The self-regulatory business model known as corporate social responsibility (CSR) may assist a corporation in upholding its social responsibility. CSR helps a business to be mindful of the impacts it has on the economy, society, and environment. Combining economic progress, social justice, and environmental preservation is the overarching purpose of CSR. A corporation may make sure that its economic growth benefits everyone—including the company, its stakeholders, and the general public—by emphasising its social responsibility initiatives. Therefore, a responsible business aspires to support economically effective, socially equitable, and environmentally sustainable development while assuring its own financial success and economic expansion. Corporate social responsibility (CSR) is widely regarded as a performance inducer since it fosters innovation, reduces costs, and encourages unity among employees around a worthwhile endeavour. An organisation can gain a number of competitive advantages with the help of a properly implemented CSR concept, including increased sales and profits, better access to capital and markets, lower operational costs, higher productivity and quality standards, a more effective human resource base, a better reputation for the brand, increased customer loyalty, and improved decision-making capacity and risk management practices. The four primary subfields of the term “corporate social responsibility” are environmental, philanthropic, ethical, and economic responsibilities. It is possible to characterise the goals of CSR more accurately by becoming familiar with its different forms, which enables businesses to align their operations with the theory of sustainable development. The environmental and economic pillars of social responsibility are the most significant ones for the automobile sector. Though many companies still place a heavy focus on the economic aspect, all four CSR pillars are essential for the sustainable performance of a firm. It is also important to understand how contextual factors such as the size and age of the firm influence business performance in the automotive sector. In addition to growth in client demand, it is important to note that the implementation of CSR initiatives, particularly those pertaining to ethics, may greatly increase employee satisfaction by abiding to social responsibility standards. This leads to increased productivity, and productivity has a direct impact on earnings.
2. Literature Review
3. Materials and Methods
This study’s aim is to determine how corporate social responsibility impacts business performance in the automobile sector. This study’s research design is descriptive in nature. The population was taken as automobile companies in Asian countries, of which there are 97 altogether. Sample companies were selected according to the data availability on corporate social performance and firm performance for more than 10 years. Accordingly, 21 automobile companies were selected from Asian countries to constitute the study sample. The purposive sampling technique was used as only companies with more than 10 years’ available data in the database were targeted. To select the sample companies from the automobile sector, the Nomenclature of Economic Activities (NACE) Codes of different sectors were used, and thus, companies involved in the sale, maintenance, and repair of motor vehicles and motorcycles (NACE-50); the manufacture of motor vehicles, trailers, and semi-trailers (NACE-34); and the wholesale and retail trade and repair of motor vehicles and motorcycles (NACE-45) were used for data collection. Data were collected from the Thomson Reuters database. The final sample consisted of 21 companies from the automobile sector, spread over 7 Asian countries including India, China, Hong Kong, Japan, Singapore, South Korea, and Malaysia, which accounted for almost 22% of the population. Data on 8 variables have been used, such as ESG combined score, environmental score, social pillar score, governance pillar score, return on assets, return on equity, age of the firm, and firm size. For each variable, data for 12 years could be gathered; thus, the dataset consisted of 252 observations for each variable. The study covers data on the corporate social performance and firm performance of 21 Asian automobile companies during the 12-year period from 2009 to 2020. A balanced panel was used for the analysis. Data analysis was performed using the software STATA. Fixed and random effects panel regression models were used to analyse the connection between the variables, and the Hausman test was used to determine whether a fixed or random effects model should be used, with the null hypothesis that random effects are favoured.
Firm performanceit = þO + þ1ESGcit + þ2ESGeit + þ3ESGsit + þ4ESGgit + þ5F_sizeit + þ6F_ageit + eit
where þO is the constant; þ1, þ2…are the regression coefficients; ESGcit is the ESG combined score; ESGeit is the ESG environmental score; ESGsit is the ESG social pillar score; ESGgit is the ESG governance pillar score; F_sizeit is the firm size; F_ageit is the age of the firm; and eit is the error term.
The aim of this study was to determine how CSR contributes to the financial performance of businesses in the automobile sector. To comprehend the link between the independent and dependent constructs, linear regression methodology was adopted.
4.1. Descriptive Statistics and the Coefficient of Correlation between the Variables
The independent factors were the ESG combined score, environmental pillar score, governance pillar score, and social pillar score, while the dependent variables were the return on assets (ROA) and return on equity (ROE). The age and size of the company were used as control variables. The ROA of the 21 companies (252 observations) was taken for research, and the analysis revealed a minimum value of −0.144 and maximum of 0.455, with a mean of 0.067 and standard deviation of 0.082. The minimum and maximum values of return on equity were −3 and 1.31, respectively, with a standard deviation of 0.276 and mean value of 0.136.
The ESG combined score had an average of 46.211 and a standard deviation of 16.989, with a minimum value of 7.9 and maximum value of 85.57. The average environmental pillar score was 38.68, with a standard deviation of 13.52. The governance pillar score had a minimum value of 13.56 and a maximum value of 97.85, with a standard deviation of 21.322 and mean of 56.036.
Control variables such as the age and size of the company were also taken for analysis. The age of the company had a minimum value of 0 and a maximum value of 3.85, with a standard deviation of 0.728 and mean of 3.1. The minimum company size was valued as 16.073 and the maximum was 25.447, with a mean of 20.44 and standard deviation of 2.61.
4.2. Corporate Social Responsibility and Firm Performance—Model 1: Pooled OLS Regression
When looking at the link between the various dimensions of corporate social performance and return on assets, the results were statistically significant. Hence, it can be assumed that that a significant relationship exists between the various component scores of corporate social performance and return on assets. The governance pillar score and return on assets revealed a negative but significant relationship.
The age of the company was also significant at the 1% significance level. As there was a strong link between the age of the company and ROA, the null hypothesis was rejected.
In the ROE model, the F test result showed that the model fits the population with a value of 7.834, while the r-squared value was 0.184, which means only 18% of the variation in return on equity is caused by the ESG scores. Prob > F was 0.006 and all the variables were significant; hence, it can be concluded that the hypothesis that there is a correlation between corporate social responsibility and return on equity is not refuted by the model.
4.3. Corporate Social Responsibility and Firm Performance—Model 2: Random Effects Model
Following panel data regression using random effects, all the corporate social responsibility indicators were significant at either the 5% or 10% level of significance. The age and size of the company also significantly contributed to the return on assets. As a result, the null hypothesis was disproved, and it was proven that there is a connection between corporate social responsibility and return on assets. The coefficient value of the governance score demonstrates that there is a negative relationship between the governance score and return on assets, while all the other relationships turned out to be positive.
In the return on equity model, all the indicators of corporate social responsibility were significant in explaining the dependent variable return on equity. At the 1% level of significance, the total ESG score, environmental score, and governance score were significant. However, the social pillar score was significant at the 95 percent level of confidence. As a result, the null hypothesis was disproved, and it was found that return on equity and corporate social responsibility are related. The age of the company was significant at the 1% significance level, while company size was significant in explaining return on equity at the 5% level. As a result, it can be said that there is a correlation between a company’s age and return on equity as well as its size and return on equity.
4.4. Corporate Social Responsibility and Firm Performance—Model 3: Fixed Effects Model
With the exception of the social pillar score, all corporate social responsibility indicators were insignificant at either the 5% or 10% level of significance. The social pillar score had statistical significance at the 5% level. The age and size of the company were also significant in contributing to the return on equity at the 5% level of significance. However, size was not significant in determining return on assets. The correlation between the social pillar score and corporate performance has been validated in the model. The findings show that the governance score and return on assets have a negative association, while all the other relationships turned out to be positive. We adopted the Hausman test for endogeneity to determine whether we should use the fixed or random effects model, with the null hypothesis that random effects are favoured. The Hausman test result revealed that the p-value was not significant (p = 0.184, Chisq = 8.362), and hence, the random effects model was selected. The result of this study revealed that not only the environmental score is significant for automobile firms; the other components of CSR, such as the governance pillar and social pillar scores, are also important in achieving better firm performance in the long run.
The present study covers only data on the corporate social performance and firm performance of 21 Asian automobile companies during a 12-year period, from 2009 to 2020. Therefore, to assure the availability of additional observations for research, future researchers should concentrate on a wider geographic coverage. Future studies may examine the viability of adding additional measures of corporate social performance in addition to the ESG scores in order to more clearly explain how corporate social performance affects a firm’s financial performance. Only accounting measures such as return on equity and return on assets were employed in this study as measures of firm performance. Future studies may concentrate on Tobin’s Q and other business performance metrics as well.