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    • Third analysis of variance ANOVA

    2018-10-29

    Third, analysis of variance (ANOVA) test as well as Kruskal–Wallis test was conducted to determine if there is a significant amount of variation among the industrial sectors. According to the results that are reported in Table 2, The F-statistic as well as the χ2-statistic is significant in all cases. For instance, social responsibility, institutional investors and return on assets have F-statistics (χ2-statistics) of 3.50 (31.34), 9.23 (52.79), and 8.66 (54.79), respectively at 1% significance level. Fourth, the key variables in the sample were compared with variables׳ means that are reported in prior work to check for external validity. For instance, the T-statistic for the difference between institutional ownership in this study and what is reported in Elsayed and Wahba (2013) is −0.0907 (p=0.3661). These findings give supportive evidence for applicability of the current sample. The main dependent variable is institutional ownership (INS) that is measured by the fraction of common shares owned by institutional investors (Cox et al., 2004; Graves & Waddock, 1994; Johnson & Greening, 1999). The main independent variable is corporate social responsibility (CSR), which, as explained above, is expressed by the ranking of Egyptian firms in the S&P/EGX Index for corporate social responsibility (ESG Egypt). The S&P/EGX index assigns ranks from (1) to (30), as lower value means a better social responsibility. For ease of presentation and explanation, annual ranks are reversed so that higher values mean better rather than worse. The proposed mediating variable is financial performance. Although there is a wide literature on the appropriate measurement of performance, and this literature has led to little consensus on the best approach to take, financial performance, in this study, is expressed by return on assets as it chemical straight from the source reflects the operating results rather than decisions of capital structure (Schmalensee, 1989). Return on assets (ROA) is calculated by dividing firm profits before taxes by its total assets (Cox et al., 2004; Wahba & Elsayed, 2014b). The study controls several variables that might confound the relationship between social responsibility, financial performance, and institutional investors. Following previous work (Cox et al., 2004; Elsayed, 2006; Graves & Waddock, 1994; Johnson & Greening, 1999; Wahba, 2010), control variables include firm size, firm age, financial leverage, dividend per share, liquidity, capital intensity, and industry heterogeneity. Firm size (SIZ) is a relevant variable that could confound the relationship between social responsibility and institutional investors for several alternative arguments. First, large firms are likely to have more resources and that enhances a firm׳s ability to possess and process social information, which in turn gives the firm more competitive advantages (Russo & Fouts, 1997). Second, firm size may reflect the legitimacy principle, or to what extent the firm is visible to the public and this is because a large firm is either seen as industry leader (Henriques & Sadorsky, 1996), or is likely to have more environmental risk (Cohen, Fenn, & Konar, 1995). Third, it is argued also that firm size could moderate the relationship between social strategy and stakeholder orientation (Buysse & Verbeke, 2003). Finally, firm size has been related to the existence of scale economies inherent in social oriented investments (Chapple, Morrison, & Harris, 2005; Elsayed & Paton, 2005). Firm size is represented by the firm total assets (Wahba, 2015). The natural logarithm is employed to transform firm size, as the Shapiro–Wilk W test for normality is significant (W=0.681, p<0.001). Firm age (AGE) is also controlled for as management problems and principles are rooted in time (Greiner, 1972). Further, controlling for firm age is becoming important on the base that the more developed the firm, the greater is the likelihood that problems associated with path dependency will hinder strategic change in the firm (Henderson and Clark, 1990). It is represented by the time period from the incorporation date and the year of analysis (Elsayed and Wahba, 2013).