Relationship between CSP and CFP of companies participation in CSR
The data collected in this research is from secondary sources, and the majority of the companies that have been involved in this research are the recent ones. Regression will also be used in testing the performance of different companies. Results obtained from this research indicates that there exists a strong correlation between CSP and CFP and also that there is a significant positive relationship in both directions supporting the claim that CSR programs have a positive impact in the functioning of different companies in the same environment. It has also been confirmed that the increase in CSP also leads to the increase in gross margin meaning that customers become loyal to those companies that are involved in CSR activities. The results obtained from this research show a positive relationship between CSR and CSP, the same case with CSF.
3 CSR ACTIVITIVIES IN HONG KONG …………………………………………………16 2. 4 CSR PRACTICE OF A COMPANY……………………………………………………. 5 CHAPTER SUMMARY…………………………………………………………………. 6 THEORETICAL FRAMEWORK ………………………………………………………19 2. 1 THEORY OF THE FIRM AND THE STAKEHOLDER THEORY………. 2 RELATIONSHIP BETWEEN CSR AND CFP…………………………………………. 32 CHPATER 5: DISCUSSION AND CONCLUSION 5. 1 DISCUSION ………………………………………………………………………………. 2 CONCLUSION ……………………………………………………………………………38 BIBLIOGRAPHY………………………………………………………………………………40 CHAPTER 1: INTRODUCTION 1. 1 Research overview The existing relationship between Corporate Social Responsibility (CSR) and corporate financial performance (CFP) has been some of the common issues that are considered to be extensive. Non-market elements; the media and the general public, impact their influence indirectly by conveying information (Henriquez & Sadorsky, 1999, 72). Even though the transmission mechanisms are different, the dissatisfaction of any stakeholder group can negatively affect the performance of the economic and also change the future of the company. In response to this, corporates that are socially responsible should take actions to protect the bottom line and also to boost the value of shareholders’ investment (Epstein & Rejc-Buhovac, 2014, 51).
There has been a debate on the relationship between CFP and CSR overtime now. Despite this, the empirical results as far as their relationship is concerned are equivocal. According to the research carried out by Skare and Golja (2014), the majority of the firms that are considered to be politically accountable also have high chances of bringing about higher economic growth than those that are not (412). In this case, it is worth concluding that CSR is a significant factor affecting economic growth at the level of the economy. This research will aim at determining how CSR change the financial statement of any company that is socially responsible. 2 Background of the research problem In our current society, it has become a significant priority for the establishment of an ethical framework together with social responsibilities in any business.
This claim is supported by the fact that the total number of well-known global corporates that are applying for CSR programs in their business activities has never been increasing over time (Lee & Shin, 2010, 267). In addition to this, the company has come up with a partnership with the Environmental Defense Fund (EDF) since back in 1989 thus improving the footprint of the company on the environment. This partnership was of significant benefit to McDonald’s has EDF helped the company in redesigning its packaging which led to a reduction in wastage by 15000 tons (McWilliams, 2006, 104). The company is also responsible to the health of its clients, and this has enabled the company to create a high trust with the society, something that many companies have not been able to.
The company has thus been able to improve its performance by building trust with its consumers and also by being socially responsible. It is therefore clear that CSR has an enormous impact on the performance of any company in the society. Are there any advantages that are likely to arise for those companies that are socially responsible over those that are not? 5. How do CSR affect customer perception on a company’s product and how does this perception affect the performance of such company in the economy? By the end of the research, all the four research questions will have been answered. This will help to determine the impact that CSR has on the wellbeing of the organizations. 5 Research objectives There are many purposes that this research is going to have.
One of this is to determine how CSR affects the performance of a company. There is great difference from these two definitions as they tend to oppose one another. The first definition indicates that a company enters in CSR activities for the goodness of its shareholders while the second one suggest that as a company enters in any CSR activities, it should consider other factors that affect the performance of the company apart from shareholders. EU commission defines CSR as actions that are taken by companies and which are above their legal obligations towards environment and the entire society (European commission, 2011, 762). This definition is in accordance to that of Davis. Both of the two definitions incorporates interest of the stakeholders rather than that of the shareholders.
Both negative, neutral and positive findings have been made from this research. Research carried out by Waddock and Graves (1997, 303-319) found that there exists a negative relationship between CSR and CFP. According to their findings, companies that take part in CSR come through competitive disadvantage as they pass experience unnecessary costs that read to decrease in their profit margins. CSR activities also lead to the consumption of company’s resources thus causing disadvantage to such company unlike companies that act less socially responsible. McWilliams and Siegel (2001, 117-127) claim that CSP is only a means of attaining differentiation but does not directly affect profit rate of any given company. Failure in fulfilling expectations of the stakeholders lead to creation of uncertainties in the market place with this leading to risk premium increase, which may lead into increase in expenses and also chances of losing opportunities of making profits.
Orlitzky &Benjamin (2001, 369-396) found that there exists a negative relationship between financial risk and CSR with investment in CSR decreasing risks that are market based. This means that there is a better financial performance at long run. Despite the fact that findings made in this area are conflicting, majority of the studies found that there exists a positive relation between financial performance and CSR. It is thus why concluding that companies that act socially responsible have better financial performance than those that act less socially responsible. According to Kapoor & Sandhu (2010, 209), stakeholders from India are much sensitive towards environment together with social concern hence they overtake those companies that have no concern on such. Evidence that shows that Hong Kong companies that are socially responsible have a better performance in the market include better wages, timely payment, goodwill together with enhanced reputation.
4 CSR practices of a company According to Moon (2008, 712), CSR is known to be a general term that covers other concepts which are considered to be of business-society relations. CSR is defined by World Bank to be a term that describes obligation of a company to its accountability of its stakeholders in all its activities and operations. Firms usually consider their full scope on their activities to the communities and also to the environment before they can focus on balancing their stakeholders’ need and also that of making profit (Nicolau, 2008, 999). Benabou & Terole gave three visions to CSR. The first vision is Win-win. According to this vision, being a good citizen lead to making high profits. The second one is delegated philanthropy which states that some of the stakeholders most of the time sacrifice money so as to support social goals.
This maximize the profit through fulfilling of the stakeholders’ demand. Maximization of the value of the firm lead to the maximization of the wealth of shareholder. Stakeholder theory framework is based on freeman’s work of 1984. According to Freeman (1984, 67), a stakeholder is defined to be any individual or group of people who have the capability of affecting the achievement of the organizational goals (Jensen, 2001, 57). He also added that stakeholders are those individuals who have legitimate control of the organization (Jensen, 2001, 57). Any given firm has to consider its main stakeholders as of greater importance and relegate secondary stakeholders to the background. Hasnas (1998) claim that in such a situation where there is conflicting interests, the business should be able to manage them so as to attain an optimal balance of the different interests (32).
2 Relationship between stakeholder theory and CSR practice The theory mainly focus on organizational accountability together with rights of the stakeholder. In this case, the word “accountability” is used to mean responsibility. The main relationship between this theory and CSR is based on the supposition that this theory is considered to be part of a business motivation to be responsible to the public. Many researchers would claim that CSR is beyond this. This chosen research approach also will involve an event study. This is likely to be a limitation to the study since it may not define as well as quantify CSR engagement on the stock price, with this taken in consideration through the use of CSR ranking and this is measurable through the use of returns that are considered to be abnormal.
Publishing of CSR ranking report by Folksam is considered to be a reasonable approximation of companies located in Sweden and which have been listed to be involved in CSR engagement activities. This makes it convenient for the report to be used in as CSR proxy with the fact that the necessary data is already available to the public. With the fact that the study is also interested in other time periods to be able to define normal and abnormal returns, for the other variables, makes it worthy concluding that event study is the best research approach to be used. With the availability of data as well as the purpose of carrying out the study, it may be important to carry out some modifications on the data corrected.
2 Data collection In any research, two forms of data can be collected; these include primary and secondary data. The study mainly involves a secondary data analysis since data has been obtained from other institutions which aimed at accomplishing other purposes apart from the one that this research aims at achieving. Many advantages are likely to arise from the use of this type of data with this being the case when the quality of the data can be controlled (Bryman & Bell, 2005, 24). This type of data approach is cost- and time effective. OMX Nordic Price Index used for the calculation of average as well as abnormal returns for the market index is also used. In an alternative to this, Index of the most thirty sold stocks in Stockholm Stock Exchange could also be used in this research.
There is a high correlation between these two indexes, and thus this is an indication that the choice of index is not likely to have any significant effects on the results of this research. Despite this, OMXSPI includes all stocks, and due to this, the use of the first index is approved. In the case of U. The report is also based on UN Global Compact guidelines, and thus it will be applicable on a global basis. 3 Data criticism Articles that are well cited and also from reliable sources are used as a theoretical base for this research. Being well cited includes some citations and even the quality of the articles. In the case of the journals used, they are considered of high quality together with being of high reputation which is also indicated in the rankings that have been made.
The books that have been used in this research have also played a significant role for other researchers in the field of business in the past. Companies that have had these types of events will be eliminated from the list. 5 Data analysis There are two types of data analysis. These include qualitative data analysis and quantitative data analysis. Data collection for qualitative data involve interviews, experiments and focus groups. In this case, data analysis consists of finding common patterns from data collected and then analyzing them critically to be able to develop a conclusion from the data collected. This enables one in finding the absolute answer to specified questions and leaves the other data as meaningless. This approach is referred to as a framework analysis.
The different approach requires one to carry out data coding to develop new impressions that can help in shaping one’s findings of the data collected. The two methods need one to familiarize himself or herself with the data collected initially. Coding goes hand-in-hand with thematic analysis which involves analyzing data depending on themes that arise out of it. In the table below, model 1 is the dependent variable which is the rate of environmental investment which is measured by the use of natural logarithms of the ratio of total sales and environmental investment. Model 2 represents the amount of environmental investment which is measured by natural logarithms of the environmental investment. Table 1: Environmental investment determinants Table 1 and Table 2 show the results of the estimation of two linear regression models of the environmental investment determinants.
From table 1 above, it is clear that all estimations show financial resources that are owned by any company has a significant impact on environmental investments. From the above, firms that have higher profitability, p = 0. Environmental investment rate is considered as a relative indicator of the performance of the company and the operations that aim at measuring the rate of the company’s performance mathematically is a tool that controls the effect of the size of the firm on issues concerning environmental investment. It is therefore worthy of saying that R & D intensity is highly correlated with the rate of environmental investment while there exists no such correlation with the firm size. The amount of environmental investment is also an indicator that is dependent on the volume of sales for a given company.
Amount of sales, assets owned by a given firm, together with investments may be used as indicators of the size of the environment served by such a firm but may not represent the size of the firm’s effort. With these facts, it is clear that R & D cannot be used as a predictor for the amount of environmental investment of any given firm. 7% and the second largest participants are aged between 46-55 years. Majority of the participant are also male with a percentage of 78. Majority of these managers have been in their respective companies for a period of between 11-20 years. The validity test used in this research has no any deletion items for all the items used in all construct.
Despite this, as indicated on the rotational matrix component, there is some reclassification of dimensions for constructs. This thus it is an indication that there is a strong interrelationship between the corporate social performance of any given company and the corporate social responsibility of such a company. These two combined affect CFP of such a company. The interrelationship between CSP and CFP from the above two models are based on two theories namely good management theory and slack theory. Findings made in this case are inconsistent when compared to other numerous studies that were carried out in the past. The results of the study demonstrate this inconsistency. Participation in any market in CSR activities is going to maintain a good relationship between customers and the company.
This is considered to be inconstancy with the finding that was made by Higgin and Currie (2004, 141). Decentralization also is known to have a positive impact on both CSR and CFP. According to business management, decentralization is regarded as the delegation of power from those in the high hierarchy in the business management to the lower managers in the same hierarchy. With lower managers having the power of making decisions concerning the performance of such a business by putting in more efforts to carry out CSR while at the same time improving CFP. This is an indication that CFP-CSP correlation under slack resource theory is quite stronger than the CSP-CFP correlation under good management theory. According to the findings made by Waddock & Grave (1997, 461), under slack resource theory, CFP regression coefficient is more significant than one while on the other hand under good management theory, CSR regression coefficient usually is lower than 1.
This is in contrast to the first management theory where the CSR regression coefficient is much higher than 1. With this in mind, it is clear that this situation can be better explained by the implementation of the CSR which in most cases is more controlled by the available resources of the firm than the awareness of the stakeholder in carrying out such activities without considering the resources that are owned by such a company. From findings made by Friedman (1970, 371), the main reason why the majority of the businesses take part in Corporate Social Responsibility was significant to increase profits made by this business; this has dominated many people in the entire world. Firms that do not participate in CSR may find it difficult for them to perform well in the market due to lack of loyalty from their customers.
There is a positive relationship that exists between CFP and CSR. Friedman (1970) proved that the main reason why companies involve themselves in CSR activities is to increase their profit margin. It has then been proved that companies that take part in CSR activities are likely to have better performance in the market than those that do not. Also, it may be easier for those companies that take part in CSR to have adequate resources that they can invest in the business environment, thus making such companies to have better performance in the market. It is therefore worthy claiming that the information collected during this research is highly reliable. With the fact that the information used in this research was from secondary source, there are some limitations that are likely to have aroused.
These limitations include: Inappropriateness of the data is one of the major disadvantages associated with this form of data. Primary data is usually collected with a mindset in one’s mind, unlike secondary data that lack such mindset. Despite the fact that secondary data is likely to provide one with large amount of data, the data may not be appropriate in answering the research questions identified for that research. , Moon, J. and Siegel, D. S. The Oxford handbook of corporate social responsibility. Oxford Handbooks. A. and Toffel, M. W. Organizational responses to environmental demands: Opening the black box. Strategic Management Journal, 29(10), pp. Higgins, J. M. and Currie, D. M. It's time to rebalance the scorecard. H. and Shin, D. Consumers’ responses to CSR activities: The linkage between increased awareness and purchase intention.
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