How does corporate social responsibility contribute to investment efficiency?

•CSR has a direct and indirect effect on investment efficiency.•Firms with high CSR invest more efficiently.•CSR enhances investment levels through mitigating information asymmetry.•CSR reduces investment excess through mitigating FCF problems. This paper examines the direct and indirect link betwee...

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Bibliographic Details
Published in:Journal of multinational financial management 2017-06, Vol.40, p.33-46
Main Authors: Samet, Marwa, Jarboui, Anis
Format: Article
Language:English
Subjects:
Agency costs
Corporate social responsibility
Information asymmetry
Investment efficiency
STOXX Europe 600
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Summary:•CSR has a direct and indirect effect on investment efficiency.•Firms with high CSR invest more efficiently.•CSR enhances investment levels through mitigating information asymmetry.•CSR reduces investment excess through mitigating FCF problems. This paper examines the direct and indirect link between CSR performance and investment efficiency. Our panel dataset consists of 398 European companies listed in the STOXX Europe 600 during 2009–2014. Our first result shows that firms with high CSR performance invest more efficiently. Then, we perform our analysis distinguishing two alternative situations: underinvestment and overinvestment. Focusing on under-investing firms, we highlight that CSR performance enhances their investment levels through mitigating information asymmetry. In contrast, for over-investing firms, CSR performance reduces investment excess through mitigating free cash flow problems. Overall, these findings suggest a role for CSR in indirectly ameliorating firm-level investment efficiency through helping firms address agency problems and information asymmetry problems.
ISSN:1042-444X
1873-1309
DOI:10.1016/j.mulfin.2017.05.007