Does national culture influence corporate social responsibility on firm performance?

The study situates its research question in the context of cross-country differences in culture that shape firm decisions and performance, highlighted by divergent responses to the COVID-19 pandemic. National culture influences managerial decision-making and can affect firms’ risk-taking, financing choices, innovation, and ultimately performance. Prior literature links cultural dimensions such as uncertainty avoidance and individualism to innovation efficiency, financing costs, cash holdings, and resilience during crises. National culture also shapes firms’ approaches to corporate social responsibility (CSR). Given that improving performance and fulfilling CSR are both vital, the paper asks whether national culture moderates the effect of CSR on firm performance. The study addresses a gap by explicitly modeling national culture as a moderating variable in the CSR–performance link across a broad multi-country sample, aiming to provide insights into geographic differences in firm outcomes and guidance for policy. It contributes to finance and cross-cultural psychology by offering cross-continental evidence and suggesting that governments should guide CSR implementation and foster cultural climates of individualism and democracy.

The literature documents three main views on the CSR–performance relationship. (1) Positive effect: Many studies find CSR improves performance via brand value, consumer attraction, reputation, employee incentives, reduced costs, and improved financing access. (2) Negative effect: Some evidence suggests CSR can hinder performance in certain industries or contemporaneous periods. (3) Nonlinear or contingent effects: Some argue the relationship is ambiguous or inverted U-shaped, depending on cost–benefit optimization and industry context. Based on theoretical arguments—short-term cash outflows, increased liabilities, capital structure impacts, and expensing of CSR costs—the paper posits H1: CSR fulfillment negatively correlates with firm performance. The review also covers national culture’s effects. Power distance may lead to centralized decision-making, information asymmetries, and debt-financing preferences, potentially lowering performance (H2-1: negative). Individualism can foster managerial confidence and value maximization, potentially enhancing performance (H2-2: positive), though it may also increase financing costs via overconfidence. Uncertainty avoidance can reduce innovation, prefer equity financing with higher costs, and decrease market liquidity, potentially harming performance (H2-3: negative). The study further theorizes moderation by culture on the CSR–performance link: H3-1: power distance strengthens the negative effect of CSR; H3-2: uncertainty avoidance strengthens the negative effect of CSR; H3-3: individualism weakens the negative effect of CSR.

Design: Empirical panel regression across multiple countries with national culture as a moderator of the CSR–performance relationship. Sample: Listed non-financial firms from 15 countries (China, Singapore, Hong Kong, United States, Japan, India, France, South Korea, Taiwan, Germany, United Kingdom, Canada, Brazil, Australia, Russia) from 2011–2020, yielding 34,333 firm-year observations after exclusions for research/educational/other organizations and financial institutions. Data sources: Hofstede’s national culture scores (PD, IDV, UA), Thomson Reuters DataStream/Eikon for firm-level variables (including ESG), and the World Development Index for country-level variables. Variables: Dependent variable—firm performance measured by Tobin’s Q = (market value of firm + total liabilities)/total assets (book values). Independent variable—CSR proxied by comprehensive ESG score (environmental, social, governance). Moderators—national culture dimensions: Power Distance (PD), Individualism (IDV), Uncertainty Avoidance (UA) from Hofstede. Controls—firm-level: R&D intensity (RD), debt-to-equity (DE), debt-to-assets (DA), firm size (LnMV), sales growth (Growth), accounts receivable turnover (Receivable); country-level: log total GDP (LnGDP), GDP growth (GDPgrowth), stock market development (MV/GDP). Empirical specification: Three models estimated with panel regressions. Model I: TobinQ on lagged ESG and controls to test H1. Model II: TobinQ on each culture dimension and controls to test H2-1 to H2-3. Model III: TobinQ on lagged ESG, culture dimensions, interaction terms (ESG × PD/IDV/UA), and controls to test H3-1 to H3-3. ESG is lagged one period to reflect delayed impact. Data processing: Winsorization at the 1% level to mitigate outliers; correlation analysis indicates most correlations < 0.5; variance inflation factors < 10 suggest no serious multicollinearity. Estimation implemented in Stata 15.1.

Descriptive statistics: Tobin’s Q (mean 5.9841; min 0.0940; max 249.9362; median reported 1.051925), ESG (mean 39.7224/100), PD (mean 57.2501), UA (mean 52.4522), IDV (mean 54.0213). Main results (Table 5): - CSR → Performance (Model I): ESG coefficient = -0.0096 (p < 0.01), supporting H1 that higher CSR (ESG) is associated with lower firm performance (Tobin’s Q). - Culture → Performance (Model II): PD coefficient = -0.1237 (p < 0.01), UA = -0.0223 (p < 0.01), IDV = 0.0722 (p < 0.01), supporting H2-1 (negative PD), H2-3 (negative UA), and H2-2 (positive IDV). - Moderation (Model III): PD × ESG coefficient = -0.0001 (p < 0.01), indicating that higher power distance strengthens the negative effect of CSR on performance (supports H3-1). UA × ESG: not significant (does not support H3-2). IDV × ESG: not significant (does not support H3-3). Robustness diagnostics: Correlations generally below 0.5; VIFs well below 10, reducing multicollinearity concerns. R-squared values in main models range from ~0.03 to ~0.05.

The findings address the central question by showing that national culture both directly influences firm performance and, in the case of power distance, shapes how CSR relates to performance. The negative association between ESG and Tobin’s Q suggests that, in the short to medium term, CSR expenditures may reduce cash holdings, increase liabilities, and be expensed rather than capitalized, sending adverse signals to investors and constraining operations and investment, thus dampening market-based performance. Cultural contexts with higher power distance and higher uncertainty avoidance are linked to lower performance, potentially through centralized decision-making, information asymmetry, conservative financing or innovation choices, and reduced market liquidity. In contrast, individualistic cultures are associated with higher performance, possibly due to managerial confidence and value-maximizing behavior and market dynamics that slightly elevate valuations. Importantly, power distance amplifies the negative CSR–performance relation, suggesting that in more hierarchical environments, CSR investments may be less efficiently selected, executed, or communicated, further eroding value. Policy and managerial implications include calibrating CSR initiatives to firm financial capacity and institutional settings, improving governance and transparency around CSR, and, at the policy level, fostering institutional features associated with individualism and democracy that may support better performance outcomes.

Using multi-country panel regressions, the study finds that CSR (ESG) is significantly negatively associated with firm performance, that higher power distance and higher uncertainty avoidance correlate with lower performance, and that individualism correlates positively with performance. Power distance strengthens the negative effect of CSR on performance, while uncertainty avoidance and individualism do not significantly moderate this relationship. The study contributes globally representative evidence across five continents and underscores the role of national culture in shaping firm outcomes and the CSR–performance link. It suggests governments should appropriately guide CSR implementation and cultivate cultural and institutional environments emphasizing individualism and democratic norms. Future work should add robustness checks, test alternative CSR and performance measures, incorporate additional controls, and expand coverage to more regions and contexts to strengthen generalizability.

Key limitations include: (1) Measurement choices—CSR proxied by ESG and performance by Tobin’s Q may not capture all dimensions; different metrics could yield different results. (2) Short- versus long-term effects—market-based Tobin’s Q may reflect short-term valuation responses; accounting-based or innovation outcomes might reveal different dynamics. (3) Cultural measurement—Hofstede scores are country-level and time-invariant, potentially masking within-country or temporal cultural variation. (4) Omitted variables and scope—despite controls, unobserved institutional or industry factors could influence results; additional controls and broader regional coverage would improve robustness. (5) Moderation asymmetries—only three cultural dimensions were tested; other cultural constructs (e.g., masculinity, long-term orientation, indulgence) may also moderate CSR effects.