Publication: The Mediating Effect of Leverage between the Relationship of Corporate Social Responsibility and Financial Performance: Malaysian Evidence
Loading...
Date
2020-11-10
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Islam Malaysia
Abstract
The influence of corporate social responsibility (CSR) performance and firm leverage on financial performance have long been critical with regard to financial decision making. The greater the CSR performance of a company, the lower would be expected in terms of the cost of capital which motivates company to opt for debt, with higher debt, thus the higher is the financial performance of a company. However, when the firm leverage increases, both agency and bankruptcy costs increase rapidly as a result. Since firm leverage could have potential negative influence on financial performance, firm leverage could potentially become the mediator variable in the influence of CSR and financial performance. This study examines if there is a mediating role played by leverage between the CSR and financial performance. In this paper we use environmental, social and governance (ESG) rating as a proxy for CSR, total debt ratio as proxy for leverage and Return on Asset (ROA) and Return on Equity (ROE) as measures for firm financial performance. The results show that there is significantly positive relationship between CSR and firm financial performance as well as between leverage and financial performance. Even though there is positive relationship between CSR and leverage, the influence is insignificant. Thus, there is no mediation role played by the leverage between CSR and financial performance. The insignificant mediating role of leverage could possibly due to average low debt ratio among companies in the sample.
Description
e-Proceedings of The 9th Islamic Banking, Accounting and Finance International Conference 2020 (iBAF2020)
“Navigating the New Normal in Islamic Finance and Wealth Management”
10th – 11th November 2020, Malaysia
Organized by: Faculty of Economics and Muamalat,USIM
Page: 56-69
Keywords
SR, leverage, mediation effects, Malaysian companies, PLS-SEM