Corporate Social Responsibility Engagement, Economic Policy Uncertainty, and Firm Financial Performance

Abstract

The link between corporate social responsibility (CSR) engagement and firm
financial performance has been examined in a variety of contexts. We extend this
link to an understudied but important context for strategic decisions: environmental
uncertainty. We draw on stakeholder theory to investigate the potential moderating
influence of an increasingly important measure of environmental uncertainty –
economic policy uncertainty (EPU), on the CSR-performance relationship. Panel
data analysis of 484 firms using KLD data and the Compustat/Capital IQ database
reveal that EPU appears to moderate the relationship between CSR and financial
performance. Moreover, supplemental analysis reveals that this moderated
relationship varies when considering individual components of CSR. Implications
for both research and practice are suggested regarding managers’ emphases among
various CSR initiatives in times of high policy uncertainty.