How Corporate Social Responsibility Affects Firm Performance: The Inverted-U Shape Contingent on Founder CEO

Abstract

Despite abundant research on the relationship between CSR and firm performance, prior research generated highly inconsistent findings. No consensus has been achieved on the relationship between CSR and firm performance. The objective of this research is to examine how the relationship between CSR and firm performance is contingent on founders’ management roles, especially in the situation of the founder as CEO, which will provide insights into the inconsistent impacts of CSR. Based on panel data analysis, we empirically test the nonlinear relationship between corporate social responsibility (CSR) and firm performance for China’s Growth Enterprise Market (GEM) listed companies. We further explore how this relationship differs under two types of CEOs: founder CEOs and non-founder CEOs. Our econometric analysis produces two major findings. First, there is an inverted U-shaped relationship between CSR and firm performance. Second, the presence of founder CEO weakens the relationship between CSR and firm performance, making the inverted U-shaped curve flatter. This research makes both novel theoretical and practical contributions to entrepreneurship and organization research by providing an enriched understanding of the relationship between CSR and firm performance. It integrates multiple theories to create a framework within which the contingent impacts of CSR can be holistically understood. It also helps managers to realize the nonlinear economic consequences of CSR activities and the different regulatory effects of founder management.

Enhance or inhibit? Unveiling the influence of chairman’s hometown attachment on the corporate philanthropy–Corporate financial performance relationship

“…How does corporate social responsibility (CSR), represented by corporate philanthropy, affect corporate financial performance (CFP)? Existing conclusions are diverse and even contradictory ( Grewatsch and Kleindienst, 2017 ; Awaysheh et al, 2020 ; Wang et al, 2022 ). In addition to the dominant positive correlation in recent years ( Godfrey, 2005 ; Wang and Qian, 2011 ), arguments for negative correlation ( Friedman, 1970 ; Tian and Wang, 2017 ), uncorrelation ( Surroca et al, 2010 ), U-shaped relationship ( Brammer and Millington, 2008 ; Barnett and Salomon, 2012 ) and inverted U-shaped relationship ( Wang et al, 2008 ) are emerging.…”

Does corporate governance moderate the effect of corporate social responsibility on a firm’s financial performance?

“…For example, some research infers that CSR enhances a firm's financial performance (Abukari et al, 2022;Babajee et al, 2022;; Q. Wang et al, 2022; Y. Wang et al, 2020).…”