Essays on The Nexus Between Corporate Governance, Corporate Social Responsibility and Corporate Profitability: Empirical Evidence from Listed Firms in Africa

Abstract

Corporate governance (CG) structures and corporate social responsibility (CSR) have been proposed as mechanisms through which firms can promote corporate profitability. However, the key issues that remain unclarified in the empirical literature, are whether or not corporate governance structures have same effects across sectors and across stakeholder and shareholder profits, whether or not there is a short-run and long-run effects of CSR on shareholder and stakeholder profits across different sectors and whether or not there is a non-linear and synergetic effects of corporate social responsibility (CSR) on corporate profitability, particularly within the context of listed firms across different sectors in Africa. This thesis, therefore, focuses on investigating the nexus between corporate governance structures, corporate social responsibility (CSR), and the interactions between CSR dimensions on stakeholder and shareholder profits in African listed firms across different sectors. The thesis employs a dynamic Generalized Method of Moments (GMM) panel data strategy of 369 listed firms in Africa between 2006 and 2020. The first study specifically examines corporate governance structures and finds that their effects on stakeholder and shareholder profits vary significantly across sectors. It emphasizes that corporate governance structures should be sector-specific to enhance profitability and highlights the persistent benefits of corporate governance in the long run, except for the Consumer Staple and Consumer Discretionary sectors. The second study investigates the effects of CSR on shareholder and stakeholder profits. It reveals that different CSR activities have varying effects across sectors. Governance-related CSR benefits stakeholder and shareholder profits in financial and consumer staple sectors, while social-related CSR enhances profits in Africa as a whole, financial, and consumer discretionary sectors. Environmental related CSR only improves profits in the full sample and consumer discretionary sector. The study emphasizes the need for sector-specific CSR guidelines and careful selection of CSR activities. The third study explores the non-linear and synergetic effects of CSR on profitability. It identifies an inverted non-linear threshold effect of social and governance CSR on shareholder profitability, suggesting that excessive CSR activities can harm shareholder profitability beyond a certain threshold. Synergies are found between social and governance CSR on shareholder profitability and between social and environmental CSR on stakeholder profitability. The study highlights the importance of cautious selection and coordination of CSR activities, as well as the positive long-term effects of CSR on profitability. This thesis makes several contributions in the literature: First, it enriches the empirical and theoretical literature by addressing and providing new insights on the nexus between corporate governance and shareholder and stakeholder profitability especially regarding the varying effect of corporate governance structures not only across stakeholder and shareholder profitability, and also across sectors and industries, as well as the short-run and long-run relationships in the nexus. Secondly, providing evidence on the heterogeneous effect of CSR and firm profitability across different sectors and across shareholder and stakeholder profits, as well as ascertaining evidence on the short-run and long run effects of CSR on shareholder and stakeholder profits. Thirdly, by seminally, providing evidence of a non-linear threshold effect of CSR, which can inform practitioners and managers of the extent/level beyond/below which CSR yields positive and or negative effects on shareholder and stakeholder profitability. Likewise, for the purpose of providing justification and incentive for CSR expanding, the study attempts to show how that CSR benefits exist in the future/long-run.