Do the Financial Slacks Improve the Performance of Agribusiness? A Mediating Role of Corporate Social Responsibility Activities

Abstract

Abstract                                                                                                     

Purpose- Increasing environmental issues are demanding considerable attention toward corporate social responsibility (CSR) activities in developing countries. Agribusiness firms can take advantage of their excess financial resources by investing them in CSR activities which may improve their performance. Therefore, this study aims to empirically analyze the utilization of the financial slack in CSR activities which can enhance the performance of agribusiness in Pakistan.

Design/methodology/approach- This study used a sample of sixty-two (62) Agribusiness firms of Pakistan for a period of six years i.e. from 2013 to 2018. The study employed the Content Analysis technique to measure the CSR index of the agribusiness firms whereas the available and potential slack were used as financial slack indicators. It used panel data set with Structural Equation Modeling (SEM) Path analysis in Stata for the proposed models.

Findings- The results show that investing a firm’s available slack resources in CSR initiatives positively affects the performance (RCE) of agribusiness firms in the short run as indicated by partial mediation. It is also found that the available slack has a significant negative impact on the long-term performance measures (Tobin’s Q) of the agribusiness firms in Pakistan. The impact of potential slack is insignificant on CSR and RCE, showing the reluctance of firms to take additional debt for the CSR initiatives. Research limitations/implications- The findings can serve as a robust empirical base for policymakers to initiate an improved level of CSR activities by the agribusiness firms in Pakistan as well as for the managers and regulators to understand the importance of slack organizational resources in CSR investment decision making. The study emphasizes the use of financial slack for the short run by introducing CSR activities that curtail agency conflicts and costs and improve agribusiness performance. Originality/value- This study offers a distinctive perspective regarding the financial slack performance of agribusiness firms by linking the CSR perspective as a mediator.

Keywords: Corporate Social responsibility, Availab Slack resources, Potential Slack, CSR Investments, Firm Performance.