Investment Inefficiency and Corporate Social Responsibility

We demonstrate how earlier approaches to model the impact that corporate social responsibility (CSR) has on investment inefficiency are likely to be incorrect and propose use of the stochastic frontier methodology to model this relationship. We apply the approach to a sample of European listed companies, providing robust evidence that CSR performance is negatively associated with investment inefficiency. This result is consistent with the claim that high CSR firms are characterized by low information asymmetry and high stakeholder solidarity, which may represent a source of competitive advantage, helping to decrease investment inefficiency.