Can Corporate Social Responsibility Fill Institutional Voids?

Our results show that firms’ environmental scores and social scores receive higher valuation in countries with weaker institutions. Overall, our findings suggest that CSR creates value for firms by filling institutional voids in their home country.

Author(s): Swee-Sum Lam, Weina Zhang and Christopher Yuen Kwong Chien
Publucation: Firm Value: Theory and Empirical Evidence. Chapter 5.
Date: August 1, 2018
Source: https://cdn.intechopen.com/pdfs/60903.pdf
Abstract:
We conduct empirical analysis on the relation between firm value and corporate social responsibility (CSR) using 134,823 observations of 2542 firms across 44 countries from 2009 to 2014. We find that the firm value is positively related to the overall CSR score of the firm. At a more granular level, we find that good environmental score is positively related to the firm value and good social and governance scores are negatively related to the firm value. Since these firms operate in different institutional frameworks, we explore whether the institutional voids—the absence of institutions or intermediaries that are instrumental in supporting business operations in a country—may result in greater firm valuation for its CSR and vice versa. Our results show that firms’ environmental scores and social scores receive higher valuation in countries with weaker institutions. Overall, our findings suggest that CSR creates value for firms by filling institutional voids in their home country.