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Corporate Social Responsibility and Firm Performance: The Moderating Role of Reputation and Institutional Investors

Canadian Center of Science and Education
International Journal of Business and Management
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Abstract

Drawing on the institutional theory, stakeholder perspective, and ownership literature on corporate social responsibility, this article sheds light on the relationship between the firm social performance and the financial performance of the firm. Singularly, the paper explores a moderating effect of both corporate reputation as a proxy for firm social activities’ publicity and the institutional investors in the firm. The paper proposes that expected positive impact of both reputation and institutional investors on the relationship between CSR and firm performance. Such that, the firm can best benefit from CSR activities when it has a good reputation among major stakeholders. The effect of institutional owners is expected to positively moderate the relationship between CSR activities and firm performance. Overall, the paper suggests that corporate ownership structure, as well as corporate consistent reputation will have influence on the extent to which a firm may benefit from its CSR activities which would open a new avenue for research on governance structure with regard to CSR and firm performance. Implications for both academics and practitioners are discussed and suggestions for future research are provided.
International Journal of Business and Management; Vol. 10, No. 6; 2015
ISSN 1833-3850 E-ISSN 1833-8119
Published by Canadian Center of Science and Education
15
Corporate Social Responsibility and Firm Performance: The
Moderating Role of Reputation and Institutional Investors
Marwan Alshammari1
1 University of Texas, Arlington, USA
Correspondence: Marwan Alshammari, University of Texas, Arlington, USA. E-mail:
marwan.al-shammari@mavs.uta.edu
Received: March 9, 2015 Accepted: April 2, 2015 Online Published: May 25, 2015
doi:10.5539/ijbm.v10n6p15 URL: http://dx.doi.org/10.5539/ijbm.v10n6p15
Abstract
Drawing on the institutional theory, stakeholder perspective, and ownership literature on corporate social
responsibility, this article sheds light on the relationship between the firm social performance and the financial
performance of the firm. Singularly, the paper explores a moderating effect of both corporate reputation as a
proxy for firm social activities’ publicity and the institutional investors in the firm. The paper proposes that
expected positive impact of both reputation and institutional investors on the relationship between CSR and firm
performance. Such that, the firm can best benefit from CSR activities when it has a good reputation among major
stakeholders. The effect of institutional owners is expected to positively moderate the relationship between CSR
activities and firm performance. Overall, the paper suggests that corporate ownership structure, as well as
corporate consistent reputation will have influence on the extent to which a firm may benefit from its CSR
activities which would open a new avenue for research on governance structure with regard to CSR and firm
performance. Implications for both academics and practitioners are discussed and suggestions for future research
are provided.
Keywords: corporate social responsibility, firm performance, institutional investors
1. Introduction
Corporate social responsibility has received growing interest from business scholars over the past couple of
decades. The linkage between CSR and firm performance, however, has been a controversial issue among
scholars as there has not been a consensus regarding the impact that CSR would have on firm performance.
Building on the call made by Balogun et al. (2014) for a more integrative approach among theoretical arguments
that are business related such as sense-making, power, and socio-materiality, the current study aims at examining
the moderating effects of institutional investors and corporate reputation on the relationship between corporate
social responsibility and firm financial performance. One view in existing literature points out that firms that act
responsibly in their social context can gain a competitive advantage and therefore improve their financial
performance. (McWilliams & Siegel, 2001), for example, noted that there is an optimal level of CSR that
managers can control based on an economic view of cost vs benefits, and that CSR does not have a significant
level of impact on firm financial performance. (Andersen & Olsen, 2011) used the operating income of the firm
and found robust correlation between a firm’s CSR level and its financial performance. (Branco & Rodrigues,
2006), argue that firms benefit from initiating a social engagement and activities and those accrued benefits can
be internal by improving a cooperative culture that would enhance and enrich its Know-Hows, and externally by
contributing to its overall reputation.
Drawing on institutional theory, (Jennings & Zandbergen, 1995) asserted on the need for such ethical and
socially desirable actions, therefore, argued that firms can develop a sustainable and true presence, as well as a
sustainable bionetwork for the firm. (Donker, Poff, & Zahir, 2008) found a significant and positive relationship
between CSR index and firm performance. Furthermore, they reported that firm values and ethics were found to
be strongly and positively correlated with firm book value, suggesting that such CSR activities could be
strategically critical asset in boosting the value of the firm. (Dutton & Dukerich, 1991) also argued that firms can
achieve a collective and stronger involvement of its employees, which in turn increase their commitment and
productivity, thus be reflected positively on its performance.
In this paper, I revisit the relationship between CSR and firm performance, taking into consideration a possible
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moderating effect of corporate reputation and institutional investors. Building on the existing literature, I propose
a more integrative model. It is argued that stakeholders and major constituents play crucial role in the firm’s
level of performance. There is a need for a more integrative approach through which our understanding of the
impact of CSR on firm performance can be improved. Consistency and social engagement are major factors in
order for firms to benefit from such CSR activities (Freeman, 1984). Therefore, my study proposes that whereas
CSR is imperative to the firm and will have a positive impact, it should be noted that when a firm’s reputation is
not at considerable level from the stakeholders’ perceptions (Herremans, Akathaporn, & McInnes, 1993), the
CSR rating even if high, will not add a decent value, nor the contribution to the firm financial performance will
be manifested. However, when a firm has already a strong and well-established reputation, only then a firm can
expect a strategically competitive advantage as it increases its CSR engagement and activities (Branco &
Rodrigues, 2006). CR has become a vital business issue, with a reputation that can either activate the
remuneration from the concerned stakeholders, or offset the positive impact that an emerging CSR activities may
produce, it is noteworthy then that firms that have already created and maintained their reputation are expected
to realize soon the added value by their social engagement which will be reflected in the firm’s profitability
(Herremans et al., 1993).
The study builds on corporate ownership structure literature, particularly, institutional ownership in the firm and
the role it plays in aligning the CSR initiatives with stakeholders’ expectations, firm’s best interest, and also
minimizing the likelihood of self-interest social activities that a CEO might undertake. (Hartzell & Starks, 2003)
found that institutional investors play significant role in mitigating agency problems and closely monitoring
CEO behavior. (Ferreira & Matos, 2008) also found that firms with higher levels of ownership by independent
institutions exhibit lower capital expenditures and better monitoring role, which was reflected on a better firm
performance. (H. L. Petersen & Vredenburg, 2009) suggest that these institutions do prefer socially aligned
organizations, and their decisions after investing whether to hold or sell their shares depend on several factors,
their results from surveying many representatives of institutional investors show that CSR is highly considered
and perceived as a mechanism through which risk is mitigated through better relations with several stakeholders,
and enhancing the firm access to resources. Therefore, it is noteworthy to test the relationship between the
presence of institutional investors and the extent to which CSR will have an effect on a firm performance, I
expect that these institutional owners will play a positive moderating effect to enable CSR positive impact and
create mechanisms through which they enjoy economic benefits.
1.1 Corporate Social Responsibility and Firm Performance
Stakeholders’ perspective suggests that firms would be better off when they know their stakeholders demands,
and try to meet them. (Freeman, 1984) argued that firms that satisfy their stakeholders are able to create
strategically competitive advantage. (Gove & Janney, 2011) suggested that firms can benefit from CSR enhanced
reputation when they undergo major crisis or scandals. According to them, safeguarding part is best obtainable
when CSR is high, and thus, financial performance will not be deeply harmed. This implication can be extended
as well to the time of crisis in the whole market, where stakeholders will perceive firms with better CSP less
negatively.
Campbell (2007) argued that firms engage in socially responsible activities because they respond to several
actors in the environment. He grounded his argument on institutional theory prescriptions. Furthermore, he
indicated that when firms are engaged in dialogues with their environs, they are best advised to respond
positively to their stakeholders, the non-governmental organizations, and to the norms emerging in their
environments.
Also, building on institutional theory, CSR performance will be greatly taken into consideration when
institutions are weighing their available alternatives. For example, it is argued that institutional investors would
prefer firms with better CSR ranking over those with low rankings. Consistent with this argument (Graves &
Waddock, 1994) reported that the number of institutions holding shares on a company is greater when the firm
has better CSR performance indicators. The intangible resources have long been argued to be crucial in creating
and maintaining a competitive advantage. Hall (1992) argued that it is crucial for firms to consider its intangible
assets such as know-how and employee cooperation and collaborative work, and that it should be given more
importance in drawing a firm’s strategy. This implies great importance for the employees’ loyalty and
commitment, which can be enhanced through a CSR active engagement. CSR ranking takes into consideration
employees’ relations as a major indicator for a firm’s CSR ranking. That being said, it is reasonable to assume
that firms with better social performance will enjoy more collaborative work environment and employees
commitment which would in turn improve its performance. This implication for the strategic importance of
intangible assets is also supported by Turban and Greening (1997), who argue that CSR does add a strategic
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advantage to the firm by attracting and retaining talented employees. This reasoning supports the notion that in
highly competitive industry, employees’ satisfaction can be obtained by incorporating their perceptions into the
work, which in turn increases their constancy and commitment to their firm, thereby, adding a value and
sustaining talented employees.
It is also argued that firm’s financial capabilities are major beneficiaries from CSR ratings. El Ghoul, Guedhami,
Kwok, and Mishra (2011) for instance, found that firm’s cost of equity will be cheaper for firms with higher CSR
ratings. Lin and Wu (2014) found similar results. Dhaliwal, Li, Tsang, and Yang, (2014) provided more support
to this notion revealing that the relationship holds even stronger for countries that are stakeholder-oriented.
Additional support was reported in Reverte (2012), when it was found that that the relationship is even stronger
in sensitive industries.
On the other hand, some scholars have raised some concerns regarding the financial impact of CSR. Among
others Cox et al. (2004) studied the relationship between CSR and firm performance and found no relationship.
McWilliams and Siegel (2001) suggested a neutral relationship between CSR and financial performance based
on a firm-based view. They indicated that there is an ideal level of CSR managers can determine using a
cost-benefits analysis. They employed a set of factors as independent variables including size, diversification,
R&D, government sales, consumer income, labor market conditions, and stage in industry life cycle. Aupperle et
al. (1985) also reported no significant relationship between CSR and firm’s profitability.
Contrary to these propositions, Hillman and Keim, (2001) found that when firm’s social engagement is properly
presented and fit their stakeholders’ expectations, such action lead to value creation and positive impact on firm’s
financial performance. Russo and Fouts (1997) also provided support for the positive impact of CSR on firm’s
profitability. They studied 243 firms over two years, and used environmental ratings to address the relationship
between CSR and firm’s profitability. They found that adopting socially and environmentally responsible
policies, indeed, lead to better financial performance. Moreover, they argue that when industry grows faster, this
relationship holds stronger. Ekatah, Samy, Bampton, and Halabi (2011) found that regardless of the causal
connection, CSR is found to be positively related to profitability of the firm. Almsafir (2014) also found CSR
leads to improved firm’s profitability and that financial performance is better off when firms are highly rated in
their CSR indexes in comparison to other firms. Cochran and Wood (1984) found that the Average age of
corporate assets is found to be highly correlated with social responsibility ranking.
Some researchers have argued that worse social performers have made more charitable contributions than other
better social performers. Chen et al. (2008) studied three domains of social performance. They stated that those
who have the worst social performance in the three domains (employee relations, environmental issues, and
product safety), have made more charitable contributions to make up for their failure in these domains. The
conclusion one can draw from this finding is that when firms do better job and comply to their code of ethics, as
well as the industry code of ethics, they do not need to give as much money out as they would have to if they did
not do well in their social performance. Furthermore, these results as suggested by Chen and colleagues (2008)
found significant and hold true especially for the environmental and product safety dimensions of social
performance, suggesting that in industries where product and environment matters, more attention should be paid
to firm’s social performance so firms can sustain their social power and avoid getting to the point where they will
have to make up for their social failure by giving more money in charitable contributions.
The stakeholders’ theory asserts on the need for continuity in meeting stakeholders’ expectations, with
accordance to their importance, as well as appropriate and most fit activities and initiatives. (Hond, Rehbein,
Bakker, and Lankveld (2014) insisted that firms must pay close attention to their stakeholders and be consistent
in sustaining their social performance, as well as political performance. This, in turn, creates a favorable situation
under which firms may benefit through regulations, governmental support, and also improved reputation.
It has also been argued that firms with low innovation and differentiation strategies can utilize their CSP to
improve their financial performance. (Hull & Rothenberg, 2008), for example, argued that CSR performance has
a strong impact on firm financial performance when the firm is at low-innovation and differentiation level. This
mechanism can also be used as a leverage in the firm’s long term strategy to build upon this advantage to
improve its strategic domain in the future, such as taking further steps towards expansion either geographically
or in its product lines gradually until it has gained a sound platform of strategic advantages.
More importantly is the consistency in CS performance. Hull and Tang (2012) argued that a consistent social
performance is a condition that under which firms can only start realizing synergies and improve their financial
performance. This notion is consistent with other studies. Wang and Choi (2013) for example, insisted that in
order for firms to enjoy the CSR returns, they must be consistent. They concluded that firms that are
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knowledge-intensive must more than others pay more attention to their CSR performance, as such action would
have a stronger positive impact on their overall financial performance through maintaining their know-hows
secrecy and thus keeping one of their core competencies.
The dynamic nature of today’s most business environments requires firms to react in a timely manner to any
move in the market. CSR is a strategic step firms can incorporate into their strategy and can therefore utilize it in
a profitable manner. The most recent CSR index has incorporated six dimensions, of which employees relations,
workplace, and society-oriented are major dimensions. Hatch (1993) developed a model that he called cultural
dynamics, it insists on the importance of the courses of actions through which a firm’s social image is manifested
and symbolized. Based on this, one can argue that CSR as in its fundamental definition is one of the crucial
duties that could articulate the firm’s dynamic aspects in its economic and social context.
This notion found empirical support in the literature. El Ghoul et al. (2011) found that CSR affects the cost of
capital, indicating a positive relationship between firms with better CSR score, exhibited cheaper equity
financing. Firms that try to satisfy their stakeholders will definitely benefit on two dimensions, one is that they
are building a good identity and image, and the other is cost minimization by using environment-friendly policies
in their production and services. For example, firms can make a good argument of their socially and
environmentally good behavior of paperless work, while they are actually minimizing their costs. Also consistent
with (McGuire, Sundgren, & Schneeweis, 1988) who argued that risk is reduced with high commitment to CSR.
Support for this notion is also found in Attig, El Ghoul, Guedhami, and Suh (2013) who found that credit
agencies give higher rating to firms with socially responsible acts. In line with notion, finance literature reported
strong support. Jiraporn, Jiraporn, Boeprasert, and Chang (2014) found that firms with good CSR rating enjoy
advantageous credit rating. In sum, firms can surely be in advantageous situation by being socially responsible. It
is in the firm interest to have a good credit rating and reduce its cost of capital. Firms can then be better off in
terms of being able to access the cash they might need in their strategic plans, and therefore, have better chances
relative to other competitors with low CSR performance.
Waddock and Graves (1997) found that firm’s level of CSR have a positive impact on its financial performance
This effect, according to them, can be best noticed in the subsequent years, supporting the notion that
consistency is important in generating the financial returns of CSR. Barnett (2007) proposed that a firm’s current
stock of SIC is positively related to its prior CSR activity. That is, a firm can benefit from CSR in building a
good influence on its stakeholders, he then proposed that the effect of an act of CSR on stakeholder relations and
SIC (stakeholder influence capacity) are amplified in the presence of evidence of its effect on social welfare In
other words, a firm needs to show some evidence that its activities have contributed positively to its stakeholder
welfare. This reasoning underlies my proposition that a firm that does not air its CSR effectively and in a timely
manner would not be able to capitalize on the CSR activities. Therefore, it is important that the social
engagement and reach of a firm -which mainly depends on its ability to continuously make its CSR activities-go
noticed and then it can expect an improvement of the effect of such activities.
Also form stakeholder perspective, firms can gain stronger support when they are perceived as socially
responsible from the stakeholders’ perceptions. Maignan and Ferrell (2004) proposed that firms can, indeed,
generate more support from stakeholders when they are seen as socially responsible. Further support for this
notion is reported in (Mukherjee & He, 2008).They argued that firms can create competitive advantage by being
socially responsible. Their model suggests that the three major stakeholders (Managers, employees, and
customers) evaluate the company based upon its identity, and thus CSR is the major pillar of this evaluation. In
so doing, firms can influence such evaluation and benefit from their behavioral consequences and thus obtain
superior performance. Sen, Bhattacharya, and Korschun, (2006) found that CSR will be rewarded from
stakeholders. Not only in the consumption domain, but more importantly in the employment dimension, as well
as the investment dimension. Stakeholders respond positively and strongly once the firm’s social activities
become genuine and consistent with their perceptions. Vlachos, Tsamakos, Vrechopoulos, and Avramidis (2009)
insisted on the importance of consumer trust, in order for the firm to benefit from CSR and create competitive
advantage and sustain it, this supports the notion that firms that are consistent in their social performance can
enjoy a strong support from their stakeholders, and thus improve their financial performance... Building on this,
my first proposition in this research is:
Proposition 1: The level corporate social performance of the firm will be positively related to its financial
performance.
1.2 Corporate Reputation as a Moderator
Weigelt and Camerer (1988), among others, defines the reputation of a firm as “set of attributes inferred from the
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firm’s past actions and ascribed to the firm”. Miller and Plot (1986) argue that one of the reputation building
behaviors firms can adopt is selling high-quality products, and charging higher prices. One might ask then, could
this reputation be perceived as a socially responsible behavior? From a stakeholder perspective, it might be seen
as a single dimension as it commits to producing differentiated and high quality products. However, this does not
qualify the firm to realize rents if it has a low CSR ratings. This is a strategic action that reflects a differentiation
strategy, behavioral reputation building (Miller, R. and C. Plott. ‘Rents for reputations’. Paper presented at
Western Finance Association Meetings, 1986). In that sense, (Shapiro, 1983) argued that firm’s reputation is
mostly built upon their products ‘and services’ qualities, and that when they produce a unique and differentiated
products they can enjoy premium returns for their high-quality product. That is, a reputation is built over time,
needs to exist along the line with the firm’s CSR independent rating, in order for firms to achieve better
performance. It is the sense of math, when we have a positive number that is added to a negative number, there
are three possible outcomes: +A+-B, if A>B we know for sure the outcome is positive, if A<B we know for sure
the outcome is negative. If A=B the outcome is 0. In the context of CSR and reputation, the same logic applies,
and both CSR and existing reputation should be positive to trigger the feasibility of CSR.
Firm’s reputation has been argued to affect firm’s financial performance. For instance, Turban and Greening
(1997) built on the social identity theory and found that CSR performance is positively related to the firm’s
reputation and attractiveness as employers, and thus they can attract potential talented employees. This, however,
can establish an advantage in industries where competition for the human capital is high and where such
resources make a difference. Rationally speaking, employees would want to work for a firm that has a
well-established reputation and has a unique brand name that they can have loyalty and commitment toward. In
the human resource perspective which stems from the RBV, firms that have strategic know-hows such as human
capital skills and technological distinctive assets will utilize these key competencies to craft and sustain a
competitive advantage, the relationship between these two constructs is positively related as suggested by Arendt
and Sebastian (2010) and that corporate reputation plays moderating role in such relationship. In particular, the
activities that firm undertakes to improve its reputation, in which CSR is the major pillar, are important to create
a better reputation and therefore enhance the human capital commitment.
The importance of social performance lies in its ability to either enhance or harm a firm’s reputation. Social
performance importance also vary across industries, industries where stakeholders perceptions focus more on
environmental dimensions of CSR will push firms to do a better job on such direction as to meet the expectations
of their stakeholders, and by doing so, reputation can be improved and sustained resulting in better relations with
stakeholders which will be rewarded in subsequent years. In this sense, S. J. Brammer and Pavelin (2006) found
that CSP vary across sectors, and that a fit must be established between stakeholder’s expectations and a firm
social-oriented activities in order for the reputational effect to be positive.
Corporate reputation has been defined as a “set of collectively held beliefs about firm’s ability to satisfy the
interests of stakeholders” (Beheshtifar & Korouki, 2013), they argued that it also means “collective judgments of
a corporation based on assessment of its financial, social, and environmental impacts attributed to the firm”, this,
indeed, means that a firm that is positively perceived by the stakeholders and independent observers would most
likely have a better image than other firms that are less responsive to stakeholders demands. Beheshtifar and
Korouki, (2013) also argued that reputation can be as success contributing factor as failure as well if not
well-established and sustained.
Also, researchers have found that continued good reputation of the firm will eventually pay off, reputation as
mentioned previously can be seen as either perceptions of stakeholders or judgment based upon activities, since
those activities are in fact tightly linked to firm social performance, it indeed suggested that such activities will
create both cognitive and judgment that are positive. Eberl and Schwaiger (2005) studied 30 German firms and
after adjusting for past performance effect, they found that the reputational effect is positively related to future
firm performance, although, they suggested that there is slight probability for generalizability, but these findings
are consistent with other findings that suggest the same relationship holds true even for U.S firms.
The strategic actions of firms affect its performance, and it is built upon the available resources for the firm that
it can utilize to maximize the shareholders’ value. Strategy scholars have suggested that corporate reputation is
an important intangible asset that the firm can use to create or sustain its competitive advantage. Hall (1992)
argued that in the context of strategy, reputation and know-how are indeed intangible resources for a firm, based
on a national survey study of the chief executives in the U.K, he concluded that reputation and know-how are the
most contributing intangible resources for business success and thus suggested that such resources must be taken
into consideration as major factors for the strategic management process. Turban and Greening (1997) builds
upon the social identity and signaling theory and proposes that CSR is positively related to firm’s reputation and
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attractiveness of talented employees, thus can create a competitive advantage.
By undertaking a socially responsible actions, a firm can develop a collective and collaborative environment that
would be more efficient and effective, I mean by efficient and effective is that a firm collective actions which are
the actions taken by its managers, shareholders, and employees who are important group of internal stakeholders
(Stuart, 2002), are consistent, socially responsible, and committed to a collectively acceptable beliefs and norms
it would be much easier for the firm to automatically activate its employees to be more productive, to be
committed, and loyal to work as the internal environment has been established by all the internal stakeholders
and these beliefs are agreed upon. In this sense, Dutton and Dukerich (1991) found that the organization’s image
and identity create motivations for its employees and this and turn creates patters for the future actions of the
firm. Freeman (1984) defined stakeholders as “those groups who can affect or are affected by the achievement of
an organization’s purposes”, an integrative strategy in satisfying both groups of stakeholders internal and
external would help the organization receive full support from the employees which lead to better firm
performance and productivity as suggested by Ashforth and Mael (1989) who argued that organizations that
succeed in aligning a consistent identification for their employees would get full support from this group of
stakeholders.
In a literature review done by Chun (2005), he concluded that corporate reputation is “umbrella construct,
referring to the cumulative impressions of internal and external stakeholders”, furthermore, the author also
insisted on the importance of such construct in creating a positive perceptions at the stakeholders’ side such as
suppliers, customers, employees, and other relative stakeholders. This supports the view that reputation works as
a either enhancer or ballast of the relationship between firm’s social performance and firm financial
performance.
Firms need to make their social activities relevant to their domain, important to their major stakeholders, seen
and noticeable, and more importantly strategized and sustained in the most profitable way to the firm so it can
capitalize on such reputation.
(Dickinson-Delaporte, Beverland, & Lindgreen, 2010; Herremans et al., 1993; Mallin & Michelon, 2011;
Wrolstad & Krueger, 2010) among many other scholars have studied the direct relationship between corporate
reputation and either CSR or firm performance. However, as I propose in my study, there is a quiet slight, yet,
unseen and under-researched difference between the two in their correlation and individual effect on firm
performance. A question that worthwhile to understand this conflicting issue is as follows: suppose a firm
decides to engage in many social activities and make charitable contributions, the firm has a bad history and
negative image at the stakeholders’ side, will its social activities represented by its independent rating or by its
own disclosure work immediately? The questions draws a picture of what could improve our understanding on
how existed strong reputation will enable a stronger positive impact of the CSR or a bad reputation will cancel
out such effect. In fact, a study done by Chen et al. (2008) found that worse social performers have made more
charitable contributions than other better social performers, this provides a strong support on the need for
established reputation that will positively moderate the relationship between CSR activities and firm
performance. It can be argued that reputation works as the enabler or the canceller in the sense that it works in
upward direction (enhancer) when it has been already existed and established in the social context (stakeholders
perceptions), or as stabilizer when the reputation is moderate and CSR is high, and as leverage when the CSR is
high and reputation is low, yet, if CSR is maintained in the long term, reputation will move upward as well and
keep moderating the relationship between the CSP and firm performance. For example, a firm that competes for
talented employees with high CSR performance, but with a negative reputation will not be able to attract the
most unique applicants (Chen et al., 2008). Turban and Greening (1997) among others suggest that good
reputation will attract the talented employees, and that firms can build a competitive advantage through a
well-established reputation, along with a good and decent CSR rating (Mukherjee & He, 2008).
Dickinson-Delaporte et al. (2010), Sur and Sirsly (2013) among others studied the relationship between
corporate reputation and firm performance using stakeholders approach, the results have indicated that the
concerned stakeholders build reputation of firms based upon different approach, they found that stakeholders use
market and accounting-based measure to evaluate firm’s performance, then they use institutional signals to judge
firms’ compliance and responsiveness to the social norms, the firm’s strategic explicit vision as a measure of its
strategic stances. Then, it should come as no surprise, that firms with good reputation will enjoy a favorable
evaluation to large degree regardless to the level of their social engagement as long as those firms do not violate
the social norms and engage in scandals, however, these firms that have a good reputation can then strategically
create competitive advantage by a stouter social performance, which in turn will be rewarded by the
stakeholders.
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Riordan, Gatewood, and Bill (1997) defined corporate reputation as a “function of organizational signals which
determine the perceptions of various stakeholders regarding the actions of an organization”, reputation has been
linked to the sustainable satisfaction of internal and external stakeholders (Dickinson-Delaporte et al., 2010;
Herremans et al., 1993; Wrolstad & Krueger, 2010). It is in the firm’s best interest to take advantage of its
reputation and act accordingly in the social context, in so doing, it uses what has been called a socio-materiality
approach (Balogun et al., 2014) to capitalize on its pre-established reputation in the market context and the social
context, thus improve its financial performance by the expected reward from stakeholders.
In fact, there is a decent body of research that suggests consistency and uniformity are crucial factors to enable
CSR positive impact. Oikonomou, Brooks, and Pavelin (2014) builds on the social judgment theory and studied
the relationship between CSR uniformity and firm performance, the findings support the notion of uniformity
and continuity, indicating that firms with pre-established and uniform indicators of CSR strategically
outperformed firms with mixed picture that has opposite directions of its CSR and reputation.
According to Fombrun and van Riel (1997), each of the following discipline has used its own definition of
reputation:
Accountancy: Reputation seen as an intangible asset and one that can or should be given financial worth.
Economics: Reputation viewed as traits or signals. Perception held of the organization by an organization’s
external stakeholders.
Marketing: Viewed from the customer or end-user’s perspective and concentrating on the manner in which
reputations are formed.
Organizational: Viewed as the sense-making experiences of employees or the perception of the Behavior
organization held by an organization’s internal stakeholders.
Sociology: Viewed as an aggregate assessment of a firm’s performance relative to expectation and norms in an
institutional context.
Strategy: Reputation viewed as assets and mobility barriers. Since reputations are based on perception, they are
difficult to manage.
I argue that firms that engage in CSR activities, without being able to communicate well with their stakeholders,
and thus make their activities noticeable will fail to enjoy rents from their social engagement, reputation is
always needed as a way to make the firm’s social strategy works better.
For instance, in industries where the competition is fierce, the firm will need to make sure that its CSR activities
go public and make sure to communicate well its message to its consumers. The benefit of CSR activities are
contingent upon an effective marketing of those activities. (Kemper, Schilke, Reimann, Wang, & Brettel, 2013)
found that marketing had a significant and positive impact when the financial performance when the CSR is high,
while it had low impact when the CSR is low.
In fact, scholars have argued that firms engage in CSR as a response to stakeholders pressure (Hooghiemstra,
2000), if so, then CSR activities can’t pay off as a single strategy unless it is accompanied with good reputation,
strong publicity, and effective marketing.
Proposition 2: The firm reputation will positively moderate the relationship between the firm’s level of CSR and
the firm financial performance. Such that firm performance will be best off when it has high level of CSR and
well-established reputation.
1.3 Institutional Investors, CSR, and Firm Performance
Large institutional investors have become major player in the U.S corporations with ownership of half of U.S
firms’ equity. They have voting power that increases over time by increased activism in their involvement in
firms’ strategies, especially large institutional investors as argued by Davis and Thompson (1994). Thomsen and
Pedersen (2000) found that such investors have important effects on the firm decisions making processes, and
thus firm’s performance and profitability and proposes that institutional investors would improve firm’s
profitability. Activism of shareholders, therefore can be a major player as well in shaping a firm’s CSR strategy,
in which those investors will have great incentives to ensure its feasibility and profitability.
Strategy scholars have long considered the relationship between board composition and firm strategic decisions,
as well as the board composition and leadership structure on firm performance. David, Kochhar, and Levitas,
(1998) for instance, found that institutional investors influences the compensation bundle of the CEO and link it
more tightly to the firm long term performance. Scott (2014) found that institutional investors’ presence pushes
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for more R&D investment which intends to engender long-term profits and enhanced performance. Bushee
(1998) consistent with the Scott (2014). Bushee (1988) argue that institutional investors influence the firm’s
level of innovation positively by enhancing the R&D process. The institutional investors have the capabilities to
stress strategic issues and influence the directions of management towards more rigorous and profitable
strategies through their shares.
Wright, Ferris, Sarin, and Awasthi (1996) argue that institutional investors have a positive impact on the
risk-taking orientation of the firm as they are more concerned with the firm’s long term financial performance. It
is argued also that firms with institutional investors outperform their counterparts with less concentration of
institutional investors, this in fact is a global phenomenon (Ferreira & Matos, 2008).
Institutional investors are argued to favor investing in firms with better CSR ratings, CSR represents a major
criterion used by institutions in making their investment decisions. Graves and Waddock (1994), found that as
the firm’s CSR level upturns, the number of institutions that become investors and hold shares in the firm
increases. Also, Johnson and Greening (1999) found the presence of institutional investors improves firm’s social
performance, in particular, the employee relations, women and minorities, community and product quality, it
should be noted that institutional investors’ effect on firm financial performance have been found positive.
Peng and Yang (2014) studied the moderating effect of ownership concentration and found it has a negative
impact on the relationship between CSR and firm performance, however, the study was done on Taiwanees
companies and therefore, generalizability maybe limited due the country factors differences as well as other legal
and social differences. Neubaum and Zahra (2006) argue that institutional ownership is positively associated
with firm CSR level. McGuire, Dow, and Argheyd (2003) found that when the CEO long-term incentives and
salary weakens the CSR performance, Cox, Brammer, and Millington (2004) also studied the relationship
between institutional investors and firm CSR, they found long-term institutional investment is positively related
to CSP, suggesting that institutional investors have more incentives to invest in socially responsible firms
Johnson and Greening (1999).
Pfeffer and Salancik (1978) provided a new perspective on how firms must be effectively engaged in their
external environments, as they do not have all the tactical means to sustain their core companies and maintain
lucrative existence in the market. This view can be protracted to the context of institutional ownership in the
firms. The attendance of institutional ownership can bound CEO opportunistic behavior, can build external
linkages with outside resources, and can offer better information obtaining and processing on how and when a
firm’s actions can construct a competitive advantages for the firm. This will lead to the datum that when extant
effectively, institutions can be great source in offering advice on the best way to exploit social performance, in
fact this should be assumed as in their core duties, after they have made their decisions to invest in the firm.
Institutional investors, as archetypal of outside environment, are indeed, better able to align the firm’s CSR
doings with stakeholders’ expectations, as well as what works to the best of the firm’s interests. It is eminent that
institutions are firmer in monitoring firm’s performance.
Board characteristics have been argued to impact firm’s strategic decisions, as well as its reputation, Musteen
and Datta (2010) studied the relationship between board’s size and structure in terms of outsiders and
independence leadership style (separation between CEO and board chairperson), they found that both the size of
the board and the percentage of outside directors are positively associated with reputation. Indeed, this is
reinforced by the same logic of signaling and resource dependence theory as those outsiders have networking
effects, and can also be viewed as a positive sign of how firms perform at both, social and business levels.
(Ahmed, Islam, Mahtab, & Hasan, 2014; Cox, Brammer, & Millington, 2004; Maitland, 2003; Waddock &
Graves, 1995) among others have argued that institutions have preferences when they make their investment
decisions, moreover, it is argued that those institutions would favor firms with high CSR rating. As they make
their decisions, institutions then will have sturdier incentives to guarantee their investment profitability and pay
offs, they will have every reason to ensure that CSR activities be fit, appropriate, and sense-making through a
profit-generating mechanisms.
Institutional investors have external networking capacities that a firm would not have otherwise (Pfeffer &
Salancik, 1978), they can better align the social activities with the best interests of the firm, they can also undo
any social activities a CEO would make just for the prestige and personal relationship.
H. L. Petersen and Vredenburg (2009) studied the linkages between CSR, firm performance, and institutional
investors decisions before investing in a firm, and whether to hold or sell after having made the decisions,
however, their results indicated that those investors have expressed stronger commitment to both maintaining a
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CSR level, and also building on this CSR performance, four dimensions were determined based on their results
are to be the sources of the profit generating and performance improving: risk mitigating, creating and capturing
market opportunities, accruing capital market advantages, and improving the quality and performance of
management. Thus, it is in the best interest of those institutional investors to capture as much value as they can
by using their external connections with other major entities either governmental, social, non-governmental, and
other organizations in the context in which their firms maneuver.
Institutional investors then can use these connections to make the turn the corporate social engagements into
advantages and make it profitable at the same time.
It should also be noted, that institutional investors, once they are in, they are better able to make the fit between
any projected social engagements and the firm’s best interests, also they are better able to minimize any losses by
giving credibility to the firm’s actions (H. Petersen & Vredenburg, 2009).
Graves and Waddock (1994) found that institutions tend to be more attracted to firms that have better CSR
ranking, which provides support that these institutions do consider CSR rankings and social performance in their
evaluation. Also, Ntim and Soobaroyen (2013) found that better-governed firms are more likely to pursue
courses of actions that are socially responsible, and also found increased commitment towards socially
responsible activities, which was reflected in improved financial performance.
Proposition 3: The level of CSR will be positively related with the proportion of institutional owners.
Proposition 4: The proportion of institutional owners in a firm will positively moderate the relationship between
the firm’s level of CSR and the firm financial performance.
2. Discussion and Implications
This revision sheds light on how corporate social responsibility as a social aspect of firm’s engagement with the
peripheral environment, as well as its approach towards internal constituents may advantage a firm. The study
builds on researchers’ requests for more integrative approaches that would incorporate additional central
dynamics, through which such social initiatives would pay off. The model presented in this study focuses mainly
on two dimensions: first: the ownership structure of the firm and its impact on the firm’s strategy vis-à-vis the
socially responsible conducts and undertakings, in particular, the presence of institutional investors and their
impact on a firm’s strategies in the social domain. Second, the role of publicity and firm’s reputation in
enhancing the positive impact of socially responsible behaviors and activities, and how consistency, integrity,
and appropriate courses of actions may enhance the positive role of CSR.
The study contributes to the literature in several ways. First, the previous studies tend to focus on the relationship
between CSR and firm performance, regardless any other strategic factors; such as the firm’s reputation,
publicity of its social activities, public reach of the firm, and some other strategic factors that tend to play
significant role in determining the extent to which a firm may benefit from its social engagement and
contributions. Also, the study shed light on the importance of the fit between the social initiatives the firm makes
and the stakeholders’ expectations. Second, the study focuses more on the role of institutional investors in
moderating the relationship between the CSR activities and the firm financial performance, the strategy scholars
have studied the relationship between such investors and the firm’s critical decisions such as diversification,
international diversification, and some other aspects of strategic actions. However, there is a consensus that CSR
has become a business strategy in recent years, as much as it is a response to external pressures from several
constituents in the external environment, such as government, suppliers, consumers, and non-governmental
organizations. That said, combined with the findings of previous studies that CSR is one important criterion used
by institutional investors to make their investment decisions, it is very important to study their impact after they
have made their decisions in investing in socially responsible firms.
The study also extends the existing research on the relationship between CSR and firm performance, it will
provide additional support for the previous research findings regarding this relationship.
The study has also practical implications for managers, it presents an evidence on the importance of media
relations, public relations, firm interaction with consumers, suppliers, competitors, and all stakeholders who
matter to the firm as to ensure that they fully understand the firm message and also make them aware of its
socially responsible behavior so the firm can capitalize on such publicly established reputation. The study also
provides a managerial implication on how managers can benefit from the expertise of institutional investors in
the external environment with respect to their information about the society needs and most important activities
to the greater proportion of the stakeholders who matter. In so doing, managers can have more appropriate and
precise information regarding the type and timing of any planned social initiatives. The study also presents an
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24
evidence that managers can benefit from the presence of institutional investors in the sense that they can benefit
from their networks with the external constituents, and build on these networks by improving the firm image and
reputation.
3. Conclusions
In the recent years, CSR has become a major field of interest for scholars in the business domain. Researchers
from different disciplines such as finance, management, and economics have been focusing on the firm’s social
duties, the dimensions of these duties, and the extent to which such duties may help the firm financially. The
present study examines the under-researched issue of the factors that would enable a positive effect of the firm
social activities and ethical behaviors.
I focus on the effect of publicity of firm socially responsible initiatives, and the role of institutional investors in
moderating the effect of CSR on firm performance.
The expected findings will suggest that the more consistent, integrative, and appropriate the firm’s social
initiatives, the more positive impact it will have on the firm performance. These three factors, I propose that they
will be represented by the firm reputation, the reputation is used as proxy of the publicity of the firm social
activities. The findings will suggest that as the firm engages in socially responsible initiatives and activities, it is
expected that these activities will have a positive impact on the firm performance when it can be seen by larger
number of constituents and stakeholders. The publicity of the firm’s activities can positively moderate the
relationship between the CSR activities and the financial performance.
The expected findings would also suggest that, as the institutional investors consider CSR as important criterion
in making their investment decisions, it is expected that they will align such social initiatives with the best
interest of the firm. They are also expected to have more information on the external environment, as to where,
when, and how to initiate social activities that would meet stakeholders demands, expectations, and in the
meantime benefit the firm financially.
4. Limitations and Future Research
It should be noted that there are several limitations are inherent in this proposal. One possible weakness the
reader may see in this study is the operationalization of reputation as a proxy of the firm’s CSR activities
publicity. Precise measure that would capture exactly what I propose herein could be a major question. There has
not been a common measure that is used agreeably among scholars, especially in capturing the publicity of the
CSR activities. One may suppose that we could use the firms disclosure, however, this might be the easy way
but there will still be another weakness which would be the resultant of the self-report bias. In fact, some
scholars have used the firm social medial fan volume to capture such construct, (Berens & Li, 2013) for example
conducted an experimental study and examined the effect of the level of corporate involvement in its social
media channels (Twitter) and its impact on users reactions and corporate reputations. (R. Wang, 2013) used a
survey methodology to capture the perceived reputation of a firm from a job applicants’ perspective, and that job
applicants would prefer firms that has a good reputation and are socially responsible. It appears that each
research is limited and constrained by the purpose of the study, as in this study, I have tried to show the available
measure that is common, captures the most variance among selected firms, and that also has been used in the
literature and not susceptible to validity threats.
Another weakness is the use of cross-sectional design, there could be a stronger and rigorous design which is a
cross-lagged design, but for the purpose of this study, I should note that future empirical tests may use
cross-sectional design as due to the lack of full access to datasets, and the lack of appropriate statistical
techniques for the time being. However, the use of cross-lagged design would result in more precise measures
and more appealing and truthful results.
On the positive side, however, this paper would open a new avenue that allows scholars to study different
governance mechanisms and the CSR feasibility associated with each type of governance. The study may be of
importance as to further explore the interrelationships between corporate governance, ownership structure, along
with the corporate social responsibility practices. A future work may elaborate more in creating more vigorous
measure of the publicity of the firm social initiatives and activities that would include actual stakeholders
responses, not only competitors as the case in Fortune index, but also other stakeholders such as government,
consumers, suppliers, and non-governmental organizations.
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... CSR efforts can be used to meet society's expectations while simultaneously safeguarding the interests of the owners (Carroll and Shabana, 2010;Kang et al., 2016). Thus, an overwhelming number of studies have found that CSR has a significant positive effect on firm performance (Bahta et al., 2021;Youn et al., 2015;Alamgir and Nasir Uddin, 2017;Alshammari, 2015;Kang et al., 2016;Verma and Kumar, 2012). ...
... H3. Stakeholder salience moderates corporate governance and CSR relationship 2.2.4 Moderating role of stakeholder salience on the relationship between CSR and firm performance. Numerous studies suggest a positive relationship between CSR activities and firm performance (Lu et al., 2021;Alamgir and Nasir Uddin, 2017;Alshammari, 2015;Bahta et al., 2021;Kang et al., 2016). Engaging in socially responsible practices enhances a firm's reputation, attracts customers, and enhances the firm's long-term viability (Verma and Kumar, 2012;Youn et al., 2015). ...
... BPMJ Additionally, we contribute to the CSR literature (Verma and Kumar, 2012;Jamali et al., 2008) by revealing CSR as a mediating factor in the relationship between corporate governance and firm performance. On one hand, previous studies primarily focused on the direct impact of CSR on performance (Bahta et al., 2021;Youn et al., 2015;Alamgir and Nasir Uddin, 2017;Alshammari, 2015), and on the other hand, studies also raised concerns that corporate governance alone is insufficient to improve firm performance (Muntahanah et al., 2021;Aslam et al., 2019;Andries et al., 2018), suggesting that there may be a missing link between corporate governance and firm performance. Consequently, our study, drawing on stakeholder theory, demonstrates that strong governance practices lead to effective CSR initiatives, which in turn contribute to improved firm performance. ...
Article
Purpose This study delves into the mediating role of corporate social responsibility (CSR) in the relationship between corporate governance and firm performance while simultaneously considering stakeholder salience as a crucial boundary condition that modulates both the influence of corporate governance on CSR adoption and the impact of CSR on firm performance. Design/methodology/approach A quantitative approach was adopted, utilising a survey questionnaire to gather data from 315 manufacturing firms. The collected data were analysed using partial least squares and structural equation modelling was used to test the hypotheses. Findings The study demonstrated a direct positive relationship between corporate governance and firm performance as well as an indirect positive effect mediated by corporate social responsibility. Furthermore, the study uncovered a robust positive correlation between corporate governance and CSR, strengthened by a high level of stakeholder salience. Practical implications Firms should consider CSR initiatives not only as ethical endeavours but also as strategic tools for enhancing performance in conjunction with sound governance practices. Originality/value The study goes beyond individual impacts of CSR and corporate governance on firm performance to dissect and analyse the dynamics of corporate governance and CSR interaction and how they synergistically stimulate firm performance. The study also acknowledges the complex and dynamic nature of stakeholder relationships by recognising that the effectiveness of corporate governance and CSR may be contingent on the perceived importance of stakeholders, thereby providing fresh insights into the corporate management puzzle.
... Zeng et al. (2013) addressed the moral role of marketing and demonstrated that companies that pay more attention to the social dimension of marketing tend to have greater efficiency and legitimacy in their CSR activities. Several other authors have pointed out that CSR improves the marketing performance of companies (Alshammari, 2015;Arsic et al., 2016;Lechuga-Sancho et al., 2018;Nasrullah & Rahim, 2014;Oduro & Haylemariam, 2019). ...
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This study examined scientific articles that link the themes of marketing and corporate social responsibility (CSR) with the following objectives: first, to create a map of the intellectual structures that support marketing research in association with CSR; second, to discover the possibilities for future research by identifying new research fronts. A scientific mapping was performed using VosViewer software through a semi-systematic literature review, which utilized co-citation analysis and bibliographic coupling. Research opportunities were identified based on a qualitative analysis of the future research sections of the articles. The results demonstrate a vast scientific production that associates marketing with CSR. The analysis of the studies shows a movement away from topics such as financial performance to a focus on topics such as consumer behavior and relationships with stakeholders. Opportunities for theoretical, methodological, and empirical studies are presented, facilitating the development of new research and the filling of gaps identified by researchers.
... Thirdly, financial and accounting research on CSRR aims to inventory a wide range of CSR-related issues reported by firms, with investor perceptions varying based on the research context (Auer and Schuhmacher 2016;Leuz et al. 2009). While governance issues are prioritized in international investment decisions, the salience of CSR issues fluctuates over time and across decision types (Alshammari 2015). CSR disclosure, even if not directly tied to accounting metrics, can motivate firms to improve financial statement quality (Shen et al. 2021;Bereskin et al. 2018). ...
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This paper presents a systematic literature review (SLR) exploring the relationship between institutional investors and corporate social responsibility reporting (CSRR) within accounting and corporate governance from 2008 to 2022. Using Nvivo and VOSviewer, the study identifies three key areas: reporting quality, sustainability assurance, and various aspects of corporate governance, with a stronger focus on the volume of non-financial information compared to the quality of CSR disclosures. The study highlights significant research gaps, including the influence of institutional investors on CSRR quality, the effect of non-financial disclosure regulations on CSR costs, and how these regulations impact the behavior of institutional investors. Practical and social implications are discussed, particularly regarding carbon emissions disclosures and the harmonization of CSR standards.
... Campbell and Young & Thyil underscore the influence of external entities, including NGOs, institutional investors, and the press, in monitoring and shaping corporate behavior toward socially responsible actions [11,12]. This monitoring mechanism is further emphasized by Graves & Waddock, and Alshammari, who highlight institutional investors' preference for firms with superior CSR performance [13,14]. Moreover, Harjoto et al. found that specific institutional contexts, especially the type of institutional investor, can significantly influence firms' CSR strategies nonlinearly [15]. ...
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In the evolving discourse of Corporate Social Responsibility (CSR), the role of institutional investors stands out as a pivotal area of exploration. This work delves deep into the intricate interplay between these investors and CSR, emphasizing its significance in the modern corporate landscape. Drawing upon the Institutional, Legitimacy, Agency, and Resource-Based View theories, this paper elucidates how societal norms, alignment with societal expectations, and strategic asset perspectives shape corporate behavior toward CSR. In this work, we highlight the diverse strategies and objectives of institutional investors, such as pension funds and hedge funds, and their profound influence on the CSR landscape. Our findings underscore that these investors not only steer corporations toward sustainable actions but also redefine the very essence of corporate responsibility. The conclusions drawn emphasize the need for synergistic regulations and incentives, aligning with the CSR objectives of these influential stakeholders. Furthermore, the significance of this study lies in its potential to guide future research, especially in understanding the nuanced roles of different investor types and their global implications. In summation, this paper offers a comprehensive insight into the institutional investor-CSR dynamic, spotlighting its profound responsibility and potential in shaping the future of corporate sustainability.
... Moreover, companies with higher IO tend to enhance their social responsibility disclosure, attracting institutional investments and consequently boosting overall company value (Wahba and Elsayed, 2015). Alshammari (2015) further demonstrated the positive influence of institutional investors on the relationship between CSR and firm performance. This perspective aligns seamlessly with stakeholder theory and agency theory, forming the theoretical underpinning for the mediation effect of IR in the relation between IO and firm performance under discussion. ...
Article
Purpose Integrated reporting (IR) has been proposed to “reform” corporate financial statements, fill gaps in existing reporting practices and provide a better understanding of financial and nonfinancial information in an integrated manner. The purpose of this study aims to provide empirical evidence of the role of IR in mediating the effect of ownership structure on firm performance. Design/methodology/approach Structural equation modeling on panel data are used to study the impact of the role of IR in mediating the effect of ownership structure on firm performance. The present empirical study was based on a sample of 431 European firms belonging to common or civil law between 2012 and 2020. Findings Based on empirical results, this study shows that IR plays a mediating role in the relationship between ownership structure attributes (ownership concentration, institutional ownership and managerial ownership) and the performance of European common law firms. In civil law countries, it only has a mediating effect on the relationship between institutional ownership and performance. Originality/value This study provides evidence for IR, ownership structure and firm performance. This chapter highlights the global need for a generally accepted set of standards for sustainability and IR practices.
... Overall, the existing research on CSRA takes a multifaceted approach to brand, image, consumer, and organizational identification but neglects a thorough analysis of the relationship between CSRA and organizational identity, corporate reputation (CRE), and corporate performance (FPE). Although OID and CRE are considered benefits derived from CSR initiatives that are significantly associated with firm performance, the existing literature yields mixed results (Alshammari, 2015;Singh & Misra, 2021b). Given the above arguments, the roles of OID and CRE in the context of CSR and FPE should be further explored through a holistic approach. ...
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This study uses quantitative methods to investigate the importance of corporate social responsibility authenticity (CSRA) on the performance of small and medium-sized enterprises (SMEs). It investigates the interceding roles of organizational identification (OID) and corporate reputation (CRE) between CSRA and firm performance (FPE). The data, which were questionnaire responses from 548 customers, employees, and shareholders of SMEs, were analyzed using SmartPLS version 3.3.2. Significant positive correlations were found between the authenticity of corporate social responsibility (CSR) and three key factors: firm performance, organizational identification, and corporate reputation. This study contributes to existing knowledge by exploring the mediating roles of OID and CRE in the relationship between CSRA and FPE. To better understand how CSR affects OID, CRE, and eventually FPE, this study integrates the perceptions of internal and external stakeholders on the degree to which CSR is seen as authentic. This study particularly adds to the body of CSR literature in the context of increasing skepticism of stakeholders about CSR authenticity. Grounded in stakeholder behaviors, social identity, and social exchange theories, this study extends these theories by operationalizing a novel empirical framework in a new setting. Furthermore, the implications of this study extend to society’s current concerns about “greenwashing” or “corporate hypocrisy.”
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This research is conducted to empirically prove the impact of CSR on the financial performance of firms. Firms listed in Indian stock exchanges are selected for further analysis. In this research, a detailed analysis was conducted to test the combined (ESG) as well as the specific impact of CSR dimensions viz. environmental (E), social (S), and governance(G) to arrive at various conclusions. ESG scores secured by selected companies were taken for testing the proposed hypotheses. Firm-level performance was assessed using return on assets (ROA) which is the ratio between net profit before interest and taxes and the book value of total assets. The study used dated panel data from 2017 to 2021 and the fixed effect regression estimation was used for further analysis.
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Purpose: The impact of corporate sustainability practices on the firm performance of Indian-listed businesses was investigated in this study. Theoretical Framework: The present research investigated the stakeholder theory’s application to corporate sustainability initiatives. Many recent studies have claimed that the theory encompasses a wide range of other elements that can affect the firm's valuation in addition to its purely economic value (Martin, 2022; Bodhanwala, 2022 ). To ensure firm performance in the current dynamic business environment, it is crucial to evaluate the scope of value creation from a stakeholder perspective in this context. Design/Methodology/Approach: The corporate sustainability practices of 65 listed Indian firms were evaluated using the ESG score from the refinitive database of Thomson Reuters, and the firm performance was evaluated using the ROA (return on assets) score from the Prowess IQ database. The presented hypotheses were tested using single and multiple regression models for the study period of 2017–2021. Findings: Findings suggest that the sustainability practices of listed companies in India had a significant positive impact on the firm performance. On detailed analysis, it was further found that among the three sustainability variables, social and governance activities of firms had a significant positive impact on firm performance while environmental activities had a negative insignificant association with firm performance. Research, Practical & Social Implications: The findings of this study highlight the importance of supporting sustainable enterprises and properly reporting them in order to enhance firm-level performance. The study’s findings may also assist the business in piquing the interest of various stakeholders in reference to its sustainability initiatives and aid it in luring more investors. Originality/Value: The study’s empirical data can be used by different governmental and regulatory agencies to help them take the necessary steps to support different sustainable business practices.
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Corporate Social Responsibility (CSR) as a common business practices has only recently established a foothold in developing countries. This paper examines the relationship between CSR and Corporate Financial Performance (CFP) for a Malaysia firms. Malaysia was chosen due to it’s one of worlds developing countries and has undergone radical economic and social change. The objective of this research to determine whether CSR based on environment, community, marketplace and workplace dimension has positive, negative or neutral relationship with CFP. The empirical study used to collect secondary data from corporate annual report for three firms listed in Bursa Malaysia for the period from 2007 to 2011. The data taken and gather by using content analysis. CSR dimension of workplace, community, environment and marketplace is used as independent variable while Return on Asset (ROA) and Return on Equity (ROA) is used as dependent variable. Regression analysis used to test the relationship by using SPSS. Prior studies had produce mixed result but most research found there is positive relationship between CSR and CFP. The result of this study concludes that there is positive relationship between CFP and CSR practices together with Firm Size and Firm Revenue as control variable. As well as, this paper will contribute to finance and accounting literature in identified investment in CSR will lead to firm financial performance or otherwise.
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In this study, we hypothesize that institutions invest more heavily in companies with strong corporate social performance. Analysis indicated a significant, positive relationship between social performance and the number of institutions holding the shares of a company and a positive but insignificant relationship between social performance and the percentage of shares held by institutions. We conclude that improving a company's corporate social performance invokes no penalty in institutional ownership.
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Drawing on propositions from social identity theory and signaling theory, we hypothesized that firms' corporate social performance (CSP) is related positively to their reputations and to their attractiveness as employers. Results indicate that independent ratings of CSP are related to firms' reputations and attractiveness as employers, suggesting that a firm's CSP may provide a competitive advantage in attracting applicants. Such results add to the growing literature suggesting that CSP map provide firms with competitive advantages.
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Strategic Management: A Stakeholder Approach was first published in 1984 as a part of the Pitman series in Business and Public Policy. Its publication proved to be a landmark moment in the development of stakeholder theory. Widely acknowledged as a world leader in business ethics and strategic management, R. Edward Freeman’s foundational work continues to inspire scholars and students concerned with a more practical view of how business and capitalism actually work. Business can be understood as a system of how we create value for stakeholders. This worldview connects business and capitalism with ethics once and for all. On the 25th anniversary of publication, Cambridge University Press are delighted to be able to offer a new print-on-demand edition of his work to a new generation of readers.