Interacting Role of Corporate Social Responsibility for the Effect of Managerial Ability on Firm Financial Performance: Evidence from Pakistan

Abstract

The present study endeavors to examine the moderating role of corporate social responsibility (CSR) in the interaction between managerial ability (MA) and firm performance (FP). For estimation, the study analyzed an unbalanced panel of 219 non-financial listed firms on the Pakistan Stock Exchange (PSX) for 2008-2021. To address the concerns of heteroscedasticity and autocorrelation, fixed effect regression with robust standard errors clustered at the firm level is applied. The study provides that overall managerial ability enhances the firm performance. Furthermore, research has established a positive correlation between CSR and a company's overall performance. In addition, the interaction between MA and CSR has a substantial positive correlation with FP. The results reveal that CSR positively moderates the linkage between MA and FP and behaves as a complement. The ongoing research is limited to the non-financial sector; however, the study findings are unquestionably valuable for corporate investors and managers in the context of developing economies. This research study adds to the existing body of literature by providing novel academic data regarding the moderating role of corporate social responsibility on the managerial ability-performance nexus in the context of the Pakistani economy.