Corporate Opacity, Corporate Social Responsibility, and Financial Performance

• Corporate opacity is negatively associated with a firm's CSR performance. • The incremental effect of corporate opacity on the relationship between CSR and financial performance is negative. • The results imply that as opacity increases, the incentive of CSR weakens and the effect of CSR on financial performance becomes negative. This study investigates the impact of corporate opacity on a firm's corporate social responsibility (CSR) performance and the relationship between CSR and financial performance. Corporate opacity reflects the different levels of the market scrutiny and the possible entrenchment problem toward investors. By applying regression analysis, we find that corporate opacity is negatively associated with a firm's CSR performance and that the positive effect of CSR on long-term profitability weakens as opacity increases. Our findings contribute to the introduction of a new mediator, corporate opacity, to explain the mixed results on the relationship between CSR and financial performance. We suggest the consideration of corporate opacity to evaluate the effectiveness of CSR activities on a firm's financial performance.