Corporate social responsibility and firm financial performance: the role of intellectual capital

Abstract

Purpose The present study aims to investigate the impact of corporate social responsibility on firm financial performance and examine the mediating role of intellectual capital in this relationship. Design/methodology/approach The study’s sample comprises 125 nonfinancial Pakistan Stock Exchange (PSX)-listed firms from 2010 to 2021. The firm’s engagement in corporate social responsibility activities is measured using a multidimensional financial approach; firm financial performance is measured using two proxies, ROA and ROE and the firm’s intellectual capital is calculated using the MVAIC model. The generalized method of moments estimator is used to meet the study’s objectives. Several further tests are conducted to ensure the study’s robustness. Findings Following the procedure of Baron and Kenny (1986) for median analysis, we establish that intellectual capital is significantly positively linked with firm financial performance. Second, corporate social responsibility is positively connected with intellectual capital. Third, corporate social responsibility has a significant positive effect on firm financial performance. Finally, it was found that there is partial mediation between corporate social responsibility and firm financial performance in the presence of intellectual capital in the model. Practical implications The study findings will benefit regulatory authorities, investors, financial analysts and other stakeholders by helping them better understand CSR practices in Pakistani organizations and the significance of CSR in creating firms’ intellectual capital and improving firm financial performance. Originality/value The present study investigates the connection between corporate social responsibility and firm financial performance. Furthermore, we expanded the research by examining the mediating function of intellectual capital in this relationship, particularly in an emerging market.