Corporate Social Responsibility and Firm Performance: Evidence from Emerging Markets

Abstract

This study investigates the relationship between Corporate Social Responsibility (CSR) activities and firm financial performance in emerging markets, examining the moderating roles of institutional quality, industry characteristics, and stakeholder salience. Utilizing a comprehensive panel dataset of 2,450 publicly listed firms across twelve emerging economies (Brazil, Russia, India, China, South Africa, Mexico, Indonesia, Turkey, Poland, Thailand, Malaysia, and Philippines) over the period 2012-2023, we employ multiple econometric approaches including fixed-effects regression, system GMM, and propensity score matching to establish robust causal inferences. CSR performance is measured using ESG ratings from multiple data providers and supplemented with content analysis of sustainability reports. Our findings reveal a significant positive relationship between aggregate CSR performance and financial outcomes (ROA, Tobin's Q, and stock returns), with environmental and social dimensions showing stronger effects than governance in emerging market contexts. The relationship exhibits significant non-linearity, with optimal CSR investment levels varying by firm size and industry. Importantly, institutional quality moderates this relationship, with stronger CSR-performance links in countries with better regulatory enforcement and stakeholder awareness. Industry-level analysis reveals that the CSR-performance relationship is most pronounced in consumer-facing and environmentally sensitive industries. The study also documents a temporal lag of 2-3 years between CSR investments and financial returns, suggesting that patience is required to realize CSR benefits. These findings contribute to the ongoing debate on the business case for CSR and provide practical guidance for managers and policymakers in emerging markets seeking to integrate sustainability considerations into corporate strategy.