Impact of Corporate Social Responsibility on Internal Control Effectiveness: Evidence from Pakistan

Abstract

This paper will discuss effectiveness of Corporate Social Responsibility (CSR) within the corporate sector of Pakistan as far as internal control is concerned. CSR is conceptualized based on the stakeholder, legitimacy and agency theories and is a multidimensional construct with its dimensions as economic, legal, ethical, philanthropic, environmental, stakeholder and governance. The COSO framework measures the effectiveness of the internal controls by using such important elements as control environment, risk assessment, control activities, information and communication, and monitoring.

The research design will involve a quantitative research design where primary data will be used in terms of structured five point Likert scale questionnaire to the respondents that will be finance and audit professionals. Statistical techniques like reliability and validity analysis, correlation, and multiple regression and controlling the variables of the firm, including firm size, age, leverage, and research and development, are used to investigate the relationship.

The findings indicate that CSR practices and internal control effectiveness have a strong positive relationship meaning that better companies with regards to CSR activities have effective internal control mechanisms. Among the CSR dimensions, the most influential one is on the governance dimension and ethical responsibilities. The study presents the evidence that is founded on empirical studies within the developing economy and strategic importance of introducing CSR in corporate governance to facilitate transparency, accountability and risk management.