The Impact of CSR Performance Disclosure on the Company’s Investment Efficiency: Evidence from the United Kingdom

Abstract

This study examines the impact of corporate social responsibility (CSR) on the investment efficiency of UK companies from 2019 to 2022. The study looks at the link between CSR and investment efficiency using a sample of 1,056 firm-year observations from 317 different companies in different industries, excluding financial companies. It uses an ordinary least squares and a two-stage least squares regression models. After controlling the year and industry effects, the study finds that companies with high CSR involvement invest more efficiently than companies with low CSR involvement. This finding supports the stakeholder theory, which suggests that high CSR companies have less information asymmetry and more stakeholder solidarity, which enable them to reduce agency costs and enhance investment opportunities. The study also finds that CSR is more directly related to underinvestment companies than overinvestment companies, implying that CSR can help with the underinvestment problem caused by financial constraints or managerial short-range perspective. Moreover, CSR is more effective on investment efficiency for certain industries, such as technology, consumer staples, health care, telecommunications, basic materials, and energy. Furthermore, the study has examined the correlation between CSR and investment efficiency in extreme cases where the CSR scores were very high or very low, and it has been found that CSR has a negative impact on the investment efficiency of the company only when a company has very low CSR scores. The study contributes to the literature by showing the role of CSR in companies’ investment efficiency levels by providing empirical evidence from the UK context.