The influence of CSR on firm value: the
moderating effect of home country
characteristics
University of Groningen, Master International Business and Management Date of submission: June 17, 2019
Student: Herma Kroon (S2754185) Email: h.a.kroon@student.rug.nl Supervisor: Dr. C. H. Slager Co-assessor: S. Castaldi, MSc
Abstract: The effect of corporate social responsibility (CSR) on firm value is well-investigated
and found to be significantly positive, as CSR increases transparency, reduces transaction costs and enables firms to gain a competitive advantage. The relationship is likely to be influenced by home country characteristics, such as national governance and the national market economy, which will be investigated in this research. The study controls for country- and industry-related effects and firm characteristics as size, profitability, financial risk, R&D investments,
internationalization, growth opportunities and capital expenditure. The research is conducted on a panel data set for a time period from 2013 to 2017, analyzing 1185 publicly listed firms from 50 countries. The results indicate that CSR significantly positively impacts firm value. It is found that this relationship is not impacted by the quality of national governance of a firm’s home country. Also, it is found that the relationship between CSR and firm value does not differ between liberal or coordinated market economies.
Field key words: corporate social responsibility, firm value, institutional theory, transaction cost
3 Table of contents 1. Introduction ... 3 2. Literature review ... 6 2.1 CSR-CFP relationship ... 6 2.2 National governance ... 8 2.3 Market economy ... 10 3. Hypotheses development ... 12 4. Methodology ... 15 4.1 Sample construction ... 15 4.2 Variables measurement ... 17
4.2.1 Dependent variable: Tobin’s Q ... 17
4.2.2 Independent variable: CSR ... 17
4.2.3 Moderating variable: National governance... 18
4.2.4 Moderating variable: Market economy ... 19
4.2.5 Control variables ... 20 4.3 Empirical method ... 23 5. Data ... 23 5.1 Descriptive statistics ... 24 6. Results ... 26 6.1 The effect of CSR on CFP ... 26
6.2 The moderating role of national governance ... 27
6.3 The moderating role of market economy ... 27
7. Robustness tests ... 28
8. Discussion and conclusion ... 29
3
1. Introduction
A firm may involve in different actions to improve its competitive position, since a competitive position enables the firm to achieve better financial performance (Saeidi et al., 2015). Corporate social responsibility (henceforth, CSR) is such an action. Although there is no acknowledgement of a single definition of CSR, institutional researchers (see e.g., Doh & Guay, 2006; Yang & Rivers, 2009) often employ the definition of McWilliams and Siegel (2000), where CSR is defined as “actions that appear to further some social good, beyond the interests of the firm and that which is required by law”. Firms are expected to be responsive to the interests of society besides their own goals, especially in the increasingly global economy nowadays (Campbell, 2007). CSR is of utmost importance because it is found to have a positive impact on corporate financial performance (henceforth, CFP) (e.g. Brooks & Oikonomou, 2018; Griffin & Mahon, 1997; Orlitzky, Schmidt & Rynes, 2003; Wang, Dou & Jia, 2016).
During the last decades, the impact of CSR on CFP is well investigated, with inconsistent findings. Though, the positive findings outweigh the neutral and negative findings. Griffin and Mahon (1997) reviewed 25 years of previous CSR-CFP studies and concluded the relationship to be positive. Orlitzky et al. (2003) reviewed 52 primary quantitative studies conducted between 1970 and 2002 and found that overall, CSR is positively related to CFP. Also, a meta-analytic review by Wang et al. (2016) of 42 prior studies from 2003 onwards reveals a positive and significant CSR-CFP relationship. Brooks and Oikonomou (2018) reviewed over 42 years of studies on CSR and CFP and found there is a positive and statistically significant, but
4 Since the direction and underlying factors of the relationship between CSR and CFP are quite clear, it is interesting to find out which other factors influence this relationship. As
managers are interested in CFP, it is important to notice whether the strength of the CSR-CFP relationship differs among various home countries. This allows me to examine how important CSR is for the firm as home country characteristics can influence the strategic value of CSR (El Ghoul et al., 2017; Ioannou & Serafeim, 2012). For example, the CSR–CFP relationship is found to be stronger for firms from advanced economies than for firms from developing economies (Wang et al., 2016). Also, the CSR-CFP relationship is found to be moderated by national institutions (El Ghoul et al., 2017). Yet, the field of moderating contextual factors on the CSR-CFP relationship is still underdeveloped. Future research is recommended to examine the effect of other macro-level factors that can moderate the CSR-CFP relationship (e.g. Brooks &
Oikonomou, 2018; El Ghoul, Guedhami, & Kim, 2017). Macro-level factors are related to a firm’s broader environment, for example the country a firm is located in. Especially home country characteristics are necessary for managers to gain knowledge on, as Hejazi (2007) concluded that multinationals’ activities are not global, but are strongly home biased, as a firm is embedded in a national framework (Matten & Moon, 2008). Little attention has been paid to the moderating roles of contextual factors that can explain the contradicting findings of the CSR– CFP relationship across countries. By exploring home country characteristics that potentially influence the CSR-CFP relationship, I aim to fill this gap in the literature. Therefore, I focus on the impact of home country characteristics of the firm’s headquarters on the CSR-CFP
relationship.
The aim of this study is to gain more insight in national governance and country’s market economy as contextual factors. Drawing on transaction cost theory and institutional theory, these home country characteristics are assumed to impact the CSR-CFP relationship. Transparency is associated with transaction costs, and transaction costs are related to market valuation (Lang et al., 2012). Lang et al., (2012) found that corporate transparency matters more in reducing transaction costs when overall uncertainty in countries is greater, thus, in general, in countries with weak national governance. National governance is therefore considered an important moderator in this relationship. Wang et al. (2016) found that the CSR-CFP relationship is
5 in liberal market economies than in coordinated market economies (Matten & Moon, 2008), it is expected that the type of market economy of the firm’s home country influences the CSR- CFP relationship. Market economy is therefore considered an important moderator in this
relationship.
Often, accounting-based measures (e.g. Aupperle et al., 1985; Cochran & Wood, 1984; McWilliams & Siegel, 2000) or market-based measures (Jo & Harjoto, 2011; Luo &
Bhattacharya, 2006) of CFP are employed, and I will use the market-based measure of CFP, firm value, (or more specifically, Tobin’s Q) as a dependent variable. In this paper, I revisit the relation between CSR and Tobin’s Q taking into account the potential moderating role of national governance and market economy on this relationship. The focus will be on the firm’s home country characteristics, as Ioannou and Serafeim (2012) stress the importance of home country institutions even after they explicitly controlled for the impact of host country
institutions. By conducting this research, I aim to answer the following main research question:
How is the relationship between CSR and CFP affected by the home country’s national governance and market economy?
Using a sample of 5925 firm-year observations representing 1185 firms from 50 countries over the period 2013–2017, I first examine whether the valuation effects of CSR exists, and whether they vary with the quality of national governance and the market economy of the home country. In particular, I examine the relationship between CSR and Tobin’s q, my proxy for firm value, as this relationship summarizes the strategic value of CSR. In line with my prediction, I find that the impact of CSR on Tobin’s Q is positive. There is found no evidence for a
moderating effect of national governance, nor for a moderating effect of market economy on the CSR-CFP relationship.
This study contributes to the existing literature about CSR by providing international evidence on the CSR-CFP relationship. Furthermore, it contributes to the literature on country effects, and specifically the effects of national governance and market economy on the
6 are of utmost importance for managers to take into account when making corporate decisions. CSR appears to be related to and impact essential corporate decisions such as executive salaries and mergers and acquisitions (Brooks & Oikonomou, 2018). Therefore, examining the role that home country characteristics plays on the relationship between CSR and firm value has
important implications for managers regarding strategic planning.
The rest of the study is organized as follows. In the next section, I briefly discuss findings of previous studies regarding the CSR-CFP relationship and state assumptions on the potential moderating role of home country characteristics on this relationship. The hypotheses are visualized in a conceptual model. The third section describes the sample and research
methodology. The fourth section presents my main results and the fifth section provides three robustness checks. Finally, the last section discusses implications of the findings, contributions, limitations, and directions for future research.
2. Literature review
2.1 CSR-CFP relationship
Even though researchers did not gain consensus on the cost-benefit analysis of CSR, the majority of studies found that the benefits outweigh the potential costs. Some authors found a neutral or negative relationship between CSR and CFP (e.g. Aupperle et al., 1985; Hirigoyen & Poulain-Rehm, 2014; Makni et al., 2009) and claim this is due to certain costs that come along with engagement in CSR. However, several meta-analytic reviews found there is a positive and statistically significant relationship between CSP and CFP (Brooks & Oikonomou, 2018; Orlitzky et al., 2003; Wang et al., 2016). Orlitzky et al. (2003) reviewed 52 primary quantitative studies, Wang et al. (2016) reviewed 42 prior studies, and on top of that, Brooks and Oikonomou (2018) reviewed over 42 years of studies and all authors found a positive and significant CSR-CFP relationship.
7 way from its competitors (Branco & Rodrigues, 2006). CSR practices can enhance a firm’s brand name (Cheung et al., 2010) and reputation (Aguilera-Caracuel & Guerrero-Villegas, 2018; Branco & Rodrigues, 2006; Saeidi et al., 2015; Orlitzky et al., 2003), which consequently may enhance relations with external parties, attract better employees, enhance current employees motivation, commitment and loyalty to the firm (Branco & Rodrigues, 2006). Other benefits are operating efficiency, product market gains, improved employee productivity, and earnings quality, all contributing to the enhanced firm value in the short and long run (Malik, 2015). CSR initiatives might enable firms to build a satisfied customer base (Saeidi et al., 2015), which in turn contributes positively to market value (Luo & Bhattacharya, 2006). CSR is also positively viewed from a financial perspective. Firms with better CSR performance face significantly lower capital constraints (Cheng, Ioannou & Serafeim, 2014), are able to attract cheaper equity
financing (Branco & Rodrigues, 2006; El Ghoul et al., 2011; Reverte, 2012) and are thus found to positively influence firm’s market value (Cheung et al., 2010; Jo & Harjoto, 2011).
The underlying mechanisms of the CSR-CFP relationship are largely related to
transaction costs. Transaction costs contain the negotiating, monitoring, and enforcement costs incurred for an exchange between two parties (El Ghoul et al., 2017). Simply to say, all firms have transaction costs, which are the countless costs that go into doing business (North & North, 1992). How successfully a firm is, depends partially on the impact of the institutional
8
2.2 National governance
Firms operate in different country contexts formed by institutions (Baughn, Bodie & McIntosh, 2007), which determine how the firm acts in this institutional environment (Campbell, 2007) and will eventually affect expectations about the firm's responsibilities to society (Doh & Guay, 2006). Institutions determine the rules of society, consequently firms need to gain legitimacy from institutions to operate (North & North, 1992; Rathert, 2016), which induces them to engage in CSR practices (Amaeshi, Adegbite & Rajwani, 2016; Fernando & Lawrence, 2014; Oliver, 1997). Institutions determine the cost of transacting (North & North, 1992), and conforming to institutions lowers the transaction costs associated with doing business (El Ghoul et al., 2017). Successful firms are those that gain support and legitimacy by conforming to social pressures that occur in their environment (Oliver, 1997).
Firms face challenges when confronted with institutional failure and weak governance and can come up with their own corporate solutions to fill these gaps (Kinderman & Lutter, 2018; Nelson, 2008). El Ghoul et al. (2017) found that CSR is more positively related to firm value in countries with weaker market-supporting institutions, where CSR is used as a strategic response to overcome this institutional failure by reducing transaction costs and increase access to capital, social, and reputational resources that are difficult to obtain in these countries. Nevertheless, not many firms have the resources to invest in CSR in countries with institutional voids, so those firms that do invest in CSR when market-supporting institutions are weak, enjoy a greater competitive advantage (Flammer, 2015). So, when CSR substitutes for the weak regulatory institutions (Kinderman & Lutter, 2018), it is found more value-enhancing (El Ghoul et al., 2017).
Countries with institutional voids are characterized by ineffective governance
arrangements (Rathert, 2016) and hence, national governance can be assumed to have a similar effect as national institutions have on the CSR-CFP relationship. National governance is defined as “the traditions and institutions that determine how authority is exercised in a particular
9 economic and social interactions among them (Kaufmann, Kraay & Mastruzzi, 2011). This definition implies that a country with weak institutions will create weak national governance. The failure of national governance institutions to keep up with economic globalization has led to a governance deficit and consequently a demand for greater governance, and firms respond by adopting CSR practices (Kinderman & Lutter, 2018).
Weak governance relates to governments that lack the institutional capacity and
necessary resources to serve the interests of society (Nelson, 2008). El Ghoul et al., (2017) found that CSR can help firms reduce the transaction costs arising from institutional voids, and the strategic value of CSR is higher in countries with more institutional voids. When national governance is weak, firms must proactively engage in corporate actions, for instance CSR, to bridge this governance gap (Nelson, 2008). CSR increases transparency, thereby reducing transaction costs (Cheng et al., 2014). Lang et al., (2012) found that corporate transparency matters more in reducing transaction costs when overall uncertainty in countries is greater, thus, in general, in countries in which there is more opacity and information issues arise. I assume that CSR can help firms reduce the transaction costs arising from a weak quality of national
governance by increasing transparency, and therefore I assume the strategic value of CSR is higher in countries with a weak quality of national governance.
10 one of the most adopted approaches (Rathert, 2016). Aguilera et al. (2008) found evidence that the institutional complexity raises demands for self-governance and institutional building. When firms operate in countries where effective regulatory institutions are absent, private governance may be needed and CSR is one of the most adopted approaches (Rathert, 2016). This is in line with Jackson and Rathert (2016), who argue that CSR emerges as a substitute when formal institutions are weak. Following El Ghoul et al. (2017), I expect that national governance will have a similar substitution effect as found for institutions on the CSR-CFP relationship.
2.3 Market economy
CSR will remain marginal as a mechanism of private governance provided that stakeholders are not aware of the firm’s CSR engagement (Dubbink, Graafland & Van Liedekerke, 2008). To extract value out of engaging in CSR, it is important that firms are clear on what they can contribute to society, for instance by CSR reporting to reduce information asymmetry between managers and investors (Reverte, 2012). As Lang et al. (2012) state, transparency is associated with transaction costs, and transaction costs are related to market valuation. Wang et al. (2016) found that the CSR-CFP relationship is stronger in countries where CSR is more visible. Thus, firm’s CSR engagement must be transparent and consistent with their business strategy (Nelson, 2008). Transparent CSR is called “explicit CSR”, which is the direct opposite of “implicit CSR”. Firms engaging in explicit CSR use the language of CSR in communicating their policy and practices to their stakeholders, whereas those engaging in implicit CSR in general do not delineate their practices this way (Matten & Moon, 2008).
The varieties of capitalism literature focuses on how social relations are arranged differently across capitalist systems (Gjølberg, 2009). Whether a firm is expected to engage in more explicit or implicit CSR is found country dependent, or more specifically, market economy dependent. A country’s market economy is based on the varieties of capitalism literature, where a distinction is made between liberal and coordinated market economies (Hall & Soskice, 2001). Liberal market economies are characterized by highly effective coordination by market
11 which refers to mostly voluntary corporate programs and strategies addressing social issues to enhance both social well-being and firm value (Matten & Moon, 2008). Conversely, firms located in coordinated market economies (e.g. Austria, Germany, Sweden) are expected to have more implicit CSR, which refers to a firm’s responsibilities that are embedded within and regulated by the institutional environment (Matten & Moon, 2008), diminishing the need to explicitly communicate their CSR to society (Gjølberg, 2009). However, Dubbink et al. (2008) argue that communication and transparency are crucial for firms engaging in CSR as reputation is one of the mediating effects on the CSR-CFP relationship. Jackson and Apostolakou (2010) found that firms from the more liberal market economies of the Anglo-Saxon countries score relatively higher on CSR than firms in the more coordinated market economies in Continental Europe, where CSR tends to take more implicit forms. I take this analysis a step further by investigating coordinated and liberal market economies globally.
Differences across countries in their market economy are partially related to the legal origin (common law vs. civil law) of a country. Liberal market economies tend to have a common law tradition, while coordinated market economies tend to have a civil law tradition (Pistor, 2005). Firms in common law countries tend to incorporate value-relevant information (such as CSR) in their reports to reduce information asymmetry, and consequently transaction costs, which is less common for firms in civil law countries (Ball, Kothari & Robin, 2000). Liberalized market economies provide greater incentives for companies to adopt CSR (Matten & Moon, 2008). The expectation is that firms in liberal countries have the greatest need to be explicit about their CSR (Gjølberg, 2009). In more coordinated markets, CSR is not needed per se, because a dense institutional environment substitutes for CSR practices (Matten & Moon, 2008).
12 markets are expected to reveal less of their CSR practices, and are therefore less likely to gain value out of their engagement in CSR (Hall & Soskice, 2001). As to my knowledge, there has been no research incorporating home country’s national governance and market economy into the CSR-CFP relationship.
Investigating the potential moderating effect of national governance and market economy on the CSR-CFP relationship will contribute to the debate on whether CSR functions as a
complement or substitute. Jackson and Rathert (2016) found that CSR complements institutionalized stakeholder power in home countries and substitutes for the absence of stakeholder power in host countries. I expect that CSR substitutes for home countries with a weak quality of national governance, and that CSR complements firms located in a country with a liberal market economy to extract more value out of CSR.
3. Hypotheses development
The CSR-CFP relationship is based upon several underlying mechanisms, which are related to transaction cost theory. All firms are confronted with transaction costs while doing business, which largely depend upon the institutional environment in which the firm operates (North & North, 1992). The theoretical argument that CSR is value-enhancing builds on the transaction costs theory. Transaction cost theories suggest that intermediaries emerge to mitigate the various transaction costs associated with doing business and market failures (El Ghoul et al., 2017). For firms, CSR is a way to gain a higher market valuation by mitigating transaction costs while doing business. So, CSR has a role in reducing transaction costs (El Ghoul et al., 2017). Underlying reasons for the expected positive CSR-CFP relationship are related to these lower transaction costs due to the firm’s engagement in CSR. The underlying reasons are enhanced reputation (Aguilera-Caracuel & Guerrero-Villegas, 2018; Branco & Rodrigues, 2006; Saeidi et al., 2015; Orlitzky et al., 2003), increased customer satisfaction (Luo & Bhattacharya, 2006; Saeidi et al., 2015), or access to cheaper equity financing (Branco & Rodrigues, 2006; El Ghoul et al., 2011; Reverte, 2012).
13 found such a corporate action. Thus, drawing on transaction cost theory, I argue that, in general, CSR enhances firm value. As already investigated and supported by several meta-analysts (e.g. Brooks & Oikonomou, 2018; Griffin & Mahon, 1997; Orlitzky et al., 2003; Wang et al., 2016), a firm’s engagement in CSR is known to enhance firm value. Since this association is the basis of this research, I hereby posit hypothesis 1:
Hypothesis 1: There is a positive association between corporate social responsibility and Tobin’s Q.
National governance
A firm’s institutional environment impacts firm’s engagement in CSR (Jackson &
Rathert, 2016), since institutions create both barriers and opportunities that impact CSR practices and performance (Gjølberg, 2009). Institutions are often necessary to ensure that firms respond to the interests of society (Campbell, 2007), as firms tend to adapt and refine their corporate strategy to take advantage of the opportunities provided by the institutional environment (Gjølberg, 2009), which can result in a higher market valuation. Institutions are part of national governance (McWilliams & Siegel, 2000), and weak governance relates to governments that lack the institutional capacity and necessary resources to serve the interests of society (Nelson, 2008).
El Ghoul et al., (2017) found that CSR can help firms reduce the transaction costs arising from institutional voids, and the strategic value of CSR is higher in countries with more
institutional voids. When national governance is weak, firms must proactively engage in
corporate actions, for instance CSR, to bridge this governance gap (Nelson, 2008). So, as CSR is used as a strategic response to overcome this weak quality of national governance in place, by reducing transaction costs and increase access to capital, social, and reputational resources that are difficult to obtain in these countries, it substitutes for the weak quality of national
14 governance will have a similar substitution effect as found for institutions on the CSR-CFP relationship. Consequently, I assert the following hypothesis:
Hypothesis 2: The positive association between corporate social responsibility and Tobin’s Q is stronger in countries with weaker national governance than in countries with stronger national governance.
Market economy
CSR must be explicit to function as a strategic response to overcome institutional voids (El Ghoul et al., 2017). When CSR is implicit, the transaction costs are not reduced as much as when the CSR is explicit. In coordinated market economies, CSR often takes on more implicit forms (Jackson & Apostolakou, 2010). Firms located in these coordinated markets are revealing less of their CSR engagement, and consequently have a weaker impact on the reduction of transaction costs. Communication diminishes information costs (Dubbink et al., 2008), so it is expected that firms that are using explicit CSR are better to communicate their CSR practices and therefore are reducing the transaction costs more than firms that are using implicit CSR.
Firms in liberal market economies reduce transaction costs by including CSR information in their reports to reduce information asymmetry. In more coordinated markets, CSR is not needed per se, because a dense institutional environment substitutes for CSR practices (Matten & Moon, 2008). Firms may decrease costs and increase income via CSR and thereby increasing CFP, but firms cannot gain such positive returns without transparency. As liberal market economies are characterized by more explicit CSR, and coordinated market economies are characterized by more implicit CSR (Matten & Moon, 2008), I argue that firms located in liberal market economies will have a stronger effect on the CSR-CFP relationship than firms located in coordinated market economies. Hence, I assert the following hypothesis:
15 Investigating the effect of home country characteristics on the CSR-CFP relationship will enhance our knowledge on this topic and try to fill this gap in the literature. This analysis will contribute to the research of Jackson and Rathert (2016), who found that CSR complements institutionalized stakeholder power in home countries and substitutes for the absence of
stakeholder power in host countries. My expectation is that CSR can have both a substitute effect and a complementary effect, depending on the country the firm is located in. The moderating effect of a weak quality of national governance is building on the argument that CSR substitutes for the weak national governance in place, while the moderating effect of a liberal market economy builds on the argument that CSR is complemented by the transparent characteristic of the liberal market economy. The hypotheses are visualized in figure 1 below.
Figure 1: Conceptual Model
4. Methodology
4.1 Sample construction
16 Some inconsistency exists on the possible reverse relationship between the two concepts. For example, Cheung, Tan, Ahn and Zhang, (2010) found that CSR is positively related to the market valuation of the subsequent year, while Hirigoyen and Poulain-Rehm (2014) found that CFP negatively impacts CSR. The evidence of Wang et al. (2016) suggests that prior high CFP has no significant impact on firms’ subsequent CSR. This causality issue needs further
investigation, yet this research did not explore the direction of the causal connections. Causality is taken into account by using the lagged value of the dependent variable, Tobin’s Q. Following El Ghoul et al. (2017) and Ioannou and Serafeim (2012), a lag of one year between CSR and all other variables is used.
17
4.2 Variables measurement
4.2.1 Dependent variable: Tobin’s Q
The dependent variable is firm value, measured by Tobin’s Q (TOBQ). Tobin’s Q ratio is a measure of a firm’s assets in relation to a firm’s market value and is often used as a proxy for firm value (e.g. El Ghoul et al., 2017; Jo & Harjoto, 2011; Luo & Bhattacharya, 2006). Tobin’s Q ratio is calculated as a ratio of the total market value of the firm divided by the total asset value of the firm. Here, total market value is market capitalization plus market value of debt. The market value of debt is assumed to equal the book value of debt, and the total asset value of the firm is assumed to equal the book value of firm’s total assets. Market capitalization of the firm is retrieved from Thomson Reuters Eikon, whereas the book value of debt and the book value of total assets are retrieved from Compustat Global and Compustat North America. The formula to calculate Tobin’s Q is as follows:
TOBQ = (𝑀𝑎𝑟𝑘𝑒𝑡 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 + 𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑑𝑒𝑏𝑡)𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
A higher Tobin’s Q is corresponding to a higher firm value, whereas a lower Tobin’s Q is corresponding to a lower firm value.
4.2.2 Independent variable: CSR
18 The ESG score is a combination of the 10 categories (Resource Use, Emissions,
Innovation, Workforce, Human Rights, Community, Product Responsibility, Management, Shareholders and CSR Strategy), weighted proportionately to the count of measures within each category. This forms the three pillar scores (Environmental, Social and Governance), which is a reflection of the company’s ESG performance, commitment and effectiveness based on publicly reported information. A total of 178 indicators is used, which are equally rated, making up the 10 indicators, with a total of 100% of the score (Environmental: 34%, Social: 35.5%, Governance: 30.5%). See figure 2 for the distribution of the indicators and their weights per category and pillar. The range of the ESG scores is from 0 to 100, with higher values corresponding with a better CSR performance.
Figure 2: ESG calculation scheme
Pillar Category Indicators in Rating Weights
Environmental Resource Use 19 11%
Emissions 22 12% Innovation 20 11% Social Workforce 29 16% Human Rights 8 4.5% Community 14 8% Product Responsibility 12 7% Governance Management 34 19% Shareholders 12 7% CSR Strategy 8 4.5% Total 178 100%
Source: Refinitiv. (2019, February).
4.2.3 Moderating variable: National governance
19 available from 1996 to 2017. WGI data from 2013 to 2017 is used. This measure of national governance is often used (e.g. Islam, Montenegro & Islam, 2002; Kaufmann et al., 2000) and consists of six indicators: Voice and Accountability (VA), Political Stability and Absence of Violence/Terrorism (PS), Government Effectiveness (GE), Regulatory Quality (RQ), Rule of Law (RL), and Control of Corruption (CC). The quality of national governance is measured as the average of these six indicators, and the scores can vary from -2.5 to 2.5, with higher values corresponding with better national governance.
GOV = 𝑉𝐴 + 𝑃𝑆 + 𝐺𝐸 + 𝑅𝑄 + 𝑅𝐿 + 𝐶𝐶 6
4.2.4 Moderating variable: Market economy
The type of market economy (ME) in this research is divided into liberal or coordinated,. A dummy variable is used where the firm is coded as ‘‘0’’ if it’s headquarters are located in a coordinated market economy and ‘‘1’’ if the firm’s headquarters is located in a liberal market economy. Classification of countries as either coordinated or liberal is based on Hall and Soskice (2001) and Schneider (2008). The following countries are classified as coordinated market economies: Austria, Belgium, Denmark, Finland, Iceland, Germany, Japan, Korea, Netherlands, Norway, Slovenia, Sweden and Switzerland. The countries classified as liberal market
economies are: Australia, Canada, Ireland, New Zealand, United Kingdom, United States, Estonia, Lithuania and Latvia.
Apart from liberal and coordinated market economies, there are more types of market economies. For example, Czech Republic, Hungary, Poland and Slovak Republic are defined as dependent market economies (Nölke & Vliegenthart, 2009), France, Greece, Italy, Portugal, Spain and Turkey are classified as mixed market economies (Akkermans, Castaldi & Los, 2009) and Argentina, Brazil, Chile, Colombia and Mexico are defined as hierarchical market
economies (Schneider, 2009). Countries that are not classified as either liberal or coordinated are left out of the analysis for the moderating variable market economy.
20 countries mentioned above will be used. Of these 22 countries, 836 firms from 16 countries are found in the final sample that is used for the analysis of the moderating effect of national
governance. For the countries Iceland, Korea, Slovenia, Estonia, Lithuania, and Latvia, either no firms were found or no sufficient country data was available.
4.2.5 Control variables
In this analysis, I will include control variables to ensure that the coefficient on CSR does not pick up the effects of other correlated factors. Besides firm- and country-level control variables, there is controlled for industry-related effects using the 4-digit standard industrial classification (SIC) codes (Cochran & Wood, 1984). Following the existing literature, the control variables included in the model are as follows:
Firm size
Wang et al. (2016) note the importance of taking firm size (SIZE) as a control variable, since it influences CFP. El Ghoul et al. (2017) and Jo and Harjoto (2011) include firm size as a control variable in their research. Following Cheng et al., (2014), I control for firm size through the natural logarithm of total assets.
Firm profitability
Profitable firms are associated with higher market valuations (Jayachandran, Kalaignanam & Eilert, 2013). El Ghoul et al. (2017) and Jo and Harjoto (2011) control for firm profitability in their research using return on assets (ROA), calculated as earnings before interest and taxes divided by total assets.
Financial risk
21 R&D investments
Firms with higher research and development (R&D) investments are associated with a higher market value (Chen, Cheng & Hwang, 2005). El Ghoul et al. (2017), Jo and Harjoto (2011) and Wang et al. (2016) note the importance of using R&D investments as a control variable. I will control for R&D investments, measured by R&D expenditures divided by total sales.
Firm internationalization
Multinationals are exposed to both home and host-countries with different institutional
environments and diverse stakeholder demands (Aguilera-Caracuel & Guerrero-Villegas, 2018; Yang & Rivers, 2009). Firm internationalization is expected to positively influence market value (Morck & Yeung, 1991) and will be included as a control variable in the model.
Internationalization is frequently measured as foreign sales divided by total sales (FSTS) (e.g. Attig, Boubakri, El Ghoul & Guedhami, 2016) as this is a useful indicator of a firm’s
involvement in international business (Sullivan 1994). As a second proxy, firm
internationalization is measured as foreign assets to total assets (FATA). However, none of the firms in the sample have reported foreign assets. Thus, FATA will not be used in the analysis.
Growth opportunities
Firm’s growth opportunities (GO) are related to their market valuation (Love & Klapper, 2002), therefore I control for firm growth opportunities. Unfortunately, there is no good measure of growth opportunities, so following Love and Klapper (2002) and El Ghoul et al. (2017), I use the change in total sales from the previous year as a proxy for growth opportunities.
Capital expenditures
22 GDP
Firms located in economically developed countries may have higher firm valuations (Griffin et al, 2015). To account for this effect, the natural logarithm of Gross Domestic Product (GDP) per capita is included as a control variable. The data is collected from the World Bank database. GDP per capita data is measured in current US dollars.
Trade
As additional control variable, Ioannou and Serafeim (2012) include the country variable
TRADE that measures how globalized and competitive the economy of each country is. Trade is the sum of exports and imports of goods and services measured as a share of GDP. The natural logarithm of trade as a percentage of GDP is included as a control variable. Trade (% of GDP) is collected from the World Bank database.
Table 1 summarizes the description of the variables used for this research.
Table 1. Variable Definitions
Dependent Variable
TOBQ Firm value is measured by Tobin’s Q Independent Variables
CSR Measured by the ESG score
GOV Average of the six WGI indicators
ME Dummy variable coded “0” if coordinated and “1” if liberal Control variables
SIZE Log(total assets)
ROA Earnings before interest and taxes divided by total assets LEV Total debt to total equity ratio
R&D R&D expenditures divided by total sales FSTS Foreign sales to total sales
GO Change in total sales from the previous year CAPX Capital expenditure divided by total sales
GDP Log(GDP per capita)
TRADE Log(Trade)
23
4.3 Empirical method
With the use of Stata, a panel data analysis will be performed to test the proposed effects. To examine the hypotheses, ordinary least squares (OLS) regressions are estimated. As indicated previously, the association between CSR and Tobin’s Q contains the issue of reverse causality. To control for this problem, all variables, except the variable CSR, are lagged by one year. To examine how national governance and country’s market economy affect the relationship between CSR and firm value, I estimate the following model:
𝑇𝑂𝐵𝑄𝑖,𝑡 = 𝛽0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡−1 + 𝛽2𝐺𝑂𝑉𝑖,𝑡 + 𝛽3𝑀𝐸𝑖,𝑡 + 𝛽4𝐶𝑆𝑅𝑖,𝑡−1 * 𝐺𝑂𝑉𝑖,𝑡+ 𝛽5𝐶𝑆𝑅𝑖,𝑡−1 * 𝑀𝐸𝑖,𝑡+ ∑9 0𝑘
𝑘=1 𝐶𝑂𝑁𝑇𝑅𝑂𝐿𝑘,𝑖,𝑡+ ∑𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝐷𝑢𝑚𝑚𝑦𝑖,𝑡+ ∑𝑌𝑒𝑎𝑟𝐷𝑢𝑚𝑚𝑦 +𝜀𝑖,𝑡
Where i indexes firms, t indexes years, TOBQ is Tobin’s q, CSR is the proxy for a firm’s CSR engagement, GOV is national governance, ME is country’s market economy, 𝛽4, the coefficient on the interaction between governance (GOV) and corporate social responsibility (CSR) gives the moderating effect of national governance, while 𝛽5, the coefficient on the interaction between market economy (ME) and corporate social responsibility (CSR) provides us the moderating effect of market economy, CONTROL includes the firm-level control variables (SIZE, ROA, LEV, R&D, FSTS, GO, CAPX) and the country control variables (GDP and TRADE), IndustryDummy is included to control for the industry-fixed effects, YearDummy is included to control for the year-fixed effects, and ε is an error term.
5. Data
24
5.1 Descriptive statistics
Table 2. Descriptive statistics per firm-level variable
Variable Observations Mean Std Dev. Min Max
CSR 5,925 52.92551 17.51158 7.69 97.89088 TOBQ 5,588 1.236859 1.473435 0.0153018 9.410531 SIZE 5,925 9.249368 2.369568 3.972158 17.03288 ROA 5,925 0.0699924 0.1000875 -0.4098935 0.3477705 LEV 5,925 0.6547755 1.388495 -4.920576 8.944352 R&D 5,838 0.0215164 0.0535879 0 0.342814 FSTS 5,838 -0.0012866 0.0150334 -0.0819134 0.0724686 GO 5,837 0.0331862 0.2069895 -0.6253874 0.9887993 CAPX 5,838 0.1190977 0.2046067 0.0016673 1.442109 GOV 5,925 1.131973 0.6230541 -0.947391 1.861919 ME 4180 0.75 0.4330645 0 1 GDP 5,925 10.51726 0.7020907 8.158114 11.36912 TRADE 5,925 3.98857 0.6282421 3.200386 6.054383
Note: This table provides descriptive statistics per variable over the sample period of 2013 to 2017, except for the variable CSR, where a time frame from 2012 to 2016 is used.
25 Table 4. Region overview
Region N countries N firms Percentage (of N firms)
North America 2 395 33.33%
Latin America 6 64 5.40%
Europe 22 383 32.32%
Asia 11 166 14.01%
Africa and Middle East 7 35 2.95%
Oceania 2 142 11.98%
Total 50 1185 100%
The region with the largest part of the sample consists of firms located with their
headquarters in North America (395 firms, 33.33%), closely followed by firms located in Europe (383 firms, 32.32%). Only 2.95% of the sample consists of firms located in Africa and the Middle East. This is partially due to the fact that the ESG database does not contain scores for these firms or that corresponding country data is missing.
Table 5. Industry overview
Industry N Percentage
Agriculture, Forestry and Fishing Construction Manufacturing Mining Nonclassifiable Retail Trade Services
Transportation, Communications, Electric, Gas and Sanitary service
Wholesale Trade Total 47 44 473 124 21 67 147 224 38 1185 3.97% 3.71% 39.92% 10.46% 1.77% 5.65% 12.41% 18.90% 3.21% 100%
26 check how much the variance of the coefficient estimate is inflated by multicollinearity. A
commonly given rule of thumb is that VIFs of 10 or higher may be reason for concern (Alin, 2012). However, as none of my variables have VIFs of 10 or higher, all variables are included in the analysis.
The correlation matrix in table 6 shows that CSR and Tobin’s Q are statistically
significant positively correlated, and CSR is also positively and statistically significant correlated with ROA, which is in line with the findings of the previous mentioned meta-reviews (e.g. Brooks & Oikonomou, 2018; Griffin & Mahon, 1997; Orlitzky et al., 2003; Wang et al., 2016). ROA, R&D investments, growth opportunities and GDP are found positively and significantly correlated with Tobin’s Q, which is in line with previous studies (Chen et al., 2005; Griffin et al., 2015; Jayachandran et al, 2013; Love & Klapper, 2002). Furthermore, national governance is significantly positively associated with Tobin’s Q, while firm size, capital expenditures, market economy and trade are significantly negatively associated with Tobin’s Q.
6. Results
To test the hypotheses, a regression analysis is performed using Stata, where the data is prepared as panel data based on the companies’ ISIN codes and the years 2013 to 2017. The results are presented in table 7 in Appendix 3, which includes the six models used to test the hypotheses. Model 1 contains the control variables only, Model 2 tests the CSR-CFP relationship which is proposed in hypothesis 1. Model 3 contains the direct effect of national governance on Tobin’s Q, whereas model 4 includes the moderating effect of national governance proposed in
hypothesis 2. Model 5 contains the direct effect of market economy on Tobin’s Q, whereas model 6 includes the moderating effect of a liberal market economy on the CSR-CFP
relationship proposed in hypothesis 3. This regression includes industry- and year-fixed effects to capture the influence of aggregate trends.
6.1 The effect of CSR on CFP
27 corporate social responsibility and Tobin’s Q. Therefore, hypothesis 1 is supported. The results are in line with the meta-reviews, which concluded that a positive CSR-CFP relationship exists (e.g. Brooks & Oikonomou, 2018; Griffin & Mahon, 1997; Orlitzky et al., 2003; Wang et al., 2016). As can be observed in Model 3 and 5, this relationship between CSR and Tobin’s Q holds with a 99%-confidence level when the direct effect of national governance or market economy are added to the analysis.
The control variables ROA, R&D and GDP are significant and positively related to Tobin’s Q in all six models, which is in line with the expectations based on previous studies (Chen et al., 2005; Griffin et al, 2015; Jayachandran et al, 2013). Model 3 shows us the direct effect of national governance on Tobin’s Q. The coefficient of national governance is positive and insignificant, indicating that national governance has no direct effect on Tobin’s Q. Model 5 shows us the direct effect of market economy on Tobin’s Q. The coefficient of market economy is positive and significant, indicating that firms located in a liberal market economy have higher Tobin’s Q scores than firms located in a coordinated market economy.
6.2 The moderating role of national governance
Model 4 shows the moderating effect of a weak quality of national governance. The proposed hypothesis 2 is: The positive association between corporate social responsibility and Tobin’s Q is stronger in countries with weaker national governance than in countries with stronger national governance. Therefore, the interaction term is expected to be negative. As shown in model 4, the interaction term is found positive and insignificant. Thus, no supporting evidence is found for hypothesis 2. It is not possible to conclude from these results that there is either a substitute effect or complement effect occurring by adding the moderating effect of national governance, as the results are insignificant.
6.3 The moderating role of market economy
28 economies. The interaction terms is expected to be positive. As shown in model 6, the interaction coefficient is indeed positive, but insignificant. Thus, no supporting evidence is found for
hypothesis 3. It is not possible to conclude from these results that there is either a substitute effect or complement effect occurring by adding the moderating effect of market economy, as the results are insignificant.
7. Robustness tests
In order to test the robustness of the results, three additional analyses are performed. First of all, CSR is measured using the Combined ESG score (CSR2) instead of the ESG score used in the previous analyses. The overall ESG Combined Score is discounted for significant ESG
controversies impacting the firms in the sample. The main goal of this score is to discount the ESG performance score based on negative media coverage. It does this by including the effect of significant ESG controversies in the overall ESG Combined Score. The Combined ESG score is retrieved from Thomson Reuters Eikon. Again, all variables are lagged except the Combined ESG scores. Table 8 in Appendix 4 provides the results of the analysis.
The results in Table 8 show that the coefficient of CSR is only positive and significant in model 5 and 6, where the variable market economy is added. Model 3 shows us that national governance has no significant direct effect on Tobin’s Q, and model 5 shows us that market economy has a direct positive effect on Tobin’s Q. Thus, the firms from liberal market
economies in my sample have higher Tobin’s Q scores than the firms from coordinated market economies. Both the moderating effect of national governance and market economy are not significant in model 4 and 6, respectively. Thus, no supporting evidence is found for hypothesis 2 or hypothesis 3.
29 As can be seen in Table 9, the coefficient of CSR is positive and significant throughout model 2-6. This is supporting evidence for the positive CSR-CFP relationship. Model 3 shows us that national governance has a direct negative effect on ROA, and model 5 shows us that market economy has a direct positive effect on ROA. Thus, firms from countries with a lower national governance and firms from liberal market economies have higher ROA in my sample. Both the moderating effect of national governance and market economy are not significant in model 4 and 6, respectively. Thus, no supporting evidence is found for hypothesis 2 or hypothesis 3.
As a third robustness check, I performed an OLS regression to check whether the CSR-CFP relationship holds when removing all firms located in the United States from the sample. As the firms from the United States account for 26.08 percent of the sample (309 firms), the findings might be biased by the large impact that firms from the United States have. Table 10, (Appendix 6) shows the regression analysis without firms from the United States. This model also includes the moderating effect of national governance (model 4) and market economy (model 6) on the relationship between CSR and Tobin’s Q.
The results in Table 10, model 2, show that the coefficient of CSR is positive and significant. This is supporting evidence for hypothesis 1. Model 3 shows us that national
governance has a direct positive effect on Tobin’s Q, and model 5 shows us that market economy has a direct positive effect on Tobin’s Q. Thus, the firms from countries with a higher national governance and firms from liberal market economies have higher Tobin’s Q scores in my sample. Both the moderating effect of national governance and market economy are not
significant in model 4 and 6, respectively. Thus, no supporting evidence is found for hypothesis 2 or hypothesis 3.
8. Discussion and conclusion
The aim of this paper is to determine the impact of home country characteristics on the
relationship between CSR and firm value. Based on transaction cost theory, transaction costs are assumed to be lowered by using CSR to create transparency in countries where there is
30 institutions or because the market economy is associated with more implicit CSR. Therefore, the expectation is that firms located in countries characterized by a weak quality of national
governance benefit more from the strategic value of CSR than firms located in countries
characterized by a good quality of national governance. Also, it is expected that firms located in countries with a liberal market economy, and thus more explicit CSR, are more transparent and therefore benefit more from the strategic value of CSR than firms located in coordinated market economies.
Analyzing a sample of 1185 firms among 50 countries (5925 firm-year observations), the results indicate that there is indeed a positive effect of CSR on CFP, as indicated by many meta-reviews (e.g. Brooks & Oikonomou, 2018; Griffin & Mahon, 1997; Orlitzky et al., 2003; Wang et al., 2016). This positive effect is significant for both Tobin’s Q and ROA as a proxy for CFP. This positive CSR-CFP relationship is more pronounced when using ESG scores as a proxy for CSR. However, the results differ when the Combined ESG scores are used as a proxy for CSR. The main goal of this combined score is to discount the ESG performance score based on negative media coverage. This means that media coverage does impact the CSR-CFP relationship.
El Ghoul et al. (2017) found that the CSR-CFP relationship is more pronounced in countries with weak institutions, as CSR substitutes for the absence of these institutions. This substitution effect was expected to occur in countries with a weak quality of national
governance. However, no significant moderating effect of national governance on the CSR-CFP relationship was found. It is possible that no effect is found because CSR is both a substitute and a complement, depending on the quality of national governance in place. Jackson and Rathert (2016) found that CSR complements institutionalized stakeholder power in home countries and substitutes for the absence of stakeholder power in host countries. It is possible that CSR
substitutes for weak national governance, and complements when national governance is strong.
Also, following the reasoning that explicit CSR would complement to CSR, and therefore strengthen the relationship, it was expected that the CSR-CFP relationship would be more
31 market economy. In coordinated market economies, CSR often takes on more implicit forms. Thus, firms will reveal less of their CSR engagement, and consequently have a weaker impact on the reduction of transaction costs (Jackson & Apostolakou, 2010). However, no significant moderating effect of market economy on the CSR-CFP relationship was found. A possible explanation is that European markets are nowadays adopting a more explicit commitment to CSR (Matten & Moon, 2008). As the coordinated market economies in my sample were largely from Europe, this might explain why no moderating effect is found.
This research contributes to the way CSR is valued in home countries with specific characteristics. With this analysis, I aim to contribute to the CSR debate on whether CSR is a complement or substitute when investigated among countries with diverse characteristics. Jackson and Rathert (2016) found that CSR complements institutionalized stakeholder power in home countries and substitutes for the absence of stakeholder power in host countries. I expected that CSR would substitute for home countries with a weak quality of national governance, and that CSR would complement firms located in a country with a liberal market economy to extract more value out of CSR. I found no evidence to contribute to these arguments, as the results indicate that national governance and market economy have no significant impact on the CSR-CFP relationship.
These findings have some implications for practice. As it is found that CSR improves firm value, managers must become aware of the strategic value of CSR. Managers might expect that CSR does not fit the firm because of certain home country characteristics and are sceptical about the benefits of CSR. As my results indicate that there are no differences for firms located in countries with diverse national governance qualities, neither for firms located in different market economies, managers are aware that these two country characteristics do not affect the strength of the CSR-CFP relationship. Managers must understand that other home country characteristics might influence this CSR-CFP relationship, but that national governance, nor market economy impact this relationship.
32 A number of limitations can be recognized within this paper. First of all, due to the limited availability of the ESG data for the period 2012 to 2016, 2844 firms were removed from the analysis. Also, the unavailability of country data and firm-specific data reduced the sample enormously. ESG data coverage is still limited, especially in Africa. This is unfortunate, as comparing more countries can give us a more comprehensive overview on the moderating effect of home country characteristics. Secondly, employing lagged variables is merely a moderate method to control for reverse causality between CSR and Tobin’s Q. In this research, a lag of one year is used. This lag might not capture all positive effects of CSR on Tobin’s Q, as it is complex to measure how much time is needed for CSR to become beneficial for a firm. Third, only 22 countries are found classified either liberal or coordinated. This reduced the amount of firms used for the analysis enormously.
Future research
This paper proposes several ideas for future research. First, it will be interesting to investigate the moderating effect of other market economies on the CSR-CFP relationship, as my findings were not significant. Besides liberal and coordinated market economies, there is a broad range of other types of market economies (e.g. hierarchical market economies, mixed market economies, dependent market economies) which could be of interest to be investigated. These market economies will have their own approach to CSR to be more explicit or more implicit and the CSR-CFP relationship might be more pronounced in these market economies. Comparing these market economies might provide us with new insights on their direct effect on Tobin’s Q and might reveal a moderating effect.
33 Third, future researchers might use a larger time frame to capture the effect of CSR on Tobin’s Q over time. Prior studies often employ a one year lag, nevertheless it is not specified whether this is the right lag time. Having a larger time frame allows researchers to lag the dependent variable over more than one year, as the time is takes for CSR to become beneficial for a firm is not specified.
Lastly, future research should focus on gathering data for a more comprehensive sample, to generate a higher validity and generalizability of the results. This allows researchers to better capture the effect of home country characteristics. In my sample, some countries are
overrepresented relative to others, for example the United States. The findings might differ when using a more representative sample.
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10. Appendices
10.1 Appendix 1
Table 3. Descriptive statistics per country
Country N ESG GOV ME GDP TRADE
41 Ireland 5 44.91 1.44 1 $ 60329.26 207.87 Israel 5 46.71 0.72 - $ 37569.65 60.54 Italy 17 58.99 0.50 - $ 32775.40 56.71 Japan 19 49.49 1.36 0 $ 38106.85 34.59 Korea, Rep. 34 52.57 0.77 - $ 27631.51 88.05 Luxembourg 6 54.72 1.70 - $ 107736.28 396.96
Macao SAR, China 2 41.92 0.93 - $ 82784.71 115.25
Morocco 1 56.96 -0.28 - $ 3008.86 80.67 Mexico 11 51.58 -0.25 - $ 9528.41 70.72 Malaysia 17 48.09 0.36 - $ 10237.58 135.83 Netherlands 16 61.37 1.68 0 $ 48936.02 152.29 Norway 11 63.36 1.79 0 $ 84285.30 68.79 New Zealand 8 52.91 1.85 1 $ 41814.88 54.03 Panama 1 31.79 0.14 - $ 13571.60 106.30 Peru 1 51.39 -0.16 - $ 6346.32 46.76 Philippines 5 43.69 -0.29 - $ 2884.29 64.35 Poland 7 39.14 0.80 - $ 13395.18 97.06 Portugal 6 66.10 1.02 - $ 20843.55 80.34 Qatar 1 29.60 0.51 - $ 72525.70 94.59 Russian Federation 15 49.80 -0.71 - $ 11788.31 47.26 Saudi Arabia 2 41.20 -0.29 - $ 22214.81 72.14 Singapore 7 43.69 1.58 - $ 56248.91 337.34 South Africa 22 64.43 0.20 - $ 6084.38 61.85 Spain 21 61.90 0.81 - $ 27896.58 63.30 Sweden 19 65.50 1.75 0 $ 55058.57 85.25 Switzerland 28 58.59 1.78 0 $ 82835.99 120.13 Thailand 5 51.90 -0.30 - $ 6108.58 127.21 Turkey 7 64.68 -0.29 - $ 11412.77 50.40
United Arab Emirates 3 50.90 0.65 - $ 41219.38 171.67
United Kingdom 85 56.54 1.44 1 $ 42974.35 58.98
United States 309 51.74 1.24 1 $ 56555.10 28.26
Total 1185
42
10.2 Appendix 2
Table 6. Correlation matrix
CSR TOBQ SIZE ROA LEV R&D FSTS GO CAPX GOV ME GDP TRADE
CSR 1 TOBQ 0.0485* 1 SIZE 0.2517* -0.2215* 1 ROA 0.1236* 0.2757* 0.1289* 1 LEV 0.0843* 0.0231 0.0523* 0.0063 1 R&D 0.0189 0.1592* -0.0625* 0.0139 -0.0514* 1 FSTS -0.0267 0.0297 -0.0400* 0.0096 -0.0291 -0.0014 1 GO -0.0563* 0.0421* 0.0532* 0.1995* -0.0151 0.0799* 0.0202 1 CAPX -0.0957* -0.0561* -0.1008* -0.3255* -0.0014 -0.1195* 0.0152 -0.0502* 1 GOV 0.0632* 0.2046* -0.3797* -0.0664* -0.0340* 0.0723* 0.0578* -0.0482* 0.0585* 1 ME -0.1995* 0.1825* -0.4793* -0.0287 0.0556* -0.0825* 0.0225 0.0263 0.1634* -0.1427* 1 GDP 0.0305 0.2580* -0.3903* -0.0152 -0.0072 0.1192* 0.0540* -0.0444* 0.0335 0.8808* 0.2208* 1 TRADE 0.0186 -0.1499* 0.1465* -0.0691* -0.0509* -0.0743* -0.0294 -0.0200 -0.0420* 0.1490* -0.6943* -0.0505* 1
