Long-run dynamics between CFP and CSP in the GCC banking sector: estimation of non-stationary heterogeneous panels allowing for cross-sectional dependence
ISSN: 1747-1117
Article publication date: 6 April 2021
Issue publication date: 29 March 2022
Abstract
Purpose
Causality between corporate financial performance (CFP) and corporate social performance (CSP) has been extensively debated in previous research works; however, little research has been done to investigate the long-run dynamics between these two constructs. The purpose of this paper is to enrich the CFP–CSP literature by estimating the long-run equilibrium relationship between financial performance and social performance in the banking sector in the Gulf Cooperation Council countries over the period 2009–2019.
Design/methodology/approach
The paper adopts an approach that is primarily used in financial economics: first, the authors perform panel long-run Granger causality following Canning and Pedroni’s procedure to indicate the direction of the causal relationship. Second, the authors estimate an error correction model using Chudik and Pesaran’s (2015) dynamic common correlated effects mean group estimator to determine the sign of the relationship.
Findings
The present research findings prove the existence of a long-run equilibrium relationship between CFP and CSP, while indicating at the same time that panel Granger causality runs positively from CSP to CFP, which means that changes in CSP produce lasting changes in CFP.
Practical implications
The findings of the paper would guide strategists to build fit for purpose corporate social responsibility (CSR) strategies in their firms and establish a continuous investment in CSR activities in the long run rather than harshly investing in CSR activities in the short run.
Originality/value
To the best of the authors’ knowledge, this paper is the first one to address heterogeneity in long-run Granger causality tests to estimate the relationship between CSP and CFP.
Keywords
Acknowledgements
The author thank P. Pedroni for providing his RATS code. We also thank Dr Abdelhakim Meslem for his volunteering review of the empirical analysis and Dr Khaled Besbes for the proofreading of the text.
Citation
Ben Douissa, I. and Azrak, T. (2022), "Long-run dynamics between CFP and CSP in the GCC banking sector: estimation of non-stationary heterogeneous panels allowing for cross-sectional dependence", Social Responsibility Journal, Vol. 18 No. 3, pp. 518-533. https://doi.org/10.1108/SRJ-09-2020-0365
Publisher
:Emerald Publishing Limited
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