When doing good pays off : the nonlinear u-shaped effect of CSR on financial performance of indonesian listed companies
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Abstract
The study investigates the non-linear correlation between the financial performance of companies that are listed on the Indonesia Stock Exchange and their commitment to Corporate Social Responsibility (CSR). It uses the Driscoll-Kraay method in a Fixed Effect regression model with panel data from 145 companies over the years 2019–2023. The findings show that there is a U-shaped relationship between CSR and Return on Assets (ROA), whereby CSR first reduces ROA before eventually increasing it above an ideal level. Nevertheless, there was no discernible relationship between Return on Equity (ROE) and CSR. Growth, leverage, and company size all had a consistent effect on both financial performance metrics. These results offer insightful information for creating CSR plans that take into account both immediate and long-term financial consequences. The study underscores the significance of employing a variety of financial performance indicators when assessing the impact of corporate social responsibility (CSR) and stresses the necessity of adopting a comprehensive approach to comprehending the intricate correlation between CSR and corporate financial performance
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How to Cite
Kasiha, N. W. N., & Kim, S. S. (2024). When doing good pays off : the nonlinear u-shaped effect of CSR on financial performance of indonesian listed companies. Enrichment : Journal of Management, 14(4), 597-606. https://doi.org/10.35335/enrichment.v14i4.2025
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Nollet, J., Filis, G., & Mitrokostas, E. (2016). Corporate social responsibility and financial performance: A non-linear and disaggregated approach. Economic Modelling, 52, 400–407. https://doi.org/10.1016/j.econmod.2015.09.019
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Pu, G. (2023). A non-linear assessment of ESG and firm performance relationship: evidence from China. Economic Research-Ekonomska Istrazivanja , 36(1), 1–17. https://doi.org/10.1080/1331677X.2022.2113336
Puspita, A. D., & Kartini, T. (2022). Pengaruh Good Corporate Governance (GCG) Dan Corporate Social Responsibility (CSR) Terhadap Kinerja Keuangan Perbankan Yang Terdaftar Di Indonesia Stock Exchange (IDX). Journal of Economic, Bussines and Accounting (COSTING), 6(1), 330–337. https://doi.org/10.31539/costing.v6i1.4059
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Soana, M. G. (2011). The Relationship Between Corporate Social Performance and Corporate Financial Performance in the Banking Sector. Journal of Business Ethics, 104(1), 133–148. https://doi.org/10.1007/s10551-011-0894-x
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Waagstein, P. R. (2011). The Mandatory Corporate Social Responsibility in Indonesia: Problems and Implications. Journal of Business Ethics, 98(3), 455–466. https://doi.org/10.1007/s10551-010-0587-x
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Ahyani, R., & Puspitasari, W. (2019). Pengaruh Corporate Social Responsibility Terhadap Kinerja Keuangan Pada Perusahaan Properti Dan Real Estate Yang Terdaftar Di Bursa Efek Indonesia Tahun 2013-2017. Jurnal Akuntansi Trisakti, 6(2), 245–262. https://doi.org/10.25105/jat.v6i2.5479
Arı, G., Karan, M. B., & Sarıoğlu, S. E. (2023). The impact of environmental, social and governance (ESG) and corporate social responsibility (CSR) ratings on corporate performance in the energy sector: A literature review. Reference Module in Social Sciences, November. https://doi.org/10.1016/b978-0-44-313776-1.00121-5
Arli, D., & Tjiptono, F. (2014). Does corporate social responsibility matter to consumers in indonesia? Social Responsibility Journal, 10(3), 537–549. https://doi.org/10.1108/SRJ-01-2013-0007
Barnett, M. L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32(3), 794–816. https://doi.org/10.5465/AMR.2007.25275520
Barnett, M. L., & Salomon, R. M. (2018). Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Limits to Stakeholder Influence: Why the Business Case Won’t Save the World, July, 79–95. https://doi.org/10.4337/9781788970693.00009
Brammer, S. J., Brooks, C., & Pavelin, S. (2011). Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures. SSRN Electronic Journal, December. https://doi.org/10.2139/ssrn.739587
Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(12), 1325–1343. https://doi.org/10.1002/smj.714
Cordeiro, J. J., Galeazzo, A., & Shaw, T. S. (2021). The CSR–CFP relationship in the presence of institutional voids and the moderating role of family ownership. Asian Business and Management, 22(1), 137–163. https://doi.org/10.1057/s41291-021-00157-z
Dewi, S. F., & Muslim, A. I. (2022). Pengaruh Penerapan Corporate Social Responsibility (CSR) dan Green Accounting Terhadap Kinerja Keuangan. Jurnal Akuntansi Indonesia, 11(1), 73. https://doi.org/10.30659/jai.11.1.73-84
Djalante, R., Lassa, J., Setiamarga, D., Sudjatma, A., Indrawan, M., Haryanto, B., Mahfud, C., Sinapoy, M. S., Djalante, S., Rafliana, I., Gunawan, L. A., Surtiari, G. A. K., & Warsilah, H. (2020). Review and analysis of current responses to COVID-19 in Indonesia: Period of January to March 2020. Progress in Disaster Science, 6. https://doi.org/10.1016/j.pdisas.2020.100091
Freeman, R. (1984). Strategic management: A stakeholder perspective. Pitman. https://doi.org/https://doi.org/10.1017/CBO9780511815768
Friedman, M. (2007). The Social Responsibility of Business Is to Increase Its Profits BT - Corporate Ethics and Corporate Governance (W. C. Zimmerli, M. Holzinger, & K. Richter (eds.); pp. 173–178). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-540-70818-6_14
Galant, A., & Cadez, S. (2017). Corporate social responsibility and financial performance relationship: A review of measurement approaches. Economic Research-Ekonomska Istrazivanja , 30(1), 676–693. https://doi.org/10.1080/1331677X.2017.1313122
Hausman, J. A. (1978). Specification Tests in Econometrics. Econometrica, 46(6), 1251–1271. https://doi.org/10.2307/1913827
Jalil, I., Irmalis, A., Muzakir, M., Wahyuningsih, Y. E., & Ansari, L. P. (2020). Literatur Review : Produk etis sebagai faktor yang mempengaruhi sikap dan dampaknya pada perilaku konsumen. Jurnal Bisnis Dan Kajian Strategi Manajemen, 4(1), 135–144. https://doi.org/10.35308/jbkan.v4i1.1999
Malik, M. S., Ali, H., & Ishfaq, A. (2015). Corporate Social Responsibility and Organizational Performance: Empirical Evidence from Banking Sector. Pakistan Journal of Commerce and Social Sciences, 9(1), 241–247. http://hdl.handle.net/10419/188193
Margolis, J. D., Elfenbein, H. A., & Walsh, J. P. (2012). Does it Pay to Be Good...And Does it Matter? A Meta-Analysis of the Relationship between Corporate Social and Financial Performance. SSRN Electronic Journal, March 2009. https://doi.org/10.2139/ssrn.1866371
Nollet, J., Filis, G., & Mitrokostas, E. (2016). Corporate social responsibility and financial performance: A non-linear and disaggregated approach. Economic Modelling, 52, 400–407. https://doi.org/10.1016/j.econmod.2015.09.019
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. In Organization Studies (Vol. 24, Issue 3). https://doi.org/10.1177/0170840603024003910
Pondrinal, M. (2021). Pengaruh Pengungkapan Corporate Social Responsibility (CSR) Terhadap Kinerja Keuangan Di Perusahaan Yang Go Public. Jurnal Ekobistek, 8(1), 51–59. https://doi.org/10.35134/ekobistek.v8i1.33
Pu, G. (2023). A non-linear assessment of ESG and firm performance relationship: evidence from China. Economic Research-Ekonomska Istrazivanja , 36(1), 1–17. https://doi.org/10.1080/1331677X.2022.2113336
Puspita, A. D., & Kartini, T. (2022). Pengaruh Good Corporate Governance (GCG) Dan Corporate Social Responsibility (CSR) Terhadap Kinerja Keuangan Perbankan Yang Terdaftar Di Indonesia Stock Exchange (IDX). Journal of Economic, Bussines and Accounting (COSTING), 6(1), 330–337. https://doi.org/10.31539/costing.v6i1.4059
Rosser, A., & Edwin, D. (2010). The politics of corporate social responsibility in Indonesia. Pacific Review, 23(1), 1–22. https://doi.org/10.1080/09512740903398314
Roszkowska-menkes, M. (2020). Porter and Kramer’s (2006) “Shared Value.” Encyclopedia of Sustainable Management, October. https://doi.org/10.1007/978-3-030-02006-4
Simerly, R. L. (1997). An empirical examination of the relationship between corporate social performance and firms’ diversification. Psychological Reports, 80(3 PART 2), 1347–1356. https://doi.org/10.2466/pr0.1997.80.3c.1347
Soana, M. G. (2011). The Relationship Between Corporate Social Performance and Corporate Financial Performance in the Banking Sector. Journal of Business Ethics, 104(1), 133–148. https://doi.org/10.1007/s10551-011-0894-x
Vu, T. H., Nguyen, V. D., Ho, M. T., & Vuong, Q. H. (2019). Determinants of Vietnamese Listed Firm Performance: Competition, Wage, CEO, Firm Size, Age, and International Trade. Journal of Risk and Financial Management, 12(2). https://doi.org/10.3390/jrfm12020062
Waagstein, P. R. (2011). The Mandatory Corporate Social Responsibility in Indonesia: Problems and Implications. Journal of Business Ethics, 98(3), 455–466. https://doi.org/10.1007/s10551-010-0587-x
Wilcox, R. (2005). Trimming and Winsorization. In Encyclopedia of Biostatistics. https://doi.org/https://doi.org/10.1002/0470011815.b2a15165