The Impact of Firm Performance and Corporate Governance on Corporate Social Responsibility: Evidence From France

The Impact of Firm Performance and Corporate Governance on Corporate Social Responsibility: Evidence From France

Souhaila Kammoun, Sahar Loukil, Youssra Ben Romdhane Loukil
Copyright: © 2020 |Pages: 23
DOI: 10.4018/978-1-7998-2128-1.ch014
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Abstract

Based on the behavioral aspect of the governance theory, this chapter explores the effect of the firm performance and corporate governance (CG) on corporate social responsibility (CSR) engagement by investigating their causal effects. Using annual reports of a large and extensive sample of French firms for the year 2014‐2016, we find that firm performance significantly improves that firm's social responsibility, but it has a significant and negative impact when we consider corporate government as a contingency factor. The results show that the existence of institutional administrator is in favor of CSR while it is the inverse effect when we consider the other independent administrators. However, we fail to find any significant impact of administrator's expertise. Our results suggest that pressures exerted by outsiders and corporate governance mechanisms influence CSR practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organizational legitimacy through CSR. The study findings should be of interest to regulators and policy makers.
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Background

In this overview, we provide a brief summary of the background literature relevant to our study in order to distinguish some determinants of social performance such as corporate governance and firm performance. We begin by first setting out the evolution of CSR in Europe and France. We then present the conflicting studies of the CSR-firm performance link, despite the fact, that many empirical researches have been conducted on this topic. Herein, we outline the main findings from empirical studies related to the relationship between CSR and firm performance. Afterwards, we proceed to review empirical studies on the relationship between CSR and corporate governance.

Key Terms in this Chapter

Financial Performance (FP): A measure of a firm’s profitability position at any given period. FP can be measured through various financial indicators. The most commonly used metrics are ROA (Retun on Assets) and ROE (Return on Equity).

Corporate Governance (CG): The organization of the control and management of the company. Corporate governance is one of the essential means of reducing agency costs resulting from the relationship between shareholders and managers.

Multi-colinearity: The existence of a perfect linear relationship between two or more explanatory variables of the model. It usually occurs when there is little variation in the variables within the sample.

Correlation Coefficient: A statistical measure that calculates the strength of the relationship between two variables.

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