The Market Value of Corporate Social Performance in BRICS Countries: Differential Results Based on Panel Data Methods

Abstract

Although the causal effect of social performance on financial performance is a critical issue for companies and their stakeholders, there has been no consistent econometric ap­proach in the relevant literature to examine this relationship yet. From this point of view, the main motivation of this study is twofold: first, it aims to reveal the differential results of static and dynamic panel data methods used to estimate the impact of corporate social performance (CSP) on corporate financial performance (CFP). Second, in order to take the initiative for a consistent and reliable estimation method of the causal relationship between CSP and CFP, this study aims at drawing attention to the challenges of system generalized method of moments, which is suggested as an efficient method to solve the endogeneity problem in dynamic models. To this end, the impact of CSP on CFP for a sample of BRICS countries was analyzed through both static and dynamic panel data specifications. The main results reveal that static panel data models estimated with pooled OLS, random and fixed effects result in inconsistent and biased parameter estimates. This study discusses that although the two-step system GMM is suggested as a reliable method to deal with the endo­geneity issue, some critical specifications should be considered while utilizing this method to achieve robust and efficient results.