The Mediating Effect of Corporate Social Responsibility in the Relationship between Internal Control and Firm Financial Performance: Evidence from Non-Listed Firms in Pakistan

Abstract

This study investigates whether corporate social responsibility (CSR) mediates the relationship between internal control quality and firm financial performance among non-listed firms operating in Pakistan. Internal control is conceptualized through the COSO (2013) Internal Control - Integrated Framework and the governance-monitoring logic underlying the Sarbanes-Oxley Act (2002), and is measured through a primary-data survey instrument administered on a five-point Likert scale to finance, audit, and compliance managers. CSR engagement is similarly captured through a validated Likert-scale instrument covering economic, legal, ethical, and philanthropic dimensions. Firm financial performance is operationalised through three secondary-data accounting- and market-based indicators - return on assets (ROA), return on equity (ROE), and Tobin's Q - averaged over a ten-year window to smooth short-term volatility. Grounded in agency theory, stakeholder theory, legitimacy theory, and the resource-based view, the study proposes and tests a mediation model in which internal control strengthens financial performance directly and indirectly through enhanced CSR engagement. Data collected from a stratified sample of non-listed manufacturing and services firms were analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM) in SmartPLS 4, supplemented by bootstrapped mediation analysis. The findings are expected to extend internal control and CSR theory to the under-researched non-listed firm context in an emerging Islamic economy, and to offer practical guidance to regulators, boards, and managers on strengthening governance-CSR-performance linkages beyond listed-firm settings.

Keywords

Internal control, COSO framework, Sarbanes-Oxley, corporate social responsibility, financial performance, ROA, ROE, Tobin's Q, non-listed firms, Pakistan, PLS-SEM, mediation analysis

https://doi.org/10.5281/zenodo.22842730