How does corporate social performance affect investment inefficiency? An empirical study of China market

Abstract

This study investigates the relationship between corporate social performance (CSP) and investment inefficiency in the Chinese stock market. Using the unique CSP ratings scores from the Rankins CSP Ratings (RKS), we find that socially responsible firms are more efficient in their investment. We further determine that the effect of CSP in reducing investment inefficiency is more pronounced in overinvestment scenarios. Moreover, we provide strong and robust evidence that CSP significantly improves investment efficiency in state-owned enterprises (SOEs). However, we do not find such evidence in non-SOEs. Our study highlights the important role of state ownership in the CSP-investment inefficiency relationship.

Keywords

• G32
• G34
• M14