This study examines the impact of Corporate Social Responsibility (CSR) on firm profitability for the Scandinavian region known for its strong CSR engagement. Using Return on Assets (ROA) as a measure of profitability, the study employs fixed effect panel study method as well as GMM IV method. The findings indicate a statistically significant and positive relationship between CSR practices, measured by Environmental, Social, and Governance (ESG) scores, and firm profitability (ROA). Firms with higher ESG scores experience improved profitability, which, in turn, enhances opportunities for further CSR investments. Additionally, the study identifies cost of debt as a key mediating factor in the CSR-profitability relationship. Lower cost of debt is associated with stronger CSR performance, further reinforcing profitability. These findings suggest that CSR does not only contribute to societal well-being but it enhances financial outcomes, especially for manufacturing companies that are more waste producing and hence, investors would be more sensitive to their CSR practices. As a result, CSR serves as a strategic tool for sustainable corporate growth. The study provides insights for managers, investors, and policymakers.
Katenova et al. (Sat,) studied this question.