Proactive corporate social responsibility and financial performance

Abstract

In this study, I examine the dynamic relationship between proactive social responsibility and financial performance. Further, I address the issue of reverse causality and other sources of endogeneity by employing a dynamic panel model with a system generalized methods of moments regression. A sample of 6,528 observations across a total of 18 years of data is the foundation of my analysis. The results suggest that companies experience an immediate negative effect on financial performance from proactive social action, which becomes positive in the subsequent period. These findings hold considerable implications for both theory and practice.