Examining the Influence of Community, Environmental, and Health Focused CSR Activities on Financial Performance: A Study of Sri Lanka

This study investigates the impact of corporate social responsibility (CSR) activities specifically community, environmental, and health-related initiatives on the financial performance of listed companies in Sri Lanka. Financial performance was measured using Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q. Prior to estimation, stationarity of the variables was tested using the Augmented Dickey–Fuller (ADF) and Phillips Perron (PP) tests, with all variables found to be stationary at level. Multicollinearity diagnostics confirmed that VIF values were below the acceptable threshold, indicating no multicollinearity concerns. Correlation analysis revealed generally weak associations between CSR variables and financial indicators. Panel data regression using Ordinary Least Squares (OLS) showed that community CSR had a negative but statistically insignificant effect on ROA and ROE, whereas environmental CSR had a positive and significant effect on ROA. Health-related CSR exhibited a negative influence on ROE but a positive and significant impact on Tobin’s Q. The fixed-effect model provided a better fit, as indicated by the Hausman test, and revealed that community and health CSR activities positively influenced ROA, with health CSR emerging as the strongest predictor of ROE. Similarly, the fixed-effect model for Tobin’s Q suggested that environmental CSR negatively affected market value, while health initiatives contributed positively. Across all models, Durbin–Watson statistics indicated no autocorrelation, and F-statistics confirmed overall model significance. Overall, the findings suggest that CSR activities affect financial outcomes differently: environmental initiatives enhance accounting-based performance, health-related CSR strengthens both accounting- and market-based measures, and community CSR exhibits mixed or weak effects. These results underscore the strategic value of well-designed CSR programs in enhancing firm performance in emerging markets.