National governance and corporate social responsibility performance in a conflict affected frontier market

This paper investigates the linkage between the quality of governance at the national level and corporate social responsibility (CSR) performance in publicly traded firms in Palestine. Based on the frameworks of agency theory, stakeholder theory, and legitimacy theory, the study tests six hypotheses related to each dimension of the WGI framework by the World Bank: VC (voice and accountability), PS (political stability), GE (government effectiveness), RQ (regulatory quality), RL (rule of law), and CC (control of corruption). CSR performance is measured using corporate social responsibility expenditures, representing the real monetary investment of the firms in social and environmental operations. This study utilizes an unbalanced panel data set for 473 firm-year observations from 43 publicly traded companies on the Palestine Exchange during the period 2014–2024, using fixed-effect regression as the main approach and system GMM as the robustness test. As can be observed from the findings, voice and accountability, political stability and absence of violence, government effectiveness, and rule of law are found to positively and significantly impact CSR spending, whereas regulatory quality has a significant negative impact on CSR expenditure, supporting the theory of institutional substitution. Corruption control does not significantly impact CSR spending. The findings emphasize the importance of macro-institutional quality in influencing micro-level corporate social responsibility performance in a conflict-prone, frontier market environment. These findings highlight the importance of strengthening national governance as a foundation for promoting corporate contributions to sustainable development, particularly SDG 16 (Peace, Justice and Strong Institutions), while reinforcing the role of the private sector in advancing the broader Sustainable Development Goals (SDGs). These findings highlight the critical role of national governance in fostering corporate contributions to sustainable development, particularly by strengthening the institutional foundations of SDG 16 (Peace, Justice and Strong Institutions) and reinforcing private-sector engagement in advancing the broader Sustainable Development Goals.