Institutions threshold effect in the corporate social responsibility-corporate performance relationship: a PSTR approach

Abstract

The present study investigates whether the relationship between corporate social responsibility (CSR) and business performance varies with the quality of formal and informal institutions. It particularly examines the non linearity of this relationship by considering the institutional quality as a threshold variable. The composite index measuring the regulatory efficiency quality is used to measure formal institutions, whereas indexes of self-enhancement and Self-transcendence are used to proxy the quality of informal values. Relying on a Panel Smooth Threshold Regression for 402 firms in 24 emerging countries over the period 2015-2021, findings indicate a non-linear link between CSR and firm performance. Particularly, there is a regulatory quality and Self-transcendence levels thresholds, beyond them CSR increases the corporate profitability whereas CSR impedes firm performance for higher levels of self-enhancement values. Managers can better identify where strategic priorities exist by analyzing whether these informal or formal institutions are evident in businesses’ actions connected to social responsibility.