Mediating Role of Internal Control in the Relationship between ESG-Based Corporate Social Responsibility and Firm Financial Performance: Evidence from Pakistan

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides empirical evidence from an emerging market on the mediation of internal controls in the ESG-financial performance link.

🏢実務担当者:Demonstrates that strengthening internal controls can amplify the financial benefits of CSR activities.

🏛政策担当者:Suggests that regulators in developing economies should promote integrated ESG and internal control frameworks.

Abstract This research paper analyses the relationship between Environmental, Social and Governance (ESG)-based Corporate Social Responsibility (CSR) and company financial performance as a particular emphasis on the mediating role of internal control effectiveness when considering the relationship between the aforementioned variables in the context of the emerging economies. The study relies on sustainability and reporting procedures known to stakeholders around the globe including the Global Reporting Initiative (GRI) as well as the International Sustainability Standards Board (ISSB) to operationalize the notions of ESG-based CSR practices. This study uses the strong econometric methods, such as panel regression model and mediation analysis, to test the validity of the direct and indirect relationship between variables using the use of a balanced panel dataset of non-financial firms listed on the Pakistan Stock Exchange (PSX) over a multi-year period. Under ESG performance, a content analysis in accordance with the international levels of disclosures, as well as in accordance with the internal control effectiveness in the COSO model, will be measured. The high financial performance is represented by the accounting performance measures (Return on Assets and Return on Equity) and the market-based measures (Tobin’s Q). The results show that the CSR which is based on ESG positively affects the financial performance of the firm both directly and indirectly through improved internal control systems. In particular, companies having a high CSR engagement show better governance systems, risk management, and transparency, which enhance the internal controls, and consequently the financial results. The critical role of an internal control in providing the mediation between sustainability efforts and value creation definitely reflects the critical role played by internal control as an internal control mechanism of governance that links the sustainability efforts and the value creation. The research paper has contributions to the existing body of literature by presenting empirical evidence that encompasses the limited integration of ESG framework and internal control mechanisms in the literature, on a developing economy. It also provides useful implications to the managers and regulators of corporations along with the international system of controls and control systems through focusing on the strategic significance of aligning CSR activities with internationally recognized standards and effective systems of internal controls. Moreover, the research supports the global sustainability goals as identified by the United Nations Sustainable Development Goals since it shows how responsible corporate practices can lead both financial performance and sustainable development.

• Zenodo https://zenodo.org/records/20320540first seen 2026-05-22 04:14:46 · last seen 2026-06-04 04:25:37