Corporate Social Responsibility and Firm Profitability in South Africa: An Industry‐Level Analysis

Abstract

ABSTRACT This study examines the relationship between corporate social responsibility and profit on assets in South Africa using a panel dataset comprising 79 industries observed annually between 2017 and 2024. The study uses an industry‐level dataset which, unlike firm‐level inquiries, purges firm‐level noise and acknowledges the empirical regularity that corporate social responsibility often generates spillover effects that extend beyond individual firms. In line with the stakeholder theory, results from the system generalized method of moments show that corporate social responsibility correlates positively with profits and that the relationship is linear controlling for advertising expenditure, government subsidies, and interest expenditure. The long‐run multiplier derived using the delta method suggests that the relationship is much stronger in the long run. Quantile regressions additionally show that the relationship is particularly significant in high profit industries. These results contribute to the ongoing debate on the financial consequences of corporate social responsibility in emerging markets and suggest that socially responsible practices may be consistent with, rather than detrimental to, profitability. The results are robust to the inclusion and exclusion of industries with zero corporate social responsibility expenditure in some years as well as the use of an alternative identification strategy, namely the Lewbel instrumental variable approach.