Corporate Social Responsibility Disclosure Quality and Firm Financial Performance: Evidence from an Emerging Economy

This study aims to build a corporate social responsibility (CSR) construct based on the scoring criteria that could capture the CSR disclosure quality and then relate CSR to financial performance. A data set of 760 firm-year observations covering 76 firms listed on the Pakistan Stock Exchange for 10 years between 2011 and 2020 has been used for the analysis. The study sample has been collected based on purposive sampling. The generalized method of moments (GMM) has been used to test the causal relationship among the variables. GMM has confirmed a positive significant relationship between CSR and accounting-based financial performance measured through return on assets. The relationship of CSR initiatives of the firms is also significantly related to market-based financial performance captured through Tobin's Q, indicating that the market is positively reacting to the CSR disclosure levels. Stakeholder theory has been used in this study and found to have roots in the context of Pakistan. The study has some policy implications. The companies are not disclosing much quantitative/statistical data and there is inconsistent CSR reporting among the companies. The study recommends more quality CSR disclosure and exhorts regulatory authorities to push the companies for disclosure on key nonfinancial indicators.