Corporate Social Responsibility, Firm Performance, and Market Capitalization: Evidence from Pakistan

Abstract

The role of corporate social responsibility (CSR) in shaping firm performance has been extensively debated. While CSR is often associated with reputational benefits and long-term growth in developed markets, its short-term impact on market valuation in emerging economies remains contested. This study empirically investigates the relationship between CSR and market capitalization in Pakistan, using a balanced panel of ten firms listed on the Pakistan Stock Exchange (PSX) from 2010 to 2016. Market capitalization is modeled as a function of CSR disclosure (dummy variable), return on assets (ROA), return on equity (ROE), and Tobin’s Q. Panel regression models, including log–log, log–lin, and linear specifications, were applied. The results reveal that CSR and ROA negatively and significantly influence market capitalization, while Tobin’s Q shows a strong positive effect. ROE is positive but insignificant. Diagnostic tests confirm the robustness of the models. Findings suggest that CSR in Pakistan is undervalued by investors due to disclosure gaps and short-term market orientation. Recommendations are provided for firms, regulators, and policymakers to improve CSR transparency and integration into market valuation