The Effect of Corporate Social Performance on Firm Financial Performance: The Moderating Effect of Ownership Concentration

Corporate social performance (CSP) is a relatively new area of study that refers to the businesses’ relationship with people, organizations, communities, and the earth. The main objective of the present study is to identify the impact of CSP on the firm financial performance of the listed companies on the Colombo Stock Exchange. Further the study investigated the moderating effect of ownership structure on the above relationship. Data for the study was collected from 30 companies that are listed under chemical and pharmaceutical; beverage, food, and tobacco; hotel and travel; and manufacturing sectors for the 6-year period from 2013 to 2018. Return on equity (ROE) and return on assets (ROA) were used to measure the firm financial performance. If firms have invested in pollution control methods, it is considered as they have satisfied corporate social performance. The sum of ownership percentage of the five largest investors was taken to measure ownership concentration. Data was analyzed employing regression analysis. The results of the study revealed that there is a significant positive impact of corporate social performance on the financial performance of the listed companies. Moreover, the study revealed that the ownership concentration negatively moderates the relationship between corporate social performance and a firm’s financial performance. The findings of the study help policy makers and regulators better identify how the ownership concentration is associated with firm incentives to engage in social performance which leads towards better financial performance.