1. Introduction
The importance of corporate social responsibility (CSR) and its performance evaluation has been highlighted by both business and academic professionals over time [
1]. Although researchers have maintained enthusiasm regarding the relationship between CSR and corporate financial performance (CFP), the results are inconclusive and contradict each other. Some researchers have pointed out that CSR–CFP embodies a positive linear correlation [
2,
3]. The fulfillment of CSR helps firms to strengthen their relationships with stakeholders and acquire resources to improve their financial performance [
4]. Therefore, several studies have emphasized that undertaking CSR activities to improve firm reputation, reduce business operation risks, and fortify innovation capabilities can be valuable [
5]. Alternatively, CSR activities cause resource consumption and agency costs may have a negative impact on CFP [
6,
7]. In this case, recent studies have found a U-shaped relationship [
8,
9] or inverted U-shaped relationship [
10,
11] between CSR and CFP, which indicates that they may have a complex relationship.
The construction industry contributes significantly to sustainable development by creating job opportunities and promoting economic growth [
12]. However, the overall impact of construction production is substantially negative due to the generation of waste and pollution, damage to the ecosystem, and safety and occupational health problems for people [
13]. The emergence of economic globalization has resulted in construction firms pursuing “going out” strategies, and “international construction” has become a business operation paradigm [
14]. CSR is a firm competitiveness factor [
15]. Currently, multinational firms have to respond to the needs of stakeholders and assume greater social responsibilities based on legitimacy and strategic motives [
16]. CSR engagement favors firms to alleviate the conflicts of cultural, political, economic, and social differences caused by internationalization [
17]. Firms that have newly entered the international market have lower comparative popularity, and they might face “legitimacy” assessments based on limited information, prejudices, or stereotypes [
18,
19]. At this moment, implementing CSR facilitates firms to change the disadvantaged situation. It is not a surprise that firms having extensive international businesses presence may conduct greater CSR efforts, mobilize stakeholders’ support [
20], and continue to gain legality in overseas markets. Therefore, the degree of internationalization (DOI) is assumed to be crucial in moderating the CSR–CFP relationship.
According to stakeholder and agency theories, fulfilling CSR has its costs and benefits, as a double-edged sword. In the case that CSR brings higher benefits than costs, the CSR–CFP relationship can be positive. Previous studies have detected the key influencing factors of the CSR–CFP relationship, including firm size [
21], corporate governance [
22], innovation [
23], political embedding [
24], and management efficiency [
25]. Nevertheless, limited efforts have been made to explore the role of the DOI in the CSR–CFP relationship. Thus, the understanding of the factors behind CR activities conducted by multinational construction firms is incomplete. With this in mind, this study aims to address two fundamental questions as follows:
(1) Does CSR have an inverted U-shaped effect relationship to CFP?
(2) Can DOI moderate the CSR–CFP relationship?
In recent years, Chinese construction companies have accelerated the pace of internationalization and carried out more and more international projects. However, these companies have been widely criticized for their sluggish CSR performance, with serious negative issues, such as environmental pollution and product quality, being revealed [
26]. Therefore, their fulfillment of CSR still needs to focus on societal concerns. This study employs Chinese-listed construction firms as a sample to address the above two questions. The results obtained after the analysis show that a higher CSR level does not always have a better CFP level, and the DOI weakens the inverted U-shaped relationship between CSR and CFP. Consequently, the current research promotes the understanding of the impact of CSR and DOI on CFP, and provides guidelines for construction firms to implement CSR in the context of internationalization.
The paper is divided into separate sections based on content. In the next section, the possible CSR–CFP relationship and the importance of considering DOI as a firm-specific factor that shapes it are described. The Methods Section highlights the panel data method for evaluating the inverted U-shaped relationship and moderating effect. In the Results Section, the statistical analysis confirms how different levels of CSR create diverse impacts on financial performance and the moderating influence of DOI levels on the CSR–CFP relationship. The Discussion Section analyzes and develops an understanding of the complex relationship between CSR, DOI, and CFP. Finally, the Conclusion emphasizes the theoretical and methodological contributions of the analytical methods and outlines the study’s research limitations and future research directions.
4. Results
Table 1 shows the descriptive statistics. The average DOI is 14.8% with a minimum of 0% and a maximum of 98.3% limits. In addition, firms’ ROE performance with an average ROE of 8.8% ranges from −67.8% to 56.8%. The average lntotal assets is 23.62, while the number of employees ranged between 147 and 552,810, with an average of 43,343. Firm age ranges 2–38 years, with an average age of 17.303 years.
We employed Pearson’s correlation to examine the potential bivariate relationship between the model’s variables (
Table 2). As shown, ROE has a significant correlation with all variables at the 5% significance level, excluding net debt and employees. Further, CSR is related to all variables at the 5% level of significance.
Five models were detected and the results are given in
Table 3. Model 1 regressed the moderating variable and control variables on the CFP. Following, CSR and CSR
2 were added to the regression in Model 2 and Model 3. Model 4 tested the moderating effect of DOI on the linear CSR–CFP relationship, while Model 5 tested the moderating effect of DOI on the curve relationship between CSR and CFP.
Models 3 and 5 were utilized to test the inverted U-curve relationship of CSR–CFP and the moderating effect of the DOI. The results given in
Table 3 demonstrate an inverted U-shaped curve relationship between CSR and CFP (Model 3) and provide evidence for the negative regulation of CSR
2. Although the coefficient of CSR
2 in Model 3 is significant, it is not rigorous enough to demonstrate the inverted U-shaped curve relationship [
75]. Therefore, we conducted a U-test to further test the inverted U-shaped curve according to the method of Lind and Mehlum [
79]. In this regard, the slope of the lower limit must be negative and significant, while the slope of the upper limit should be positive and significant to satisfy the inverted U-shaped relationship. In addition, the extreme point must be between the two endpoints of the curve (
Table 4). The results verify the inverted U-shaped relationship between CSR and CFP.
Figure 1 shows that, based on CFP values, firms located on the left side of the curve show an exponential upward trend with a rise in the CSR level. The firms on the left side of the curve exhibit an exponential downward trend with an increasing CSR level. Model 5 outlines the significant positive interaction between DOI and CSR
2. The positive interaction suggests that the U-shaped curve becomes smoother [
75], as shown in
Figure 2.
Lastly, a t-test was performed as a robustness check to verify the results (
Table 5). In addition, Heckman procedure [
80] (
Table 6) was performed to check whether there are any sample selection biases in the overall construction industry. The first stage of the test included a correctional variable outside the final model [
81]. Based on the study by Maon et al. [
82], the geographic location (province) of firms’ headquarters was selected as the exclusion limit in the first-stage equation of the Heckman model, as this factor affects firms’ CSR fulfillment manner. Moreover, the average ROE of the sample is not different from the population of 649 firms, and the sample is fully representative of the population.
Table 6 shows the results of the two stages of Heckman. The lambda coefficients of Models 3 and 5 are significant, which indicate that the results may be affected by sample selection bias. However, the revised regression results are consistent with the original ones.
Considering the influence of the
DOI, the inflection point of the inverted U-shaped curve was quantified and the movement of the inflection point can be outlined. The inflection point corresponds to the axis of symmetry of the quadratic function. Equation (1) represents the inflection point (
CSR*). The partial derivative of
CSR* to
DOI was obtained (Equation (3)) to test the influence of the
DOI on the inflection point
CSR*. If the partial derivative is greater than 0, the inverted U-shaped curve moves to the right as the
DOI increases. The denominator in Equation (3) is greater than 0. The sign of the formula depends on the numerator. Substituting the regression result into Equation (3),
CSR* > 0 is derived. The inflection point
CSR* of the inverted U-shaped curve shifts to the right as the
DOI increases. According to the different values under high and low
DOI, the maximum value of CFP at the inflection point of the inverted U curve is obtained. The maximum CFP value under high
DOI is significantly higher than that under low
DOI.
6. Conclusions
CSR is essential for firms to gain legitimacy. Regarding multinational firms, the interference of various factors makes the CSR–CFP relationship complicated, and CSR plays a crucial role in determining the CFP. In this study, an inverted U-shaped curve relationship between CSR and CFP is constructed instead of a simple linear relationship. There may be a scale effect on construction firms’ CSR performance. For example, in the case of low-level CSR, the CFP grows with the increase in CSR level while for the high-level CSR, there can be a decline in the CFP. Further, the DOI has a significant moderating effect on the CSR–CFP relationship. Thus, firms with a higher DOI may have tremendous profit potentials.
The research has two main contributions. First, it combined agency and stakeholder theories to consider the CSR–CFP relationship. Under a one-sided understanding, the impact of CSR on CFP is subject to incompletion. Combining the two theories, this study highlighted that the CSR–CFP relationship has a complex non-linear relationship. This inverted U-shaped relationship implies that firms must consider both costs and benefits while fulfilling social responsibilities. Second, the study considered the impacts of DOI on the CSR–CFP relationship from the perspective of stakeholders. The high DOI of multinational firms has significantly weakened the effect of CSR on CFP and caused them to face more stakeholders. The relationship between the firm and stakeholders seriously affects the CSR–CFP relationship. This finding reveals that the combinations of a high DOI-high CSR and a low DOI-low CSR are more conducive to promoting the CFP of construction firms. In this perspective, necessary enlightenment is that the discussion of the position of the inflection point of the inverted U-shaped curve helps to gain a deep insight into how the DOI of a firm matches CSR and promotes the improvement of corporate performance.
The research has a few limitations. The performance of social responsibilities is examined among Chinese construction firms, and the conclusions may not necessarily apply to firms in other regions or countries. It is expected that future research may consider the influence under a global context.