Corporate Governance, Corporate Investment, Corporate Social Responsibility and Firm Efficiency; A Comparative Study of Developing and Developed Economies

Abstract

Firm efficiency plays an essential role in the survival of an organization because when a firm becomes inefficient, it suffers losses and probably faces dissolution. The study investigated the relationship between corporate governance, corporate investment, corporate social responsibility, and firm efficiency in developing (Pakistan) and developed (USA) economies. The sample size of the study consists of 13 years of data from 2009 to 2021 of 200 non-financial firms from each developing and developed economy. To find accurate figures of firm efficiency, the study has employed the Data Envelopment Analysis (DEA) model. The research has used Principal Component Analysis (PCA) to construct a corporate governance index for each economy based on various corporate governance variables. The study has applied various statistical tools like descriptive statistic, correlation analysis, diagnostic tests such as heteroskedasticity, multicollinearity, stationarity, and endogeneity test, etc., panel regression and mediation analysis through feasible generalized least square (FGLS) and dynamic generalized method of moments (GMM) models to find and examine the relationships among variables. The theoretical framework is based on agency theory. The findings indicated that corporate governance, corporate investment, and corporate social responsibility have direct and significant relationships with firm efficiency in developing and developed economies. The findings of the study are consistent with prior studies and recommended that both owners and managers should try to mitigate agency conflicts in an organization, ensure investment in positive NPV and valuable projects, and utilize firm’s resources in an effective way to achieve goals. It also suggested that owners and managers should consider and focus on social activities for communities and create awareness to attract stakeholders and improve firm performance and efficiency. The findings of the study are helpful for investors, academic researchers, regulators, and business practitioners who are interested in understanding the association between corporate governance, corporate investment, corporate social responsibility, and firm efficiency.