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Pacific Accounting Review
Does corporate governance shape the relationship between corporate social

responsibility and financial performance?
Rezaul Kabir, Hanh Minh Thai,
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corporate social responsibility and financial performance?", Pacific Accounting Review, Vol. 29 Issue:
2, pp.227-258, https://doi.org/10.1108/PAR-10-2016-0091
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Does corporate governance shape Corporate

governance
the relationship between
corporate social responsibility
and financial performance? 227
Rezaul Kabir and Hanh Minh Thai
Department of Finance and Accounting, University of Twente,
Enschede, The Netherlands
Abstract
Purpose – The theoretical and empirical relationships between corporate social responsibility (CSR) and
corporate financial performance are not without controversy. Yet, CSR activities are increasingly undertaken
by a large number of firms, not only in developed countries but also in emerging countries. This paper aims to
investigate the moderating effect of different aspects of corporate governance, which are foreign and state
ownership, board size and board independence, on the relationship between CSR and financial performance.
Design/methodology/approach – A sample of Vietnamese listed firms is analyzed. Robust regression
analysis is performed using ordinary least squares as well as fixed-effects and two-stage least squares model.
Findings – Ordinary least squares regression results show that CSR activities affect the financial
performance of firms positively. Furthermore, corporate governance features like foreign ownership, board
size and board independence strengthen the positive relationship between CSR and financial performance, but
there is no such impact of state ownership.
Originality/value – Previous studies mostly investigate the direct effect of CSR on financial performance.
A few studies examine the moderating effect of corporate governance, which is ownership concentration and
board gender diversity. As an emerging country, Vietnam has some specific characteristics on corporate
governance. This paper contributes by investigating the moderating effect of few major aspects of corporate
governance, which are foreign and state ownership, board size and board independence.
Keywords Corporate social responsibility, Vietnam, Firm performance, Corporate governance
Paper type Research paper
1. Introduction
Corporate social responsibility (CSR) activities are increasingly drawing the attention of
investors, customers, suppliers, employees and governments across the world. These
activities have become more important in recent years, especially after a number of highly
publicized scandals related to global firms such as Nike (1997); BP (2010) and Volkswagen
(2015). A recent survey of the largest 100 companies from 45 countries shows that about 56
per cent of firms disclose information related to social responsibility activities in their annual
reports, while this disclosure rate was 20 per cent in 2011 and only 8 per cent in 2008[1]. Some
countries, such as France (2001); the USA (2003); the UK (2006); Malaysia (2007); Sweden
The authors thank Dalo Ambrogio, Samy Essa, Iftekhar Hasan, Xiaohong Huang, Mai Tuyet Thi
Nguyen, the editor Nick Nguyen, two anonymous reviewers and the seminar participants at the
Pacific Accounting Review
University of Twente, Annual Paris Financial Management Conference (2015) and Vietnam Vol. 29 No. 2, 2017
International Conference in Finance (2016) for many useful comments and discussions on previous pp. 227-258
© Emerald Publishing Limited
versions of the paper. They also thank the Dutch Organization for International Education (Nuffic) for 0114-0582
providing financial support. DOI 10.1108/PAR-10-2016-0091
PAR (2007); China (2008) and Denmark (2008), have made CSR disclosures mandatory for their
29,2 exchange-listed or state-owned companies. The European Commission in 2014 adopted a
Directive requiring large listed companies to make disclosures relating to environmental,
employee, human rights, corruption and diversity matters. The United Nations engaged
itself with corporate sustainability issues through The United Nations Global Compact – its
initiative for development, implementation and disclosure of CSR activities.
228 Incurring CSR activities obviously involves outlays of scarce firms’ financial resources.
Whether it is profitable for firms to invest in CSR activities is a question of major importance
not only for academics but also for firms and regulators. Both theoretical and empirical
studies examining the impact of CSR on firms’ financial performance show conflicting
evidence. Reviewing empirical studies on CSR–financial performance relationship, Lu et al.
(2014) observe negative (6 studies), positive (38 studies), non-significant (21 studies) and
miscellaneous, such as U-shaped, relationships (18 studies). The meta-analysis of Wang et al.
(2015) shows a slightly positive effect of CSR on financial performance, although the overall
impact of CSR remains inconclusive. According to Huang and Watson (2015), the finding of
a positive effect should be treated with caution because these studies vary on key factors
such as period, measures of CSR and financial performance and research design.
In this study, we re-examine the CSR and firm performance relationship. We make three
new contributions to the literature. The first and foremost contribution comes from our
finding that although a large number of papers study the direct relationship between CSR
and firm performance, relatively less attention has been paid to examining the interaction
effects of various corporate governance factors. As managers can have the urge to invest in
CSR activities for personal reasons, a decent corporate governance framework can not only
prevent them from devoting valuable firm resources to unprofitable activities but also
stimulate them to invest in those projects that can increase financial performance. Hence,
investigating if corporate governance features strengthen or weaken the CSR–firm
performance relationship can provide new insights. In this study, we specifically examine
whether ownership identity and board characteristics facilitate managers to adopt CSR
activities and increase firm performance. Prior studies investigated the moderating effects of
ownership concentration (Peng and Yang, 2014) and gender diversity of the board of
directors (Isidro and Sobral, 2014)[2]. To the best of our knowledge, no study has yet
examined the moderating effects of ownership identity (i.e. foreign and state ownership),
board size and board independence.
The second contribution of the study comes from our focus on an emerging Asian country
where many firms have recently developed international trade and manufacturing links with
their counterparts from Western developed countries. Egri and Ralston (2008) find that
nearly one-third of empirical studies on corporate responsibility are on the USA. Studies also
focus on analyzing CSR activities of Western European countries, Asian developed countries
(Japan, Hong Kong, Taiwan) and few newly industrialized economies (China, India, Brazil,
Argentina, Mexico and Russia). But, CSR research has been sparse for most other emerging
countries in Central and Eastern Europe, Latin America, Africa and Asia. CSR activities in
the developed world, with a relatively mature institutional system and more efficient capital
market mechanisms, are more visible than those in the developing world. Although most
CSR practices in emerging Asian countries are primarily derived from Western thoughts,
corporate governance practices, business systems, institutions and cultures are all different
in Asian countries. Besides, many emerging countries in Asia are facing other challenges
such as poverty and wealth inequalities, educational disparities, vulnerability to natural
disasters, etc. Therefore, it is quite interesting to study CSR activities of firms from these
countries.
Analyzing the effect of specific institutional contexts of Vietnam can provide new Corporate
insights. Vietnam is a particularly interesting country because of its unique political and governance
legal environment, and a growing capital market with substantial foreign investment. It is
transitioning gradually from a centrally planned economy with communist regime toward a
market economy with a single-party government. The socialist orientation and the
intervention of the government in the economy are important. Legal initiatives are taken on
several CSR dimensions such as environmental protection and employee rights. But,
Vietnam lacks a coherent public CSR policy; it is also characterized by weak law 229
enforcement. The economy of Vietnam has been experiencing high growth, significant
export orientation and fast developing capital market. These changes create increased
demands for CSR activities from foreign customers and investors. Another reason to focus on
Vietnam is that it is affected by both Confucianism culture, which is similar to China, Korea
and other Asian countries, and Western culture, out of its historical links with the USA
(Ralston et al., 2006). The cultural characteristics may influence positively the attitude of
stakeholders, managers and boards toward CSR. All these institutional features can have
implications for the awareness and implementation of specific CSR practices in Vietnam.
The third and final contribution of our study is that in addition to examining CSR as one
multi-dimensional construct, we examine each important dimension of CSR separately. A
scrutiny of extant studies shows that CSR is mostly considered as one all-comprehensive
activity (Barnett and Salomon, 2012; Ghoul et al., 2011; McWilliams and Siegel, 2000). A few
studies specifically examine the environment component of CSR (Russo and Fouts, 1997;
Endrikat et al., 2014), while some others pay attention to the social aspects of CSR (Luo and
Bhattacharya, 2006; Lev et al., 2010). Even though CSR is a multi-dimensional construct
encompassing a varied range of corporate engagements, different aspects of CSR may be
differently motivated and may have dissimilar implications for corporate performance. Our
objective to investigate both aggregate and individual dimensions of CSR can help to
understand better the prevailing controversy in the CSR–firm performance relationship.
We collect and analyze CSR data of a large sample of Vietnamese stock exchange listed
firms for the period 2008-2013. Information on CSR activities and corporate governance
practices is hand-collected from company annual reports. Financial statement data are
collected from the database ORBIS. The final sample consists of more than 500 listed firms
(1,960 firm-year observations). We perform pooled ordinary least squares (OLS) regression
analysis, controlling for a variety of firm, industry and year effects. The results show a
positive impact of CSR activities on firm performance. Investigating the influence of
corporate governance characteristics, we find that foreign investors, board size and board
independence strengthen the impact of CSR on firm performance. State ownership plays no
clear role in affecting the CSR–financial performance relationship.
The rest of the paper is organized as follows. Section 2 provides an overview of institutional
background of Vietnam. Section 3 briefly reviews the main theories explaining the motivation of
firms to engage in CSR activities and presents the hypotheses of the study. Section 4 describes the
research methodology and the variables. A description of the sample and data collection process
is presented in Section 5. The empirical results of the study are presented in Section 6. The last
section summarizes the main findings and concludes the paper.
2. Institutional background of Vietnam

2.1 Corporate social responsibility in Vietnam
Political system and regulation, economic development and culture are important
institutional factors that influence CSR practices in Vietnam. The country has been
gradually transitioning from a centrally planned economy with communist regime toward a
PAR market economy while maintaining a single-party government. The intervention of the
29,2 government to the economy is still significant. The focus on the socialist orientation of the
economy implies the importance of CSR on the government’s goals. There are regulatory
reforms on several dimensions of CSR for better environment legislation[3] and employee
rights, which give a positive signal for CSR practices. However, up to now, there is a lack of
a coherent public CSR policy. The major public actor with respect to CSR seems to be
230 Vietnam Chamber of Commerce, which depends on external funding for CSR projects. Public
initiatives on CSR mainly come from organizations such as UN Global Compact or UN
Industrial Development Organization, which are not stable when the project funding
finishes. CSR regulation has positive progress but with weak implementation capacity.
Bilowol and Doan (2015) argue that firms have possibilities to engage in socially
irresponsible activities due to ineffective law implementation and high corruption level[4]. A
2012 survey by the Vietnam Academy of Social Sciences investigating socially responsible
practices revealed that many local companies had not adhered to the minimum standards of
CSR (Ha Noi moi, 2012). Business misconduct, lack of basic employee benefits and
deliberately causing environmental damages were identified as the most common reasons.
CSR practices, therefore, have both opportunities and challenges.
As an emerging economy, Vietnam is viewed as one of the most promising countries in
East Asia, with GDP growth rate among the fastest in the world[5]. In 2009, Vietnam crossed
the GDP threshold to be listed as a low middle income country by the World Bank. Economic
improvement, better living standards, increased globalization and the pressure from
exported-oriented sectors have pushed firms to adopt more CSR practices. CSR activities are
also enhanced by the establishment of stock markets, the rapid growth of which has led to a
greater demand for transparency[6]. Firms have now increased pressure to avoid
irresponsible CSR and have more motivation for voluntary CSR disclosure. Although
voluntary CSR information disclosed by Vietnamese listed firms is still at a low level (Tower
et al., 2011), the stock exchanges are trying to motivate listed firms for more transparency,
especially to disclose CSR information[7].
CSR practices are also affected by Vietnamese culture that mainly follows Confucianism.
Morality, sound social relationships, sincerity and justice are the pillars of Confucian philosophy.
Confucian leadership is closely related to CSR because its purpose is to bring peace, learning and
economic development for both organizational growth and communal well-being (Low and Ang,
2012). Besides Confucianism, firms in Vietnam are also influenced by the Western culture (e.g. the
USA[8]), where explicit appreciation of CSR practices is present (Matten and Moon, 2008). CSR
engagements have therefore become important for Vietnamese firms and people. These national
cultural characteristics explain partly the attitudes of customers and managers toward CSR. In a
global consumer survey, Vietnam belongs to the highest group of Southeast Asian countries,
with 86 per cent of respondents stating their willingness to pay extra for products and services
that come from companies committed to positive social and environmental impact (Nielsen, 2015).
Hieu (2011) finds that a large proportion of managers express a highly positive attitude toward
CSR. Thang and Fassin (2016) also observe that internal CSR, which is related to employee
working environment, has a positive and significant correlation with organizational
commitment. These cultural and historical characteristics also affect the way the board of
directors takes decisions on CSR.
2.2 Corporate governance in Vietnam

Before 1986, Vietnam followed a centrally planned economic regime in which the only major
driving force of the economy was the state sector. The privatization process that started in
1986 witnessed a reduction in the number of enterprises with 100 per cent state ownership,
from 5,655 in 2001 to 1,254 in 2013. Yet, the state-owned enterprises (SOEs) still contribute to Corporate
about 30 per cent of the state budget and account for almost one-third of the country’s GDP. governance
Nguyen and Dijk (2012) state that government interventions and political connections lead to
a differentiation in terms of rights and responsibilities of SOEs and private firms. This can
cause a differential impact of CSR on the performance of these two groups of firms.
Following the start of economic reforms in 1986, the cancelation of embargo by the USA
in 1994 and the country’s inclusion in the World Trade Organization in 2007, foreign
investment in Vietnam has been increasing over the years[9]. Foreign ownership has also 231
increased, although for stock-exchange listed firms, it was limited to 49 per cent in 2013[10].
Multinational corporations, development agencies and other international organizations
started to introduce and put pressure for more CSR (Bilowol and Doan, 2015). The increased
role of foreign investment as well as foreign ownership and the associated stimulus on CSR
practices can also create a differential impact of CSR on firm performance.
The typical board structure of Vietnamese listed firms follows a two-tier model (Nguyen
et al., 2015b). The board of directors usually consists of 3 to 11 members. The board of
supervisors is established in firms having more than 11 individual shareholders or at least
one institutional shareholder holding more than 50 per cent of the firm’s equity. The tasks
and responsibilities of these boards are influenced by regulations such as Law on Enterprises
(2005), Law on Securities (2006), stock exchange listing rules, Corporate Governance Code
(2007, amended in 2012[11]) and Disclosure Rule (2012). Nguyen et al. (2015b) observe that the
role and duties of the board of supervisors are still unclear. In 2013, the responsibility of the
board received the lowest ranking in the total score card for corporate governance of
Vietnam[12]. The revised Corporate Governance Code of 2012 emphasizes certain
mechanisms to influence board composition and responsibilities, such as requirements for
one-third of the board of directors to be independent and ensuring clearer responsibilities of
the board. With the stricter requirements on corporate governance, a positive impact of
board on the CSR–financial performance relationship is expected.
3. Hypothesis development
3.1 Effects of CSR on financial performance
According to the stakeholder theory, firms can obtain various benefits from undertaking
CSR activities by means of its effects on revenues and costs (Freeman, 1984). CSR may
generate additional revenue directly or indirectly. Purchase decisions of customers have a
direct effect on a company’s revenues. With growing awareness of social and environmental
issues, customers demand more of CSR-related products and also take various positive
actions, such as making more purchases, remaining loyal to the firm, spreading
word-of-mouth, showing resilience to negative information about the company or paying a
price premium (Servaes and Tamayo, 2013). Consumer-oriented CSR activities may involve
intangible attributes such as reputation for quality and reliability, which can subsequently
create product differentiations and generate more revenues (Lev et al., 2010). As mentioned
earlier, Vietnamese culture is greatly influenced by Confucianism, and Western culture with
explicit recognition of CSR (Ralston et al., 2006). These features explain the positive attitude
of Vietnamese people toward CSR. With the economic development and higher living
standards in Vietnam, the CSR awareness of customers has been increasing. Furthermore,
Vietnam is an export-oriented country with customers mainly coming from developed
countries where CSR standards and demands are much higher. To meet strict requirements
of foreign customers, export-oriented firms need to invest more in CSR.
Firms can experience various cost reductions from their activities on CSR. Employee cost
reduction can take place when CSR helps toward increasing employee motivation,
PAR productivity and loyalty; hiring good employees; and reducing employee turnover
29,2 (Backhaus et al., 2002). CSR helps to reduce the cost of equity because increased disclosures
reduce information asymmetry between shareholders and managers (Ghoul et al., 2011).
Lenders can also lower the cost of debt when they see that firms are engaged in CSR (Goss
and Roberts, 2011). Shareholders may like CSR, as it increases short-term competitiveness of
the firm and reputation (McWilliams and Siegel, 2001) or long-term competitiveness, such as
232 investing in employee welfare and high-quality products (Greening and Turban, 2000;
Surroca et al., 2010). Firms can also obtain legal cost reduction by managing their
relationship with the government and the community. Improving firms’ reputation by
increasing CSR can create good relationships and make the firms recipients of more
favorable treatment from the government, because the government has the motivation to
promote CSR policies to meet their social goals (Aguilera et al., 2007). Firms invest in CSR to
improve external perceptions and reduce the regulatory risk that may reduce firm value
(Roberts, 1992). The community may also put pressure on firms’ behavior through protest
against negative actions. All these developments can reduce eventual legal costs of firms.
Empirical studies on the impact of CSR activities on firm performance show ambiguous
results. Positive effects of CSR on financial performance are observed by Russo and Fouts
(1997); Surroca et al. (2010) and Tang et al. (2012); negative effect by Lee et al. (2009); and no
significant effect by McWilliams and Siegel (2000) and Nelling and Webb (2009). The results
of Barnett and Salomon (2012) even indicate a U-shaped pattern. However, the meta-analysis
of Orlitzky et al. (2003) and Aguinis and Glavas (2012) finds a slightly positive impact of CSR
on firm performance. This relationship is found to be strong for firms from advanced
economies (Wang et al., 2015) and developing economies (Cahan et al., 2015; Ghoul et al.,
2016). Ghoul et al. (2016) even find that CSR is more positively related to firm value in
countries with weaker market institutions. Therefore, we state our first hypothesis as
follows:
H1. Firms undertaking more social responsibility activities experience a higher financial
performance.
3.1.1 Effects of environmental and social activities. An in-depth analysis of the two main
components of CSR, environmental and social, helps us to understand better the precise
impact of CSR on financial performance. Instead of repeating arguments of CSR in general,
we focus on specific explanations for the impact of each dimension on financial performance.
Environmental activities undertaken by firms can create additional costs and benefits
that can ultimately affect a company’s financial performance. The costs include those related
to compliance, insurance, on-site waste management, pollution control and future liability.
Benefits can be increased revenues from contributing to the resources of firms that later
bring competitive advantages and enhance company image (Russo and Fouts, 1997).
According to Porter and Linde (1995), when firms follow properly designed environmental
standards, these can trigger innovation that may partially or more than fully offset the costs
of complying with them. Such innovation can also enhance competitiveness and create
advantages over firms in foreign countries that are not subject to similar environmental
standards. In a meta-analytic review of 149 studies on the impact of environmental corporate
social responsible activities on firm performance, Endrikat et al. (2014) find an overall
positive effect, although the precise direction of the effect is still vague. Therefore, we
formulate the hypothesis as follows:
H1a. Firms undertaking more environmental activities experience a higher financial
performance.
Social activities undertaken by firms usually include philanthropy and employee-related and Corporate
product-related activities. Firms may invest in charitable contributions to improve external governance
perceptions, influence external decision-makers and reduce tax payments and the risk of
regulatory actions in the future (Roberts, 1992). Philanthropy can improve company
reputation (Fombrun and Shanley, 1990) and contribute to customer satisfaction (Luo and
Bhattacharya, 2006; Lev et al., 2010). Employee-related social activities help retaining
existing personnel, attracting new employees and enhancing employee loyalty (Greening
and Turban, 2000; Backhaus et al., 2002). Product-related social activities lead consumers to 233
support firms by taking positive actions such as purchase, loyalty and word-of-mouth. All
together, we expect that the effect of social activities on firm performance will be positive:
H1b. Firms undertaking more social activities experience a higher financial
performance.
3.2 Corporate governance as a moderating mechanism

Corporate governance comprises a set of mechanisms through which one entity (e.g.
investors) can protect itself against expropriation by another (e.g. managers and controlling
shareholders). Installing a good corporate governance framework helps to reduce diverse
costs, including agency conflicts. For example, managers are prevented from spending
corporate resources on those CSR that foster their own interests. A positive effect of CSR on
financial performance can be facilitated by setting up appropriate corporate governance
mechanisms. In this study, we focus on the few corporate governance mechanisms that can
be important for Vietnamese firms. These are share ownerships of foreigners and the
government, and the size and the independence of the board of directors.
3.2.1 Moderating effect of ownership. Foreign ownership is usually considered to be a
signal of better monitoring in emerging countries, which can affect both the implementation
of CSR activities and firm performance. Foreign shareholders are an important stakeholder
of firms. They share the same concerns of CSR as other shareholders due to their focus on
value maximization and legitimacy. In addition, foreign shareholders enhance CSR activities
of firms by reducing information asymmetry. Investing in a foreign country, especially an
emerging country where law and regulation are different, is risky due to increased
information asymmetries. CSR investment may reduce information asymmetry because it is
a way for firms to differentiate themselves and signal their trustworthiness (Siegel and
Vitaliano, 2007). Therefore, investing in socially responsible firms is a way to reduce risk for
foreign investors. Active participation of foreign investors in decision making is likely to
pressure managers to make socially responsible decisions for legitimacy purpose (Oh et al.,
2011). Furthermore, the current trends of CSR implementation in many Asian countries have
been largely affected by Western-style management practices, which are assumed to have
higher levels of social engagement. Chapple and Moon (2005) noted that globalization
enhances firms’ CSR engagement in Asian countries. As investors from these regional areas
might prefer active CSR engagement, foreign shareholders from these countries are likely to
show similar behavior when they invest in Vietnamese firms. Empirical studies showing a
positive relationship between foreign ownership and CSR include Oh et al. (2011); Khan et al.
(2013) and Haniffa and Cooke (2005).
Earlier research documents that foreign ownership has a positive impact on financial
performance (Douma et al., 2006; Chen and Liao, 2011). In particular, foreign corporate
shareholdings have higher commitment and longer-term involvement with emerging market
firms. Foreign corporate ownership typically goes beyond financial investments and extends
to provision of managerial expertise and superior technical and organizational know-how.
The sustainability of these advantages is linked to the imperfections in capital, labor and
PAR technological markets. Foreign institutional investors, if dissatisfied with a company’s
29,2 performance, have the relatively easy option to sell their ownership stakes. Accordingly,
foreign ownership creates a pressure on the managers to perform better. It includes the
pressure to perform better with CSR investments too. Hence, we formulate the hypothesis as
follows:
H2a. Foreign ownership strengthens the positive impact of CSR on financial
234 performance.
Managers of SOEs have low-powered incentives because the government designs SOEs to
cure market failure. They may seek to maximize their own benefits rather than those of the
state or the firm itself because these managers are not constrained by the threat of takeover
and bankruptcy as in the private sector (Nguyen and Dijk, 2012). Therefore, managers of
firms with state ownership face relatively less monitoring and have less motivation for
maximizing firm value. State ownership thus weakens the positive impact of CSR on firms’
financial performance.
On the other hand, a close relationship exists between managers of SOEs and
governmental authorities (Nguyen and Dijk, 2012). The latter, as the owner of SOEs, are
likely to give privileges in resource allocation to SOEs. Shleifer (1998) suggests that
self-interested politicians utilize political power to exercise control over SOEs for their own
objectives. Additionally, many politicians gain their power in the political system after
having taken the top executive positions in SOEs. The previous working relationship also
induces public officials to deal with SOEs in a more favorable way. The managers of SOEs
are likely to possess more opportunities to approach and lobby public officials to obtain
favorable conditions for growth and development. These resources bring more opportunities
for CSR investment and make CSR investment financially more beneficial.
Empirical studies show that the relationship between state ownership and financial
performance is negative (Boubakri et al., 2009) or non-existent (Shan and Mclver, 2011). For
firms in Vietnam, this relationship is found to be negative (Carlin and Pham, 2008), positive
(Do and Vu, 2014) and non-linear (Phung and Mishra, 2015). As both theory and empirical
literature show no clear impact of state ownership, we hypothesize the moderating effect of
state ownership as follows:
H2b. State ownership strengthens (weakens) the positive impact of CSR on financial
performance.
3.2.2 Moderating effect of board of directors. Boards of directors support managers in
strategy formulation and implementation. Board members contribute to strategic
decision-making by providing access to resources upon which firms depend (Hillman and
Dalziel, 2003). Boards also play a controlling role by preventing managers from acting
opportunistically to foster their personal interests. Agency theory conceptualizes managers
as self-interested agents who should be closely monitored (Jensen and Meckling, 1976). Thus,
boards facilitate and empower managers. Furthermore, the role of the board is much more
important in countries characterized by weaker investor protection (Klapper and Love, 2004).
We examine the influence of the board of directors by analyzing its size and
independence. The literature provides no consensus regarding the effect of board size on
monitoring and supporting managers. Smaller boards can reach consensus more easily in
comparison with large boards. Agency problems can become more severe with a larger
board, and hence, it becomes easier for the CEO to influence and control the board (Cheng,
2008). However, larger boards can be more effective, as the workload of monitoring
managers can be divided over a greater number of individuals. Larger boards can also help Corporate
firms in obtaining resources such as the amount of external funding. governance
CSR activities affect stakeholders differently who have different objectives. For instance,
some stakeholders are concerned with financial returns, whereas others care about the
adverse impacts of CSR. The Confucianism cultural and complicated historical
characteristics of stakeholders in Vietnam make the stakeholders’ concerns more diversified.
Larger board decisions may represent the compromise of conflicting demands of
stakeholders. Therefore, decisions of larger boards may better address concerns of 235
stakeholders than those of smaller boards. With better addressed CSR and more resources
provided for consulting and monitoring roles, larger boards are more likely to strengthen the
impact of CSR on financial performance. We therefore state our hypothesis on the impact of
board size as follows:
H3a. Larger boards strengthen the positive impact of CSR on financial performance.
Board independence affects the relationship between CSR and firm performance through
improved monitoring quality. This is mainly because independent (or external) directors are
not involved in day-to-day management of the firm, which helps them to provide more
objective recommendations. They do not have financial interests on the firms as much as
internal directors (Coffey and Wang, 1998). Compared to internal directors, who usually pay
more attention to short-term economic goals, independent directors have different incentives,
values and time horizons (Donelly and Mulcahy, 2008; Post et al., 2011). They tend to take a
more long-term perspective and pursue sustainable development (Johnson and Greening,
1999). Hence, we expect that independent directors pay more attention to CSR and its
long-term benefits.
CEOs have less power in influencing independent directors, as the careers of these
directors do not depend on the CEO (Core et al., 1999). Independent directors can be effective
monitors because of reputation concerns and their desire to obtain additional director
positions (Fama and Jensen, 1983). With the increase in monitoring expertise, managerial
opportunism including that of CSR activities becomes less prevalent. Consequently, the
higher the proportion of independent directors on the board, the more challenges the
managers have to face and the more effective monitoring the board has. Moreover,
independent directors have stronger stakeholder orientation because they have diversified
backgrounds and less financial interests in the firms (Wang and Dewhirst, 1992). They
address further needs of other stakeholders rather than only shareholders or entrenched
managers (Michelon and Parbonetti, 2012). As a result, they are better at compromising
different stakeholders and have more responsive policies, balancing short-term versus
long-term goals, which leads to positive moderating effect of CSR and financial performance
(Liao et al., 2015). For all these reasons, independent directors not only promote CSR but also
have better monitoring quality. Hence, our hypothesis is:
H3b. Independent boards strengthen the positive impact of CSR on financial
performance.
4. Methodology
4.1 Statistical method
We conduct the analysis using OLS regression that has commonly been used in previous
studies analyzing CSR (Russo and Fouts, 1997; Servaes and Tamayo, 2013; Harjoto et al.,
2015). The following regression model is estimated to test the first hypothesis:
PERFit ⫽ a0 ⫹ a1CSRit⫺1 ⫹ axControlsit ⫹ ␧it (1)

PAR where:
29,2 PERFit ⫽ Firm performance in year t;
CSRit⫺1 ⫽ Corporate social responsibility measure in year t-1;
Controls ⫽ Size, Leverage, Firm age, Industry, Year, in year t; and
␧it ⫽ Firm-specific errors.
236 The model includes firm-level control variables as well as industry and year fixed effects. It
is very likely that different industries and different years have different levels of CSR
activities. To account for issues like reverse causality and the possibility that the error terms
(␧it) are correlated within firms across time, we use, similar to Barnett and Salomon (2012)
and Isidro and Sobral (2014), a dynamic model by incorporating one year lag of the
independent variable (CSR).
We test the hypotheses on the moderating effect of corporate governance factors by
estimating the following OLS regression model (Matta and Beamish, 2008; Peng and Yang,
2014):
PERFit ⫽ a0 ⫹ a1CSRit⫺1 ⫹ a2CGit⫺1 ⫹ a3CSRit⫺1 CGit⫺1 ⫹ axControlsit ⫹ ␧it (2)
where:
PERFit ⫽ Firm performance in year t;
CSRit⫺1 ⫽ Corporate social responsibility measure in year t-1;
CGit⫺1 ⫽ Corporate governance variables in year t-1;
Controls ⫽ Size, Leverage, Firm age, Industry, Year, in year t; and
␧it ⫽ Firm-specific errors.
4.2 Variables
4.2.1 Dependent variable. The dependent variable used in this study is financial performance
of firms. We use multiple proxies to measure firm performance: return on equity (ROE),
return on assets (ROA), return on sales (ROS), Q and stock return (RET). The first measure
ROE is defined as net income before extraordinary items divided by book value of common
equity (McWilliams and Siegel, 2000; Liu et al., 2015; Peng and Yang, 2014). The second
proxy for financial performance is ROA. It is defined as operating income divided by total
assets (Liu et al., 2015; Barnett and Salomon, 2012; Peng and Yang, 2014). We complement
ROE and ROA with a third performance measure ROS. Following Lee et al. (2009); Servaes
and Tamayo (2013) and Isidro and Sobral (2014), we define ROS as operating income divided
by total sales.
We also use Q as another firm performance variable (Ghoul et al., 2011; Surroca et al.,
2010; Harjoto et al., 2015). It is defined as market value of equity divided by book value of
equity. The advantage of using Q is that variables like ROE, ROA and ROS are solely based
on accounting measures, while Q also reflects the market value of the firm. To assess future
firm performance, the use of Q is preferred. Servaes and Tamayo (2013) argue that a firm
deliberately sacrifices some current financial performance to engage in CSR activities, which
can be in the long-term interest of the firm. Our fifth and final proxy for firm performance is
stock return (RET). Following Nelling and Webb (2009) and Harjoto et al. (2015), stock return
is measured by (Stock price difference ⫹ Dividend) divided by the stock price at the
beginning of the financial year.
4.2.2 Independent variables. Information on CSR is collected from annual reports. We Corporate
assume that the more a firm undertakes CSR activities, the more it discloses CSR information governance
(Clarkson et al., 2008). The main proxy measure of CSR is estimated by means of content
analysis. It is a method of codifying written texts such as words, phrases and sentences into
various categories on the basis of selected criteria. It assumes that frequency is an indication
of the subject matter’s importance (Krippendorff, 2004; Neuendorf, 2002). Studies that use
content analysis measure CSR using standalone CSR reports (Dhaliwal et al., 2011, 2012),
number of CSR pages in annual reports (Cowen et al., 1987), number of keywords in annual 237
reports and CSR reports (Gamerschlag et al., 2011) and quantitative and qualitative
disclosures (Wiseman, 1982; Xu et al., 2014). Content analysis is also used in other fields such
as risk management (Abraham and Cox, 2007; Linsley and Shrives, 2006). The advantage of
content analysis is that it is an objective measure and can be used for replication. However,
it also has a drawback of using a subjective choice of words to measure CSR. The disclosures
only provide an indication of what firms say they are doing, which may be very different
from what they actually are doing.

We use CSR keywords as the unit of analysis. These keywords are derived from the core
indicators based on the global reporting initiative (GRI) framework. For CSR keywords, we
consider social and environmental dimensions [similar to GRI framework and Morgan
Stanley Capital International Environmental, Social and Governance (MSCI) index], but
exclude corporate governance dimension, because we study separately the effect of corporate
governance. In the empirical analysis, we consider both the single-dimensional CSR
measures (social and environmental) and the multi-dimensional (aggregate) CSR measure.
Although Vietnamese characters are in the Latin system, they are not easy to process with
software popular for English characters. We use a self-construct software to count
Vietnamese keywords. To use this software, annual reports were converted from PDF or
scanned format into Microsoft Word format by another software. Following Campbell et al.
(2014), we use the natural logarithm of the total number of CSR keywords in the regression
analysis.
We also use a few other proxies for CSR as robustness checks. First, we use a scaled CSR
disclosure by using the percentage of the total number of CSR keywords in the total words of
the whole annual report (Campbell et al., 2014; Li et al., 2008). Second, following Kim et al.
(2014), we transform the CSR score of an individual firm adjusting by its industry CSR score
using the following formula:
CSR_industry_adjustedit ⫽
CSRit ⫺ Min(CSR for firm i ’s industry in year t)
Max( CSR for firm i ’s industry in year t ) ⫺ Min(CSR for firm i ’s industry in year t)
In this formula, CSR is measured by the natural logarithm of the total number of CSR
keywords disclosed and scaled CSR disclosure as mentioned above. We, therefore, have
industry-adjusted natural logarithm of total number of CSR keywords and industry-adjusted
scaled CSR disclosure.
4.2.3 Corporate governance variables. We use the proportion of equity owned by foreign
shareholders as a proxy for foreign ownership of firms (Douma et al., 2006; Khan et al., 2013;
Greenaway et al., 2014). A dummy variable is used as another proxy. Similarly, both the
proportion of state ownership (Boubakri et al., 2009) and dummy variable (Xu et al., 2014) are
used as proxies for state ownership.
The natural logarithm of the number of directors is used as a proxy for board size
(McGuiness et al., 2016). Board independence is measured by the percentage of external
PAR directors (Liu et al., 2015; Khan et al., 2013) and a dummy variable when more than half of the
29,2 board members are external to the firm (Lima and Sanvicente, 2013).
4.2.4 Control variables. In investigating the effects of CSR on firm performance, we
control for factors that systematically affect financial performance. We consider
variables like firm size and leverage. Larger firms may have a stronger motive to engage
in CSR activities. They may also be better able to handle complicated, fast CSR
238 engagement strategies because they are more familiar with diversified operations. Debt
levels affect the behavior of managers by imposing discipline and motivating them to
make decisions that are in the best interest of the firm. Firm size is measured by the
natural logarithm of book value of total assets (Cheng, 2008; Liu et al., 2015; Harjoto et al.,
2015). Leverage is measured as the ratio of total debt to total assets (Barnett and
Salomon, 2012; Liu et al., 2015; Harjoto et al., 2015). As industry affiliation of a firm, the
age of the firm and the period can affect its performance, we also control for these
characteristics. Industry is identified using 2-digit North American Industry
Classification System (NAICS) classification. Firm age is measured by the natural

logarithm of the number of years since the firm’s date of incorporation (Isidro and Sobral,
2014).
5. Sample
The data used in this study are collected from several sources. Our initial sample consists of
firms listed on the two main stock exchanges in Vietnam (Ho Chi Minh Stock Exchange,
HOSE, and Hanoi Stock Exchange, HNX)[13]. HOSE is the bigger stock exchange with
stricter requirements for listed firms, such as registered capital (HOSE: at least 120 billion
VND, HNX: at least 30 billion VND), profit before initial public offering (IPO) (HOSE: at least
two profitable years before IPO, HNX: cumulative profitable before IPO) and stricter
disclosure requirements. For CSR data, we collect information from annual reports
downloaded from the websites of stock exchanges, individual companies and security firms.
Most of the annual reports are written in Vietnamese; only large firms provide English
version.
We collect firm-specific data from ORBIS – a widely used database of fundamental and
market data of over 60,000 listed companies globally. Our sample consists of all Vietnamese
firms listed during the years 2008-2013. These years are chosen because of data availability
in ORBIS. We begin with all 892 Vietnamese firms found at the date of downloading data
from ORBIS (June 19, 2015). The firms that were not listed in HOSE and HNX (160 firms),
inactive and delisted before 2009 and had IPOs in 2013, 2014 and 2015 (56 firms) are deleted.
The remaining 676 firms have at least two years of data. We delete 135 firms falling under
categories such as financial, securities, insurance, real estate and investment firms (NAICS
code 52–53), professional, scientific, educational and health care services (code 54, 55, 56, 61,
62, 71), other services (code 81), utilities (code 22) and public administration (code 92). We also
drop firms that have negative shareholders’ funds and assets (Chen, 2015). Firms that had
either grown or shrunk by more than 100 per cent in two years are also deleted from the
sample (Russo and Fouts, 1997). Of the remaining 2,583 firm-year observations, we searched
for annual reports to collect CSR and corporate governance information. Ownership data are
collected from FiinPro of StoxPlus – a large database provider in Vietnam. Missing values of
ownership and board characteristics are collected from annual reports.
We thus have an unbalanced sample of 1,960 firm-year observations covering 524
firms (187 in 2008, 195 in 2009, 318 in 2010, 386 in 2011, 435 in 2012 and 439 in 2013). As
we use a lagged specification in regression models and as such lose observations of one
year, we have, on average, less than three observations per firm. The sample has firms
from different industries, of which 43 per cent are in manufacturing (code 31-33), 21 per Corporate
cent are in construction (code 23), 14 per cent are in wholesale and retail trade (code governance
42-45) and the rest fall into the miscellaneous group (agriculture, mining, transportation,
information, etc.).
6. Results
6.1 Descriptive statistics 239
The descriptive statistics of variables are presented in Table I. To remove the influence
of outliers, all variables are winsorized at the 5 per cent level. We observe that the total
number of CSR keywords of the average (median) Vietnamese firm during 2008-2013 is
38 (28). This disclosure is much lower than those found in developed countries, such as
Germany, which has total CSR score of 129 during 2006-2009 (Gamerschlag et al., 2011).
In both countries, the number of environmental CSR keywords is lower than that of
social CSR. The average number of environmental CSR keywords is only 5 in Vietnam,
compared to 59 in Germany, whereas the number of social CSR keywords is 33 in

Vietnam and 68 in Germany. The number of environmental CSR keywords is much lower
in Vietnam than that of social disclosure. Another interesting finding is that the number
of total CSR keywords has slowly increased from 29 in 2008 to 49 in 2013. This increase
is consistent with the global trend on CSR, as observed by Gamerschlag et al. (2011). The
scaled CSR (sCSR), which is the total percentage of CSR keywords in comparison with
the total words of annual reports, is 0.26 per cent. The scaled environmental CSR is 0.03
per cent, while the scaled social CSR is 0.23 per cent.
Analyzing firm performance measures, we find that the ROE for the average firm in
the sample is 12 per cent, similar to that of Viet (2013). The average ROA is 9 per cent,
which is similar to Nhung and Okuda (2015), where average of HOSE is 12 per cent and
average of HNX is 11 per cent. The mean ROS is 9 per cent, which is similar to the result
obtained by Phung and Mishra (2015) for the period 2007-2012. The mean stock return
(RET) is 13 per cent. The average value of Q for our sample firms is 0.88, while it is 1.08
for the period 2007-2012 (Phung and Mishra, 2015) and 0.85 for the period 2008-2011
(Nguyen et al., 2015a). The average firm in our sample has total assets of 927.28 billion
VND. The leverage, measured by total debt ratio, of the average Vietnamese firm is 53
per cent, which is similar to the results of 47 per cent in HOSE and 56 per cent in HNX,
as documented by Nhung and Okuda (2015). The average firm in our sample has an age
of 21.88 years.
With regard to corporate governance, we find that the average foreign ownership of
Vietnamese listed firms is 0.08. This value is also reported at 0.08 for 2007-2012 by
Phung and Mishra (2015) and 0.12 for the period 2006-2012 of firms listed in HOSE by Vo
(2015). Average government ownership is 0.23, compared to 0.25 reported for the period
of 2007-2012 by Phung and Mishra (2015). Average board has 5.47 members, which is
similar to the result of Nguyen et al. (2015a). The average firm in our sample has 56 per
cent external board members.
The correlation among variables is shown in Table II. All financial performance
variables are significantly positively correlated. Among the performance variables,
stock return (RET) is the least correlated with other performance variables. Social CSR
is highly correlated with total CSR (0.98 for total number of CSR keywords and 0.97 for
scaled CSR). CSR variables are positively correlated with financial performance
variables, except for stock return. Among the control variables, leverage is significantly
correlated with almost all dependent variables and has the expected sign. Firm size is
positively correlated with ROS and Q. Firm age is positively correlated with RET but
PAR Variable N Mean SD Minimum p25 p50 p75 Maximum
29,2
Financial performance variables
ROE 1,957 0.12 0.11 ⫺0.12 0.04 0.12 0.19 0.34
ROA 1,957 0.09 0.07 ⫺0.02 0.04 0.08 0.13 0.24
ROS 1,956 0.09 0.08 ⫺0.04 0.04 0.07 0.13 0.31
240 RET 985 0.13 0.56 ⫺0.69 ⫺0.28 0.06 0.49 1.33
Q 1,655 0.88 0.55 0.26 0.45 0.74 1.16 2.28
CSR variables
CSR 1,960 37.88 27.68 5 17 32 49 111
CSR_E 1,960 4.57 5.44 0 1 3 6 21
CSR_S 1,960 32.9 23.02 5 15 28 43 91
sCSR 1,960 0.26 0.14 0.06 0.16 0.24 0.35 0.56
sCSR_E 1,960 0.03 0.03 0.00 0.01 0.02 0.04 0.10
sCSR_S 1,960 0.23 0.12 0.05 0.14 0.21 0.31 0.49

Ownership variables
FOR 1,858 0.08 0.11 0.00 0.00 0.02 0.11 0.40
GOV 1,867 0.23 0.22 0.00 0.00 0.19 0.50 0.60
Board variables
BSZ 1,923 5.47 0.80 5.00 5.00 5.00 6.00 7.00
BEX 1,899 0.56 0.19 0.20 0.40 0.60 0.71 0.86
Control variables
SIZE (billion VND) 1,957 927.28 1,186.86 48.26 205.53 447.33 1,085.48 4770.42
LEV 1,957 0.53 0.21 0.14 0.35 0.55 0.71 0.85
AGE 1,928 21.88 13.59 4.00 10.00 19.00 33.00 50.00
Notes: Mean values of descriptive statistics are presented along with standard deviations and 25, 50, 75
percentiles. CSR, CSR_E and CSR_S represent the total number of keywords of total, environmental and social
CSR disclosed in annual reports for the period from 2008 to 2013, respectively. sCSR, sCSR_E and sCSR_S
represent the scaled total CSR, environmental CSR and social CSR, respectively, which are measured by the
percentage of CSR (and environmental and social CSR subsequently) keywords in the total number of words
in annual reports. All financial performance ratios (ROE, ROA, ROS, RET and Q) are measured using fiscal
year end at 31 December. SIZE is the natural logarithm of total assets reported in billion Vietnam dong (VND).
LEV refers to leverage, which is measured by total debt divided by total capital. AGE is number of years from
Table I. establishment date. FOR and GOV are lagged values of foreign and government ownership BSZ is board size
Descriptive statistics and BEX is the number of external board members. All variables are winsorized at the 5% level
negatively correlated with ROS. Foreign ownership is relatively highly correlated with
other variables (around 0.25) compared with other corporate governance variables.
Other corporate governance variables have significant correlation with some of the
dependent variables. We test for the presence of multicollinearity by calculating the
variance inflation factor (VIF). The value is around 2, much lower than the threshold 10,
indicating that multicollinearity does not appear to pose a problem in our data set.
6.2 Empirical results

6.2.1 Main results. Our first hypothesis is concerned with the impact of CSR on firm
performance. Table III presents pooled OLS regression results of CSR measured by the
natural logarithm of the total number of CSR keywords disclosed in annual reports. The
Table indicates that the majority measures of financial performance (ROE, ROA and Q) are
significantly positively related with CSR (Models 1, 2 and 5). The performance metrics ROS
Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18)
(1) ROE 1
(2) ROA 0.79* 1
(3) ROS 0.53* 0.64* 1
(4) RET 0.21* 0.14* 0.06 1
(5) Q 0.59* 0.54* 0.44* 0.38* 1
(6) CSR 0.10* 0.12* 0.09* ⫺0.01 0.13* 1
(7) CSR_E 0.12* 0.11* 0.11* ⫺0.02 0.14* 0.61* 1
(8) CSR_S 0.09* 0.11* 0.08* ⫺0.01 0.12* 0.98* 0.48* 1
(9) sCSR 0.14* 0.16* 0.04 ⫺0.00 0.09* 0.60* 0.32* 0.59* 1
(10) sCSR_E 0.12* 0.12* 0.08* 0.00 0.10* 0.41* 0.75* 0.28* 0.53* 1
(11) sCSR_S 0.12* 0.15* 0.02 ⫺0.00 0.07* 0.56* 0.15* 0.59* 0.97* 0.32* 1
(12) FOR 0.20* 0.24* 0.26* 0.07 0.30* 0.22* 0.23* 0.21* 0.04 0.12* 0.02 1
(13) GOV 0.16* 0.14* 0.05 0.01 0.11* ⫺0.01 0.00 ⫺0.00 0.05 ⫺0.02 0.07* ⫺0.18* 1
(14) BSZ 0.01 0.03 0.07* 0.01 0.12* 0.15* 0.13* 0.16* ⫺0.01 0.03 ⫺0.01 0.28* ⫺0.16* 1
(15) BEX ⫺0.07* ⫺0.06* ⫺0.04 ⫺0.02 ⫺0.01 ⫺0.02 ⫺0.02 ⫺0.02 ⫺0.01* ⫺0.02 ⫺0.10* 0.04 ⫺0.12* 0.11* 1
(16) SIZE 0.01 ⫺0.02 0.17* ⫺0.03 0.14* 0.32* 0.27* 0.31* ⫺0.05 0.09* ⫺0.07* 0.36* ⫺0.03 0.25* 0.03 1
(17) LEV ⫺0.20* ⫺0.32* ⫺0.24* ⫺0.04 ⫺0.19* 0.01 ⫺0.07* 0.01 ⫺0.07* ⫺0.08* ⫺0.06* ⫺0.27* 0.06* ⫺0.04 ⫺0.07* 0.36* 1
(18) AGE 0.03 0.04 ⫺0.05* 0.07* 0.01 0.10* 0.08* 0.09* 0.07* 0.10* 0.06* 0.08* 0.04 0.08* 0.04 0.11* 0.07* 1
Notes: Pearson correlation coefficients are reported with their statistical significance. CSR, CSR_E and CSR_S are lagged values of CSR measured by the natural logarithm of total number
of CSR keywords disclosed in annual reports. sCSR, sCSR_E and sCSR_S are lagged values of the scaled total CSR, environmental CSR and social CSR, which are measured by the percentage
of CSR (and environmental and social CSR subsequently) keywords in the total number of words in annual reports. FOR and GOV are lagged value of foreign and government ownership,
respectively. BSZ (board size) and BEX (number of external board members) are lagged values. The natural logarithm of total assets (SIZE), leverage (LEV) and the natural logarithm of firm
age (AGE) are values at the current year. All variables are winsorized at the 5% level; * Statistical significance at the 5% level
241
Table II.
Corporate
Correlation analysis
governance
29,2
242
PAR
on CSR
Table III.
OLS regressions of
financial performance
Total CSR
Variables (1) ROE (2) ROA (3) ROS (4) RET (5) Q
CSR 0.01*** (2.85) 0.01*** (2.70) 0.00 (0.21) ⫺0.01 (⫺0.72) 0.07*** (3.47)
SIZE 0.01*** (2.74) 0.01*** (3.07) 0.02*** (10.73) 0.00 (0.30) 0.08*** (5.95)
LEV ⫺0.15*** (⫺8.62) ⫺0.10*** (⫺9.68) ⫺0.14*** (⫺10.56) ⫺0.18** (⫺2.49) ⫺0.57*** (⫺7.06)
AGE 0.01** (2.43) 0.01*** (2.65) ⫺0.00 (⫺1.47) 0.03 (1.15) 0.02 (1.15)
Intercept 0.10*** (4.03) 0.04*** (3.09) 0.05*** (2.72) 0.83*** (7.28) 0.77*** (6.14)
Industry controls Yes Yes Yes Yes Yes
Year controls Yes Yes Yes Yes Yes
N 1,242 1,242 1,242 733 1,121
Adjusted R-square 0.14 0.20 0.18 0.51 0.27
Notes: This table shows the result of OLS regressions of annual financial performance of firms (ROE, ROA, ROS, RET, Q) on lagged values of CSR measured by
the natural logarithm of total number of keywords of CSR disclosed in annual reports. All regressions include the natural logarithm of total assets (SIZE), leverage
(LEV), the natural logarithm of firm age (AGE), industry and year as control variables. t statistics of regression coefficients are shown in parentheses. All variables
are winsorized at the 5% level; * , ** and *** indicate significance at the 10%, 5% and 1% level, respectively
(continued)
Environmental CSR
Variables (1a) ROE (2a) ROA (3a) ROS (4a) RET (5a) Q
CSR 0.01*** (2.80) 0.00 (1.15) 0.00 (0.50) ⫺0.02 (⫺1.28) 0.05** (2.25)
SIZE 0.01*** (2.99) 0.01*** (3.99) 0.02*** (9.81) 0.01 (0.77) 0.10*** (6.18)
LEV ⫺0.16*** (⫺8.32) ⫺0.11*** (⫺9.81) ⫺0.15*** (⫺9.85) ⫺0.20** (⫺2.42) ⫺0.63*** (⫺6.79)
AGE 0.01** (2.36) 0.01*** (3.04) ⫺0.00 (⫺1.03) 0.03 (1.32) 0.04* (1.95)
Intercept 0.11*** (4.02) 0.04*** (2.92) 0.04** (2.23) 0.72*** (5.28) 0.74*** (5.34)
N 1,019 1,019 1,019 602 921
(continued)
243
Table III.
governance
Corporate
29,2
244
PAR
Table III.
Social CSR
Variables (1b) ROE (2b) ROA (3b) ROS (4b) RET (5b) Q
CSR 0.01** (2.23) 0.01** (2.50) ⫺0.00 (⫺0.30) ⫺0.01 (⫺0.59) 0.06*** (3.16)
SIZE 0.01*** (2.98) 0.01*** (3.17) 0.02*** (11.02) 0.00 (0.26) 0.08***\?\(6.21)
LEV ⫺0.15*** (⫺8.68) ⫺0.10*** (⫺9.71) ⫺0.14*** (⫺10.62) ⫺0.18** (⫺2.48) ⫺0.57*** (⫺7.12)
AGE 0.01** (2.52) 0.01*** (2.71) ⫺0.00 (⫺1.42) 0.02 (1.14) 0.02 (1.24)
Intercept 0.10*** (4.24) 0.05*** (3.18) 0.05*** (2.86) 0.83*** (7.23) 0.79*** (6.25)
N 1,241 1,241 1,241 733 1,120
and RET do not have any significant relation with CSR (Models 3 and 4). These results Corporate
indicate that the impact of CSR activities of Vietnamese firms on their financial performance governance
is mostly positive.
H1a and H1b relate to environmental CSR and social CSR. We observe that corporate
financial performance is positively influenced by both dimensions of CSR. In the case of
environmental CSR, the estimated coefficients of firm performance measured by ROE and Q
are positive and statistically significant (Models 1a and 5a). For social CSR, three measures
of financial performance are significantly positive (Models 1b, 2b and 5b). 245
All control variables (size, leverage and firm age) are statistically significant in almost all
regressions with the expected sign. The result regarding the impact of firm size on CSR is
similar to the one found by Tower et al. (2011). They study the association between firm size
and voluntary disclosures, which include both corporate governance and CSR information.
We also find that most of the regression models explain around 20 per cent variations in firm
performance.
We undertake a variety of robustness checks, some of which are only presented in the
paper. Table IV shows the results of regression of ROE on the natural logarithm of total
number of CSR keywords for different sub-samples[14]. We first divide sample firms into
two groups based on stock exchange listing: HOSE and HNX. HOSE is the bigger stock
exchange with stricter requirements for listed firms and disclosure regulations in
comparison with HNX. It is expected that, on average, firms listed in HOSE will have a higher
impact of CSR on financial performance. The results of Model 1 show that firms listed in
HOSE have statistically significant positive impact of CSR. For HNX, the CSR coefficient is
statistically insignificant (Model 2).
Dividing the sample into manufacturing and non-manufacturing firms, we find that
the estimated regression coefficient of CSR is significantly positive for manufacturing
firms (Model 3) and is insignificant for non-manufacturing firms (Model 4). We also
conduct a robustness test of our results by performing a regression using the averages of
annual observations for each firm. The process of averaging mitigates the impact of
time-invariant unobserved variables that may cause endogeneity problems. The result
presented in Model 5 shows a significant positive relationship between CSR and firm’s
Stock exchange Industry

HOSE HNX Manufacturing Non-manufacturing Annual average firm
Variables (1) (2) (3) (4) (5)
CSR 0.01** (2.35) 0.01 (1.37) 0.01*** (2.63) 0.01 (1.26) 0.02** (2.30)
SIZE 0.02*** (3.45) 0.01* (1.85) 0.01* (1.78) 0.01** (2.19) 0.01* (1.74)
LEV ⫺0.19*** (⫺8.75) ⫺0.13*** (⫺3.89) ⫺0.12*** (⫺6.40) ⫺0.20*** (⫺5.55) ⫺0.13*** (⫺5.05)
AGE 0.01 (1.28) 0.02** (2.51) 0.01 (1.46) 0.02** (2.13) 0.01** (2.10)
Intercept 0.04 (1.14) 0.10*** (2.71) 0.10*** (3.43) 0.10** (2.28) 0.05 (1.54)
N 727 515 844 398 458
Notes: This table shows the result of OLS regressions of annual financial performance of firms (ROE) on lagged values of
CSR measured by the natural logarithm of total number of keywords of CSR disclosed in annual reports. All regressions
include the natural logarithm of total assets (SIZE), leverage (LEV), the natural logarithm of firm age (AGE), industry and year
as control variables. t statistics of regression coefficients are shown in parentheses. Model (1) and (2) are estimated for Table IV.
subsamples based on stock exchanges (HOSE and HNX). Models (3) and (4) are estimated for subsamples based on the OLS regressions of
manufacturing and non-manufacturing industry group. Model (5) is estimated for annual averages of firms. All variables are ROE on CSR: sub-
winsorized at the 5% level; * , ** and *** indicate significance at the 10%, 5% and 1% level, respectively samples
PAR financial performance. Overall, the results presented in Table IV show a robust support
29,2 for a positive impact of CSR on firm performance. This impact is stronger in sub-samples
of HOSE and manufacturing firms.
So far, in analyzing the impact of CSR on firm’s financial performance, we did not
consider the influence of corporate governance. The results examining the moderating
effect of corporate governance variables are presented in Tables V-VIII. The Table
246 shows results on all measures of financial performance. We find that the moderating
effect of foreign ownership (Models 1-5) is significantly positive for ROE, ROA and Q.
Firms with higher foreign ownership have stronger effects on the relationship between
CSR and financial performance. We observe that the moderating effect of state
ownership (Models 6-10) is positive and significant for ROS only. Overall, the impact of
state ownership remains unclear. H2a is therefore supported, but H2b is not supported.
The regression results of Models 11-15 show that board size strengthens the relationship
between CSR and firm performance (ROE, ROA and Q). We also find that board
independence strengthens the CSR–performance relationship. Statistically significant

coefficients are found with ROE (Model 16), ROA (Model 17), ROS (Model 18) and Q
(Model 20). H3a and H3b are supported.
We also perform a robustness test for the moderating effects of corporate governance on
the relationship between CSR and financial performance for different sub-samples[15]. The
main findings for financial performance measured by ROE are summarized here. In the
HOSE sub-sample, the coefficients of moderating effect of foreign ownership, board size and
board independence are positive, whereas in the HNX sub-sample, the coefficient of
moderating effect of foreign ownership is negative. The moderating impacts of corporate
governance are stronger for HOSE firms, which is the bigger stock exchange with stricter
requirements for firms listed and for information disclosure. In the manufacturing industry
sub-sample, the joint effects of CSR and foreign ownership, board size and board
independence are positive. In the non-manufacturing sub-sample, board independence is the
only corporate governance factor that has a positive impact on the CSR and financial
(1) (2) (3) (4) (5)

Variables ROE ROA ROS RET Q
CSR 0.00 (0.04) ⫺0.00 (⫺0.16) ⫺0.01 (⫺1.28) 0.01 (0.30) ⫺0.02 (⫺0.71)
FOR ⫺0.26* (⫺1.93) ⫺0.16* (⫺1.84) ⫺0.08 (⫺0.86) 0.67 (1.41) ⫺2.35*** (⫺3.51)
CSR⫻FOR 0.08** (2.48) 0.06** (2.52) 0.03 (1.38) ⫺0.19 (⫺1.59) 0.78*** (4.44)
SIZE 0.01 (1.62) 0.00* (1.73) 0.02*** (9.04) 0.01 (0.43) 0.06*** (3.95)
LEV ⫺0.13*** (⫺6.89) ⫺0.09*** (⫺7.90) ⫺0.14*** (⫺9.72) ⫺0.20** (⫺2.26) ⫺0.50*** (⫺5.66)
AGE 0.01*** (2.67) 0.01*** (2.79) ⫺0.00 (⫺1.63) 0.03 (1.19) 0.02 (1.12)
Intercept 0.14*** (5.11) 0.07*** (4.53) 0.08*** (3.99) 0.74*** (5.98) 1.13*** (8.76)
N 1194 1194 1194 729 1096
Notes: This table shows the result of OLS regressions of annual financial performance of firms (ROE, ROA, ROS, RET, Q)
Table V. on lagged values of corporate social responsibility (CSR) measured by the natural logarithm of total number of keywords of
OLS regressions of CSR disclosed in annual reports. All regressions include the natural logarithm of total assets (SIZE), leverage (LEV), firm age
financial performance (AGE), industry and year as control variables. Corporate governance moderating effects are foreign ownership (FOR), state
on CSR and corporate ownership (GOV), board size (BSZ) and board independence (BEX). t statistics of regression coefficients are shown in
governance parentheses. All variables are winsorized at 5% level; * , ** and *** significance at the 10%, 5% and 1% level,
moderating effects respectively
(6) (7) (8) (9) (10)
Corporate
Variables ROE ROA ROS RET Q governance
CSR 0.01 (1.13) 0.00 (0.42) ⫺0.01* (⫺1.67) ⫺0.02 (⫺0.54) 0.08*** (2.80)
GOV 0.07 (1.01) ⫺0.00 (⫺0.11) ⫺0.06 (⫺1.26) ⫺0.08 (⫺0.28) 0.43 (1.40)
CSR⫻GOV 0.01 (0.43) 0.02 (1.54) 0.03* (1.89) 0.01 (0.14) ⫺0.04 (⫺0.47)
SIZE 0.01*** (3.39) 0.01*** (3.84) 0.02*** (11.47) 0.00 (0.34) 0.09*** (6.34)
LEV ⫺0.15*** (⫺8.74) ⫺0.11*** (⫺10.37) ⫺0.15*** (⫺11.34) ⫺0.18** (⫺2.46) ⫺0.63*** (⫺7.81) 247
AGE 0.01* (1.95) 0.01** (2.29) ⫺0.01** (⫺2.02) 0.03 (1.19) 0.02 (1.05)
Intercept 0.08*** (3.06) 0.05*** (2.80) 0.07*** (3.37) 0.83*** (5.95) 0.65*** (4.47)
N 1200 1200 1200 730 1101
on lagged values of corporate social responsibility (CSR) measured by the natural logarithm of total number of keywords of Table VI.
CSR disclosed in annual reports. All regressions include the natural logarithm of total assets (SIZE), leverage (LEV), firm age OLS regressions of
(AGE), industry and year as control variables. Corporate governance moderating effects are foreign ownership (FOR), state financial performance
ownership (GOV), board size (BSZ) and board independence (BEX). t statistics of regression coefficients are shown in on CSR and corporate
parentheses. All variables are winsorized at 5% level; * , ** and *** significance at the 10%, 5% and 1% level, governance
respectively moderating effects
(11) (12) (13) (14) (15)

Variables ROE ROA ROS RET Q
CSR ⫺0.14*** (⫺2.68) ⫺0.07** (⫺2.38) ⫺0.06 (⫺1.56) 0.31 (1.43) ⫺1.08*** (⫺4.29)
BSZ ⫺0.38*** (⫺3.27) ⫺0.19*** (⫺2.87) ⫺0.14* (⫺1.74) 0.63 (1.34) ⫺2.44*** (⫺4.56)
CSR⫻BSZ 0.09*** (2.92) 0.05*** (2.61) 0.03 (1.58) ⫺0.19 (⫺1.50) 0.68*** (4.57)
SIZE 0.01*** (3.09) 0.01*** (3.28) 0.02*** (10.71) 0.01 (0.42) 0.08*** (5.68)
LEV ⫺0.15*** (⫺9.07) ⫺0.10*** (⫺10.03) ⫺0.15*** (⫺10.95) ⫺0.19** (⫺2.58) ⫺0.61*** (⫺7.52)
AGE 0.01*** (2.88) 0.01*** (2.83) ⫺0.00 (⫺1.15) 0.03 (1.24) 0.03 (1.31)
Intercept 0.72*** (3.65) 0.37*** (3.14) 0.28** (2.01) ⫺0.27 (⫺0.34) 4.89*** (5.40)
N 1220 1220 1220 722 1104
on lagged values of corporate social responsibility (CSR) measured by the natural logarithm of total number of keywords of Table VII.
CSR disclosed in annual reports. All regressions include the natural logarithm of total assets (SIZE), leverage (LEV), firm age OLS regressions of
(AGE), industry and year as control variables. Corporate governance moderating effects are foreign ownership (FOR), state financial performance
ownership (GOV), board size (BSZ) and board independence (BEX). t statistics of regression coefficients are shown in on CSR and corporate
parentheses. All variables are winsorized at 5% level; * , ** and *** significance at the 10%, 5% and 1% level, governance
respectively moderating effects
performance relationship. The finding provides evidence that corporate governance has a
stronger impact for manufacturing firms.
6.2.2 Additional robustness checks. In this section, we run several sensitivity tests to
examine whether our main results are robust to alternative variable definitions, endogeneity,
model specifications and other sensitivity checks.
6.2.2.1 Alternative measures of variables. CSR is measured as a scaled variable
(percentage of keywords), industry-adjusted scaled CSR and industry-adjusted
PAR (16) (17) (18) (19) (20)
29,2 Variables ROE ROA ROS RET Q
CSR ⫺0.02* (⫺1.82) ⫺0.01* (⫺1.87) ⫺0.02*** (⫺2.62) ⫺0.08 (⫺1.58) ⫺0.08 (⫺1.44)
BEX ⫺0.25*** (⫺3.45) ⫺0.15*** (⫺3.62) ⫺0.17*** (⫺3.11) ⫺0.50 (⫺1.59) ⫺1.00*** (⫺3.04)
CSR⫻BEX 0.06*** (2.96) 0.04*** (2.94) 0.04*** (2.79) 0.12 (1.37) 0.27*** (2.91)
SIZE 0.01*** (2.87) 0.01*** (3.14) 0.02*** (10.59) 0.01 (0.44) 0.08*** (6.04)
248 LEV ⫺0.16*** (⫺9.22) ⫺0.11*** (⫺10.24) ⫺0.15*** (⫺11.12) ⫺0.20*** (⫺2.70) ⫺0.62*** (⫺7.49)
AGE 0.01*** (3.29) 0.01*** (3.24) ⫺0.00 (⫺0.83) 0.03 (1.16) 0.03 (1.54)
Intercept 0.23*** (4.85) 0.13*** (4.61) 0.13*** (3.96) 1.10*** (5.29) 1.33*** (6.04)
N 1204 1204 1204 714 1092
Table VIII. Notes: This table shows the result of OLS regressions of annual financial performance of firms (ROE, ROA, ROS, RET, Q)
OLS regressions of on lagged values of corporate social responsibility (CSR) measured by the natural logarithm of total number of keywords of
financial performance CSR disclosed in annual reports. All regressions include the natural logarithm of total assets (SIZE), leverage (LEV), firm age
on CSR and corporate (AGE), industry and year as control variables. Corporate governance moderating effects are foreign ownership (FOR), state
governance ownership (GOV), board size (BSZ) and board independence (BEX). t statistics of regression coefficients are shown in
moderating effects parentheses. All variables are winsorized at 5% level; * , ** and *** significance at the 10%, 5% and 1% level, respectively
logarithm CSR. In all three cases, we mostly observe a positive direct impact of CSR on
financial performance. We also find that the moderating impacts of board size and board
independence are also positive. These results reinforce our earlier conclusion that CSR
increases financial performance and this relationship is strengthened by corporate
governance variables. In another robustness check, we use dummy variables to measure
corporate governance factors. The results show that the joint effects of CSR and board
size and board independence are positive and statistically significant.
We conduct a regression with an alternative control variable. One factor that may
influence the results relates to industry performance. For macro-economic reasons, certain
industries grow faster than others and are more likely to have better financial performance.
Hence, the observed association between CSR and financial performance could result from
omitting an industry effect. We control for industry profitability, following Lev et al. (2010).
The result shows significant positive coefficient of this alternative control variable and
reports a positive impact of CSR on financial performance. For the sake of briefness, we do
not present the result in the paper.
6.2.2.2 Endogeneity. Although we use lagged regression specifications, a concern for
potential endogeneity may still remain. To check if our results are robust, we use
two-stage least squares regressions. It is possible that the observed relationship between
CSR and financial performance is not due to an actual relationship between these
variables, but rather to a third factor that drives both CSR and financial performance. As
instruments for CSR, we use the industry average CSR (Ghoul et al., 2011; Xu et al., 2014;
Cheng et al., 2014). The rationale behind this instrument is that a firm’s CSR is
systematically influenced by the CSR of other firms within the same industry. The result,
not presented here for the sake of briefness, shows an insignificant impact of CSR on
financial performance.
6.2.2.3 Panel estimation. As the data we use contain a panel component, problems can
occur with regard to cross-sectional features (e.g. heteroscedasticity), time-series
characteristics (e.g. autocorrelation) and omitted variables. Fixed-effects model
(Becchetti et al., 2015; Cheng et al., 2014; Harjoto et al., 2015) and random-effects model
(Baird et al., 2012) are the most usually used estimation techniques to address these Corporate
problems. The fixed-effects model is preferred in the case of balanced and long panel governance
data and when the cross-sectional observations in the sample are not random drawings
from a larger sample. However, in the case of an unbalanced and short panel with only a
few observations per firm, the fixed-effects regression technique may not provide
consistent coefficient estimates relative to pooled OLS analysis. Yet, as a robustness
check, we undertake panel regression estimations. The Hausman test is performed to
decide between fixed- and random-effects models. The test indicates that the 249
fixed-effects model is preferred for regressions of ROE, ROA, ROS and RET, while the
random-effects model is suitable for RET only. The panel regression results are
presented in Table IX. We find that the regressions of ROE and RET (Models 1, 2, 7, 8),
ROS (Model 5) and Q (Model 9) do not show statistically significant coefficients of CSR.
A few models show even negative coefficients of CSR. We also perform fixed- and
random-effects regressions to examine the moderating impact of corporate governance
and find statistically insignificant results for most of the variables. These results are not
in line with those found earlier from OLS estimations. In a panel that has, on average,
only 2.7 observations per firm, estimating a statistically significant relationship by
means of fixed-effects regression models can be problematic. Given the smaller time
variation in financial performance than the cross-sectional variation in our sample, we
believe that the panel fixed-effects regressions are not useful. This lack of support from
panel regression models remains a major caveat of our study.
6.2.2.4 Effect of cultural characteristics. We conduct a test to examine the impact of
culture on the relationship between CSR and financial performance. We select two
variables to proxy the culture of Vietnamese CEOs: the foreign education of CEOs and
the foreign working experience of CEOs. Managers can conduct CSR activities for their
own benefits to build their reputation or to create value for shareholders. Individual
attributes and beliefs are known to impact on CEOs in the decision process of CSR and
firm performance. In Vietnam, CEOs are influenced by the diversified culture with
Confucianism and historical links of various foreign countries. They are also influenced
by the foreign culture through education and working experience. Our assumption is
that foreign-educated and foreign working experience CEOs have more diversified
culture and more openness to CSR. With CEO international experience measured by the
above two proxies and conducting OLS regression, we find that both proxies strengthen
the positive impact of CSR on financial performance. For reasons of brevity, we do not
present these results in a table.
7. Conclusions
The study examines the performance impact of corporate social responsible activities. As
most studies analyze CSR activities of developed countries, we decide to focus on an
emerging economy, Vietnam, that has several distinct institutional features. These include
high economic growth rate, export orientation, foreign investment, government ownership
and diversified culture influenced by both Confucianism and Western countries. Vietnam
has in recent years increased its focus on CSR activities.
We conduct the empirical analysis using OLS estimation technique where firm-specific
controls are supplemented by industry and year fixed effects. Analyzing a relatively large
sample of stock exchange listed firms, we find that firms that are more active in CSR
activities experience higher financial performance. In addition to considering CSR as one
all-comprehensive activity, we analyze the two important dimensions of CSR separately. We
find that the impact of environmental CSR and social CSR on financial performance is mostly
29,2
250
PAR
on CSR
Table IX.
Fixed- and random-
effects regressions of
financial performance
ROE ROA ROS
Variables (1) (2) (3) (4) (5) (6)
CSR 0.00 (0.45) ⫺0.00 (⫺0.89) ⫺0.01* (⫺1.65) ⫺0.01** (⫺2.55) ⫺0.01 (⫺1.33) ⫺0.01** (⫺2.22)
SIZE 0.06*** (4.13) 0.02* (1.81) 0.02* (1.93) 0.01 (0.93) 0.05*** (4.66) 0.03*** (3.61)
LEV ⫺0.13*** (⫺3.40) ⫺0.12*** (⫺3.01) ⫺0.11*** (⫺5.35) ⫺0.11*** (⫺4.99) ⫺0.12*** (⫺4.37) ⫺0.11*** (⫺4.13)
AGE ⫺0.06* (⫺1.67) ⫺0.26*** (⫺11.23) ⫺0.02 (⫺1.10) ⫺0.11*** (⫺8.30) ⫺0.05* (⫺1.93) ⫺0.15*** (⫺8.88)
Intercept 0.04 (0.26) 0.80*** (9.41) 0.14* (1.82) 0.44*** (9.20) 0.04 (0.38) 0.39*** (6.43)
Industry No No No No No No
controls
Year Yes No Yes No Yes No
controls
N 1,242 1,242 1,242 1,242 1,242 1,242
F-test 28.24 38.24 25.53 32.35 18.25 27.46
(p_value) 0.00 0.00 0.00 0.00 0.00 0.00
Notes: This table shows the result of regressing financial performance (ROE, ROA, ROS, RET, Q) on CSR measured by the natural logarithm of total number of
keywords of CSR disclosed in annual reports. Based on indication of Hausman tests, regressions of ROE, ROA, ROS and Q on CSR are fixed-effects regression and
regressions of RET on CSR are random-effects regression. All regressions include the natural logarithm of total assets (SIZE), leverage (LEV) and the natural
logarithm of firm age (AGE) as control variables. t statistics of regression coefficients are shown in parentheses. Models 1, 3, 5, 7 and 9 include year control variable,
while the remaining models do not include year control variable. All variables are winsorized at the 5% level; * , ** and *** indicate significance at the 10%, 5%
and 1% level, respectively
(continued)
RET Q
Variables (7) (8) (9) (10)
CSR ⫺0.01 (⫺0.60) 0.00 (0.04) ⫺0.02 (⫺0.82) ⫺0.06* (⫺1.75)

SIZE 0.01 (0.45) ⫺0.01 (⫺0.39) 0.01 (0.19) ⫺0.30*** (⫺3.56)
LEV ⫺0.23*** (⫺3.29) ⫺0.23** (⫺2.34) 0.17 (0.87) 0.24 (1.02)
AGE 0.03 (1.29) 0.02 (0.75) 0.00 (0.01) ⫺0.81*** (⫺5.89)
Intercept 0.88*** (8.26) 0.27* (1.86) 1.27* (1.81) 5.13*** (9.86)
Industry No No No No
controls
Year Yes No Yes No
controls
N 733 733 1,121 1,121
F-test 57.99 20.03
(p_value) 0.00 0.00
Table IX.
251
governance
Corporate
PAR positive. Environmental CSR activities appear to influence firm performance more strongly
29,2 than the social CSR. It can be that when firms conduct CSR activities, environment
involvement requires more efforts and actions than social activities. The environment is
increasingly drawing attention from a developing country like Vietnam, which is trying to
achieve the economic targets and growth as well as giving consideration to reduce
pollution[16]. We also investigate the interaction effects of corporate governance
252 mechanisms. We find a positive joint effect of CSR and foreign ownership, board size and
board independence. However, state ownership has no moderating impact on the
relationship between CSR and financial performance.
We undertake robustness checks of these results using alternative definitions of CSR and
alternative control variables. The obtained results are similar. Because of potential concerns
regarding omitted variables and individual heterogeneity, we perform a panel regression
analysis. We find that several fixed-effects results are not consistent with those of pooled
OLS regressions. Apparently, a short panel with very few observations per firm does not
allow consistent estimation of statistical relationships. On the other hand, this lack of
support remains a major limitation of our study. Future research could use this study as a
starting point and analyze a longer panel to draw firm conclusion. Like many other studies,
the endogeneity issue can be a concern too. Scholars continue to argue whether firms become
successful because they are socially responsible or whether CSR is something that successful
firms do.
Certain information on CSR activities disclosed in annual reports can relate to the past,
present and future. The information disclosed may not accurately reflect the CSR activities
performed in a specific year. This discrepancy can also be a reason that some of the results
are not always statistically significant. Another limitation of our study is that we did not
measure CSR scores of firms in many different ways. For example, one can calculate scores
for CSR strengths and concerns, give different weights on different CSR categories or use
advanced software that can recognize the tone of CSR disclosure. The quality of CSR
disclosure in annual reports can be more credible if there is assurance from a third party,
such as an auditor. CSR effects on financial performance are more viable if CSR activities are
related to firms’ core strategy, which may be measured by the internal control system, such
as the presence of a CSR department, CSR-related certification or implementation of
CSR-related global standards (e.g. ISO 26000).
Our research warrants further work on examining the moderating role of corporate
governance in affecting the CSR–firm performance relationship. Our study on the
moderating effect of corporate governance can be extended internationally by using a global
sample. CSR and corporate governance are shaped by a country’s economy, political system
and culture. It would be interesting to investigate these cross-country and cross-culture
variations in this moderating effect.
Notes
1. The KPMG Survey of Corporate Responsibility Reporting 2015.
2. A few papers examine the interaction effect of factors other than corporate governance, like firm
productivity (Hasan et al., 2016), innovation (Bocquet et al., 2015) and intangible resources (Surroca
et al., 2010).
3. National climate change strategy (2011); Green growth strategy (2012); Strategy for promoting
renewable energy or other low-carbon technologies.
4. During 2008-2013, Vietnam was ranked around 120 out of 175 countries in the Global Corruption
Report.
5. According to the 2016 World Bank report, following the implementation of the policy change to Corporate
market economy, Vietnam’s GDP growth rate increased by an average of 5.5% per year since 1990,
6.4% per year in 2000s and 6.27% in 2015.
governance
6. Market capitalization increased from US$9.5bn (9.6% of GDP) in 2008 to US$52bn (26.8%) in 2015.
7. The stock exchanges in Vietnam have organized Annual Report Awards since 2008 to motivate
listed firms for further transparency. Started from 2013, they introduced the Sustainability Report
Award, which referred to Global Reporting Initiatives 4 (GRI4).
8. Vietnam has a war history with the USA, but the relationship is better now. The younger generation
253
born after the war is influenced by the US culture, education and entrepreneurship (Ralston et al.,
2006).
9. Foreign direct investment in 2013 was 5.2% of GDP (World Bank data).
10. Since the implementation of Decree 60/2015/ND-CP issued on 1/9/2015, foreign ownership in listed
firms can be maximum 100%.
11 Corporate Governance Code is legally binding in Vietnam following Circular 121/2012/TT-BTC,
which is applicable to listed firms.

12. The average corporate governance score card of Vietnam in 2013 was 33.9, which is lower than the
regional average (Asian Development Bank Report, 2013).
13. The total market capitalization of these two stock exchanges accounts for US$52bn, approximately
26.8% of the total GDP (World Bank Report, 2015).
14. We choose to present ROE results for the sake of brevity; the results of other performance measures
do not lead to a different conclusion.
15. These results are not presented in tables for the sake of brevity, but are on request available from
the authors.
16. In 2016, Formosa, a Taiwanese steel firm that invested in Vietnam, was alleged to pollute the sea,
affecting lives of residents in four provinces in Vietnam.
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Corresponding author
Hanh Minh Thai can be contacted at: [email protected]
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Does corporate governance shape the relationship between corporate social

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Does corporate governance shape Corporate

2. Institutional background of Vietnam

2.2 Corporate governance in Vietnam

3.2 Corporate governance as a moderating mechanism

PERFit ⫽ a0 ⫹ a1CSRit⫺1 ⫹ axControlsit ⫹ ␧it (1)

PERFit ⫽ a0 ⫹ a1CSRit⫺1 ⫹ a2CGit⫺1 ⫹ a3CSRit⫺1 CGit⫺1 ⫹ axControlsit ⫹ ␧it (2)

from what they actually are doing.

Classification System (NAICS) classification. Firm age is measured by the natural

compared to 59 in Germany, whereas the number of social CSR keywords is 33 in

sCSR_S 1,960 0.23 0.12 0.05 0.14 0.21 0.31 0.49

6.2 Empirical results

Stock exchange Industry

independence strengthens the CSR–performance relationship. Statistically significant

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CSR ⫺0.01 (⫺0.60) 0.00 (0.04) ⫺0.02 (⫺0.82) ⫺0.06* (⫺1.75)

which is applicable to listed firms.

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