Finance Research Letters 39 (2021) 101656

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Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

Corporate social performance and financial performance

relationship: A data envelopment analysis approach without
explicit input
Béchir Ben Lahouel a, *, Younes Ben Zaied b, Yaoyao Song d, Guo-liang Yang c
a
IPAG chair “Towards an Inclusive Company”, IPAG Business School, Paris, France
b
EDC Business School, Paris, France
c
Institutes of Science and Development, Chinese Academy of Sciences, China
d
School of Economics, Capital University of Economics and Business, Beijing 100070, China

A R T I C L E I N F O A B S T R A C T

Keywords: The aim of this paper is twofold: to provide a novel methodology for the development of a
Corporate social performance multidimensional and aggregated measure of Corporate Social Performance (CSP) based on Data
Financial performance Envelopment Analysis (DEA), and to investigate the relationship between CSP and financial
Data envelopment analysis
performance (FP) while accounting for endogeneity issues. Hence, we exploit several estimators
GMM
from both static panel and dynamic panel data models to show that the GMM estimator is more
Endogeneity
Airlines adequate than the traditional estimators based on fixed or random effects. Our results show that
corporate social performance impacts negatively and significantly financial performance.

1. Introduction

The contentious and contradictory results found in prior studies which investigate the sign and the direction of the relationship
between corporate social performance (CSP) and financial performance (FP) have been largely explained by wide inconsistencies
surrounding the measurement of CSP (Agle and Kelly, 2001). Against this backdrop, this paper responds to the various calls to
overcome performance measurement’s shortcomings and proposes an operationalization of the CSP construct based on the devel­
opment of an intelligible aggregated Index with Data Envelopment Analysis (DEA) technique.
Wartick and Cochran (1985) and Wood (1991a, 1991b, 1991c) suggests that only observable outcomes of the organization’s ac­
tions and behaviors can be used as a measure of CSP. According to Wood (1991a), CSP is defined as “A business organization’s
configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they
relate to the firm’s societal relationships” (p. 693). CSP and corporate social responsibility (CSR) have been used interchangeably in prior
studies. However, some differences do exist. While CSR refers to the obligation and the accountability toward society, CSP refers to the
outcomes and results of CSR activities (Carroll, 1991; Ortlitzky and Swanson, 2012). Socially oriented activities are defined as “policies
and practices of corporations that reflect business responsibility for some of the wider societal good” (Matten and Moon, 2008, p. 405). Thus,
CSP can be envisaged as “doing good” through CSR initiatives and “doing bad” through corporate social irresponsibility untoward
events (Price and Sun, 2017). At last, CSR is about activities and CSP is about outcomes (Salazar et al., 2012).

* Corresponding author.
E-mail addresses: b.benlahouel@ipag.fr (B.B. Lahouel), ybenzaied@edcparis.edu (Y.B. Zaied), songyaoyao15@mails.ucas.ac.cn (Y. Song),
glyang@casisd.cn (G.-l. Yang).

https://doi.org/10.1016/j.frl.2020.101656
Received 21 December 2019; Received in revised form 18 May 2020; Accepted 14 June 2020
Available online 16 June 2020
1544-6123/© 2020 Elsevier Inc. All rights reserved.
B.B. Lahouel et al. Finance Research Letters 39 (2021) 101656

Davenport (2000) states that CSP research is plagued with inconsistent measures because of insufficient acquiescence about CSP as
a theoretical construct. The measurement approaches used so far lacked systematic conceptual basis and choose key performance
indicators based on the whim of the moment (Hopkins, 2005). Ruf et al. (1998) suggest that the construction of a composite measure of
CSP is needed for the development of a theory on CSR as well as for the assessment of the corporate social impacts which are required
by academic scholars and practitioners. While a variety of approaches have been employed to measure CSP, including expert eval­
uations, single- and multiple-issue indicators, and surveys of managers (Maignan and Ferrell, 2000), these methods fail to provide an
aggregate or a composite measure of CSP which lead Carroll (1991) to describe this vast array of measures as “swirling waters of CSP
measurement”.
Nowadays, CSP is widely recognized, among academicians and practitioners (e.g., CSR rating agencies and data providers), as a
multidimensional construct covering essentially three aspects related to Environmental, Social, and Governance (ESG) issues. This
multidimensionality implies that a unidimensional quantitative index is needed to account for the simultaneous organizational aspects
when assessing CSP (Belu and Manescu, 2013). According to Waddock (2003), previous empirical studies frequently employed Kinder,
Lydenberg, Domini (KLD) data set which has become the de facto standard measure of CSP in academic research. However, a number of
researchers indicate that the weighting system of KLD as well as those of other CSR rating agencies (e.g., Innovest, SAM, VigeoEiris,
etc.) in aggregating CSP dimensions into one single measure, suffer from inaccuracy and subjectivity (Wang et al., 2015; Crane et al.,
2017). First, assuming the property of “One-size-fits-all”, provides lots of arbitrariness when one should identify the priority of the CSP
dimensions that should be used to construct the aggregated measure. Second, the issue becomes how to choose weights? The current
practices in measuring CSP rely on a subjective attribution of weights, which are chosen a priori. This practice is questionable since it
might favor one dimension over one another and consequently one firm over another in the same sample (Belu and Manescu, 2013).
In order to overcome these measurement issues, we resort to DEA approach to provide a reliable multidimensional aggregated
measure of CSP. DEA is free of any subjective a priori weighting system as the weights are the result of an optimization process that
endogenously provide the most advantageous set of weight for each firm under evaluation. DEA was first suggested by Jones (1995) as
a reliable and empirically testable methodology for the aggregation of the management of stakeholder relations into one possible
unidimensional index. Later DEA was applied by Bendheim et al. (1998) and extended by Chen and Delmas (2011) and Belu and
Manescu (2013) as a multidimensional measure of CSP.
Thus, following the recommendations raised in prior studies, the current research contributes to the body of CSR literature by
addressing three key issues: investigating CSP-FP relationship within a specific and single industry, aggregating CSP measure in a
multidimensional Index, and overcoming methodological issues by accounting for the endogeneity issues in the CSP-FP relationship.
Therefore, we assume that CSP measurement is none than a DEA process that constitutes a reasonable approximation of corporate
outcomes relating to stakeholder management. In the next section, we develop a new DEA model for measuring a CSP index within 25
international airline companies between 2010 and 2016. Then, we use the CSP index from DEA to explore the relationship between
CSP and FP. To do so, we apply the GMM estimator to account for endogeneity issues and to show its benefits over traditional esti­
mators (i.e. fixed- and random effects). Results are presented Section 3 before concluding the paper in Section 4.

2. Methodology and data

2.1. A CSP measure based on data envelopment analysis without explicit inputs (DEA-WEI)

Data Envelopment Analysis (DEA) method is a developed nonparametric technique that has been widely used in efficiency and
performance evaluation for decision-making units (DMUs) in the field of finance, energy, transportation, public sectors, etc. (Banker
et al., 1984; Charnes et al., 1978; Emrouznejad and Yang, 2018). Traditional DEA models are constructed on the basis of complete
input and output variables to measure the efficiency of DMUs. However, in many real scenarios, no explicit input variables are
available, and the focus of many evaluation activities lies in the performance rather than efficiency of assessed DMUs. For instance,
input variables are usually out of consideration in multiple attribute decision-making or evaluation problems. Lovell and Pastor (1999)
initially proposed DEA models without inputs to cope with this type of issue. Subsequently, this kind of models, termed as DEA models
without explicit inputs (DEA-WEI models), obtained substantial applications and extensions (Liu et al., 2011).
As certified in Yang et al. (2014), DEA-WEI model enact as the dual model with multiple attribute utility theory (MAUT) model.
Here, we start with the MAUT model to aggregate corporate social performance (CSP) dimensions. For simplification, we assume that
value of each attribute relating to corporate social responsibility (CSR) reflects the utility value upon each attribute directly in this
paper.
Considering a group of N DMUs with S attributes in terms of CSP, value of the rth attribute of DMUj during period t is denoted by
⃒
⃒
ytrj ≥ 0(r = 1, 2, ..., S). The attainable set can be defined as At = {ytj ⃒j = 1, 2, ..., n}. We further assume that utility independence and
additive independence are both satisfied among different attributes, so the CSP of DMUj from the perspective of MAUT can be
measured as:
( ) ∑ S ∑
S
P ytj = wr ytrj , 0 ≤ wr ≤ 1∀r, wr = 1 (1)
r=1 r=1

where wr denotes the weight of attribute r. Normally, subjective or objective methods are employed to identify weights after the utility
function form is determined. Subjective approaches include simple multi-attribute rating technique (Edwards, 1977; Edwards and

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B.B. Lahouel et al. Finance Research Letters 39 (2021) 101656

Barron, 1994) and analytic hierarchy process (Forman and Gass, 2001; Saaty, 1986), while objective approaches contain Entropy
method (Chen and Li, 2010, 2011) and principal components analysis (Jolliffe, 1986), etc. Both two kinds of weights assignment
methods preset specific rules, which may incur unfairness. As an alternative approach, DEA method allows the evaluated DMUs to
endogenize their favorable weights so as to maximize their performance. The corresponding DEA model targeted on DMU0 is
formulated as:
{ ⃒ }
( ) ∑ S ⃒∑ S
t ⃒
∗ t
h y0 = max wr yr0 ⃒ t
w y ≤ 1, j = 1, 2, ..., N; wr ≥ 0, r = 1, 2, ..., S (2)
r=1
⃒ r=1 r rj

which can be regarded as extended utility function method. By solving model (2), the most favorable weight set for each evaluated
DMU can be obtained.
Afterwards, we transform model (2) into its envelopment-form dual model, so the CSP of DMU0 during period t can be formulated
using the distance function as:
( ) { ⃒ }
Dt yt0 = min θ⃒(1/θ)yt0 ∈ At
{ ⃒ }
⃒∑
⃒
N
t t
∑N (3)
= min θ⃒ λ y ≥ (1/θ)yr0 , r = 1, 2, ..., S; λj = 1,λj ≥ 0, j = 1, 2, ..., N
⃒ j=1 j rj j=1

where θ is also a scaling factor representing the largest extent of radial expansion, while λj is the intensity variable standing for convex
combination among DMUs.
It should be noted that the DEA technique is a measure of relative efficiency, which is obtained by identifying several best per­
forming ones (efficient ones, relative efficiency=1) among all evaluated DMUs and comparing other inefficient ones with them.
Therefore, there are bound to be several DMUs with full efficiency.

2.2. Empirical model

Our empirical model is mainly concerned with investigating the impact of CSP on FP. We follow Ben Lahouel et al. (2019) and
propose to test this impact through the specification and estimation of two models: a static linear and a dynamic linear model.
The panel static linear model, which is commonly used in prior studies with relation to the CSP-FP relationship in the airline
industry (c.f. Lee and Park, 2010; Lee et al., 2013; Seo et al., 2015; Yang and Baasandorj, 2017), is presented as follows:
FPit = c + αi + α1 CSPit + α2 Xit + εit (4)

Where FP is the corporate financial performance measured by Tobin’s Q, CSP is the corporate social performance measured by the
DEA-based CSP index calculated from model (3), X is a set of control variables, c, αi, and εit denote a constant, the individual fixed-
effects term and the error term, respectively.
To account for endogeneity issues coming from the causal relation between CSP and FP, we turn then to the specification of a
dynamic panel data model that considers clearly the endogeneity issues and gives robust non-biased results. Indeed, traditional classic
estimators (e.g. fixed-effects and random-effects) might lead to biased estimations for at least three reasons. First, the static model
doesn’t consider the temporal dependence of corporate financial performance by the inclusion of lagged FP measures on the right-
hand-side of Eq. (4). This might cause an omitted variable bias in the regression (Wintoki et al., 2012). Second, the estimates of
the static model might lead to unobserved heterogeneity bias which is another source of endogeneity (Ben Lahouel et al., 2019). Third,
CSP and FP could impact each other and have reciprocal feedback loops. This simultaneity (or reverse causality) relationship is
recognized to be another source of endogeneity (Attig et al., 2016). Accordingly, we specify our dynamic model as follows:
FPit = c + β FPit− 1 + α1 CSRit + α2 Xit + εit (5)
Different estimators, including ‘difference GMM’ (Arellano and Bond, 1991), ‘System GMM’ (Blundell and Bond, 1998) and ‘Linear
Two steps DPD GMM’, are used to estimate Eq. (5) in order to show the relevance of the GMM in the presence of second order
endogeneity.

2.3. Data and variables

Our data consists of a sample of 25 international airline companies observed over the period 2010–2016 for which ESG data were
available in Thomson Reuters Eikon Asset 4 ESG database. Detailed variables employed in aggregating the CSP index are listed in
Table A in Appendix A. The CSP index was calculated using DEA-WEI model as expressed in Eq. (3). As the CSP index evaluates the
efficiency of firms’ management of their primary stakeholders (Chen and Delmas, 2011), we follow Bendheim et al. (1998) and

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B.B. Lahouel et al. Finance Research Letters 39 (2021) 101656

Table A
Variables used to aggregate CSP measure as derived from Thomson Reuters Datastream ASSET 4 ESG.
Stakeholder management Description
dimension

Resource use The resource use category measures a company’s management commitment and effectiveness towards achieving an efficient use
of natural resources in the production process. It reflects a company’s capacity to reduce the use of materials, energy or water,
and to find more eco-efficient solutions by improving supply chain management.
Emission The emission category measures a company’s management commitment and effectiveness towards reducing environmental
emission in the production and operational processes. It reflects a company’s capacity to reduce air emissions (greenhouse
gasses, F-gasses, ozone-depleting substances, NOx and SOx, etc.), waste, hazardous waste, water discharges, spills or its impacts
on biodiversity and to partner with environmental organizations to reduce the environmental impact of the company in the local
or broader community.
Product innovation The product innovation category measures a company’s management commitment and effectiveness towards supporting the
research and development of eco-efficient products or services. It reflects a company’s capacity to reduce the environmental
costs and burdens for its customers, and thereby creating new market opportunities through new environmental technologies
and processes or eco-designed, dematerialized products with extended durability.
Corporate governance The board of directors/board functions category measures a company’s management commitment and effectiveness towards
management following best practice corporate governance principles related to board activities and functions. It reflects a company’s
capacity to have an effective board by setting up the essential board committees with allocated tasks and responsibilities.
Corporate social responsibility The CSR strategy category measures a company’s management commitment and effectiveness towards the creation of an
strategy overarching vision and strategy integrating financial and extra-financial aspects. It reflects a company’s capacity to
convincingly show and communicate that it integrates the economic (financial), social and environmental dimensions into its
day-to-day decision-making processes.
Shareholder rights The shareholder rights category measures a company’s management commitment and effectiveness towards following best
practice corporate governance principles related to a shareholder policy and equal treatment of shareholders. It reflects a
company’s capacity to be attractive to minority shareholders by ensuring them equal rights and privileges and by limiting the
use of anti-takeover devices.
Workforce The workforce category measures a company’s management commitment and effectiveness towards maintaining diversity and
equal opportunities in its workforce. It also measures a company’s management commitment and effectiveness towards
providing high-quality employment benefits and job conditions.
Human rights The human rights category measures a company’s management commitment and effectiveness towards respecting the
fundamental human rights conventions. It reflects a company’s capacity to maintain its license to operate by guaranteeing the
freedom of association and excluding child, forced or compulsory labor.
Community The community category measures a company’s management commitment and effectiveness towards maintaining the
company’s reputation within the general community (local, national and global). It reflects a company’s capacity to maintain its
license to operate by being a good citizen (donations of cash, goods or staff time, etc.), protecting public health (avoidance of
industrial accidents, etc.) and respecting business ethics (avoiding bribery and corruption, etc.).
Customer/Product The customer/product responsibility category measures a company’s management commitment and effectiveness towards
responsibility creating value-added products and services upholding the customer’s security. It reflects a company’s capacity to maintain its
license to operate by producing quality goods and services integrating the customer’s health and safety and preserving its
integrity and privacy also through accurate product information and labeling.

consider that the ten categories1 describing the three ESG pillars stemming from Thomson Reuters Eikon Asset 4 ESG database, can be
the outputs of our DEA-WEI model. Table B in Appendix B presents the CSP efficiency scores (CSP index) for each airline company
derived from Eq. (3).2 We choose to measure the financial performance with a market-based measure i.e. Tobin’s Q which has been
widely used in prior studies (e.g., Ben Lahouel et al., 2019; Belu and Manescu, 2013, among others). We estimate Tobin’s Q using the
formula suggested by Chung and Pruitt (1994): approximate Q = (MVE + PS + Debt)/TA, where MVE is the firm’s market value of its
outstanding shares, PS denotes the firm’s liquidating value of its outstanding preferred stock, Debt is the value of long-term liabilities,
and TA represents the book value of firm’s total assets. So far, no consensus has been reached in prior research on the most reliable
measurement of financial performance. Financial performance has been proxied either by accounting- or market-based measures.
Accounting-based measures represent firm’s internal organizational efficiency whereas market-based measures reflect investors’ ex­
pectations about the values of risk-adjusted future and potential opportunities that can be offered to the firm (Ben Lahouel et al., 2019).
Several prior studies testing the impact of CSP on financial performance both in the mainstream and the tourism-related literature (e.g.,
airlines industry), suggest that Tobin’s Q would better reflect the financial performance than other accounting measures (e.g., ROA and
ROE) (Lang and Stulz, 1994; Lee et al., 2013; Rhou et al., 2016). It is widely admitted that market-based measures of performance are
less prone to various accounting procedures and managerial manipulations. Hence, in this study, the Tobin’s Q is preferred to the
accounting-based measures as it is not a forward looking but rather reflects the firm’s value including its future prospects.
Following arguments coming from influential studies related to CSP-FP relationship, we use a set of control variables. First, we
follow Wang et al. (2008) and control for firm age (AGE) calculated as the number of years since the firm’s initial public offering, or its

1
The Environmental pillar is composed of three categories: resource use, emissions, and innovation. The social pillar is composed of four cat­
egories: workforce, human rights, community, and product responsibility. The governance pillar is composed of three categories: management,
shareholders, and CSR strategy.
2
We can observe that there are many CSP scores equaling to unity in Table A. This is normal because of the use of the DEA technique. Concretely,
the output level of these airline companies with full CSP scores cannot be obtained or exceeded by linear addition of outputs of other evaluated
companies.

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B.B. Lahouel et al. Finance Research Letters 39 (2021) 101656

Table B
CSP scores: A DEA-WEI approach.
Company 2010 2011 2012 2013 2014 2015 2016

AIRASIA GROUP 0,938 0,868 1000 1000 1000 0,912 0,982

AIR CANADA 0,933 0,964 1000 0,964 0,923 0,958 0,962
AIR CHINA LIMITED 1000 1000 0,902 1000 1000 1000 1000
AIR FRANCE-KLM 1000 0,992 1000 1000 1000 1000 1000
AMERICAN AIRLINES 1000 1000 1000 1000 1000 1000 1000
CATHAY PACIFIC AIRWAYS 1000 1000 0,972 0,963 0,911 0,854 0,926
CHINA AIRLINES 0,952 0,800 1000 1000 1000 1000 1000
CHINA SOUTHERN AIRLINES 0,960 0,912 1000 1000 1000 1000 1000
DELTA AIR LINES 0,998 1000 1000 1000 1000 1000 1000
EASYJET 0,896 1000 1000 1000 1000 1000 1000
EVA AIRWAYS 0,718 0,614 0,931 0,927 0,885 1000 1000
JAPAN AIRLINES 1000 1000 1000 1000 1000 1000 1000
KOREAN AIR LINES 1000 1000 1000 1000 1000 1000 1000
LATAM AIRLINES GROUP 1000 1000 1000 1000 1000 1000 1000
LUFTHANSA 1000 1000 1000 1000 1000 1000 1000
QANTAS AIRWAYS 1000 1000 1000 1000 1000 1000 1000
RYANAIR HOLDINGS 0,923 0,872 1000 1000 1000 1000 1000
SAS 1000 1000 1000 1000 1000 1000 1000
SINGAPORE AIRLINES 0,996 0,784 0,942 1000 1000 1000 1000
SOUTHWEST AIRLINES 1000 1000 1000 1000 1000 1000 1000
THAI AIRWAYS INTL. 1000 1000 1000 1000 1000 1000 1000
TURKISH AIRLINES 0,914 0,941 1000 1000 1000 1000 1000
UNITED CONTINENTAL 0,982 0,809 0,798 0,911 0,861 1000 1000
VIRGIN AUSTRALIA 1000 1000 1000 1000 1000 1000 1000
WESTJET AIRLINES 0,758 0,802 1000 0,960 0,987 0,856 1000
Average 0,959 0,934 0,982 0,989 0,983 0,983 0,995

first listing in the database. Firm age may influence financial performance because it reflects competitiveness heterogeneity across
firms associated with history. Second, we control for firm idiosyncratic risk using the market model beta (BETA) as a measure of
systematic risk and the leverage (total debt to total asset ratio) as a measure of bankruptcy risk and specific capital structure (LEV).
Previous studies (e.g., Jensen, 1986; McWilliams and Siegel, 2000; Waddock and Graves, 1997) suggest that high risk tolerant firms
bear additional agency costs and are exposed to higher financial risk, and thus, have the poorest financial performance. Following
Harjoto et al. (2017), our third control variable is firm size (SIZE) measured by the market capitalization to control for financial
investor preference for larger firms. Substantial research has demonstrated that firm size plays a significant role in the relationship
between CSP and FP, since large firms may be more likely to invest in CSR programs than small firms (Hillman and Keim, 2001;
McWilliams and Siegel, 2000). Additionally, finance literature has established that firm size is a fundamental variable in explaining
market returns as large firms tend to be more mature, less risky and more able to generate free sash flows (Fama and French, 1992). Our
last control variable is sales growth (SGTH) over the previous year that may capture changes in growth opportunities. Firms that are
experiencing higher growth opportunities need to allocate additional working capital to invest in CSR projects that may positively
affect long-term market-based measure of financial performance (Adegbite et al., 2019; Harjoto et al., 2017).

3. Empirical results

Table 1 presents the static panel data estimations of our model expressed in Eq. (4), using the fixed-effects, the random-effects and
the ML random-effects estimators. We find, within the three regressions, that the coefficients of CSP index are negative but not sig­
nificant which means that CSP doesn’t significantly impact FP. These results are consistent with those of previous studies within the
mainstream literature which argue that CSR initiatives do not increase or decrease firm value (e.g., Aupperle et al., 1985; Elasyed and
Paton, 2005; Griffin and Mahon, 1997). Moreover, our results are in line with previous research in the airline industry. For example,
within a sample of 28 international air carriers, Ben Lahouel et al. (2019) find that superior investments in stakeholder management is
not directly and systematically related to greater or lower financial performance. Moneva et al. (2020) find a neutral impact of CSR on
financial success of 28 international airlines. Such findings, however, are consistent with the theory of the firm (cf., McWilliams and
Siegel, 2001) which argue that CSR initiatives cease to be profitable when the marginal costs of such investments equal the marginal
benefits. Stated differently, in equilibrium, the costs and benefits of being socially responsible tend to cancel each other out. Also, we
find that only market capitalization is positively and significantly related to FP through the estimation of the three regressions.
Leverage has a negative and significant impact on FP only within the fixed-effects estimator in regression (1).
Recent studies (e.g., Ben Lahouel et al., 2019, Moneva et al., 2020) argue that accounting for endogeneity issues and for the
presence of dynamic effects, are key issues when investigating the impact of CSP on FP. Previous studies that did not find support for
the business for CSR explained the results by the misspecification in the research design. Accordingly, we turn to estimate a dynamic
effects model through the generalized method of moments (GMM) approach. This approach is particularly relevant because CSR in­
vestments include a time dimension and return on investments may take place in the long term whereas CSR activities generally lead to
initial costs in the short term. Hence, we include a lagged dependent variable to account for the dynamic effects in the CSP-FP

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Table 1
CSP-CFP: Fixed effects, random-effects, and ML random effects regressions.
Fixed effect Random Effect ML Random Effect
Coefficient P-value Coefficient P-value Coefficient P-value

CSR − 0.01 0.95 − 0.039 0.88 − 0.007 0.92

AGE − 0.007 0.82 − 0.009 0.47 − 0.002 0.86
LEV − 0.005* 0.08 − 0.009 0.62 0.001 0.57
RISK − 0.03 0.49 − 0.04 0.35 − 0.025 0.57
MK 2.39e-08*** 0.00 2.39e-08*** 0.00 2.40e-08*** 0.00
SGTH 0.001 0.37 0.001 0.19 0.002*** 0.00
Constant 1.27*** 0.00 1.11*** 0.00 1.11*** 0.00
Wald test – 109.79 0.00 –
Fisher test 4.89 0.00 – –
LR – – 88.02 0.00
R-square 0.40 0.42

Note: ***, **, * indicate respectively parameters significance at 1%, 5% and 10%. Model is estimated using STAT 13.

relationship. Table 2 shows the dynamic panel data estimations of our model expressed in Eq. (5), using the three GMM approaches as
described above. Hansen test of the validity of the instruments used in the GMM estimation shows that the instruments are exogenous
as a whole. The validity of the instruments, as completely exogenous, is tested using Hansen test because this test is robust compared to
Sargan test especially with limited number of instruments. The AR (1) test strongly rejected the first order error autocorrelation. The
p-value is under 5% which suggested that the null of autocorrelation is rejected.
Our results are different from those obtained from traditional static estimators as they show that CSP impacts negatively and
significantly financial performance when the GMM is applied. Hence, our results support Friedman’s trade-off theory which purports
that firms that are engaged in CSR activities will bear opportunity costs that negatively affect profitability, innovation and compet­
itiveness. As such, CSR initiatives may conflict with the value maximizing behavior that managers should execute. Our findings are
consistent with those of Gonenc and Scholtens (2017) which support the opportunistic view regarding the CSP-FP relationship.
Additionally, our findings are in line with Liou and Sharma (2012) who show that the relationship between Tobin’s Q and environ­
mental corporate social responsibility is negative and statistically significant. Moreover, we find that firm Age, leverage and sales
growth have a significant negative impact on financial performance. Firm size proxied by market capitalization has, as found within
the static panel data estimations, a significant positive effect on financial performance. However, our results show, contrary to what
was foreseen, that the lagged dependent variable is insignificant. Hence, we make the case that the discrepancies of results between
static and dynamic panel models can be explained by the endogeneity problems. Overall, this study shows that the provided results are
different from one estimator to another and that is crucial to employ the adequate estimator when panel observation data are used to
investigate the relationship between CSP and FP.

4. Conclusion

International airlines are increasingly receiving pressures from different stakeholders to implement CSR initiatives. Although the
airline industry is considered as a provider of social and public goods (e.g., support for leisure and business travel, creation of jobs,
sharing of cultures, traditions and knowledge), it is however viewed as a great contributor to climate change, air pollution, waste
generation, and several social and economic issues. Moreover, airlines are operating within a growing competitive environment where

Table 2
CSP-CFP: GMM regressions.
Regression (1) Regression (2) Regression (3)
GMM (Arellano-Bond) difference GMM GMM (Blundell-Bond) system GMM GMM (Linear Dynamic Panel Data)
Coefficient P-value Coefficient P-value Coefficient P-value

TOBINQt-1 0.15 0.21 0.08 0.33 − 0.02 0.72

CSR − 0.3*** 0.06 − 0.27* 0.1 − 1.32*** 0.01
AGE − 0.01*** 0.00 − 0.007*** 0.00 − 0.04*** 0.03
LEV − 0.004 0.13 − 0.009*** 0.00 − 0.004*** 0.01
RISK 0.01 0.63 0.008 0.12 0.0001 0.99
MK 3.09e-08*** 0.00 2.63e-08*** 0.00 2.46e-08*** 0.00
SGTH − 0.002*** 0.00 − 0.002*** 0.00 − 0.001*** 0.00
Constant 1.81*** 0.00 1.92*** 0.00 2.49*** 0.00
Wald test 134.11 0.00 421.73 0.00 460.84 0.00
SARGAN test 13.65 0.00 16.45 0.05 11.90 0.91
AR2 test − 0.16 0.86 − 0.74 0.45 0.57 0.56
AR1 test − 0,67 0,0037 − 0,98 0,0036 − 0,59 0,0029
Number of instruments 12 17 21

Note: ***, **, * indicate respectively parameters significance at 1%, 5% and 10%. Models are estimated using STAT 13.

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building a sustainable competitive advantage lies on the capacity of an airline to develop strong relations with its primary stake­
holders. Hence, rooted in stakeholder theory, the main purpose of this study was to provide academicians and airline managers with a
reliable and comprehensive approach to assess an aggregated multidimensional CSP index that could be used when the relationship
between CSP and FP is investigated. We developed a CSP index based on DEA method without explicit input (DEA-WEI) that captures
the impacts of a company’s activities on their primary stakeholders.
Then, we applied a static and a dynamic panel data to show that endogeneity issues might produce different results when inves­
tigating the relationship between CSP and FP. The weight of our evidence is that CSP has a negative and significant impact on FP in the
airline industry. Our findings are consistent with prior theoretical and empirical studies claiming that the marginal costs of CSR in­
vestments are greater than their marginal benefits. However, we notice that our findings should be interpreted with caution because
CSR expenditures do not pay off right away but may be beneficial in the long-term especially after a threshold of CSR expenditures has
been achieved. Therefore, an avenue for future research in the airline industry is to test for the nonlinear relationship, i.e., a U-shaped
relationship between CSP and FP. For example, the study of Barnett and Salomon (2012) could be replicated because the authors
suggest that although in the beginning CSP impacts negatively the firm value, this effect reverses at some threshold level of CSR
engagement and finally drives up profitability. Hence, future studies might be oriented to explore the “too-little-of-a-good-thing” effect
where initial CSR expenditures are assumed to outweigh the benefits.
We are aware there are some limitations in this research. For instance, we collected data of 25 international airline companies,
which was relatively small, resulting in many invariable CSP scores in Table B in the appendix. In future studies, we will try to collect as
much data as possible to improve the accuracy of the results.

CRediT authorship contribution statement

Béchir Ben Lahouel: Methodology, Investigation, Writing - original draft, Writing - review & editing, Project administration.
Younes Ben Zaied: Methodology, Investigation, Writing - original draft, Writing - review & editing, Project administration. Yaoyao
Song: Writing - review & editing, Writing - original draft, Formal analysis, Software, Methodology. Guo-liang Yang: Methodology,
Software, Formal analysis, Writing - original draft, Writing - review & editing.

Appendix A

Title not available.

Appendix B

Title not available.

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