The moderating effect of culture on the relationship between corporate sustainability performance and firm value

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The moderating effect of culture on

the relationship between corporate

sustainability performance and firm

value

M. (Martijn) van Dam, BSc s4597591

Master’s Thesis in Economics Track: Accounting & Control Nijmegen School of Management Radboud University Nijmegen

Supervisor: Dr. D. Reimsbach July 6, 2020

Abstract

This study explores the moderating effect of culture on the relation between Corporate Sustainability Performance (CSP) and firm value. The association between six cultural dimensions developed by Hofstede (1980; 2011) and the relation between CSP and firm value has been examined for a worldwide sample of companies during the years 2012-2018. Through performing regressions analyses, results show that CSP and firm value are positively related, and that this relation is moderated by culture. Findings show that uncertainty avoidance, individualism, masculinity, and indulgence strengthen the positive effect of CSP on firm value, whereas power distance and long-term orientation weaken the positive effect of CSP on firm value. This study aims to contribute to studies exploring the (moderating) effect of culture on the relation between CSP and firm value by using the cultural dimensions developed by Hofstede.

Keywords: sustainability, Corporate Sustainability Performance, national culture, Hofstede’s cultural dimensions.

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1. Introduction

This study examines the moderating effect of culture on the relation between Corporate Sustainability Performance (CSP) and firm value. In the last decade, investors and other stakeholders are increasingly demanding companies to improve their performance with regard to sustainability practices. The actions that companies take, that impact the environment and society, causes stakeholders to adjust their decision-making processes. Through informing stakeholders on their CSP, hereby increasing transparency, companies aim to enhance stakeholder and investor confidence(Hahn & Kühnen, 2013). The demands for transparency drives companies to provide additional non-financial information by issuing sustainability, corporate social responsibility (CSR), or integrated reports in which companies display their CSP (Arvidsson, 2011; Junior, Best & Cotter, 2014). Through the disclosure of sustainability reports, in which companies display their CSP, more investors will be attracted, and their analyst coverage will improve (Dhaliwal, Li, Tsang, & Yang, 2011). Yadav, Han & Rho (2016) find that companies’ environmental performance is the most influential factor in improving a company’s firm value. Additionally, companies strengthen their reputation as positive contributors to the environment, hereby improving the value of its intangible assets.

Culture is an important factor in shaping the institutional environment in which companies operate, therefore it affects decision-making processes of both companies and investors. Caprar & Neville (2012) find that cultural aspects affect sustainability, either by norming the reproduction of sustainability-relevant institutions or conforming to pressures coming from these institutions. Thus, institutions and companies constantly discuss about the adoption of sustainability practices. However, cultural effects differ in tightness; institutional pressures are stronger in tight cultures than in loose cultures (Gelfand, Nishii, & Raver, 2006). Furthermore, the way of thinking about the relationships between firms, the institutional environment and its stakeholders has changed through the increased emphasis on sustainability activities (Ioannou & Serafeim, 2012). Additionally, Kim & Kim (2010) find that cultural values are important factors that determine the outcome of CSP-related activities. Thus, since companies operate in countries with different cultural values, the relation between CSP and firm value may vary due to differences in national culture. National culture indirectly affects firm performance through influencing individuals’ expectations related to the company’s activities, products, and services (Guiso, Sapienza, & Zingales, 2006).

Although prior studies used culture as control variables, there has not been much research on the moderating effect of culture on the relation between CSP and firm value. Miska, Szőcs and Schiffinger (2018) draw upon institutional theory and project GLOBE (see House, Hanges, Javidan, Dorfman, & Gupta, 2004) to examine the role of culture. Miska, Szőcs and Schiffinger (2018)

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provide an overview of studies testing the effects of culture on sustainability, showing that the majority of studies use either the Hofstede framework or project GLOBE to examine cultural effects. The role of culture, in general, can be interpreted differently across countries and even within countries (Peterson & Søndergaard, 2014). For this reason, the moderating role of culture on the relation between CSP and firm value needs to be examined. Several studies on the relation between CSP and firm value included the distinction between stakeholder-oriented and shareholder-oriented countries (Braam & Peeters, 2018; La Porta et al., 2000). Other than that, the role of culture as an external factor in the relationship between CSP and firm value has not been explored in depth. Therefore, this study aims to answer the research question:

To what extent does culture moderate the relationship between corporate sustainability performance and firm value?

This study will use a worldwide panel data set of firms, covering the period from 2012 until 2018. The starting year of 2012 has been chosen due to the fact that data on sustainability scores are sparse prior to 2012. The year 2018 has been chosen as the final year due to the lack of available company data covering the (fiscal) year 2019. The data on corporate sustainability performance will be retrieved from the ESG database from Refinitiv through Eikon. With regard to culture, the Hofstede Insights program collects country-level data on six cultural dimensions in the 6D-model (Hofstede Insights, 2020). The six dimensions are the power distance index (PDI), individualism versus collectivism (IDV), masculinity versus femininity (MAS), the uncertainty avoidance index (UAI), long term orientation versus short term normative orientation (LTO), and indulgence versus restraint (IVR). Results show that there is a positive relation between a company’s CSP and the company’s firm value. This indicates that companies are incentivized to improve their CSP, as this is an important factor in determining firm value. In addition, the positive relationship between CSP and firm value is moderated by culture. Findings show that in societies with high uncertainty avoidance, individualism, masculinity, or indulgence, the relation between CSP and firm value is stronger. Furthermore, in societies with high power distance or long-term orientation, the relation between CSP and firm value is weaker. This indicates that national culture is an important moderator on the association between CSP and firm value. Hence, companies that aim to improve their CSP should incorporate the impact of national culture into their sustainability practices.

This study contributes to stream of literature exploring the (moderating) effect of culture on the relation between sustainability performance and firm value by using Hofstede’s cultural dimensions. Although several studies have been investigating the effect of culture by using the six cultural dimensions, it has not been researched for such a large worldwide sample of companies as in this study. In addition, companies could benefit from the results forthcoming from this study

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by incorporating the impact of cultural dimensions in the decision-making processes with respect to sustainability practices.

The next section provides the theoretical background and development of hypotheses on the relationship between CSP and firm value, and the moderating effect of culture on this relationship. In section 3, the research method will be explained, followed by the results in section 4. Section 5 consists of the discussion, section 6 concludes.

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2. Theoretical background

2.1. Relation between Corporate Sustainability Performance and firm value

Among prior studies, many find positive relationships between CSP and firm value. Gregory, Whittaker & Yan (2016) find that CSP is value relevant, and that it increases firm earnings. The increased firm earnings are attributed to both lower cost of equity and improved earnings persistence. Thus, CSP results in positive effects on the cost and income side of a company. Additionally, Camilleri (2017) suggest that companies create economic and societal value when being socially and environmentally aware. The enhanced economic value is attributable to the alignment of business strategy and objectives with stakeholder management and environmental responsibility. Thus, improving environmental performance in business strategy improves firm value. The improved societal value enhances a company’s position with respect to competitors, in which companies with superior CSP have a competitive advantage over concurring companies. Hence, companies that excel in terms of CSP create more firm value than other companies.

In addition, Sharfman & Fernando (2008) find that companies that improve their environmental risk management have reduced costs of capital. Hence, companies with superior CSP have less costs when attracting new capital provisions. Oikonomou, Brooks & Pavelin (2012) find that firms with high CSP scores have higher firm value through reductions in both costs and idiosyncratic risk. In this case, superior CSP leads to lower company risks comparing to firms with lower CSP. Thus, firms that actively invest in attaining above average CSP get rewarded through several different channels, related to lower costs, lower risk, and higher reputation. Regarding reputation, investors tend to punish big companies with low CSP scores (Lourenço, Branco, Curto, & Eugénio, 2012). These companies will, in turn, be penalized for their low sustainability initiatives in their market value. Yu & Zhao (2015) examine sustainability performance through two alternative theories: the creating theory and destroying theory. The value-creating theory predicts that active involvement in sustainability activities reduces firm risk and creates value over time. On the contrary, the value-destroying theory indicates that the costs forthcoming from sustainability activities are at the expense of shareholders, hence destroying shareholder value. Findings suggest that only the value-creating theory is applicable to the relation between CSP and firm value, especially in countries with enhanced protection of shareholders and where financial transparency is requested. Haryono, Iskandar, Paminto & Ulfah (2016) find similar results in the relation between CSP and firm valuation. In the long-term, enhanced environmental and social performance will lead directly to increased firm value, whilst the short-term benefits of superior CSP consist of more attention from investors.

Company’s sustainability performance depends on the, often voluntary, disclosure of sustainability information. Hummel & Schlick (2016) explain that the signaling or legitimacy theory

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predicts whether companies display superior CSP or disguise inferior CSP, respectively. Signaling theory, thus, suggests that companies disclose sustainability information to make notice of their superior performance (Healy & Palepu, 2001). Regarding sustainability information, there is information asymmetry between two parties; companies that are aware of their genuine CSP versus external parties such as the public, stakeholders, and investors who rely on the information disclosed by companies (Connelly, Certo, Ireland, & Reutzel, 2011; Spence, 2002). Within this division, companies themselves know their performance level, whereas external parties do not. Hence, there is information asymmetry in between these involved parties.

Legitimacy theory, on the other hand, suggests that companies with inferior non-financial performance disguise their true performance whilst protecting their legitimacy (Hummel & Schlick, 2016). Brown & Deegan (1998) find that companies increase the extent of non-financial information disclosure in annual reports when there are external concerns about the company’s non-financial performance, mainly to prevent their reputation to decline. In addition, companies that receive unwanted negative media attention tend to release positive non-financial information as a response, aiming to protect their legitimacy (Deegan, Rankin, & Tobin, 2002). Hence, companies feel the need to disclose some non-financial information to counter the negative attention. Regarding company reputation, studies suggest that companies voluntarily acquire more assurance services to improve their environmental reputation (Braam & Peeters, 2018). Faisal, Tower & Rusmin (2012) find that the relationship between inferior CSP and third-party assurance is consistent with the aforementioned legitimacy theory. Thus, companies with inferior sustainability performance conceal their true performance by taking measures that aim to display only a company’s good sustainability performance and thereby masking their true performance. Hence, the motivation for disclosing sustainability information, following signaling or legitimacy theory, causes a company’s CSP to not reflect true performance. Therefore, the reasons why companies disclose sustainability information are important factors in determining CSP.

Although many studies suggest that superior CSP directly leads to increased firm value, Aouadi & Marsat (2018) find that there is no direct positive effect of CSP on firm value for all companies, as the enhanced firm value due to superior CSP scores is only applicable to high-attention firms. Hence, findings suppose that low-high-attention firms do not benefit as much from improved CSP as high-attention firms do. Additionally, questions are raised about the measurement of sustainability performance (Enticott & Walker, 2008). After all, prior studies mostly find that there is a positive relation between corporate sustainability performance and firm value. Thus, the hypothesis is that CSP positively affects firm value.

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2.2. Moderating effect of culture

Many studies perform research on the effect of Hofstede’s cultural dimensions on either sustainability topics or firm performance. The main four dimensions used in the literature are uncertainty avoidance, individualism versus collectivism, power distance, and masculinity versus femininity (Hofstede, 1980; 1983).

Uncertainty avoidance covers the extent of a culture’s tolerance for uncertainty and ambiguity. Individuals in high uncertainty avoidance societies prefer a structured environment with clear hierarchy to diminish uncertainty, where individuals in low uncertainty avoidance societies are more tolerant to different opinions and aim to have fewer rules (Ho, Wang, & Vitell, 2012). Park, Russel & Lee (2007) find that there is no significant relation between the level of uncertainty avoidance and level of environmental sustainability. In addition, the level of uncertainty avoidance creates a trade-off for firms (Broekhuizen, Giarratana, & Torres, 2017). The effect of high uncertainty avoidance is twofold; the rate by which innovation takes place decreases whilst simultaneously the protection of firm brands is strengthened. Uncertainty avoidance could be beneficial to maintain a strong market position in the short term, although the lack of innovation could be detrimental to firms in the long term. Nevertheless, Choi & Luo (2020) find that uncertainty avoidance weakens the negative effect of carbon emissions on firm value. Companies with high carbon emissions will most likely have lower firm value than competitors that have low carbon emissions, and this relation thus is weaker when a culture’s uncertainty avoidance is high. High uncertainty avoidance results in stronger firm protection, leading to less negative effects of carbon emissions on firm value. Although prior studies find mixed results on the effect of uncertainty avoidance on either CSP or firm value, results suggest that uncertainty avoidance positively affects firm protection. Following Choi & Luo (2020), high uncertainty avoidance causes improved firm protection, which assures that companies are protected for disclosing sustainability information. Thus, it is suggested that uncertainty avoidance strengthens the positive relation between CSP and firm value.

H2: The positive relationship between CSP and firm value is stronger for companies located in high uncertainty avoidance societies than in low uncertainty avoidance societies.

Regarding collectivism versus individualism, Hofstede (1983; 1997) argues that individual ties are loose, and people are expected to rely primarily on themselves in individualistic societies. On the other hand, in collectivist societies, individual ties are very tight, and people are concerned for the well-being of the group to which they belong. Because of the broad orientation and wide concerns among interest groups, CSP is ought to be higher in collectivist societies (Berrone & Gomez-Mejia, 2008). Ho et al. (2012) find that higher CSP is significantly associated with more

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collectivist societies, as these societies put more emphasis on the impact of business on society. On the contrary, Ringov & Zollo (2007) find no significant results for a relation between the cultural dimension and environmental performance. Additionally, Park et al. (2007) also find no significant effect of individualism on environmental sustainability. Nevertheless, individualism is an important determinant of management practices, which in turn affect economic performance (van Hoorn, 2014). Findings show that high individualism leads to refined management practices, which positively affects performance. The mixed results in prior studies show that the effect of collectivism/individualism on CSP, firm value, or the relation between both is not clearly defined. Notwithstanding, the literature presents clear theories that more collectivist societies show higher levels of CSP, and thus will lead to increased firm value. Hence, the mediating effect of collectivism through CSP on firm value is suggested to be positive. Moreover, Ho et al. (2012) describe that environmental awareness is higher collectivist societies, resulting in more profound valuation of sustainability practices. Following, the positive relation of CSP on firm value will be stronger in more collectivist societies as opposed to individualistic societies. Therefore, it is suggested that individualism negatively affects the CSP-firm value relation.

H3: The positive relationship between CSP and firm value is weaker for companies located in individualistic societies than in collectivistic societies.

Power distance refers to the extent to which less powerful members within organizations, institutions, or societies accept that power is distributed unequally (Ho et al., 2012; Thanetsunthorn, 2015). Individuals in high power distance societies accept the inequality as natural and think that society leaders are privileged to obtain power. In low power distance societies, individuals are more likely to disagree with power inequality and seek confrontation. Individuals in low power distance societies are more likely to confront companies with controversial business practices, which results in higher CSP in those societies (Cohen, Pant, & Sharp, 1996). Findings suggest that organizations in high power distance countries are significantly negatively associated with CSP (Thanetsunthorn, 2015). Thus, individuals in low power distance societies strive for equalization of power and are less likely to tolerate power inequality. Because of the low power distance between individuals and organizational leaders, there is more room for the environmental debate in low power distance societies. On the opposite, organizational leaders are less likely to tolerate participation in company’s environmental decisions in high power distance societies. As a result, the positive effect of CSP on firm value will be weakened in high power distance societies through the neglection of the public in environmental decisions. Therefore, it is suggested that power distance negatively affects the CSP-firm value relation.

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H4: The positive relationship between CSP and firm value is weaker for companies located in high power distance societies than in low power distance societies.

Masculinity refers to the distribution of roles between genders with regard to masculine and feminine values (Peng, Dashdeleg, & Chih, 2012) Masculine societies display men that are assertive, competitive, and materialistic while women take a more nurturer role in society. Feminine societies show overlap in the roles of men and women with none of both genders having competitive behavior (Ho et al., 2012). Findings suggest a negative relation between masculinity and CSP, because of the prioritization of masculine values is in contrast with group harmony and sustainability awareness (Peng et al., 2012; Ringov & Zollo, 2007). Additionally, the level of sustainability is higher in feminine cultures compared to masculine cultures, because feminine cultures put more emphasize on environmental and sustainable measures (Park et al., 2007). Despite the fact that masculine values have more in common with general economic topics, as feminine values take on more of a nurturer role, it is femininity which enhances CSP. Furthermore, sustainability disclosure related to economic growth reflects masculinity, whereas sustainability disclosure related to environmental issues and quality of life reflects femininity (Yamen, Nimer, Ramadan, & Abidi, 2018). With regard to the presumed positive relation of CSP with firm value, it is suggested that masculinity reduces the effect of CSP on firm value. This is in line with the argument of Park et al. (2007), who discuss that companies located in more masculine countries show lower environmental and social performance compared to companies located in feminine cultures.

H5: The positive relationship between CSP and firm value is weaker for companies located in masculine societies than in feminine societies.

In addition to the aforementioned four cultural dimensions of Hofstede, the long-term versus short-term orientation dimension was added to the cultural framework in the 1980s (Hofstede & Bond, 1988). In the beginning of the 21st_{century, Minkov (2007) revised the long-term}

versus short-term orientation dimension and added the sixth dimension: indulgence versus restraint (Hofstede, Hofstede & Minkov, 2010; Hofstede 2011).

Regarding the long-term orientation versus short-term orientation, societies that prefer to maintain traditions and norms while being suspicious to change are considered short-term oriented (Hofstede Insights, 2020). On the other hand, long-term oriented societies encourage thrift and efforts in modern education as a way to prepare for the future. A society’s orientation affects the social, environmental, and financial performance of companies, as they are subject to the orientation of a society. Wang & Bansal (2012) find that companies, especially new ventures, have a long-term orientation which will result in net positive economic returns. Hence, companies that

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focus on the future rather than just the present will see more benefits due to their long-term scope. Additionally, Flammer & Bansal (2017) examine the relation between orientation and firm value creation. Once more, long-term business orientation enhances firm performance, whereas short-term orientation obstructs value creation. The value creation resulting from a long-term orientation derives from innovation boosts and improved stakeholder relationships. Despite the positive effects, findings suggest that a long-term orientation weakens the impact of environmental management practices (EMPs) on firm performance (Tsai, Huang, & Chen, 2020). Companies that focus on the long-term are more likely to compromise economic rents for social goals, whereas companies focusing on the short-term seek to maximize current profits relating to implementing EMPs. Therefore, Tsai et al. (2020) argue that the relationship between EMPs and firm performance is more direct in short-term oriented societies, as organizations focus on current benefits and maximizing profits from implementing EMPs. When organizations put emphasis on long-term sustainability, their short-term profitability can be harmed. Similarly, emphasis on short-term sustainability harms long-term profitability because limited resources are needed for money-making activities (Wu, Subramanian, Abdulrahman, Liu, & Pawar, 2017). Nevertheless, well implemented short-term sustainability practices can have thorough long-term benefits next to the constant short-term benefits.

Even though many studies suggest a positive relation between long-term orientation and firm performance, or between long-term orientation and CSP, these studies only focused on the direct effect of long-term orientation. Looking at the moderating effect of orientation, findings show that long-term orientation weakens the positive effect of EMPs on firm performance (Tsai, Huang, & Chen, 2020). Therefore, it is suggested that the effect of long-term orientation on the CSP-firm value relation is negative.

H6: The positive relationship between CSP and firm value is weaker for companies located in long-term orientated societies than in short-term orientated societies.

The sixth and final cultural dimension, indulgence versus restraint, is slightly complementary to the short-term versus long-term orientation dimension (Hofstede, 2011). Individuals in indulgent societies place more emphasis on the free gratification of human desires related to having fun and enjoying life (Hofstede et al., 2010; Sun, Yoo, Park & Hayati, 2019). A restraint society, then, is one in which needs of gratification is controlled and uses strict social norms to regulate this (Hofstede, 2011). Most countries in Western Europe, Sub-Saharan Africa and the Americas are classified as indulgent, restraint cultures tend to prevail in Eastern Europe, Asia and the Middle East. Literature relating to the effect of indulgence or restraint cultures on firm performance and the relation between CSP and firm performance suggests that the relation

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between CSP and firm performance is weaker in indulgent countries (Sun et al., 2019). The reasoning behind this relation is that business in indulgent countries are less likely to adhere to norms and regulations covering sustainability reporting. For this reason, firms located in restraint countries show more compliance to sustainability norms, which will subsequently lead to superior long-term financial performance. In restraint societies, individuals are more likely to follow strict norms with regard to sustainability activities, which leads to long-term net financial profits. Succeeding the proceedings of Sun et al. (2019), it is suggested that indulgence versus restraint has a negative moderating effect on the CSP-firm value relation.

H7: The positive relationship between CSP and firm value is weaker for companies located in indulgent societies than in restraint societies.

Figure 1 shows the conceptual model depicting the hypotheses in this study, with the expected effect given in parentheses.

CSP Culture H2: Uncertainty avoidance (+) H3: Individualism (-) H4: Power distance (-) H5: Masculinity (-) H6: Long-term orientation (-) H7: Indulgence (-) Firm value

Figure 1: Conceptual model

H1 (+)

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3. Research method

3.1. Data sample

This study uses data retrieved from Thomson Reuters Datastream, the ASSET4 database and Hofstede Insights in order to obtain answers to the hypotheses in a quantitative manner. An empirical approach is used to gain insight into the relation between CSP and firm value, as well as the moderating effect of cultural dimensions on that relation. In this study, a regression analysis is performed to gather empirical results on the archival panel data. Both financial and non-financial information has been gathered for a sample of 4,131 companies located worldwide for the period 2012 – 2018, with a total of 28,917 firm-year observations. In order to understand the effect of culture on the relation between CSP and firm value, the sample contains companies located in 47 different countries. Mainly because of the distinct cultural differences between countries, it is necessary to gain insights in data from as many countries as possible. Instead of examining the aspect of stakeholder-oriented versus shareholder-oriented, or common law versus civil law, this study aims to gain insights into country-wide differences on the relation between CSP and firm value by taking a broader scope of six cultural dimensions. In order to test H1, all data except cultural dimensions is used to examine the CSP-firm value relation. H2 through H7 will be tested in six models, where each model examines a single cultural dimension. Table 1 presents an overview of the sample.

3.2. Variables

To test the hypotheses, market value (MV) is used as dependent variable representing firm value and is measured by the natural logarithm of a company’s share price multiplied by the number of ordinary shares in issue. The independent variable in this study is Corporate Sustainability Performance (CSP). Prior literature has investigated the effect of CSP on firm value by using several different methods; performance measurement frameworks, transparency benchmarks, disclosure indices, and standardized scores. In the beginning of this century, it was hard to link economic information with social and environmental information (Hubbard, 2009). For this reason, researchers started to develop frameworks to measure sustainability performance. Schaltegger & Wagner (2006) explain that sustainability frameworks, such as the Sustainability Balanced Scorecard (SBSC) operate as tools to measure sustainability information. The Balanced Scorecard (BSC), as designed by Kaplan & Norton (1992), was designed to measure firm performance through four dimensions that represent organizational perspectives. Hansen & Schaltegger (2016) provide insights in how they managed to transform the original BSC into a SBSC, by modifying the existing BSC to fit with sustainability topics. Moreover, Nikolaou & Tsalis (2013) develop a new SBSC framework based on GRI indicators, which operates as a tool to measure a firm’s CSP. The search

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12 Country Freq. Percent Cum.

Australia 1,246 4.31 4.31 Austria 168 0.58 4.89 Belgium 245 0.85 5.74 Brazil 371 1.28 7.02 Canada 1,351 4.67 11.69 Chili 203 0.70 12.39 China 1,722 5.95 18.35 Colombia 119 0.41 18.76 Czech Republic 28 0.10 18.86 Denmark 224 0.77 19.63 Egypt 21 0.07 19.70 Finland 252 0.87 20.58 France 910 3.15 23.72 Germany 903 3.12 26.85 Greece 70 0.24 27.09 Hong Kong 420 1.45 28.54 Hungary 28 0.10 28.64 India 623 2.15 30.79 Indonesia 203 0.70 31.49 Ireland 196 0.68 32.17 Italy 525 1.82 33.99 Japan 2,520 8.71 42.70 Luxembourg 126 0.44 43.14 Malaysia 336 1.16 44.30 Mexico 231 0.80 45.10 Morocco 14 0.05 45.15 Netherlands 378 1.31 46.45 New Zealand 294 1.02 47.47 Norway 252 0.87 48.34 Peru 98 0.34 48.68 Philippines 161 0.56 49.24 Poland 203 0.70 49.94 Portugal 91 0.31 50.25 Romania 14 0.05 50.30 Russia 259 0.90 51.20 Saudi Arabia 119 0.41 51.61 Singapore 252 0.87 52.48 South Africa 700 2.42 54.90 South Korea 336 1.16 56.06 Spain 378 1.31 57.37 Sweden 707 2.44 59.82 Switzerland 616 2.13 61.95 Taiwan 700 2.42 64.37 Thailand 266 0.92 65.29 Turkey 252 0.87 66.16 United Kingdom 2,191 7.58 73.74 United States 7,595 26.26 100.00 Total 28,917 100.00

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for a unified framework to measure sustainability performance is yet unfinished. Cagno et al. (2019) tested different performance measurement systems and concluded that their designed systems contribute to improved understanding of organizational sustainability performance. Nevertheless, the numbers representing CSP that these frameworks produce are neither completely unbiased nor globally applicable. Cagno et al. (2019) argue that most frameworks are designed to fit a certain situation in which the studied sample of companies operate.

To overcome the weaknesses of performance measurement frameworks, recent studies examining CSP use standardized scores, such as a transparency benchmark (Manning, Braam, & Reimsbach, 2019), the GRI-based disclosure index (Braam, Uit de Weerd, Hauck, & Huijbregts, 2016; Clarkson, Li, Richardson, & Vasvari, 2008), or ESG scores (Braam & Peeters, 2018; Cheng, Ioannou, & Serafeim, 2014). Contrary to custom-made frameworks, these standardized measures are nationally or globally applicable to firms. Furthermore, such scores are developed independently from companies, where in some cases frameworks are designed in consultation with companies. Additionally, frameworks are usually designed to fit the sample of companies involved in research, which could render distorted results. Therefore, this study will use standardized CSP scores combined with financial data from Thomson Reuters Datastream to perform a regression-based analysis on the effect of CSP on firm value.

CSP is measured by taking the mean of the environmental and social performance scores for each company. Both the environmental and social performance scores consist of several subcategories which add up to the environmental and social pillar scores representatively. These two scores added up and divided by two represent a company’s CSP in this study. In accordance with Manning et al. (2019), none of both pillar scores is regarded as more important, giving the equal distribution of both pillar scores in the overall CSP score. Firm size, leverage, and the price/earnings-ratio (PE) are control variables. These control variables are in accordance to prior studies on the relation between CSP and firm value (Clarkson et al., 2008; Hummel & Schlick, 2016; Manning et al., 2019). The size of a company is measured by taking the natural logarithm of the year-end total assets. Because of the abnormal distribution of firm size, the natural logarithm is taken to assure normal distribution. Leverage is measured as the percentage of year-end total debt over total capital for each company. At last, price/earnings-ratio is measured as the year-end share price divided by the earnings rate per share. To test hypotheses 2 through 7, the six cultural dimensions are extracted from the publicly available database Hofstede Insights. This country-level data is manually obtained from the online database. For each of the six dimensions, a score ranging from 0 to 100 is rewarded to each country based on its performance on that cultural dimension. All six dimensions represent indices, indicating to which degree a certain cultural dimension is applicable to a country. Appendix A presents an overview of the cultural scores per country for each of the six cultural dimensions. Additionally, this study controls for industry-specific effects by using a dummy variable for industries based on the six main industry groups. In

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order to control for year effects, year dummies are included for the years 2006 till 2018. Table 2 presents an overview of variables used in this study.

Variable Definition Data source

MV Market value (MV) is the natural logarithm of a company’s share price multiplied by the number of ordinary

shares in issue. Thomson Reuters

Datastream

CSP Corporate Social Performance (CSP) is calculated as the mean of a company’s environmental and social pillar

scores.

The environmental pillar score is the weighted average relative rating of a company based on the reported environmental information and the resulting three environmental category scores (emission, innovation, and resource use).

The social pillar score is the weighted average relative rating of a company based on the reported social information and the resulting four social category scores (community, human rights, product responsibility, and workforce).

Thomson Reuters Datastream

Size Size is measured as the natural logarithm of a company’s year-end total assets. Thomson

Reuters Datastream

Leverage Leverage is the ratio of a company’s total debt over total capital. Thomson

Reuters Datastream

PE Price/earnings-ratio (PE) is the year-end share price divided by the earnings rate per share. Thomson

Reuters Datastream

UAI The uncertainty avoidance index (UAI) expresses the degree to which the members of a society feel

uncomfortable with uncertainty and ambiguity on a scale ranging from 0 to 100. Hofstede Insights

IDV Measured by the individualism versus collectivism index (IDV) on a scale ranging from 0 to 100. Individualism

can be defined as a preference for a loosely-knit social framework in which individuals are expected to take care of only themselves and their immediate families. Collectivism represents a preference for a tightly-knit framework in society in which individuals can expect their relatives or members of a particular ingroup to look after them in exchange for unquestioning loyalty.

Hofstede Insights

PDI The power distance index (PDI) expresses the degree to which the less powerful members of a society accept

and expect that power is distributed unequally on a scale ranging from 0 to 100. The fundamental issue here is how a society handles inequalities among people.

Hofstede Insights

MAS Measured by the masculinity versus femininity index (MAS) on a scale ranging from 0 to 100. Masculinity

represents a preference in society for achievement, heroism, assertiveness, and material rewards for success. Femininity stands for a preference for cooperation, modesty, caring for the weak and quality of life.

Hofstede Insights

LTO Measured by the long-term orientation versus short-term orientation index (LTO) on a scale ranging from 0 to

100. Societies who score low on this dimension, and thus are short-term oriented, prefer to maintain time-honored traditions and norms while viewing societal change with suspicion. Societies that score high, and thus are long-term oriented, take a more pragmatic approach: they encourage thrift and efforts in modern education as a way to prepare for the future.

Hofstede Insights

IVR Measured by the indulgence versus restraint index (IVR) on a scale ranging from 0 to 100. Indulgence stands

for a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. Restraint stands for a society that suppresses gratification of needs and regulates it by means of strict social norms.

Hofstede Insights

Industry A vector of dummy variables based on classification of firms in six main industry groups; industrial, utility,

transportation, bank/savings & loan, insurance, and other financial.

Thomson Reuters Datastream

Year A vector of year dummies.

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3.3. Regression model

Equation 1 presents the functional form of the panel date regression, where market value is the dependent variable, and the moderating effect of culture is measured through the interaction effect with CSP (Baron & Kenny, 1986). In equation 1, culture represents one of the six cultural dimensions in order to test the corresponding hypotheses. In order to perform a regression with interaction effects, the single variables used in the interaction term are centered.

𝑀𝑉𝑖𝑡= 𝛽0+ 𝛽1𝐶𝑆𝑃𝑖𝑡+ 𝛽2𝐶𝑢𝑙𝑡𝑢𝑟𝑒𝑖𝑡+ 𝛽3𝐶𝑢𝑙𝑡𝑢𝑟𝑒𝐶𝑆𝑃𝑖𝑡+ 𝛽4𝑆𝑖𝑧𝑒𝑖𝑡+ 𝛽5𝑃𝐸𝑖𝑡

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4. Results

4.1. Descriptive statistics

The descriptive statistics for the variables used in this study are presented in table 3. First, the assumptions underlying the regression model were tested for multicollinearity by the Pearson correlation matrix and the variance inflation factors (VIF). Table 4 presents the Pearson correlation matrix and shows that the variables MV and Size are highly correlated. An explanation for this is that MV is a proxy of Size, as MV is measured by equity and Size is measured by total assets. Regarding culture, all dimensions but masculinity, show moderate significant correlation with MV. These correlations could indicate that cultural dimensions have a direct effect on firm value. Furthermore, IDV and PDI, and IVR and PDI are highly negatively correlated, which indicates that the more individualistic or indulgent a society is, the power distance decreases. Especially for indulgent societies, which stand for free gratification of human drives, the negative correlation with power distance is expected. The negative correlation between IDV and PDI indicates that collectivist societies thrive on loyalty and thus can handle unequal power distribution better than individualistic societies. In addition, high negative correlation between LTO and IDV indicates that societies focused on the long term are less likely to be individualistic. Regarding IVR, high negative correlation with PDI indicates that indulgent societies are less power distant. An explanation for this correlation is that indulgent societies allow for human expressions, which are more visible in societies with equal power distribution.

Variable Obs. Mean Std. Dev. Min Max

MV 28,917 9.35 2.56 1.26 20.13 CSP 28,917 37.37 24.63 0.12 97.90 Size 28,917 16.69 2.84 4.09 27.89 Leverage 28,917 3.15 1.22 -2.30 8.97 PE 28,917 2.96 0.77 -2.30 10.55 UAI 28,917 55.27 20.88 8.00 100.00 IDV 28,917 65.36 26.34 13.00 91.00 PDI 28,917 49.57 17.39 11.00 100.00 MAS 28,917 58.93 18.15 5.00 95.00 LTO 28,917 50.14 24.68 7.00 100.00 IVR 28,917 55.98 17.04 4.00 97.00 Industry 28,917 1.94 1.68 1.00 6.00

Table 3: Descriptive statistics.

Note. MV = Market value, CSP = Corporate Sustainability Performance, PE = Price/earnings-ratio, UAI = Uncertainty Avoidance Index, IDV = Individualism versus Collectivism, PDI = Power Distance Index, MAS = Masculinity versus Femininity, LTO = Long Term Orientation versus Short Term Normative Orientation, IVR = Indulgence versus Restraint.

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 1 MV 1.0000 2 CSP 0.2105*** 1.0000 3 Size 0.9207*** 0.2024*** 1.0000 4 PE -0.0242*** -0.0338*** -0.1597*** 1.0000 5 Leverage -0.0048 0.0813*** 0.1035*** -0.0620*** 1.0000 6 UAI 0.3081*** 0.1302*** 0.3358*** -0.0819*** -0.0287*** 1.0000 7 PDI 0.4566*** -0.0612*** 0.4576*** -0.0677*** -0.0045 0.2184*** 1.0000 8 IDV -0.5951*** 0.0171*** -0.6014*** 0.1098*** 0.0410*** -0.2786*** -0.7722*** 1.0000 9 MAS 0.1485*** -0.0890*** 0.1446*** 0.0516*** -0.0715*** 0.2403*** -0.0310*** 0.0209*** 1.0000 10 LTO 0.4223*** 0.0425*** 0.4441*** -0.0853*** -0.0790*** 0.3574*** 0.3837*** -0.6290*** 0.2214*** 1.0000 11 IVR -0.4300*** 0.0123* -0.4517*** 0.0864*** 0.0333*** -0.2713*** -0.6698*** 0.6999*** -0.1766*** -0.6885*** 1.0000 12 Industry 0.0054 -0.0394*** 0.1556*** -0.1020*** 0.1187*** -0.0678*** 0.0031 0.0087 -0.0260*** -0.0391*** 0.0181*** 1.0000 13 Year 0.0893*** 0.1163*** 0.0621*** 0.0973*** 0.0171*** -0.0000 0.0000 0.0000 0.0000 0.0000 -0.0000 -0.0000 1.0000

Table 4: Pearson correlation matrix. ***Significance at 1% level, **Significance at 5% level, *Significance at 10% level.

Note. MV = Market value, CSP = Corporate Sustainability Performance, PE = Price/earnings-ratio, PDI = Power Distance Index, IDV = Individualism versus Collectivism, MAS = Masculinity versus Femininity, UAI = Uncertainty Avoidance Index, LTO = Long Term Orientation versus Short Term Normative Orientation, IVR = Indulgence versus Restraint.

Variable VIF 1/VIF

IDV 4.62 0.216304 PDI 3.22 0.310078 IVR 3.05 0.327519 LTO 2.67 0.374134 Size 1.99 0.501545 UAI 1.27 0.786980 MAS 1.26 0.790526 CSP 1.15 0.868647 Industry 1.08 0.922508 PE 1.06 0.945837 Leverage 1.06 0.946454 Year 1.03 0.971771 Mean VIF 1.96

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The variance inflation factors (table 5) indicate no multicollinearity between the variables used, as all VIF values are below 5 (Hair, Ringle, & Sarstedt, 2011). To test for heteroskedasticity, the Breusch-Pagan/Cook-Weisberg test is used (Breusch & Pagan, 1979; Cook & Weisberg, 1983). The test shows that there is heteroskedasticity in the data, what will be corrected for in the regression model. Additionally, the Wooldridge test is used to detect autocorrelation (Wooldridge, 2002). As for heteroskedasticity, autocorrelation will be corrected for in the regression model. Because of the time-invariant cultural dimensions, these variables will be omitted in a fixed effects model, thus a random effects model will be used in the regression analysis in order to explore the moderating effect of culture on the relationship between CSP and firm value.

4.2. Test of hypotheses

Table 6 presents the results of the regression analysis performed to test the hypotheses. The results are presented per model, for which the numbers correspond to the hypotheses developed in section 2. The findings provide support for H1, which predicts a positive relation between CSP and firm value. The model uses MV as dependent variable and CSP as independent variable. The model shows that CSP is significantly positively related to MV, after having controlled for other factors in the regression model. The results provide support for H1, indicating that CSP is positively related to firm value. The results in model 2 are directionally consistent with H2, however the results are insignificant. The insignificant moderating effect of UAI on the CSP-firm value relation was expected, as prior studies did not find significant results for this cultural dimension (Broekhuizen et al., 2017; Park et al., 2007). The significantly positive relation between CSP and firm value remains almost equal, even though the interaction of UAI and CSP is insignificant. This indicates that, whilst there is no significant moderating effect of UAI on the CSP-firm value relation, the positive relation between CSP and firm value remains significant. Model 3 does not provide support for H3, which predicts that the positive relation between CSP and firm value is negatively affected by individualism. Results show a significantly positively moderating effect of individualism on the CSP-firm value relation, which is inconsistent with prior literature (Ho et al., 2012). Additionally, the effect of CSP on firm value increases due to the effect of individualism. Nevertheless, model 4 does provide support for H4, which predicts that the positive relation between CSP and firm value is negatively affected by power distance. Findings show that there is a significantly negatively moderating effect of power distance on the CSP-firm value relation, which is consistent with previous studies (Cohen et al., 1996; Thanetsunthorn, 2015). The coefficient of CSP increases due to the negative effect of power distance, indicating that the positive relation between CSP and firm value improves in less power distant societies.

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Table 6: Regression results. ***Significance at 1% level, **Significance at 5% level, *Significance at 10% level. H1-H7 are directional hypotheses and therefore tested one-tailed.

The expected effects are given in parentheses.

a_{Results on industry dummies and year effects are not reported for parsimony, these results are presented in appendix B.}

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

MV MV MV MV MV MV MV Independent variables: CSP (+) 0.532*** (3.00) 0.504*** (2.85) 0.815*** (4.45) 0.750*** (4.08) 0.560*** (3.12) 0.613*** (3.41) 0.631*** (3.48) UAI 0.002** (2.00) UAICSP (+) 0.036 (0.47) IDV -0.011*** (-7.57) IDVCSP (-) 0.408*** (6.27) PDI 0.012*** (7.61) PDICSP (-) -0.585*** (-5.67) MAS 0.002** (2.27) MASCSP (-) 0.200** (2.35) LTO 0.004*** (3.32) LTOCSP (-) -0.262*** (-3.96) IVR -0.008*** (-4.44) IVRCSP (-) 0.384*** (3.58)

Control variables: Size 0.790*** (44.00) 0.787*** (40.55) 0.737*** (31.72) 0.762*** (37.09) 0.789*** (43.11) 0.778*** (36.70) 0.773*** (36.86)

PE 0.102*** (15.76) 0.102*** (15.82) 0.103*** (15.87) 0.102*** (15.79) 0.102*** (15.69) 0.103*** (15.85) 0.103*** (15.84) Leverage -0.053*** (-14.23) -0.053*** (-14.16) -0.050*** (-13.46) -0.052*** (-13.96) -0.053*** (-14.18) -0.052*** (-13.96) -0.052*** (-13.97) Industrya _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y Yeara _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y _Y Constant -3.954*** (-13.79) -4.018*** (-15.09) -2.363*** (-5.10) -4.111*** (-15.83) -4.046*** (-15.15) -3.954*** (-13.93) -3.246*** (-7.69) N = 28,917 R2_{= 0.8958} N = 28,917 R2_{= 0.8946} N = 28,917 R2_{= 0.8897} N = 28,917 R2_{= 0.8928} N = 28,917 R2_{= 0.8954} N = 28,917 R2_{= 0.8928} N = 28,917 R2_{= 0.8925}

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Model 5 does not provide support for H5, which predicted that the positive relation between CSP and firm value is negatively affected by masculinity. The interaction term shows a significantly positively interaction effect at the 5% level, whilst the coefficient of CSP does not change significantly in relation to the coefficient of CSP in model 1. These findings are inconsistent with prior studies, which predicted that femininity, not masculinity, has a positive moderating effect on the CSP-firm value relation (Peng et al., 2012; Ringov & Zollo, 2007; Yamen et al. 2018). Furthermore, model 6 provides partial support for H6, which predicts that the moderating effect of long-term orientation weakens the effect of CSP on firm value. Despite the fact that the significantly positively coefficient of CSP increases, the interaction between LTO and CSP shows a significantly negative effect. At last, model 7 provides no support for H7, which predicted that the positive CSP-firm value relation is negatively affected by indulgence. Findings show a significantly positively moderating effect of indulgence on the CSP-firm value relation, and that the coefficient of CSP increases compared to model 1. Table 7 presents an overview of the implications on the hypotheses developed in section 2.

Model Hypothesis Supported

(Yes/No)

1 The level of a company’s CSP is positively associated with the company’s firm value. Yes

2 The positive relationship between CSP and firm value is stronger for companies located in high uncertainty

avoidance societies than in low uncertainty avoidance societies. Yes

3 The positive relationship between CSP and firm value is weaker for companies located in individualistic

societies than in collectivistic societies. No

4 The positive relationship between CSP and firm value is weaker for companies located in high power distance

societies than in low power distance societies.

Yes

5 The positive relationship between CSP and firm value is weaker for companies located in masculine societies

than in feminine societies. No

6 The positive relationship between CSP and firm value is weaker for companies located in long-term orientated

societies than in short-term orientated societies. Yes

7 The positive relationship between CSP and firm value is weaker for companies located in indulgent societies

than in restraint societies. No

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5. Discussion

5.1. Interpretations

Results in the previous section confirm the positive relation between CSP and firm value, as well as the moderating effect of six cultural dimensions on the aforementioned relationship. With respect to several cultural dimensions, findings do not correspond to the expected moderating effect of these cultural dimensions on the CSP-firm value relation. However, this study finds significant results for the presumed weakening effect of long-term orientation and power distance on the relation between CSP and firm value. Previous literature finds consistent support for the positive relation between CSP and firm value, suggesting that companies with superior CSP have significantly higher firm value in comparison to companies with inferior CSP (Gregory et al., 2016; Haryono et al., 2016; Oikonomou et al., 2012; Sharman & Fernando, 2008). Hummel & Schlick (2016) attribute this to the signaling and legitimacy theory, predicting that companies either voluntarily disclose their superior performance to gain benefits or only disclose the ‘good’ parts of their CSP to disguise their true performance, respectively. Hence, the results provide support for the signaling theory, because the higher a company’s CSP, the higher its firm value will be.

With regard to the expected moderating effect of culture on the CSP-firm value relation, the majority of the cultural dimensions’ moderating effects are contrary to the expectations. Regarding uncertainty avoidance, findings suggest that there is no significant moderating effect of uncertainty avoidance on the relation between CSP and firm value. Contrary to Choi & Luo (2020), findings do not support the suggested strengthening effect of uncertainty avoidance on the CSP-firm value relation. Hence, the impact that future uncertainty has on CSP, firm value, and the relation between both remains a topic that should be examined in the future. Additionally, the current global situation as of 2020, in light of the COVID-19 pandemic, could shift the worldwide attitude towards handling uncertainty to a higher level. Unexpected events, such as a pandemic or a natural disaster, could have much worse implications for low uncertainty avoidance societies than for high uncertainty avoidance societies. Therefore, future research should explore if societies significantly enhanced their uncertainty avoidance, and if this has implications for the relation between CSP and firm value.

With respect to individualism, prior studies suggested that the CSP-firm value relation is stronger in collectivist societies, as opposed to individualistic societies (Ho et al., 2012). Despite, findings provide significant results for the strengthening role of individualism on the CSP-firm value relation. Therefore, the more people in a society define their self-image as individualistic instead of collectivistic, the more positive the effect of CSP on firm value is. An explanation for this contra-expected finding is that decision-making processes are more fluid in individualistic societies, which result in enhanced implications of CSP on firm value. Regarding masculinity versus

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femininity, prior studies suggested that in feminine societies, which value cooperation, modesty, and quality of life highly, the positive effect of CSP on firm value would be stronger (Ho et al., 2012; Park et al., 2007). However, findings propose that the positive relation between CSP and firm value is stronger in masculine societies, which are more competitive at large. Thus, in masculine societies, that put more emphasis on achievement, heroism, assertiveness, and rewards for success, the positive effect of CSP on firm value is stronger. In high masculine societies, such as Austria, Japan, and Switzerland, the relation between CSP and firm value is strengthened by the society’s focus on achieving goals. On the contrary, the focus on cooperation and modesty in feminine societies such as Denmark, Norway, and Sweden, results in a weaker relation between CSP and firm value. For this reason, the attitude of a society with respect to status versus modesty affects the positive association of CSP on companies’ firm value.

At last, previous literature suggested that the positive relation between CSP and firm value is weakened by indulgence (Sun et al., 2019). Indulgent societies, that allow relatively free gratification of basic and natural human drives related to enjoying life and having fun, strengthen the positive effect of CSP on firm value. On the contrary, the positive relation between CSP and firm value is weakened in restraint societies, ones that suppress gratification of needs and regulate it by means of strict norms. High indulgence countries, such as Australia, Mexico, New Zealand, and Sweden, put more emphasis on individual happiness and well-being. On the contrary, positive emotions are less freely expressed in high restraint countries, such as China, India, and Russia. For this reason, environmental and sustainable activities are more likely to take place in indulgent societies, which put more focus on well-being than restraint societies. Therefore, the positive relation between CSP and firm value is stronger in indulgent societies.

5.2. Limitations

The findings of this study must be considered in the light of some limitations. One major limitation, across lots of studies on the topic of sustainability performance, is that disclosure of sustainability information is on a voluntary basis. For this reason, companies’ CSP is subject to the information that is provided by the companies themselves, and thus might not reveal true CSP for some companies. Although there are several countries and regions which mandate disclosure of sustainability information, future studies will have to examine whether mandatory settings affect CSP one way or another. Second, data on the sample firms is collected for the years 2012-2018, which is a relatively short time period. In the years up to 2012, data on CSP scores in Thomson Reuters Datastream is non-existent for a relatively large amount of companies. In recent years, the amount of CSP data rapidly increased, thus future studies should examine the CSP-firm value relation when there is enough data available over a longer period of time. Furthermore, this study investigated the moderating effect of culture on the relation between CSP and firm value. In the publicly available database Hofstede Insights, there is culture data on the majority of countries,

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albeit sometimes data on the orientations covering long-term orientation and indulgence is missing. In this study, these countries are not included in the sample in order to prevent different sample sizes in examining the effect of culture. In addition, this study investigated the effect of culture on the country-level, whereas some countries together operate in one region, i.e. the European Union (EU). Future studies could examine whether the effect of culture in separate countries differs significantly from the effect of one large region such as the EU.

At last, the recent developments with regard to the global COVID-19 pandemic could cause a tipping point with respect to both culture and CSP. Across all nations, companies are economically affected by the pandemic due to social distancing, self-isolation, and travel restrictions (Nicola, et al., 2020). As a result, the socio-economic measures lead to shutdown of financial markets and businesses, as well as safety in consumption and investment among consumers, investors, and international trade partners (Ozili & Arun, 2020). Regarding a predicted oncoming global recession, companies might neglect sustainability practices in order to maintain a solid economic position. Additionally, it is presumed that societies will change their behavior towards uncertainty so that both societies and companies will follow a ‘better safe than sorry’ mentality, and thus increasing uncertainty avoidance (Ozili & Arun, 2020). Therefore, future studies should examine the differences in the relation between CSP and firm value, as well as the moderating effect of cultural dimensions such as uncertainty avoidance on this relation before and after the 2020 global pandemic.

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6. Conclusion

This study examined the relation between CSP and firm value, as well as the moderating effect of culture on the CSP-firm value relation for a worldwide sample of companies in the years between 2012 and 2018. The purpose of this study is to explore the moderating effect of culture on the relationship between corporate sustainability performance and firm value. Regression analyses were performed to examine the relation between CSP and firm value, and the effect of six cultural dimensions on the relation between CSP and firm value. Results show that CSP positively affects firm value, and that this relation is strengthened or weakened by several cultural dimensions. As expected in previous studies, uncertainty avoidance has a positive, insignificant effect on the relation between CSP and firm value. This study supports prior studies focusing on the relation between CSP and firm value (Haryono et al., 2016; Sharfman & Fernando, 2008), by confirming that CSP is positively related to firm value. Additionally, partial support is found for previous studies on the effect of culture on the relation between CSP and firm value. Although not much research has been conducted on the (moderating) effect of culture, this study partially supports previous studies on the effect of culture on the CSP-firm value relation (Sun et al., 2019; Tsai et al., 2020). Among the six cultural dimensions, expectations were that all dimensions but uncertainty avoidance weaken the positive effect of CSP on firm value. Findings show that power distance and long-term orientation weaken the positive effect of CSP on firm value, whereas uncertainty avoidance, individualism, masculinity, and indulgence strengthen this effect.

Findings reported in this study have several implications for research related to CSP, the effect of CSP on firm value, and the role of culture on the relation between CSP and firm value. First, the findings have implications for companies’ decision-making processes in the realm of sustainability performance. Companies aiming to improve their CSP are looking forward to seeing their firm value increase, therefore companies should endeavor to enhance their CSP when making big decisions. Second, findings provide insights in the effect of a society’s culture on the positive relation between CSP and firm value. As a result, companies should notice the effect of the cultural dimensions in a society, as these dimensions could strengthen or weaken the positive effect of CSP on firm value. In other words, the impact of environmental decisions should be examined in light of a society’s culture, as the positive effect of CSP on firm value is stronger in masculine societies, but it is weaker in societies that have a long-term orientation.

After all, more research is needed on the effect of culture on the relation between CSP and firm value to increase understanding of national factors that impact companies’ sustainability practices. Recent studies are focusing on Hofstede’s cultural dimensions with respect to sustainability performance, future studies should definitely continue examining the role of culture.

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The moderating effect of culture on the relationship between corporate sustainability performance and firm value