Financial inclusion, Corporate Social Responsibility and Firm performance- Analysis of interactive relationship

Prior studies on CSR and performance have frequently used unidirectional, single-equation regression although the literature recommend reciprocal association of CSR with firm performance. This research elucidates the interactive relationship of CSR spending with financial inclusion (FI) and performance. The study also explores the moderating impact of the level of FI on CSR-firm performance relationship. 

We use simultaneous equations model to capture the FI-performance and CSR-firm performance relationship and apply three-stage regression approach and generalized method of moments (GMM) approach to address possible endogeneity. 

Our results confirm a positive association of CSR spending with performance but a negative relationship of FI with performance. We also find that FI negatively moderates the CSR spending- performance relationship. We use simultaneous equations model to capture the reciprocal association of CSR spending with firm performance, whereas prior studies on CSR and performance have frequently used unidirectional, single-equation regression. We also find that FI negatively moderates the CSR spending- performance relationship. Including FI and exploring the moderating impact of the level of FI on CSR-firm performance relationship is novel. The positive impact of CSR spending and negative impact of FI on performance in mandatory CSR regime provides valuable input in policy formulation. The results of our study will also be useful to national and international organisations, such as the International Monetary Fund (IMF) and the World Bank.