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The Social Responsibility of Business Is To Increase Its Profits

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Abstract

When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system”, I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are — or would be if they or anyone else took them seriously -preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.

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... The reasoning seems to be close to the perspective offered by some of the most prominent economist of the so-called "Chicago School of Economics" (Miller Jr. 1962;Ebeling, 2006), among which Nobel prize winner Milton Friedman. In his well-spread article entitled "The social responsibility of business is to increase profits", Friedman (1970) claims that as businessmen defend the expansion of firms' goals from profits to desirable social ends (e.g. the provision of employment, the elimination of discrimination, the avoidance of pollution) they would be actually promoting what the author calls a "pure and unadulterated socialism", working as "unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades". Accordingly, the idea that businesses have responsibilities would not be possible, as this attribute would be limited to people. ...
... In the case of corporations directed to eleemosynary purposes such as hospitals and schools, the search for profit would give way to the objectives of the good performance of the respective services. Whatever the case, Friedman (1970) highlights, the corporate executive must be seen as an agent of those individuals that either own the corporation or establish benevolent institutions, meaning that their (i.e. corporate executives') responsibility is to them (i.e. ...
... If firms are indeed artificial persons (Friedman, 1970), the idea that they (i.e. firms)or actually any other type of organizationrepresent a gathering of real people who identify with meanings, values and purposes would be possible. ...
Thesis
The association of firms to crimes, condemnable management practices, operational difficulties and / or fails carried out by their partners suggests that negative events occurred in a firm (i.e. source firm) hold the potential to negatively affect others. As firms’ direct and indirect relationships with their partners become less obvious, supply chain risks (March and Shapira, 1987) must be reconsidered to account for this contemporary and possibly hazardous prospect. In addressing this issue, the present dissertation investigates the impacts of negative corporate events to supply chain partners. Throughout three individual but interconnected articles, empirical evidence suggest that beyond the interruption of physical flows, unfavorable circumstances may not be restricted to firms originating them, spreading across their networks. More specifically, based on the premises of the Efficient Market Hypothesis (Fama, Fisher, Jensen and Roll, 1969; Fama, 1970; Jensen, 1978), the utilization of the event study method (Fama, 1970; Brown and Warner, 1980) allowed the demonstration of negative reactions from investors of supply chain partners upon the disclosure of adverse news. In referring to these outcomes, the concept of supply chain contamination is here defined as “the dissemination of negative events through supply chains, negatively affecting not only the market value of customers and suppliers (possibly that of customers of customers and suppliers of suppliers and so on), as well as potentially other dimensions such as corporate reputations, for instance” (Fracarolli Nunes, 2018: 581).Initial theorization of this process is also proposed. The mechanics leading a company to be affected by events originated out of its organizational borders is portrayed in the concept of the inertial effect, illustrated in the image of “the waves caused by a stone that hits the water previously rested” (Fracarolli Nunes and Lee Park, 2016: 292). Within the reasoning of unintended or unanticipated consequences (Merton, 1936), the occurrence of supply chain contamination through the inertial effect is considered a collateral effect. From the intersection of the literatures on supply chain management and the Stakeholder Theory, a new conceptual model is developed. Building on the idea that stakeholders stand for any individual, entity or group that shall either affect or be affected by the operations of a company (Freeman, 1984), the empirical demonstration that investors of a supply chain partner must be affected (i.e. collateral effect) by negative events occurred in or caused by a source firm (i.e. supply chain contamination through the inertial effect), allows the proposition of the concept of incidental stakeholders, here defined as “stakeholders of stakeholders, which, as such, may not be aware of their links with other companies, or even not consciously willing to take the risks associated with such a subsidiary connection” (Fracarolli Nunes, 2019: 4). In this sense, the investigation of 30 cases classified in 5 distinct categories (environmental disaster, corporate social and environmental irresponsibilities, operational failure, corporate fraud and corruption) is expected to offer new perspectives on the structural risks associated to supply chains. Along with the theoretical discussions, practical utilizations are approached, as well as avenues for future inquiries.
... Hence, not only the interest of shareholders but also that of all the stakeholders while integrating economic and social responsibilities should be considered by the businesses (Margolis & Walsh, 2003;McWilliams & Siegel, 2000). However, the opponents of CSR agree to the viewpoint of Friedman (1970) who viewed CSR as shareholders' expenses, and opined that firms should have only profit function with a responsibility to increase value for its shareholders. However, despite this debate, an increasing number of firms are making CSR as a priority (Horjoto & Laksmana, 2016). ...
... Thus, the findings of the present study do not support the instrumental aspect of the stakeholder theory. The findings rather support the shareholders' expense view of CSR as argued by Friedman (1970) who believed that mandated CSR spending is considered as an extra tax by the markets which reduces firms' market value. This is especially true in case of the firms which are not inclined to spend on CSR activities. ...
... However, in the mandatory CSR regime in India, the amount and direction of CSR spending has been fixed based on the size of the firm. This forced CSR spending may be sub-optimal (Kim & Oh, 2019) and viewed as an indirect tax (Friedman, 1970) by the investors, and hence, perceived negatively. The Indian government has also been contemplating to institute penal provisions for the firms not able to conform to the CSR provisions. ...
Article
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This paper examines the impact of corporate social responsibility (CSR) expenditure compliance on firm value in the context of the Indian firms by applying instrumental approach of the stakeholder theory and the P/B-ROE valuation model. The study hypothesizes that CSR expenditure compliance will positively affect the firm value. Price-to-book (P/B) ratio of the firm is used as a proxy of the firm value. The sample of firms is selected from NSE-500 Index companies for the period of five years from 2014-15 to 2018-19 and the method adopted is a portfolio grouping approach to form a cross-sectional portfolio regression model. The results reveal that CSR expenditure compliance negatively influences firm value. Thus, instrumental approach which hypothesizes that CSR initiatives improve firm performance is not supported. However, to form a cross-sectional portfolio regression model by using portfolio grouping approach is found to be more appropriate than the individual cross-sectional regression model.
... the neoliberal capitalist principles of individualism and rational choice (hendry, 2000) set aside such considerations to focus on the organizational level benefits that accrue from profit maximization. if such non-material considerations can be proven to impact positively on profit maximization then they will, of course, be included in strategic decisions (Friedman, 1970). despite negative social and environmental impacts however, perpetrators are not disadvantaged since they can free ride on the benefits that flow from the generalized economic, social, and environmental impacts produced by other organizations (olson, 1965). ...
... in addition, by evidencing that social enterprise practices can be designed to advance the common good in the short and longer term, we elucidate the novel construct of deferred impact to explain such temporality. the consideration of non-economic variables on organizations has been assumed to lead to suboptimal economic performance (Friedman, 1970). to counter this view however, scholars have argued that self-and collective interests can be aligned by engaging in "other-directed behavior," albeit at a personal expense (Van de Ven, Sapienza, & Villanueva, 2007). ...
... the findings also support the view that entrepreneurship, specifically social entrepreneurship, can impact positively on society and thus provides a counter-balance to the neoliberal capitalist assumption that human behavior is motivated by self-interest. prior research has explicated how social issues are the responsibility of public and non-profit organizations (Friedman, 1970), however, social entrepreneurship demonstrates that blending financially robust business models with prosocial and environmental values and practices may in turn create novel capabilities and competitive advantage -exemplified by building "community legacy" into tenders at Sport. ...
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The common good refers to contextual conditions that contribute to human wellbeing and flourishing, such as prosperous communities and environmental sustainability. In this paper, we consider how entrepreneurship impacts society by investigating the generalized outcomes of social entrepreneurship on the common good. From a qualitative study of ten large and profitable social enterprises in the United Kingdom, we theorize how social entrepreneurship contributes to the common good in the short and long term. We also conjecture how some commercial practices undermine the common good and further, explain how the common good performs as a conceptual anchor for social entrepreneurship.
... Theoretical literature provides two competing views regarding the impact of corporate sustainability on the firm's CoE. The overinvestment view predicts a positive effect of corporate sustainability on CoE since it considers sustainability investments as a diversion of the firm's scarce resources that would put the firm at an economic disadvantage [1]. In contrast, the risk mitigation view suggests a negative effect of corporate sustainability on a firm's CoE either through a reduction in investor perceived risk and/or by attracting a broader shareholders base. ...
... From the shareholders' perspective, these investments are discretionary and therefore unnecessary and will also increase monitoring costs to align managers decisions to the shareholders' interest [23]. Overall, overinvestment in sustainability activities will increase costs, which would put the firm at an economic disadvantage [1]. Investors will negatively perceive such diversion of firm' resources and, therefore, will require a higher premium to hold the firm' stock. ...
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This paper investigates whether a firm’s managerial ability affects the link between a firm’s cost of equity capital and corporate sustainability. We test our predictions by using a large U.S. sample of 17,389 firm-year observations. Our findings show that only when managerial ability is high, corporate sustainability significantly reduces a firm’s implied cost of equity capital. An important implication of our findings is that firms with high managerial abilities and limited sustainability commitment are encouraged to pursue or initiate more sustainability activities owing to their negative effect on a firm’s cost of equity capital.
... A study by Irfan and Nishat (2002) The purpose of investing is to make a return over a certain period of time (Friedman, 1970). This being the case, aspects such as sustainability, liquidity and solvency are key considerations for investors who want returns. ...
Conference Paper
This paper aims to identify the central concepts of retirement tax literacy that could be included in a curriculum for taxpayer education. By applying an interpretive qualitative approach, it was possible to explore taxpayers’ retirement tax reality in more depth and yet also employ the factual and numerical nature of their queries. The study interpreted the literature, documents, and data. The document review offers a synthesis of the actions implemented by the South African government to simplify the income tax provisions applying to retirement funds and provides information regarding these changes. Following the document review, the empirical part focused on real-life queries that were the unit of thematic analysis. Retirement queries were purposively drawn as part of a convenience sample. The data was then analysed in two main ways that supported the development of the themes. This paper adds clarity on the concept of retirement tax literacy. Furthermore, the authors have drawn the two central concepts of governmental interventions and taxpayer retirement tax literacy into a more integrated scope to extend scholars’ and practitioners’ understanding of what it means to work more holistically and more consciously towards a generation that is better prepared and resourced for retirement.
... This result in additional costs which unjustifiably places the company in a disadvantageous position in comparison to companies who do not pursue CSR or pursue it on an adhoc basis (Aupperle et al. 1985). Friedman (1970) emphatically argues that the sole responsibility of a company is profit maximisation. To achieve this the corporate resources should be allocated to those activities which enhance profitability. ...
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Purpose: In the wake of increasing importance being accorded to the notion that corporates should assume socially responsible behaviour, the paper seeks to investigate whether such behaviour results in improved financial performance. Methodology: The sample consists of 63 Indian companies listed on NSE 100 ESG Index for the period 2017-18 and 2018-19. ESG score is used as a measure of corporate social responsibility performance of a firm. The financial performance is evaluated by using both accounting-based measures (return on assets and return on capital employed) as well as market-based measure (Tobin Q). Since size, as well as the age of a firm can confound the relationship between CSR and financial performance, the study incorporates them as control variables. A cross-sectional data model was developed and linear regression analysis was used to test the influence of corporate social responsibility on financial performance. Findings: The study found a significant positive relationship between corporate social responsibility performance of a firm and its financial performance both in terms of firm profitability (as calculated by accounting-based measures) as well as market value (as calculated by market-based measure). Also, it was found that the size of the company is positively and significantly correlated with CSR and all three measures of financial profitability, but, surprisingly no significant association was found between age and other variables. Implications: The study has strong implications for companies to integrate sustainable practices as their core business strategy as it would result in superior financial performance from competitive advantages, customer satisfaction and brand image, lower financing costs, employee retention, etc. It also has practical implications for investors, regulators, practitioners and academicians depending on the purpose. Originality/value: The study contributes immensely to existing research as it incorporates both measures of performance assessment and hence is more comprehensive as compared to earlier studies which have mostly used accounting measures. Further, there is a time lag after which corporate social responsibility practices translate into financial returns. The study incorporates this time lag and thus eliminates the inconsistencies of earlier studies.
... The major argument debated in these papers is that institutional investor activism is not beneficial to shareholders, stakeholders, and society. This is because the primary goal of an institutional investor is maximizing their value for shareholders as an agency rather than making a socially responsible investment [10,29]. Even though institutional investors apply a stewardship code as part of their investor activism, they cannot make a socially responsible investment at the expense of their interests, and thus society or stakeholders should not demand such moral activism from institutional investors. ...
Article
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With the growing number of environmental, social, and governance (ESG) problems, many companies have begun to implement more sustainable business practices. In the midst of this change, institutional shareholders declare and adopt socially responsible investment procedures, which is a way of engaging in investor activism. Despite the growing interest in investor activism following the introduction of the stewardship code, little attention has been paid to how socially responsible investment practices of institutional investors affect the non-financial value of the pillars of environmental, social, and governance as well as financial performance, including short-term accounting (ROE, ROA) and long-term market performance (Tobin q). The current study examines whether the national pension fund (NPF), the world’s third-largest Korean pension fund, can increase the ESG performance of investee firms in addition to accounting and market performance through institutional investors’ shareholding. This study, by applying path analysis, attempts to explore the relationship between the NPF’s socially responsible investing, ESG, and the financial performance of the investee firms. This research offers evidence that ESG performance acts as a moderator or a mediator between NPF’s shareholding and financial performance.
... The modern concept of corporate social responsibility states that the business entities in their usual process of business decision making should pay due attention to the social interests of the people in the community (Sarkar, 2005) because it is not just an economic entity; it is a social entity too. Friedman (1970) was the stern critic of this emerging concept of CSR and strongly professed that 'the sole social responsibility of business is to increase its profits only'. Bowen (1953) defined CSR as an obligation for business enterprises to account certain factors during the course of their business activities. ...
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Corporate Social Responsibility was originated as philanthropic act over a hundred years back but with the passage of time definition changes to responsibility for corporation towards its various stakeholders. The present study aimed at identifying the total CSR expenditure of Maharatna companies over the last four years i.e. 2014-15 to 2017-18, percentage of CSR expenditure spent on various activities and impact of ROA and PBDITA on CSR expenditure. The study is purely based on secondary data which were collected from various sources such as annual reports of Maharatna companies, CMIE Prowess, etc. which were analyzed with the help of statistical tools like, mean standard deviation, percentage, CAGR and regression analysis. The study revealed that companies belonging to energy, oil and gas industry i.e. GAIL (22.01 per cent), BPCL (24.62 per cent) and IOCL (30.29per cent) showed the highest growth in CSR expenditure during the last four years, however, BHEL, belonging to electrical equipment industry showed the negative growth of 54.04 per cent during the study period. In terms of percentage expenditure spent of prescribed amount, CIL spent more than four times to its prescribed amount of CSR expenditure on various activities while the major spending of companies was on education/ livelihood generation and health activities. PBDITA has significant positive relationship with CSR expenditure however ROA has negative correlation. The study highlighted that there was significant impact of PBDITA and ROA on CSR expenditure having r-square of 53 per cent.
... Our investigation is highly pertinent, as the impact of CSR orientation on firm performance is contentious from a theoretical perspective as well as related empirical evidence. Friedman (1970) and other neoclassical economists have argued that firms' engagement in socially responsible practices can be detrimental to shareholders' wealth and value. This view is challenged by other scholars (e.g., Donaldson & Preston, 1995;Freeman, 1984) who adopted a stakeholder theory perspective and rationalized that high CSR orientation can translate into better firm performance because managing relationships with all stakeholders generates competitive advantage. ...
Article
Ample body of evidence suggests the presence of a direct relationship between corporate social responsibility (CSR) orientation and firm performance. However, this finding seems spurious and imprecise, likely due to missing intervening factors that mediate this relationship. This gap in pertinent literature has motivated the present study, as a part of which customer satisfaction and customer loyalty were examined as two probable mediators in the relationship between CSR orientation and firm performance. The findings yielded by surveying the representatives of 326 Saudi Arabian businesses that have extensive business-to-business (B2B) operations across the Middle East and African (MEA) markets revealed that the link between CSR and firm performance is a fully mediated relationship. We found that firms' pursuit of CSR orientation positively affects firm performance, which is sequentially mediated by customer satisfaction and customer loyalty. These findings suggest a role CSR orientation plays in indirectly promoting firm performance by enhancing customer satisfaction as well as customer loyalty. Therefore, as business and society are two intertwined, mutually interdependent entities, business owners are responsible for all stakeholders (e.g., employees, customers, suppliers, and community), and this stakeholder-driven CSR orientation leads to sustainable firm performance.
... lkington, 2001 1997) vigorously advocated the need for a triple bottom line evaluation of the organization and Milton Friedman (Friedman, 1970(Friedman, , 2007 countered it arguing that the only bottom line of an organization is financial and the job of the caretakers of an organization is only to increase the profit. ...
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Indian equity markets are today well integrated into the Global financial markets and are playing vital role for the benefit of investors’ fraternity. They are well organized and are considered to be efficient because they react well both to international and internal factors. FIIs consider Indian equity markets as one of the best destinations. There is a steady increase in FII flows in to the Indian equity markets during the last few years. In this context the resent study aims at an analysis of the impact of FII flows on the volatility of NIFTY. The time-series data on FII flows, NIFTY and DEFTY indices for the period of 2001-20015, were tested for stationary using ADF test. Granger’s Causality Test was employed to investigate the possible causal relationship between the co integrated variables. However, investigation of volatility using models like ARCH, GARCH, EGARCH, etc reveals that there is no causality between FII flows and Nifty Volatility during the study period. Results of this study are useful to the FIIs, Retailers, QIBs, Pension Fund and Mutual Funds managers.
... This was developed further by Carroll (1979Carroll ( , 1991 in his four-pillared framework distinguishing between economic, legal, ethical, and philanthropic responsibilities. Such work challenged Friedman's (1970) economic freedom view, that the social responsibility of business was to make profits and hence any activity, social or otherwise, was only legitimate when it was in the organisation's self-interest. Several decades later and despite several attempts to formalise or standardize CSR, a widely accepted definition of the term remains elusive (Dahlsrud 2008;Green and Peloza 2011;Silberhorn and Warren 2007). ...
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While corporate social responsibility (CSR) activities are well-established among football clubs, COVID-19 challenged clubs’ capacity and commitment to continue delivering in times of crisis. Focusing on Scottish Professional Football League (SPFL) Premiership clubs and their charitable foundations, we examined challenges presented by restrictions and limited resources and how these impacted the decision making of CSR managers, as well as their prioritisation of projects undertaken. Qualitative research methods were applied in a two-step process. A content analysis drawing on publicly available resources provided a holistic overview of the CSR landscape in Scottish football. Subsequent semi-structured interviews with CSR managers of four clubs’ foundations offered detailed insights into crisis response. We found that resource limitations resulted primarily in operational rather than financial difficulties. To remain functional and consistent with their motives, foundations initiated new ways to address target groups’ social needs. Specifically, delivery shifted towards direct help and short-term support. While foundations continued to benefit from being associated with the parent football club, autonomy from the club was a critical success factor intensifying stakeholder relationships and community links. COVID-19-related disruptive factors resulted in more rapid decision making and greater empowerment of operational staff. Lessons learned have potential implications for CSR management post-pandemic.
... The history of CSR has been touched by (Carroll, 2017;Lee and Xia, 2006). Before the 1980's CSR had proven to be a burden on the firm, an initiative that benefitted various stakeholders but at the expense of stockholders (Friedman, 2017(Friedman, , 1970. After the 1980s, CSR was given importance in strategic firm goals after developing stakeholder theory (Freeman, 1984). ...
Conference Paper
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Fintech has been playing a significant role in reshaping the financial and banking landscapes in the present era. However, in recent times these reforms are hindered by the Covid-19 pandemic throughout the world which fascinates researchers to a great extent to research on. The purpose of this research article is to analyze the published articles during the pandemic (2020-2021) on the impact of Covid-19 on fintech. Two keywords were used to conduct an initial search process. Primarily 144 articles have found and then 74 articles were eliminated through a systematic review process. Dimension database is used to search all open access articles to carry out a bibliometric analysis with biblioshyni of R. The findings of this research may significantly contribute to the fintech literature.
... However, some scholars pointed out the ideas of individualism, profit maximization, and economic rationality existed in the financial sector [41,42]. This would lead investors to pay more attention to the realization of self-interest and choose rational-rather than reasonable-behavior in the financial market [43], which suggests that the "governance effect" brought by institutional investors on their portfolio companies may generally be negative. ...
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Whether the company’s R&D expenditure has the green attribute is the focus of current environmental economics research. This paper empirically tests the relationship between R&D expenditure and CO2 emission intensity by taking Chinese A-share listed companies, from 2016 to 2020, as samples. The research found that the R&D expenditure of the company has a significant green effect of reducing its carbon dioxide emission intensity. Further research shows that the institutional investors play a mediating role in the relationship between R&D expenditure and CO2 emission intensity. And the “governance effect” of institutional investors is affected by “short-termism”, which leads to the “myopic” of enterprises’ management and urges them to invest in the short term, thus being detrimental to the company’s environmental performance. In addition, the green attribute of R&D expenditure only exists in the company which has a high concentration of institutional investors, indicating that the institutional investors possess the ability to identify the green value of R&D investment. Extended discussion shows that the investment of R&D personnel plays a moderating role in the first half path of the above mediating mechanism, which weakens the negative relationship between institutional investors and R&D investment. This paper provides empirical evidence for the government to improve environmental performance at the enterprise level. The results of this study show that, in order to reduce the CO2 emission intensity of enterprises, the government should improve incentives for enterprise R&D, make rational use of the information identification ability of institutional investors, advocate long-term investment philosophy, and strengthen the training of R&D team leaders and technicians.
... However, there are some scholars who argue that CSR has a negative impact on competitiveness, typified by Friedman, who argues that the cost of fulfilling social responsibility is to consume internal and external resources and increase the financial burden of the firm, thus increasing its costs. As a result, socially responsible firms generate relatively less profit than those that do not, resulting in a relatively poor economic position [11]. Nollet et al. confirmed that corporate social performance has a negative significant effect on capital gains in a linear model by examining the effect of CSR on the financial performance of S&P 500 stock companies during the period 2007 to 2011 [12]. ...
... The contemporary purpose movement we observe in practice suggests a shift in thought regarding what a company's role in society should be and the role of marketing in the firm. Academics and practitioners in the shareholder value tradition have long argued that an organization's chief purpose is to maximize financial returns (Friedman 2007;Jensen and Meckling 1976). This perspective represents the dominant view of why a firm exists (Weintraub 2002). ...
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This paper explores organizational purpose as a distinct, emerging, practitioner-led concept that places a specific meaningful motivation at the heart of organizations - even established for-profits. Using a discovery-orientated, theories-in-use approach, the authors identify organizational purpose as an organization’s meaningful and enduring reason to exist that aligns with long-term financial performance, provides a clear context for daily decision making, and unifies and motivates relevant stakeholders. Combining in-depth interviews with extant theory and supporting artefacts, the authors provide a robust description of the phenomenon, establish the concept’s uniqueness, identify antecedents and consequences, propose intervening conditions, and offer insights into how firms can develop an organizational purpose within their organizations. The paper ends with a discussion of the implications of the concept for research and practice.
... The history of CSR has been touched by (Carroll, 2017;Lee and Xia, 2006). Before the 1980's CSR had proven to be a burden on the firm, an initiative that benefitted various stakeholders but at the expense of stockholders (Friedman, 2017(Friedman, , 1970. After the 1980s, CSR was given importance in strategic firm goals after developing stakeholder theory (Freeman, 1984). ...
Conference Paper
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Sustainable employee performance is crucial for organization sustainability as employees play a key role. Due to the pandemic, new changes in the workplaces have created difficulties for employees and organizations to sustain performance. Employee performance sustainability refers to maintaining performance at a standard for the long term and every organization consists of a diverse age group of employees. Old-age employees are more vulnerable to the virus. Employees tend to be having more fear and less performance due to the pandemic. This study intends to develop a sustainable employee performance conceptual model based on the motivational theory of lifespan development, which intends to serve organizations and employees in terms of sustaining performance both during and after pandemic scenarios. Motivation and Self-efficacy play a driver for sustainable employee performance by helping employees to re-engage with goal attainment mechanisms even in older age. Based on this study, future directions have been provided. On this issue, we hope to provide solid information about sustainable employee performance and potential future paths for further studies.
... Whereas traditional economic theorizing emphasizes market competition as the main driver of social welfare, stakeholder theory emphasizes cooperation (Freeman and Phillips, 2002). Whereas traditional economic theorizing, and in particular agency theory, sees managers' duty as maximizing the financial market value of firms (Jensen, 2002;Friedman, 1970), stakeholder theory holds that the job of managers is to foster cooperative relationships with stakeholders by balancing their interests . And whereas traditional economic theorizing assumes that humans behave as Homo economicus, rationally pursuing their self-interest by responding to financial incentives, stakeholder theory holds that human behavior is much more complex than that Jones, 1995). ...
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We reflect on the past, present, and future of stakeholder theory, focusing on its link to strategy and organization scholarship. Stakeholder theory was originally conceived as a theory of strategic management, but for most of its history it largely developed without having a noticeable impact on strategy research. This has changed in the last decade, however, with the strategy field making a ‘stakeholder turn’. We highlight the streams of research at the forefront of this turn, including work on ‘behavioral stakeholder theory’, ‘stakeholder strategy theory’, and ‘stakeholder governance’. We conclude with an outlook on how stakeholder theory can help strategy scholars develop a theory of managing value creation that explicitly acknowledges both the economic and moral nature of relationships in and around organizations.
... Depositors' money and shareholders' funds should not be used for welfare purposes as it can affect the viability and profitability of Islamic banks. This view resembles with western neoclassical word view, especially with the concept of Friedman regarding corporate social responsibility, in which he says that maximizing profit is the only legitimate and most important objective of commercial organization, and it is profit maximization through which society is best served provided the commercial institutes operates within prescribes rules and regulations (Friedman, 1996). On the contrary, Chapra's model put more emphasis on religious commitments and social responsibilities for achieving equitable distribution of wealth and income, social justice, and promoting economic development. ...
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Islamic banking has made tremendous growth in the last few years all over the world. However, people are not satisfied with the performance of Islamic banks with respect to their contribution to alleviating poverty and equitable distribution of wealth, achievement of socio-economic welfare, and human well-being. Therefore there is a need to critically review the current practices of Islamic banks and assess the need to develop a model of Islamic banking in the light of Maqasid al Shariah which can contribute to socio-economic welfare and human well-being of people by eradicating poverty and concentration of wealth. For this purpose, this study employs exploratory, qualitative research in which semi-structured face-to-face interviews are conducted with renowned Shariah scholars, Shariah Supervisory Board (SBB) members of Islamic banks, and renowned academicians. The grounded theory research approach is used in this study using NVIVO data analysis software. The results of this study show there is a dire need to develop a model of Islamic banking in the light of Maqasid al Shariah for the socio-economic welfare of the people. Both Islamic and conventional banks are in a capitalistic paradigm. Hurdles created due to a capitalistic mindset should be removed. Islamic banks could not bring a visible change in society with respect to the alleviation of poverty and the social well-being of the people. A new model focusing on achieving Maqasid al Shariah for the welfare of not only Muslims but all human beings on earth is the need of the hour in which socio-economic welfare should be given the primary role in the current practices of Islamic banks.
... Neo-classical economists advocate that investment in CSR activities lessens opportunities to use resources for firms' benefits (Friedman, 1970). Investing in CSR implies higher costs, which triggers conflict of interest between stakeholders (Greening and Turban, 2000), eventually hindering the FP of the firm (Palmer et al., 1995). ...
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The global pressure to reduce carbon emissions on high-carbon-emitting economies has intensified significantly in recent years. However, these efforts’ effect on the firm’s financial performance (FP) has been a major concern. This research investigates the relationship between environmental performance (EP) and FP of Chinese firms considering the effect of the COVID-19 outbreak. Data was collected from Refinitiv DataStream and span the period of 2017–2020. In addition to the fixed-effects regression, the novel dynamic panel bootstrap corrected fixed effects and panel corrected standard errors methods were utilized to test the hypotheses. Obtained results revealed two key findings. First, there is weak evidence that higher EP increases firms’ FP. Second, the relationship between EP and FP is positive in times of economic distress, meaning that firms must continue investing in environmentally ethical and sustainable projects during the crisis. Our empirical findings extend the existing literature by showing that even in times of crisis, such as COVID-19, an environmentally friendly business model positively affects the firm’s financial structure. We discuss the policy recommendations implied by our findings for investors, business owners, managers, and officials in the conclusion section.
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Environmental, social, and governance (ESG) performance may be one of the strategies firms adopt to enhance their financial flexibility in response to an increasingly uncertain environment and difficult sustainability conditions. We use A-share listed firms in China from 2015 to 2020 as samples to test the influencing mechanism of ESG performance on financial flexibility. The empirical results indicate that ESG performance significantly enhances financial flexibility. The mechanism results show that financing constraints mediate ESG performance and firms’ financial flexibility. The additional analysis suggests that environmental uncertainty and market attention have significant positive moderating effects. That is, the promotion effect of firms in high uncertainty environments is more apparent, and the same is true in high market attention. This study supports instrumental stakeholder theory, signaling, and social impact hypothesis. It has enlightenment significance for firms, investors, and creditors to evaluate ESG performance and government departments to formulate relevant policies.
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The aim of study is to examine the impact of corporate sustainability (ESG) on the financial performance for Malaysia and Indonesia. A sample was selected comprising of 36 companies listed in Bursa Malaysia and 24 companies listed in Indonesia Stock Exchange over the ten-year period 2010-2019. Using fixed effect (FE) and pooled OLS suggest that ESG practices are positively associated with financial performance. This result implies that companies engaged in environmental, social and governance aspects have a higher shareholder value. A good economy condition encouraged companies to integrate ESG aspects and rewarded investors with good financial return (ROE). Companies with lesser governance practice would increase shareholders value (ROE). Essentially, this empirical evidence confirms stakeholder’s theory and agency theory. The implication of this study is to strengthen the development of sustainability from ESG practice and in line with current agenda of sustainable finance for the policymakers. Indeed, this study encourages more potential investors to invest companies with ESG practices.
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The study explores the moderating role of audit quality in the relationship between environmental, social, and governance (ESG) factors and corporate financial performance (CFP) in Western European countries. The research sample includes 620 firms headquartered in Western Europe, including Austria, Belgium, France, Germany, Luxembourg, Monaco, the Netherlands, and Switzerland from 2010 to 2019. Panel data estimations are used to examine the direct and moderating effects. The results show that ESG has a significantly negative effect on a firm’s financial performance as measured by the return on assets (ROA), supporting the trade-off hypothesis in which investing in ESG activities increases the cost of business. Additionally, we find that ESG’s adverse influence on CFP is more evident at enterprises that are certified by Big Four accounting firms. However, ESG has a significantly positive effect on revenue, suggesting that customers are more attracted to firms that invest in ESG. The analysis of the subcomponents of ESG supports the main results. The results are robust to alternative model specifications and alternative measures of CFP and audit quality and are free of endogeneity issues. The findings contribute to the existing knowledge on ESG by elucidating the effect of external auditor quality on the ESG-CFP relationship. We also examine overall ESG scores as well as individual ESG characteristics (environmental, social, and governance).
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To address the question of why corporate executives adopt diverse corporate social responsibility (CSR) strategies, this conceptual paper proposes a decision-frame model to explain how differences in executives’ information-processing templates can lead to different strategic choices concerning CSR. Drawing on managerial cognition research and CSR literature, the CSR decision frame is conceptualized as a three-dimensional configuration. Each dimension depicts a continuum of responses to each of the three fundamental issues related to CSR (i.e., corporate’s objectives, corporate’s stakeholders, and leader’s responsibilities). The key premise is that the specific content and structure of a CSR decision-frame configuration define a leader’s unique stance on environmental and social issues, which, in turn, influence their sense-making process and shape CSR responses and strategies. This CSR decision-frame approach provides a process lens that highlights the cognitive mechanisms of how executives make critical CSR strategic decisions. Furthermore, this paper advances the understanding of the diversity in CSR strategy with a nuanced mental-configuration perspective: CSR means many different things to different leaders depending on the unique content and structure of his or her CSR decision frame; these varying subjective representations of CSR principles contribute to the diverse CSR responses across firms.
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Instrumental Stakeholder Theory has begun to suffer from what might be termed “mission drift.” Despite its initial success in creating a foothold for ethics in managerial decision-making, the efficiency arguments which now dominate this research stream have become counterproductive to the original goal of connecting ethics and capitalism. We argue in this paper that the way forward is by re-centering contingency, conversation, and inefficiency in stakeholder theory. To start this process, there needs to be a reckoning of some unintended impacts of the success of the instrumental stream of stakeholder research. For a contrasting approach, we draw on Richard Rorty’s pragmatism and its foundation of ethical “irony,” a state of continuous doubts about the utility of one’s moral vocabulary. We offer a Rortian approach to stakeholder theory, unearthing the possibility for new corporate target functions in the goals of harm reduction, solidarity, and social mobility, the foundational building blocks of an ironist ethical perspective.
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THE ENTREPRENEURIAL PROCESS In this lecture I wish to explore the possibility of a useful dialogue between the fields of entrepreneurship and business ethics for mutual benefit. Although these two fields have much to offer each other, they have developed largely independent of each other. I wish to argue that entrepreneurship has a role to play in stakeholder theory and, relatedly, that stakeholder theory enriches our understanding of the entrepreneurial process. Entrepreneurship, in my view, is fundamentally concerned with understanding how, in the absence of current markets for future goods and services, these goods and services manage to come into existence (Venkataraman, 1997). To the extent value is embodied in products and services, entrepreneurship is concerned with how the opportunity to create “value ” in society is discovered and acted upon by some individuals. The field of business ethics, on the other hand, I think, is concerned with the “methods ” used to create this “value”, and the ensuing distribution of the value among