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  • Document type:
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Impact of CSR on firms performance

THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY (CSR) ON FIRM PERFORMANCE: A CASE STUDY OF AUSTRALIA

Key words: Impact, Social Corporate, Governance

Abstract

CSR are commonly seen as a complete set of policies and practices that are incorporated into the decision-making process, operations and supply chains throughout the company and consists of issues that are associated with community investments, environmental concerns, and business ethics. Other related concerns include organization governances, human rights workplace ethics as well as marketplace standards. Every company has its style of implementing corporate social responsibility. The significant differences in most cases depend on many factors like the company size, industry in which the firm operates business culture and the demands of the stakeholders among others. For successful implementation of CSR strategies, and then it is critical that CSR strategies are in line with both core competencies and corporate objectives of the firm. The findings of this study concluded that CSR reporting is crucial for businesses as it helps convey CSR initiatives adopted by an organization to the society and its stakeholders. As Craib and PwC assert, CSR reporting has emerged to be one of the critical factors that promote a corporate’s endurance transparency, and above all credibility.

Introduction

The last few decades has seen fast expansion in the concept of corporate social responsibility. Almost all companies small and big involve themselves with corporate social responsibility (Ceres 2011). A large number of businesses that at any given time has never been are trying to identify and incorporate the concept of CSR into the various area of their operation. There is an increasing number of stakeholders in business who are becoming responsible forever transforming a set of CSR activities including analysts, labors, shareholders, and regulators. Increased need for transparency in business dealings and ever surging expectation that companies give measurement report and incessantly improve their performance regarding economic, social and environmental aspects (Ceres 2011).

Many people have defined CSR in different ways. According to Eccles & Krzus (2010), CSR is defined as an achievement of commercial success ethically and in a manner that honors people and communities’ values and as well the natural environment without violating any of them. Beder (2002) on the other hand define CSR as an activity that appears to promote some particular social good that goes beyond the main company interest and is a requirement of law. One vital thing in Gray, Bebbington & Walters (2013) definition is that CSR is not enshrined in the law but is a voluntary action performed by the companies to improve the wellbeing of the society. According to Vurro and Perrini (2011), they believe that CSR is the firm’s operation in which it decides to take, that considerably influences the welfare of identifiable social stakeholders. A socially responsible company should be able to take an initiative of adopting policies and practices that are not only focused on financial performance and legal requirements but also go beyond business wellbeing.

Statement of the problem

Not only has Corporate Social Responsibility increasingly become a significant matter in Australia, but also internationally. This research aims at comprehending the growth of CSR in Australia, as well as measuring the effects CSR has on firm performance. Also, it endeavors to investigate what CSR efforts businesses have adopted, as well as measuring their effects on the performance of enterprises.

Research Objectives

  1. To inquire into the CSR impact on the organization performance

  2. To investigate the impact of CSR on organization ROA

Research Hypothesis

In attainment of the above objectives, the following research hypothesis was developed in line with research objectives.

  1. H0. CSR has negative impact on organizational performance.

  2. H1. CSR has a negative impact on organization’s ROA.

Literature review

Corporate Social Responsibility (CSR) and corporate citizenship are synonymous terms. According to Steurer et al. (2005), CSR is «a concept whereby companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders on a voluntary basis.» On the other hand, Kleine and Hauff (2009) defined CSR as a method via which a corporation voluntarily addresses numerous and ever-changing bottom-line issues via the creation of an excellent business infrastructure, and thereby bringing improvement in the quality of life among the local community, society and workplace. CSR initiatives are forging upon the stakeholder and legitimacy theory. In essence, citing from the legitimacy theory, the practices have to be legitimate and permissive from the society (Fernandez-Feijoo, Romero & Ruiz 2014). They should encompass something that the community recognizes as positive. Also, considering the stakeholder theory, the CSR activities should encompass the various stakeholders, including customers, internal and external stakeholders, as well as the community upon which the organization operates.

CSR reporting is crucial for businesses as it helps convey CSR initiatives adopted by an organization to the society and its stakeholders. As Craib and PwC assert, CSR reporting has emerged to be one of the critical factors that promote a corporate’s endurance transparency, and above all credibility. These are factors that every customer admires for business, and promotes customer loyalty and satisfaction
Edmans (2012). Ideally, CSR information enables the stakeholders to differentiate socially responsible organizations from those who are irresponsible (Vurro and Perrini, 2011).

It is vital to point out that CSR awareness is quite low, specifically for small businesses, in the business community and the general public (Pomeringand Dolnicar 2007). For this reason, CSR reporting, as it is an important aspect for businesses, needs to be covered within this research. Numerous studies have concentrated on the research about CSR and firm performance, and most of them have had varied results and thereby amounting to
inconclusiveness in the issue. For instance, Elliott et al. (2013) assert that there is a negative correlation between firm performance and CSR initiatives with a small advertising and does not necessarily lead to increased profitability. For this reason, it is important to analyze the effectiveness of CSR programs in achieving an increased firm performance, particularly in the Australian context.

It is imperative to note that CSR influences the performance of the organization in several ways. First, it helps to improve the financial performance of the organization as it helps the company to grow faster and maximize the revenue. A company which can satisfy its stakeholders and follows CSR then it will be able to dominate the market and be the market leader. Pomering & Dolnicar (2007) have analyzed how CSR relates to the company performance. In their findings, CSR and firms performance are closely linked. According to Brettman (2011), the current trend of CSR is rapidly increasing especially in the last few years. Companies should focus on every problem that affects society since when the community performs poorly, then the business will fail too.

In the case of the sports industry, those energetic about games, the main picture that rings a bell on mentioning Nike, or Puma or even Adidas might be a footballer making a triumphant objective of scoring, a tennis player during the match, or a runner intersection in the completion line. Frequently, competitors are related to the attire and shoes they wear – David Beckham with Adidas; Usain Bolt with Puma Maria while Sharapova is associated with Nike — to give some examples (Fernandez-Feijoo, Romero & Ruiz 2014). Apparently, wearing merchandise organizations understand this and burn through a significant number of dollars yearly to advance the relationship through sponsoring of athletic occasions and the underwriting of these companies’ brands by competitors (Boston.com, 2005). Through three years staying on his current manage Adidas, a lifetime contract in 2003 was marked by Beckham, worth an expected $160.8 million. In considering 2010, the previous first positioned ladies’ player yet regularly harmed Sharapova reestablished the sponsorship she had with Nike by eight years period for an amount worth $70 million (Rossingh, 2010). Bolt who is the world record holding sprinter had an agreement with Puma, the biggest in the history of field and track, equivalent to Cristiano Ronaldo’s a football star from Real Madrid had a contract with Nike, lasting four years and worth US $32.5 million £21 million (Kessel 2010). All these are some of the global CSR activities among firms.

For a company to be stable and ensure good performance it must be able to recruit and retain those employees that are highly skilled and are of the best talent. Such employees prefer working in firms that are considered socially responsible and in any case, this lacks examples of losing them to competitors are very high. Currently, there is an increased awareness on environment and commitment to society as well as the environment on the side of the company and this is even a factor in determining who joins the company (Zhu, Liu & Lai 2016).

The CSR also influences access to funding by the company. In this case, the firm always needs funds for initiation of projects and their expansions hence influencing the firm’s performance. Investors in some cases look at the ethical and social standards displayed by a firm in making decision of committing capital to organizations. There are in some investors who makes focus exclusively on companies that demonstrate proper track record on social responsibility (Cheng, Ioannou & Serafeim 2014).

Zhu, Liu & Lai (2016), state that consumers are major stakeholders of the firm since they drive the sales of company’s products. They may make a decision to do business with the firms that posse’s good reputation due to being considered socially responsible. Conversely, those firms that exhibit commitment to environment and community attract customers who give value to such commitments. The firms CSR in terms of their products and services can result to heightened customer satisfaction and such customers would continue doing business with the company.

According to Fernandez-Feijoo, Romero & Ruiz (2014), the issue of Corporate Social Responsibility has been of great concern to companies currently as it severely impacts on the reputation or image of the enterprise. The company image or reputation relates to the perpetual corporate representation in the firm’s general appeal to all stakeholders. It plays a great role in attracting stakeholders to a company and influences people’s action about the company and its products.

The image or reputation of a firm is an aspect that moves along with CSR activities since stakeholders like customers, suppliers, communities and other prefer being associated with companies that possesses proper records about CSR. Company’s citizenship comes from the greater level of concern, motivation, and commitment on the side of the firm towards tasks and its stakeholders (Zhu, Liu & Lai 2016).

In the creation of a linkage between corporate reputation and CSR activities, one realizes that affirm enhances its brand and corporate image which are crucial components of the corporation. Moreover, a good brand name, support for social courses together with ethical business practices impact stakeholders’ perception of the company which is one of the foundations of reputation (Huang et al., 2014).

It is, therefore, vital to give much attention to CSR activities as they fundamentally augment the firm’s reputation, for instance if it is positive, it will result in more participation of stakeholders in CSR activities (Korschun, Bhattacharya & Swain, 2014). This is significant in a firm’s profitability and long-term survival.

Research Methodology

This research will mainly adopt a qualitative study design. In essence, this research will capitalize on case studies and critical studies. By Merriam (2009), the case study approach used in qualitative research entails controlling researcher’s variable of interest. In this case, CSR initiatives will be the dependent variables and firm performance will be the independent variables. Various initiatives will be scrutinized to gauge whether they will lead to an increased firm performance, and thus, this research will rely on evidence, which will originate from interviews, observation, and documents. A total of at least 50 resources will be used.

Critical study, as McMillan (2012) points out, entails gathering qualitative data by following an iterative approach that refines the research question, while theoretically sampling from the available literature the various categorizations. As such, this method will appraise the quality of materials as well as critically analyzing their contribution to theory development.

Data collection methods and sources

A sample size of 40 organizations will be selected, and they will all be listed in Australian stock exchange. In this study, two approaches of data collection will be adopted which are secondary and primary data. Primary data will be collected from surveys and questionnaire and secondary data will be gathered from the newspaper, journals and other published articles. Research questionnaire will be carefully designed and can be filled by a survey, and other returns and turnover will be calculated based on the company’s annual reports.

The data will be qualitative in nature. And company details, gender and other demographic information of respondent will be collected. The main reason for this is to help in highlighting the relationship between CSR and organization’s performance.

Variables and conceptual framework

In establishing the relationship here, the perceived CSR and perceived stakeholders relationship i.e. PCSR and PSR while the organization performance will be measured in terms of the Total turnover and return on the asset (ROA). Both will be empirically calculated while ROA in most cases will be calculated by divided the amount of total assets with total income before taxes.

This can be illustrated in the diagram below

Student’s Name

Data Analysis

This data will be analyzed using SPSS version 21. Regression analysis will be used to analyzed the data, and the regression model to be used is as follows

ROA = α +β PCSR +β PSR

Data analysis and discussion

Table 2.1: Descriptive Statistics

Std. Deviation

From the descriptive results in table 2.1 above ROA has the highest mean of 20.88 and also highest standard deviation of 14.769. The result also gives PCSR a mean of 10.34 but with a lower deviation of 1.583. Lastly, PSR gives a mean of 7.08 and deviation of 6.395 and the total sample of 130 firms.

Correlation Analysis

Table 2.2: Correlation

Pearson Correlation

Sig. (1-tailed)

Table 2.2 gives the correlation analysis of the data with all the variables positively correlated by each other. Only PSR and PCSR gives high level of correlation however, all other variables are positively correlated by each other.

Variables Entered/Removed

Variables Entered

Variables Removed

PSR, PCSRb

a. Dependent Variable: ROA

b. All requested variables entered.

Model Summaryb

Adjusted R Square

Std. Error of the Estimate

Change Statistics

R Square Change

Model Summaryb

Change Statistics

Durbin-Watson

Sig. F Change

a. Predictors: (Constant), PSR, PCSR

b. Dependent Variable: ROA

On the model summary on the above table, R-squared gives 0.05 indicating the model which is fit and over 50% of the variables were analyzed in the analysis process.

Sum of Squares

Mean Square

Regression

Residual

27996.957

28138.918

a. Dependent Variable: ROA

b. Predictors: (Constant), PSR, PCSR

Coefficientsa

Unstandardized Coefficients

Standardized Coefficients

Std. Error

(Constant)

At 95% significance level, the variables are statistically significance since the p-value is less than 0.05 while the variables are positively related. The graphs and other data are shown below

Coefficientsa

95.0% Confidence Interval for B

Correlations

Collinearity Statistics

Lower Bound

Upper Bound

Zero-order

Tolerance

(Constant)

Coefficientsa

Collinearity Statistics

(Constant)

a. Dependent Variable: ROA

Collinearity Diagnosticsa

Dimension

Eigenvalue

Condition Index

Variance Proportions

(Constant)

a. Dependent Variable: ROA

Residuals Statisticsa

Std. Deviation

Predicted Value

Residual

Std. Predicted Value

Std. Residual

a. Dependent Variable: ROA

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Conclusion

With the new development in business world, it is almost mandatory for companies to involve themselves in CSR activities and the new policies require so. Managers and shareholders are coming to understand and realized the need of CSR in their organization and they strongly believe that the only way through which they can improve the images of their organization is through corporate social activities. This CSR also adds value to the society enabling them to have more trust in the organization.

From the findings of this study, we can conclude that it is important to recognize and respect organization aspects that deals with CSR and give priorities and make them company obligation. It was observed throughout the study that process of value addition for business by constructing good reputation is affected by other factors. The higher innovation will actually results into greater return on assets the return on the company equity as a whole. According to Merriam (2009) it states that in the creation of a linkage between corporate reputation and CSR activities, one realizes that affirm enhances its brand and corporate image which are crucial components of the corporation. Moreover, a good brand name, support for social courses together with ethical business practices impact stakeholders’ perception of the company which is one of the foundations of reputation. The findings of this study supports the study by Huang et al., (2014). which states that, The image or reputation of a firm is an aspect that moves along with CSR activities since stakeholders like customers, suppliers, communities and other prefer being associated with companies that possesses proper records about CSR. Company’s citizenship comes from the greater level of concern, motivation, and commitment on the side o the firm towards tasks and its stakeholders.

This study further concludes that CSR reporting is crucial for businesses as it helps convey CSR initiatives adopted by an organization to the society and its stakeholders. As Craib and PwC assert, CSR reporting has emerged to be one of the critical factors that promote a corporate’s endurance transparency, and above all credibility. These are factors that every customer admires for business, and promotes customer loyalty and satisfaction
Edmans (2012). Ideally, CSR information enables the stakeholders to differentiate socially responsible organizations from those who are irresponsible.

Zhu, Liu & Lai (2016) states that the relationship between PCSR and PSR is somehow uncertain and none can out rightly state their impact on the company performance. This view actually contradict the findings of this study. Apart from financial performance, CSR have other extra benefits to a firm as it allows the community or the society to connect with the firm and they can easily identify themselves with the firm in question. For instance, the organizations that supports sports activities in most cases are associated with the success as the sports persons which they support. They can easily be identified internationally hence will have more potential of attracting not only international investors but international managers and employees. Therefore, the company should embrace CSR in their policies.

Recommendation

  1. Companies should consider CSR not as a support to society but as an obligation which is mandatory in their policies

  2. The companies should embrace CSR as this will help in improving their image and reputation

References

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Vurro, C. and Perrini, F., 2011. Making the most of corporate social responsibility reporting: Disclosure structure and its impact on performance.Corporate Governance: The international journal of business in society,11(4), pp.459-474.

Fernandez-Feijoo, B., Romero, S., & Ruiz, S. (2014). Commitment to corporate social responsibility measured through global reporting initiative reporting: Factors affecting the behavior of companies. Journal of Cleaner Production, 81, 244-254.

Huang, C. C., Yen, S. W., Liu, C. Y., & Huang, P. C. (2014). The relationship among corporate social responsibility, service quality, corporate image and purchase intention. International Journal of Organizational Innovation (Online), 6(3), 68.

Korschun, D., Bhattacharya, C. B., & Swain, S. D. (2014). Corporate social responsibility, customer orientation, and the job performance of frontline employees. Journal of Marketing, 78(3), 20-37.