Causes and Effects of Corporate Social Responsibility: An Examination of Corporate Social Responsibility in Saudi Arabia

Abstract

The recent adoption of sustainable development goals (SDGs) and the two-decade-long work involved in evolving these goals has led to increased attention to corporate social responsibility (CSR) in developing countries. As a United Nations (UN) member committed to achieving the SDGs by 2030, the Saudi government released its Vision 2030 economic blueprint in 2016, which includes significant environmental targets such as reducing carbon emissions.

However, research is still limited because few studies have considered the causes and consequences of CSR, particularly in Saudi Arabia. The current study aims to address this gap in the literature, specifically in the context of emerging economies. This study explores how ownership structure and leadership characteristics influence environmental, social and governance (ESG) practices in the Saudi Arabian context. It also examines the effect of ownership structure, leadership and ESG performance on financial performance. In addition, this thesis focuses on assessing how ESG practices, in conjunction with ownership structure and leadership, affect financial risk in Saudi Arabia.

Hypotheses for this study were devised based on various theories, existing literature and the institutional context. Data were collected from Invest ESG and the annual reports of 136 non- finance industry firms listed on the Saudi Stock Exchange between 2016 and 2020, resulting in 647 annual observations. The generalised method of moments technique was employed to manage potential endogeneity issues in panel data analysis.

The findings of the first study suggest that foreign, government and managerial ownership positively affect CSR. In contrast, institutional and family ownership of businesses and frequent CEO turnover impede CSR investment. The outcomes from the second study show that institutional, foreign, family and managerial ownership—as well as leadership elements like CEO turnover and leadership experience—are likely to enhance a firm’s value when aligned with ESG practices. Such enhancements in financial outcomes could be attributed to these ownership and leadership groups recognising the value generation potential of ESG and corporate governance. Conversely, investments in environmental and social initiatives might diminish value owing to the associated expenses to make such projects viable. Finally, the third study reveals that risk-taking is reduced in Saudi firms when these firms are participating in CSR practices. Evidence from this study broadly supports the view that CSR engagement leads to diminished risk-taking in Saudi firms.