The Impact on Corporate Financial Performance Vs Market Performance: Why Does This Matter in CSR Practices Disclosure?

CSR practices disclosure in public listed companies in Malaysia was made compulsory recently. Consequently, its contribution to the firm performance based on financial and market indicators has often been questioned. This study explores using partial least square – structural equation modelling, the predictive accuracy and relevancy of CSR practices disclosure on corporate financial performance given by ROA and market performance given by Tobin’s Q. Using a sample size of200 randomly selected public listed firms in Malaysia, the effect of CSR practices on corporate financial performance based on an accounting and market measures was determined. Findings of this study showed that CSR practices have a significant and positive impact on ROA and Tobin’s Q. Reputation mediates the relationship between CSR practices and ROA but not with Tobin’s Q. CSR practices and reputation could explain 52.9% of variance in ROA but only 6.3% of variance in Tobin’s Q. CSR practices have a large effect size on reputation and ROA but negligible effect size on Tobin’s Q. Thus, these findings imply that CSR practices can relate significantly to accounting-based but not market-based financial performance. Further studies to explore internal and external factors such as third-party assurance, industry type and other environmental factors as well as extending the timeline might provide more insights to understand how CSR practices can influence financial performance.