 0.028 [0.060] 0.016 [0.049] 0.032 [0.050] −0.013 [0.065] −0.020 [0.061] 0.005 [0.060] 0.076** [0.032] 0.053** [0.022]
Board size 0.005 [0.043] 0.013 [0.039] 0.006 [0.039] 0.029 [0.048] 0.033 [0.047] 0.021 [0.045] −0.045* [0.024] −0.030* [0.015]
Firm size 0.097 [0.185] −0.035 [0.140] −0.014 [0.087] 0.212* [0.122] 0.086 [0.125] 0.121 [0.101] 0.170* [0.091] 0.059 [0.052]
Year dummy −0.057* [0.032] −0.079*** [0.021] −0.078*** [0.022] −0.109*** [0.033] −0.117*** [0.024] −0.116*** [0.022] 0.016 [0.017] 0.004 [0.001]
Industry type −0.402 [0.468] −0.505 [0.364] −0.507 [0.285] −0.452 [0.359] −0.411 [0.337] −0.404 [0.320] −0.015 [0.156] 0.059 [0.083]
Growth sales −0.182*** [0.039] −0.188*** [0.039] −0.179*** [0.066] −0.199*** [0.043] −0.193*** [0.044] −0.177** [0.079] 0.056 [0.057] 0.032 [0.030]
Indep. variables
CSR. inv. 0.199** [0.076] 0.212*** [0.045] 0.115** [0.054] 0.132** [0.054] 0.025 [0.028]
Mediating var.
Third-party ass. −0.341* [0.175] −0.511** [0.208]
Random effect Yes Yes Yes Yes Yes Yes Yes Yes
2
R within 0.110 0.112 0.126 0.168 0.154 0.172 0.061 0.076
R2 between 0.101 0.482 0.500 0.040 0.214 0.259 0.449 0.422
R2 overall 0.100 0.354 0.370 0.088 0.186 0.218 0.323 0.313
Observations 232 232 232 232 232 232 232 232
Notes: Robust standard errors are in parenthesis. *,**,***Significant at 10, 5 and 1 per cent levels, respectively
 Path c Path a Path b, a and c Path c Path a Path b and c
ROE TPA ROE ROA TPA ROA

CSR inv. 0.146*** [0.032] 0.124*** [0.018] 0.198*** [0.034] 0.195*** [0.031] 0.124*** [0.078] 0.247*** [0.033]
TPA −0.424*** [0.114] −0.424*** [0.109]
Adj. R2 0.081 0.170 0.129 0.148 0.170 0.197
F 21.36 48.26 18.16 41.04 48.26 29.32
Direct eff.
Mediation(a/c) −35.81 −26.87
Indirect eff (sobel) –a −0.0524*** [0.016] −0.0524*** [0.016]
Direct eff.–b 0.1987*** [0.034] 0.2475*** [0.033]
Total eff. (c) 0.1469*** [0.032] 0.1951*** [0.030]
Obs. 232 232 232 232 232 232
Notes: Standard errors are in parenthesis. Model with dv regressed on iv (path c) using OLS regression and must be significant; model with mediator regressed on iv
(path a); Model with dv regressed on mediator and iv (paths b and c); direct effect mediation is ratio of indirect effect (Sobel) to total effect. *,**,***Significant at 10, 5 and
1 per cent levels, respectively
investment
responsibility
Corporate

313
social

Table III.
Mediation analysis
SAJBS statistically significant at 1 per cent. In summary, indirect effect (β ¼ −0.053*** and
8,3 SE ¼ 0.016) is significant at 1 per cent, and the mediation effect of TPA is statistically and
negatively significant with approximately 26.87 per cent of the total effect (of CSR
investment and ROA) mediated. Therefore, based on Sobel–Goodman tests, H2a is
supported. Likewise, mediation analysis in Table III under ROE, shows that path c, where
ROE regressed on CSR investment has a coefficient and standard error (β ¼ 0.146 and
314 SE ¼ 0.032) that are statistically significant at 1 per cent. The path a, where TPA regressed
on CSR investment has a coefficient and standard error (β ¼ 0.124 and SE ¼ 0.018) that are
statistically significant at 1 per cent. Path b and c, where ROE regressed on CSR investment
and TPA have coefficient and standard errors (β ¼ 0.198 and SE ¼ 0.034) and (β ¼ −0.424
and SE ¼ 0.114) respectively and are statistically significant at 1 per cent. In summary,
indirect effect (β ¼ −0.053*** and SE ¼ 0.016) is significant at 1 per cent, and the mediation
effect of TPA is statistically and negatively significant with approximately 35.81 per cent of
the total effect (of CSR investment and ROE) mediated. Therefore, based on Sobel–Goodman
tests, H2b is supported.
H3a states that financial leverage moderates the association between CSR (CSR
investment) and financial performance (ROA and ROE). To test the moderating effect of
financial leverage (Baron and Kenny, 1986), we use hierarchical regression, and the results
are in Table IV. For financial leverage to be a moderating variable, the interactive variable
of “CSR investment x financial leverage” must be significant with financial performance
(ROA and ROE). Model 1 regresses the control variables on ROA. Model 2 adds CSR
investment to the equation. Model 3 adds financial leverage to the equation. Model 4 adds
the interactive variable of “CSR investments and financial leverage” to the equation. The
results show moderating variable of financial leverage is negatively significant with ROA
(β ¼ −1.988**) but the interactive variable “CSR investment × financial leverage” has no
impact on ROA (β ¼ −0.146). Therefore, H3a under ROA is not supported. Model 5
regresses the control variables on ROE. Model 6 adds CSR investment to the equation.
Model 7 adds financial leverage to the equation. Model 8 adds the interactive variable of
“CSR investment and financial leverage” to the equation. The results show moderating
variable of financial leverage is not significant with ROE (β ¼ −0.355) and the interactive
variable “CSR investment × financial leverage” has no impact on ROE (β ¼ −0.244).
Therefore, H3a under ROE is not supported.
H3b states that financial leverage moderates the association between CSR (CSR
investment) and third-party assurance. To test the moderating effect of financial leverage on
TPA, we use hierarchical regression, and the results are in Table IV. Financial leverage
is a moderating variable if the interactive variable “CSR investment × financial leverage”
is significant in an association with TPA. Model 9 regresses the control variables on
third-party assurance. Model 9 adds CSR investment to the equation to get Model 10. Based
on model 10, we add financial leverage to get Model 11. Based on model 11 results, the
interactive variable “CSR investment × financial leverage” is added to get Model 12. The
results show moderating variable of financial leverage is not significant with TPA
(β ¼ −0.221) and the interactive variable “CSR investment × financial leverage” has no
impact on TPA (β ¼ 0.072). Therefore, H3b is not supported.

4.4 Discussions
H1 is supported in this study. H1 states that there is a positive association between CSR
(CSR investment) and financial performance (ROA and ROE). Models 1 and 4 in Table II
show a negative statistically significant relationship between control variables – growth
sales and ROA and ROE. Model 2 shows that CSR investment has a positive, statistically
significant effect on ROA. Model 4 shows that firm size has a positive statistically
significant relationship with ROE. Model 5 shows that CSR investment has a positive,
 RE-ROA RE-ROE RE-Third-party assurance
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model10 Model11 Model 12

Control variables
CEO duality 0.178 0.218 0.033 0.067 0.126 0.145 0.039 0.084 −0.058 −0.017 −0.029 −0.045
[0.147] [0.159] [0.110] [0.123] [0.135] [0.152] [0.140] [0.147] [0.117] [0.064] [0.072] [0.075]
No. Indep Dr. 0.028 0.016 0.022 0.027 −0.013 −0.020 −0.016 −0.008 0.076** 0.053** 0.054** 0.049**
[0.060] [0.049] [0.047] [0.049] [0.065] [0.061] [0.060] [0.064] [0.032] [0.022] [0.029] [0.022]
Board size 0.005 0.013 −0.001 −0.003 0.029 0.033 0.024 0.020 −0.045* −0.030* −0.031** −0.029*
[0.043] [0.039] [0.032] [0.032] [0.048] [0.047] [0.042] [0.043] [0.024] [0.015] [0.016] [0.016]
Firm size 0.097 −0.035 0.041 0.019 0.212* 0.086 0.147 0.112 0.170* 0.059 0.069 0.083*
[0.185] [0.140] [0.109] [0.107] [0.122] [0.125] [0.126] [0.125] [0.091] [0.052] [0.051] [0.046]
Year dummy −0.057* −0.079*** −0.102*** −0.102*** −0.109*** −0.117*** −0.131*** −0.131*** 0.016 0.004 0.003 0.002
[0.032] [0.021] [0.023] [0.022] [0.033] [0.024] [0.029] [0.027] [0.017] [0.001] [0.008] [0.008]
Industry type −0.402 −0.505 −0.322 −0.287 −0.452 −0.411 −0.310 −0.251 −0.015 0.059 0.065 0.035
[0.468] [0.364] [0.263] [0.273] [0.359] [0.337] [0.329] [0.350] [0.156] [0.083] [0.079] [0.080]
Growth sales −0.182*** −0.188*** −0.148*** −0.150*** −0.199*** −0.193*** −0.170*** −0.173*** 0.056 0.032 0.032 0.032
[0.039] [0.039] [0.057] [0.037] [0.043] [0.044] [0.041] [0.043] [0.057] [0.030] [0.032] [0.031]
Indep. Var. CSR Inv. 0.199** 0.111 0.199* 0.115** 0.051 0.197 0.025 0.020 −0.024
[0.076] [0.078] [0.109] [0.081] [0.099] [0.135] [0.028] [0.030] [0.043]
Moderating var Financial −2.830*** −1.988** −1.744** −0.351 −0.221 −0.625
Lev.
[0.513] [1.011] [0.736] [1.238] [0.224] [0.632]
Inter Var. CSRI × F.L −0.146 −0.244 0.072
[0.197] [0.239] [0.088]
Random effect Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
R2 within 0.110 0.112 0.171 0.175 0.168 0.154 0.164 0.171 0.061 0.076 0.069 0.078
2
R between 0.101 0.482 0.752 0.749 0.040 0.214 0.401 0.391 0.449 0.422 0.338 0.320
R2 overall 0.100 0.354 0.587 0.587 0.088 0.186 0.295 0.294 0.323 0.313 0.265 0.262
Observations 232 232 232 232 232 232 232 232 232 232 232 232
Notes: Robust standard errors are in parenthesis. *,**,***Significant at 10, 5 and 1 per cent levels, respectively
investment
responsibility
Corporate

315
social

Hierarchical
Table IV.

regression analysis
SAJBS statistically significant effect on ROE. The adverse sales growth effect shows poor
8,3 management of firm assets to generate revenue and the consequence is lower returns to
equity market investors. The significant positive relationship between firm size and ROE
shows that equity investors receive more returns because previous scholars have
established that firm size positively influences profitability (Mishra and Suar, 2010; Hall and
Weiss, 1967). The positive association between CSR and financial performance (ROA and
316 ROE) in is line with NRBV theory (Hart, 1995). From a theoretical standpoint, CSR generates
a competitive advantage for firms and recognition of the natural environment by managers
is a plus for firm performance. Thus, the existence of CSR satisfies sustainability
development strategies, a pillar of NRBV (Hart and Dowell, 2011) and also contribute to firm
performance. The measurement of CSR using CSR investment may also contribute to the
positive association between CSR and financial performance because of the elimination of
bias in the measurement. Therefore, H1 is supported and is consistent with NRBV. The
study is also consistent with previous positive research results (Amini and Bianco, 2017;
Geetika and Shukla, 2017; Nakamura, 2015; Herbohn et al., 2014), but inconsistent with
neutral effect (McWilliams and Siegel, 2000) and an adverse effect (Qui et al., 2016) of
research studies.
H2 is supported in this study. H2 states that TPA mediates the association between CSR
(CSR investment) and financial performance (ROA and ROE). Table III shows the indirect
effect is significant, and the mediation effect of TPA is negatively statistically significant,
with approximately 26.87 and 35.81 per cent of the total effect (of CSR investment on
financial performance (ROA and ROE)) respectively as being mediated. Further analysis
shows the mediation is competitive because the indirect effect and direct effect show
opposite significance (Zhao et al., 2010). Table I shows that TPA and CSR have a moderate
correlation, and the linear association is positive and significant. Table III also shows that
CSR and TPA have a positive, statistically significant association. The positive statistically
significant correlation between TPA and CSR show that a TPA gives a better presentation
and credibility to CSR. Firms need to pursue TPA reporting to give credibility to CSR, and
this is consistent with previous studies (Weber, 2018; Gomes et al., 2015; Park and Brorson,
2005; Hedberg and Malmborg, 2003). Also, in Table II, TPA and financial performance (ROA
and ROE) show a negative statistical significance. Possible reasons accounting for the
negative association may include inadequate understanding of the importance of TPA to
stakeholders. Also, some managers may see TPA as a cost, and therefore, the cost in
undertaking sustainability assurance is unable to translate into profitability for these firms.
This observation is inconsistent with Akisik and Gal (2014), where there is a positive
association between TPA and financial performance. Table III shows TPA negatively
mediates between CSR and financial performance. TPA strength is not strong enough to
contribute to asset generating returns for the firm or returns on shareholder funds.
A possible reason is that firms are reactive to the presence of TPA, instead of being
proactive. The effect of reactive management of a firm leads to high-unplanned expenditure
occurrence, hence low profitability. Past scholars in advanced economies have established a
positive association between TPA and ROA (Akisik and Gal, 2014; Owen and O’Dwyer,
2004), but inconsistent with this study.
The condition for TPA to be a competitive advantage from a theoretical standpoint in the
lens of NRBV is satisfied under ROA and ROE. Equity providers and capital investors are
mostly institutions and understand the significance of an assured sustainability report. One
possible reason for the negative association can be due to how investors and managers react
to regulation, and a reactive attitude causes negative association. Another reason for the
negative significance may be due to low sustainability report quality in India (Priyanka and
Ajay, 2018). However, a proactive attitude to regulation reduces the negative impact on the
environment through sustainable development goals. TPA through stakeholder pressure
(Maas et al., 2018) causes firms to be reactive instead of being proactive (Fowler and Hope, Corporate
2007), hence a negative statistical significance in this study. In other words, effective TPA social
causes firms to be more responsible for investment in more sustainable products and responsibility
environmentally friendly products.
H3a is not supported in this study. H3a states that financial leverage moderates the investment
association between CSR (CSR investment) and financial performance (ROA and ROE).
The results show that a moderating variable of financial leverage is negatively 317
statistically significant with ROA and not significant with ROE. The interactive variable
“CSR investment × financial leverage” has no impact on ROA and ROE. Financial leverage
can increase ROA or ROE if the cost of debt is lower than the returns on assets usage or
returns to equity holders. The negative association between financial leverage with ROA
indicates that the average firm cost of debt is more than the return on assets employed in the
firm business. The high cost of debt impacts the allocated 2 per cent profit for CSR initiatives
and investment. It is therefore advisable for managers to be guarded by high debt exposure as
it erodes the competitive advantage of a firm. The negative statistically significant association
between financial leverage and financial performance is consistent with previous studies
(see Mishra and Modi, 2013) and inconsistent with Harjoto (2017). H3b is not supported in
this study. H3b states that financial leverage moderates the association between CSR
(CSR investment) and third-party assurance. The results show that the moderating variable
of financial leverage is not significant with TPA and the interactive variable “CSR
investment × financial leverage” has no impact on TPA. Among the reasons for
insignificance are that there is no correlation between TPA and financial leverage in Table I.
For the interactive variable, there is also an opposite directional effect of both CSR investment
and financial leverage. Therefore, the combined effect shows no statistical association with
TPA, which is inconsistent with previous studies (see Broye and Weill, 2008).

4.5 Diagnostic test

Breusch and Pagan LM test under Random effect (RE) are used to test for the presence of
heteroscedasticity, and according to Wooldridge (2002), a p-value higher than 0.05 indicates
no heteroscedasticity in the residuals. Results from heteroscedasticity test show that the
p-value is equal to 0.000, which is less than 0.05; hence, the presence of heteroscedasticity
under both ROA and ROE. We use robust standard errors to correct heteroscedasticity,
since according to Wooldridge (2002), heteroscedasticity in the error term is corrected when
we use robust standard errors, hence reducing the bias in the estimates.
Pesaran test of cross-sectional inter-dependence (autocorrelation) was performed to
determine if coefficient estimates possess serial correlation under the panel model of RE.
According to Pesaran (2004), there is autocorrelation when the p-values are less than 0.05.
The Pesaran test shows that p-values are higher than 0.05. Thus p-value is equal to 1.122
and 0.628 under ROA and ROE, respectively. Hence there is no evidence of serial correlation,
making the coefficient estimates unbiased.

5. Conclusions
The purpose of this research is to explore the relationships between CSR and financial
performance and also test the mediating effect of TPA and the moderating effect of
financial leverage in the context of listed firms in India. The first finding of the research
shows that CSR has a positive statistically significant effect on the financial performance
(ROA and ROE) of listed firms in India. The second finding shows that TPA has a
negative statistical significance with financial performance (ROA and ROE) and
negatively mediate the association between CSR and financial performance (ROA and
ROE). Further, the finding also shows that financial leverage has a negative statistical
significance with ROA and no association with ROE, and financial leverage is unable to
SAJBS moderate the association between CSR and financial performance. Lastly, financial
8,3 leverage has no statistical association with TPA and is unable to moderate the association
between CSR and third-party assurance.

5.1 Theoretical contributions

The study situates CSR and financial performance in India in the context of NRBV. NRBV
318 argues that a firm survival depends on developing products which acknowledge the
environment, adopt operations accepted to stakeholders and in return receive a guarantee
for the legitimacy of operations toward a sustainable profit (Russo and Fouts, 1997;
Hart, 1995). The results of the study show a positive association between CSR and financial
performance, making CSR strategy a competitive advantage for firms. Also, CSR responds
to environmental degradation and also gives firm legitimacy to its operations and CSR,
either voluntary or mandatory, has a positive impact on the profitability of a firm, which is
consistent NRBV. The presence of TPA with its negative significance forces firms to act in
an environmentally appropriate manner consistent with sustainability reporting and
sustainable development goals, a pillar in NRBV (Maas et al., 2018; Hart, 1995).

5.2 Managerial implications

The results of this study have managerial implications for a developing economy like India.
The results show that CSR has a positive association with financial performance. Managers
can leverage their investment in CSR and create a brand that respects the environment with
the potential to increase market share by the inclusion of green customers. Firm
performance increases because of new green customers, which potentially leads to a
sustainable going concern. Second, the positive association between CSR and financial
performance assures capital investors of a profit even when CSR is mandatory and not
voluntary for firms in an economy. Finally, managers can attract capital market investors
looking for investments in new markets.
The second hypothesis shows that TPA has a negative association with financial
performance and negatively mediates the association between CSR and financial
performance. Evidence shows that managers sometimes are reactive instead of proactive
to third-party assurance, and the effect is poor financial performance. Managers must plan
and execute sustainable strategies and CSR goals, which will position the firm as a proactive
player. The consequence of proactive management is an increase in profitability. TPA has a
positive association with CSR, and this encourages managers to present accurate
information to stakeholders and not whitewash sustainability reporting to score points with
green customers. Even though TPA has a positive association with CSR, it negatively
mediates the association between CSR and financial performance. The effect shows that
TPA in the hands of proactive managers leads to positive CSR and positive financial
performance because TPA can make firms greener to the environment and give assurance
to stakeholders to patronise products and increase profits of firms. However, TPA in the
hands of reactive managers leads to negative CSR and negative financial performance or
positive CSR and negative financial performance.
The third hypothesis shows that financial leverage does not moderate the association
between CSR and financial performance or between CSR and third-party assurance. From
Table IV, financial leverage is significant as an independent variable but not as a
moderating variable. Managers’ decision to borrow in business operations should not affect
CSR-financial performance relationship. In order not to be highly exposed, firms must be
cautious in taking debt or undertaking high-risk projects. Stakeholders should not punish a
firm in high debt exposure when considering the commitment of a firm to undertake CSR
activities. Also, the decision of managers to engage or not engage TPA to give assurance to
sustainability reports should not be affected by firm financial leverage.
5.3 Policy implications Corporate
TPA reporting should not be made compulsory for sustainability reporting firms, as a cost social
without associated benefit to a firm is not a prudent business practice. However, if firms responsibility
desire to attract foreign direct investment (FDI) into their operations, then it is essential to
engage TPA continuously. It is important because it assures external investors that their investment
resources are not causing harm to the environment and firms are acting responsibly.
Nevertheless, negative TPA is still vital for CSR to achieve the sustainable development 319
goals set for 2030 by countries (UN, 2018).

5.4 Limitation and future research direction

The study is subject to some limitations. In a mandatory regime, legislation can hurt the
positive association between CSR and financial performance (Mukherjee et al., 2018), when
there is a non-efficient implementation of CSR policies. The non-efficient implementation of
CSR policies will lead to lower expectation of the legislative instrument, and therefore, there is
the need for more education on CSR policy and mandatory implementations in developing
economies. Also, the study is limited to listed firms on the stock market in India, that submit
sustainability reports based on the guidelines advocated by the GRI. The proxy variables for
financial performance are limited to only ROA and ROE. Future research should add stock
price returns (SPR) and Tobin’s Q to understand the market reactions and long-term period
effects to firms. Other researchers can investigate the cause and effect relationship between
CSR and financial performance the context of India, using Granger causality test. Lastly, a
lagged CSR in an association with third-party assurance, and financial performance needs
further investigation in the context of an emerging economy, to determine if there is a delayed
effect from CSR – firm performance nexus.

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Further reading
Knox, S., Maklan, S. and French, P. (2005), “Corporate social responsibility: exploring stakeholder
relationships and programme reporting across leading FTSE companies”, Journal of Business
Ethics, Vol. 61 No. 1, pp. 7-28.
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management?”, Finance Research Letters, Vol. 14, pp. 135-141.
Kyaw, K., Olugbode, M. and Petracci, B. (2017), “Can board gender diversity promote corporate social
performance?”, Corporate Governance: The International Journal of Business in Society, Vol. 17
No. 5, pp. 789-802.

Corresponding author
Kofi Mintah Oware can be contacted at: owaremintah@hotmail.com

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