Does corporate social responsibility mediate the influence of national culture on investment inefficiency? Firm‐level evidence from Asia Pacific

Ijaz Ur Rehman, Faisal Shahzad, Khawaja Fawad Latif, Noman Nawab, Abdul Rashid and Shabir Hyder

International Journal of Finance & Economics, 2021, vol. 26, issue 3, 3484-3503

Abstract: A systematic understanding of how national culture translates its effect on firm‐level CSR performance which resultantly increases or decreases firm‐level investment inefficiency is critical void in the extant literature which the current study aims to fill over and above what previous studies have documented on the relationship between national culture and investment inefficiency and national culture and CSR performance. Building on Hofstede's four culture dimensions, we examine the direct and indirect links between national culture and investment inefficiency by considering the mediating role of Corporate Social Responsibility performance. Our study sample comprises of firms registered and remained list on the stock exchanges of 12 different Asia Pacific countries over the period of 2006–2016. To test the pathway in which national culture act on investment efficacy, Sobel intermediary factor test method is used to analyse the intermediary effect. We provide evidence that high degree of individualism, uncertainty avoidance and masculinity significantly reduce investment inefficiency. We also show that these variables decrease firm investment inefficiencies mainly through the increased CSR performance. In contrast, our results suggest that higher power distance increases the investment inefficiency of firms through declines in CSR performance. Our findings are robust after controlling for endogeneity, self‐selection and sample selection biases.

Date: 2021
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