CSR, Firm performance, and the moderating role of capital structure: Empirical evidence from Africa

Abstract

This study used capital structure as a mediating variable to investigate the relationship between Corporate Social Responsibility (CSR) and firm financial performance in Africa. The researcher used Bloomberg and Standard and Poor's Environmental Social and Governance (ESG) disclosure scores. The researcher used the Bloomberg database to extract the financial data; both accounting-based measurements (ROA) and market-based measures (Tobin's Q) were used to measure the firm financial performance. The cross-dataset collected was analyzed using multiple linear regression with a sample of one year covering all firms listed in Africa, including financial and non-financial firms. The results reveal that the relationship between CSR and firm performance is positive. Still, the association is insignificant, and capital structure is not a moderating variable influencing CSR and firm financial performance. An interesting revolution was observed when ESG disclosure scores were grouped into Environmental, Social, and Governance sub-components; the researcher found a positive relationship between environmental scores and firm performance, while the reverse was observed on social disclosure scores, and a negative but insignificant nexus was observed between governance disclosure scores and firm performance. Although the relationship between CSR and firm performance is insignificant, the empirical findings imply that investment in CSR may not pay off immediately by improving performance because of the infant stage of CSR and the common social-economic issues in Africa. Therefore, the researcher recommends a consistent and strategic investment in CSR for a considerable period to enhance firm performance and maximized shareholder wealth creation, and listed firms in Africa should direct their CSR investment activities towards the environment rather than social activities.