Corporate social responsibility and financial performance among Malaysian government-linked and non-governmentlinked listed companies

Abstract

In Malaysia, government-linked companies (GLCs) are required to fulfil more CSR obligation and expected to achieve better financial performance due to preferential treatment from the government. Based on stakeholder theory, contribution in CSR may improve corporate reputation and in turn, improve the financial performance of the involved companies. However, controversial past studies have shown underperformance of GLCs compared to non-GLCs. Whether more CSR contributions will lead to better financial performance still remains unknown. Moreover, there is a lack of literature to examine the differences in CSR and financial performance relationship between government-linked and non-government-linked companies. For the purpose of examining the effects of CSR on financial performance, top 100 public listed companies (PLCs) on Bursa Malaysia are selected and categorized into GLCs and non-GLCs. The main objectives of the study are (1) to compare the differences in CSR and financial performance between GLCs and non- GLC; (2) to examine the relationship between CSR and financial performance across GLCs and non-GLCs in Malaysia; and (3) to identify the CSR dimensions that significantly affect the financial performance of GLCs and non-GLCs in Malaysia. For the present study, CSR is proxied by CSR disclosure-based dimensional scores (including dimensions of community, environment, marketplace and workplace) whilst financial performance employs both accounting performance (i.e. ROA) and market performance (i.e. Tobin’s Q) measures. The results show that GLCs contributed more in CSR whilst non-GLCs achieved a better financial performance. Based on pooled OLS and fixed effects estimations, for a period from 2007 to 2016, the results show that the CSR performance of Malaysian companies has a negative or no effect on financial performance in short run (measured by ROA). However, CSR performance mostly has a positive effect on financial performance in the long turn (measured by Tobin’s Q), regardless of GLCs or non-GLCs. Among the four dimensions, community dimension consistently demonstrates a stronger positive effect on ROA and Tobin’s Q across GLCs and non-GLCs. Comparative study of the CSR, financial performance and relationship between CSR and financial performance across GLCs and non-GLCs are the highlights of the present study. The findings provide valuable insights for Malaysian GLCs and non-GLCs to identify which CSR dimension will lead to a significantly better financial performance. Therefore, these help Malaysian companies to formulate a clearer CSR strategic agenda which in turn create values and competitive advantages for Malaysian companies.