THE EFFECT OF CORPORATE SOCIAL RESPONSIBILITY PRACTICE ON CORPORATE FINANCIAL PERFORMANCE EVIDENCE FROM JORDAN

Abstract

The objective of the current study is to examine the effect of corporate social responsibility (CSR) practice on corporate financial performance (CFP). The study tested 164 non-financial firms listed on Amman Stock Exchange (ASE) from 2011 to 2014. CSR activities are measured by corporate social responsibility disclosure index (CSRDI) based on content analysis. Meanwhile, corporate financial performance is measured by accounting-based performance and market-based performance. Generalized Method of Moment (GMM) analysis was used to analyze the effect of CSR disclosure on CFP. Firm size, Leverage, and Ownership are included as control variables. The results of current study indicated that there is positive and significant effect of CSR disclosure on accounting-based performance measured by Return on Assets (ROA). Conversely, there is no significant effect of CSR disclosure on market-based performance measured by market Stock Price (SP), and Price to Earnings Ratio (P/E). For control variables only Leverage has significant effect on financial performance measured by ROA. The Current study has implications in enhancing the understanding of financial performance for the firms through understanding the effect of CSR practices on CFP. Furthermore, the results of current study contribute to the previous studies on CSR practices in developing countries.