The Impact of Corporate Social Performance on Investment Efficiency -An Analytical Study of a Sample of Industrial Companies Listed on the Iraq Stock Exchange

Prepared by the researche

• Zaid M. Alabassi – Al-Furat Al-Awsat Technical University
• Haider Naser – Al-Furat Al-Awsat Technical University

DAC Democratic Arabic Center GmbH

International Journal of Economic Studies : Thirty-fourth Issue – August 2025

A Periodical International Journal published by the “Democratic Arab Center” Germany – Berlin

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Abstract

Corporate Social Performance plays a prominent role in enhancing its ability to optimally exploit available opportunities. Therefore, the study aims to measure and analyze the impact of social performance on investment efficiency. The study population consists of industrial companies listed on the Iraq Stock Exchange. A sample was taken from this population, with the sample size amounting to (4) industrial companies listed on the Iraq Stock Exchange. The selected time series consisted of (6) years, i.e., from (2018) to (2023). The Eviews10 program was used for analysis and hypothesis testing. A set of conclusions were reached, the most important of which is that the social performance of the industrial companies in the study sample improves their reputation, in addition to conferring societal legitimacy. This leads to attracting investors and, consequently, improving their investment efficiency. Based on the conclusions, a set of recommendations were made, most importantly: The researchers recommend that the industrial companies in the study sample formulate and implement clear strategies related to social aspects, focusing heavily on several aspects and issues of priority to Iraqi society (such as employment, environment, and education), as well as effectively communicating their achievements to attract investors and build reputations.

Introduction

A corporate Social Performance plays a prominent role in maximizing its ability to survive and continue. The concept of corporate social performance aligns with the current calls of governments, organizations, institutions, and societies. These calls focus on environmental conservation and avoiding excessive consumption of raw materials to achieve corporate goals. Furthermore, companies seek to eliminate unemployment by employing workers, while also refraining from engaging in prohibited activities and using products that harm humans and the environment. Therefore, a company’s concern for customers and the environment positively impacts the exploitation of available investment opportunities. The global trend, through organizations, institutions, and centers, toward environmental conservation and the protection of natural resources has created constraints on companies, which has subsequently led these companies to change their philosophy and approach to work. Furthermore, investing in areas related to sustainability (green investing) can enhance a company’s competitiveness and thus maximize its returns. The problem of the study was represented by the low investment efficiency of Iraqi industrial companies and its impact on their inability to compete and thus survive and continue. The importance of the study stems from the importance of the topics it addressed, which are current topics, in addition to the mechanisms it provides that can be adopted to enhance the ability of Iraqi industrial companies to achieve their goals (maximizing returns, competition and continuity).

1- Study methodology                                             

1-1 Study problem

A company’s ability to survive and continue depends on the extent to which its decisions are integrated. For example, the availability of funds in sufficient quantities and at the appropriate time does not absolutely mean that the company will achieve its goals unless it possesses the ability and competence to direct these funds toward areas that maximize its returns. Therefore, it can be said that a company’s investment efficiency plays a prominent role in enhancing the company’s ability to compete, and thus its survival and continuity. Therefore, a company’s decreased efficiency in exploiting investment opportunities will cast a shadow over the company’s overall position in the market. Consequently, a low level of investment efficiency (in light of intense competition) may lead to a gap between two important decisions (financing and investment). This will ultimately lead to a company’s inability to survive and continue, leading to its exit from the market. A review of reports issued by the Iraq Stock Exchange reveals the decline in the investment efficiency of many Iraqi industrial companies. In light of the above, the study’s problem can be framed around the following questions:

1-What is the impact of a corporate Social Performance on investment efficiency?

2-What is the level of investment efficiency of the industrial companies in the study sample?

3-How can the corporate Social Performance be used to improve its investment efficiency?

1-2 Study objectives

The study aims to achieve a number of objectives, including:

1-Measuring and analyzing the impact of a corporate Social Performance on investment efficiency.

2-Determining the level of investment efficiency of the industrial companies in the study sample and then guiding these companies to achieve their goals.

3-Formulating appropriate mechanisms to enhance investment efficiency through a company’s social performance.

1-3 Hypothetical study plan

The study plan is the framework that shows the relationship between the study variables. In addition, the hypothetical study plan is the mirror that reflects the indicators adopted in measuring the study variables. The following figure (1) shows the hypothetical study plan:

Fig 1. Hypothetical study plan

1-4 Study hypotheses

1-(H0-1): There is no significant effect of corporate social performance on asset growth.

2- (H1-1): There is a significant effect of corporate social performance on asset growth.

3-(H0-2): There is no significant effect of corporate social performance on sales growth.

4- (H1-2): There is a significant effect of corporate social performance on sales growth.

1-5 Study community and sample

The study population consists of industrial companies listed on the Iraq Stock Exchange. A purposive sample of these companies was selected based on several criteria, including continued operations during the period (2018-2023), and the availability of data in reports and bulletins issued by the Iraq Stock Exchange and the Securities Commission. The table below represents the study sample.

Table 1. Firm study sample

Source: Financial reports issued by the Iraq Stock Exchange.

2- The theoretical framework of the study

2-1 The concept of corporate social performance

The concept of corporate social performance (CSR) has recently emerged and gained widespread attention among academics and relevant institutions (such as CSR rating agencies and data providers). It is a multidimensional concept that primarily covers three aspects related to environmental, social, and governance (ESG) issues (Lahouel et al., 2021,p 1). CSR is a fundamental concept that focuses on sustainable outcomes (Veltri et al., 2021, p1664). Similarly, CSR relates to companies developing processes that enhance their interactions with stakeholders to ensure sustainable outcomes (Igbekoyi et al., 2021, p3). Social performance refers to the outcomes of CSR strategies, which are primarily determined by the social and environmental dimensions. The social dimension takes into account all aspects related to reputation and the relationships that companies are able to establish with stakeholders, while the environmental dimension considers a company’s commitment to protecting the environment for future generations (Nirino et al., 2022, p 1996). The corporate Social Performance is a tool for legitimacy as well as the company’s commitment to all stakeholders (Pérez-Cornejo et al., 2023, p283).

    Corporate social performance is defined as “the set of social responsibility principles, social responsiveness processes, policies, programs, and tangible results adopted by a company in relation to its community relations” (Lahouel et al., 2021, p1). (Jiang et al., 2024, p15733) defines corporate social performance as a set of activities and processes that create a balance between sustainable corporate growth and community protection. (Bhattacharya et al., 2022, p38) defines corporate social performance as a multidimensional measure of a company’s impact on stakeholders, including adherence to environmental, social, and governance (ESG) standards, transparency in reporting, and integration of sustainability into the core business model. (Gillan et al., 2021, p5) defines corporate social performance as the quantitative and qualitative assessment of how a company manages its relationships with society and customers, including environmental performance, equality, human rights protection, and ethical compliance in accordance with legal requirements.

2-1-1 Measuring the corporate social performance

A corporate Social Performance is measured by the ratio of social costs to operating profit. The higher the costs compared to operating profit, the weaker the social performance. This ratio is calculated using the following equation: (Jones & Wicks, 1999) (Al-Shammari & Al-Saidi, 2020), (Alnajem, 2022)

Where:

CSP: Corporate Social Performance.

SC: Social Costs.

OP: Operating Profit

2-2 The concept of investment efficiency

Investment is one of a company’s core financial activities, significantly impacting its production, management, and long-term development. This has made the concept of investment efficiency one of the most important concepts, occupying a wide space both in academic circles and at the corporate level (Li et al., 2024, p9) (Wu et al., 2023, p9). Investment efficiency is one of the most important factors affecting corporate financing and future growth (Lin et al., 2023, p 6). Investment efficiency reflects a company’s ability to allocate its financial resources (capital) toward projects and investments that generate the highest expected return, exceeding their financing costs. This efficiency is achieved through a systematic evaluation process of available opportunities, focusing on maximizing NPV while ensuring optimal use of assets. Thus, the company ensures the highest possible value for shareholders in the long term by selecting the most profitable investments commensurate with its risks (Grant, 2003). Investment efficiency is related to how companies choose to invest, as deviations from optimal investment represent a decrease or increase in investment. The importance of understanding investment choices has led to the emergence of a large body of literature on investment efficiency over the past two decades (Hmed & King, 2025, p 451).

   Fama (1970, p 384) defines investment efficiency in the context of financial markets as the state in which the prices of traded securities fully and immediately reflect all relevant available information, making it impossible to consistently achieve above-average profits after accounting for risks and transaction costs. Meanwhile, (Brealey et al., 2020, p 4) defines investment efficiency as management’s ability to select and implement projects that generate returns that exceed the cost of capital, thereby maximizing the value of the company. (Ross et al., 2019, p 13) defined investment efficiency as the optimal allocation of a company’s resources (capital) across available investment opportunities, with the goal of achieving the highest possible return commensurate with the acceptable level of risk, without wasting resources on projects with a non-positive net present value (NPV). (Koller et al., 2020, p 25) defined investment efficiency as a company’s ability to generate the maximum possible value from each unit of invested capital. This is achieved by focusing on projects that offer the highest economic return (such as economic profit or economic value added (EVA)) after covering the entire cost of capital, including the cost of equity.

2-2-1 Measuring investment efficiency

   Investment efficiency is measured by the following indicators: (Advani, 2014)

1- Asset growth: Asset growth at the company level is the percentage change in the book value of total assets (Wen, 2019). Asset growth is calculated using the following equation: (Gray & Johnson, 2011)

Where:

TAGt: Asset growth in period t

TAt: Total assets in period t

TAt-1: Total assets in period t-1

2-Sales growth: Sales growth is one of the most important factors affecting companies’ performance (Lee et al., 2020). Sales growth represents the percentage change in sales value (Irfan et al., 2017). Sales growth is calculated using the following equation: (Melananda & Sari, 2024).

 Where:

SGt: Sales growth in period t.

St: Sales in period t.

St-1: Sales in period t-1.

3- Results and their discussion

3-1 The normal distribution test

The normal distribution test is used to ensure the accuracy of the data (valid for statistical analysis) and according to the study indicators. The (Jarque-Bera) test will be used to test the normal distribution. Table (3) below shows the results of the normal distribution test.

Table 2.  Results of the normal distribution test for the study indicators

Source: Prepared by the researchers based on the outputs of the (Eviews 10) program.

According to the approved study indicators, it is clear from Table (3) above that all data were normally distributed, as the probability value of (Jarque-Bera) indicates that it is greater than (0.05) for all companies, and the standard deviation values were low for most companies.

3-2 unit root test

The unit root test is performed on the panel data to determine whether the time series is stationary or non-stationary. Table (4) below shows the test results.

Table 3.  Unit root test

Source: Prepared by the researchers based on the outputs of the (Eviews 10) program

It is clear from the results of Table (4) above and according to the type of test adopted that the time series data were stationary at the level, as the value of (Prob) was less than (0.05) for all indicators.

3-3 Testing study hypotheses

1-Analysis and testing of the first hypothesis: There is no significant impact of the corporate Social Performance on asset growth.

Table 3.  Results of testing the impact of social performance on asset growth

Source: Prepared by the researchers based on the outputs of (Eviews10)

The results of Table (5) above show that the explanation coefficient reached (0.89), indicating that the corporate Social Performance explains (0.89) of the change in asset growth. Furthermore, the significance of the model reached (0.000), which is less than (0.05), indicating that the model is significant. The results of Table (5) above also indicate that the beta coefficient for social performance reached (0.33), which is significant at the significance level of (0.05), indicating the acceptance of the alternative hypothesis.

2- Analysis and testing of the second hypothesis: There is no significant impact of the corporate Social Performance on sales.

Table 4.  Results of testing the impact of social performance on sales growth

Source: Prepared by the researchers based on the outputs of (Eviews10)

The results of Table (6) above show that the explanation coefficient reached (0.79), which indicates that the corporate Social Performance explains (0.79) of the change in sales growth. In addition, the significance of the model reached (0.001), which is less than (0.05), which indicates that the model is significant. The results of Table (6) above also indicate that the beta coefficient for social performance reached (0.69), which is significant at a significance level of (0.05), which indicates the acceptance of the alternative hypothesis.

4- Conclusions and recommendations

4-1 Conclusion

Based on the results obtained, the following conclusions were reached:

1-The social performance of the industrial companies in the study sample improves their reputation, as well as conferring social legitimacy. This leads to attracting investors and, consequently, improving their investment efficiency.

2-Positive impact of social performance on asset growth is established, as industrial companies’ commitment to aspects related to social standards reduces their operational and legal risks (protests, sanctions), which leads to stable cash flows and enhanced investor confidence, which positively impacts asset growth.

3-Positive impact of social performance is established on sales growth, meaning that investment in several aspects (employee training, environmental protection projects, local community support) contributes significantly to building effective human and social capital, as well as creating a stable work environment. This positively impacts productivity and supports the implementation of long-term investment projects (environmentally friendly investment), which leads to sales growth.

 4-Companies’ orientation towards formulating a clear strategy related to society and the environment enhances the competitiveness of these companies in the Iraqi market and makes them more attractive to strategic partners and more capable of obtaining affordable financing, which maximizes their returns (integration between financing and investment).

4-2 Recommendations

1- The researchers recommend that the industrial companies in the study sample formulate and implement clear strategies related to social aspects, focusing heavily on several aspects and priority issues for Iraqi society (such as employment, environment, and education), as well as effectively. communicating their achievements to attract investors and build reputations.

2-The industrial companies in the study sample should focus on incorporating non-financial risks (social and environmental risks) into their risk management systems and programs, as well as disclosing their social and environmental performance in their reports to enhance customer confidence and subsequently improve their ability to invest (grow their assets)

3-The researchers recommend that the industrial companies in the study sample should focus on investments related to social and environmental aspects that create long-term shared value for the company and society, such as smart cities, employee skill development, energy efficiency, and pollution reduction. This will achieve operational savings and support investment efficiency (sales growth).

4-The need for the Securities Commission and regulatory authorities to build and develop a regulatory and incentive structure and framework (such as a guide or conditional tax incentives) that encourages listed companies to adopt and disclose standard social responsibility practices, in order to enhance market transparency and a culture of responsible investment.

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