**5. Conclusion**

about 0.6% in the strong institutional frameworks. Hence, it indicates an increase of 3.5% in

This table displays full sample regression estimates of Tobin's Q on CSR from 2009 to 2014. The main independent variables are the firm's (lagged) environment (E), social (S), and governance (G) scores. The interaction effect models the marginal valuation effect of CSR in the presence of institutional voids across 12 different measures of institutional framework strength. Regressions include industry and country dummies as indicated. T-Statistics are reported in

*IFV =* **WGIRQ WGIRL WGIGE WGIPS WGICC WGIVA** E × IFV 0.0020\*\*\* 0.0021\*\*\* 0.0020\*\*\* 0.0016\*\*\* 0.0020\*\*\* 0.0025\*\*\*

S × IFV 0.0010\*\*\* 0.0013\*\*\* 0.0012\*\*\* 0.0013\*\*\* 0.0014\*\*\* 0.0014\*\*\*

G × IFV 0.0016\*\*\* 0.0019\*\*\* 0.0021\*\*\* 0.0009\*\*\* 0.0017\*\*\* 0.0016\*\*\*

Obs. 134,823 134,823 134,823 134,823 134,823 134,823 R-Squared 0.71 0.71 0.71 0.71 0.71 0.71

Control Yes Yes Yes Yes Yes Yes Ind. dum Yes Yes Yes Yes Yes Yes Ctr. dum Yes Yes Yes Yes Yes Yes

parentheses. \*, \*\*, and \*\*\* indicate the significance level at the 10, 5, and 1%, respectively.

**Table 5.** The link between institutional environment, CSR, and Tobin's Q.

(23.30) (21.13) (19.42) (19.77) (20.78) (30.13)

(9.51) (11.05) (11.98) (12.00) (12.34) (15.73)

(9.40) (11.96) (12.19) (6.89) (12.37) (11.82)

For social CSR, all regressions show a statistically significant positive effect on firm value for firms in weak institutional frameworks. In addition, the interaction between social CSR and weak institutional frameworks is positive such that the joint effect transforms the negative base case effect into a positive one. Interestingly, this suggests that the market recognizes the benefit to the firm upon filling these institutional voids and, thus, actively rewards firms who are working to fill them. On average, one standard deviation increase in social CSR predicts an increase in Tobin's Q of about 0.015, representing an increase of about 0.9% (given the mean is at 1.63). In the strong institutional frameworks, the effect is about −0.9% in Tobin's Q

For governance CSR, most regressions show that governance CSR generally has a statistically significant positive effect on firm value for firms in weak institutional frameworks. Similarly, the significant and positive effect of governance CSR also suggests that the market recognizes and rewards firms in weak institutional frameworks who work to fill institutional voids. On

with a one standard deviation increase in the social CSR.

Tobin's Q.

*Government quality*

90 Firm Value - Theory and Empirical Evidence

This study advances the ongoing research on the effect of CSR on firm value by integrating an institution-based view with an institutional void perspective. We draw on institutional void theory to argue for country-level institutional frameworks as a systemic, institutional-level driver of CSR value creation. Our study answers the call for a greater understanding of the underlying mechanisms of CSR, specifically at an institutional level, and expands on studies investigating the valuation effect of CSR through an international investigation across both developed and emerging markets. Moreover, by disaggregating CSR into its three discrete pillars, we are able to demonstrate the valuation effect of CSR at a granular level. Consistent with our hypotheses and expectations, we find that CSR has a more pronounced positive effect on firm value in markets with greater institutional voids.

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Our results have important implications for managers. For firms operating in weak institutional frameworks, we suggest that CSR may be an effective method to create firm value. Along these lines, firms may adopt higher standards in areas such as product development or human resources, for example. By doing so, firms might be able to accrue valuable intangible assets while simultaneously filling institutional voids. Conversely, in environments with strong institutional frameworks, we suggest that managers only pursue CSR initiatives that are likely to add value, as our results suggest that efforts to deceive stakeholders will likely be futile. This study also presents the disclaimer that CSR may not necessarily be the silver bullet for improving firm performance. Indeed, while CSR may be a useful tool in a manger's arsenal, the fundamentals of good firm performance should stem from solid business decisions and strategies that play to their core competencies.
