Corporate social responsibility & firm efficiency: evidence from endogenous cost inefficiency stochastic frontier analysis

Abstract

This paper investigates the relationship between firms’ performance in corporate social responsibility (CSR) and cost efficiency. We use a newly developed panel data model of stochastic frontier analysis that endogenizes cost efficiency. The dataset consists of 1,673 firms from ten provinces in Vietnam over three years: 2009, 2011 and 2013. Our results suggest that CSR can enhance cost efficiency of firms. This positive effect of CSR on efficiency can be masked if cost efficiency is treated as exogenous or endogeneity is not handled appropriately. The upshot is that our results challenge the widely held view of the existence of a trade-off between CSR and firm efficiency.