The moderating role of business strategy on the relationship between corporate social responsibility and companies’ economic performance

Document Type : Research Paper

Authors

1 Ph. D. Student of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

2 Invited Associate Professor of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran/ Associate Professor of Accounting, Faculty of Economics and Social Sciences, Shahid Chamran University, Ahvaz, Iran

3 Assistant Professor of Economics, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

4 Assistant Professor of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

Abstract

Introduction: The existence of different groups of stakeholders and the commitment of companies to their interests has highlighted the role of corporate social responsibility in today's world. Corporate social responsibility is the company's commitment to maximize long-term economic, social and environmental well-being through its performance, policies and resources. It is a valuable and irreplaceable resource that has changed the paradigm of organizational performance. Research has shown that companies' performance is influenced by corporate social responsibility. Due to the effect of different factors on the relationship between corporate social responsibility and company performance, in various studies have aimed at the moderating role of different variables in this relationship. One of the effective variables is business strategy because it represents a unique and fundamental element of a company's identity. Thus, business strategy can potentially affect the relationship between corporate social responsibility and corporate performance.
Methodology: In terms of purpose, the present study is an applied type. From the point of view of data collection, it is descriptive, and, in terms of nature, it is based on the post-event approach. It is also quantitative because accounting and capital market information is used for calculating the variables. The data related to 104 companies listed in Tehran Stock Exchange during 2011-2018 have been analyzed. Five years of information is required to calculate some variables; therefore, the data required by the sample companies should be available for a period of 12 years (2007-2018). To test the research hypotheses, the multivariate linear regression model and the panel data method were used as well. A combined index based on accounting variables and the average decimal ranking method are used to determine the value of the economic, ethical and legal dimensions of corporate social responsibility. To measure the economic performance of companies, the indicators of economic value added and market value added have been used. The theoretical business strategy framework of Miles and Snow (1978, 2003) has also been used. It classifies business strategies into prospectors, analyzers and defenders based on a composite measure to proxy for a firm’s business strategy. This composite measure strategy involves six firm attributes including ratio of R&D expenses to sales, ratio of employees to sales, one-year percentage change in total sales, ratio of SG&A expenses to sales, standard deviation of the total number of employees, and net property, plant and equipment scaled by total assets. The effect of strategy has been investigated in from the viewpoints of strategy and strategy type.  
Results and Discussion: The first to sixth hypotheses investigate the effects of economic, ethical and legal dimensions of corporate social responsibility on economic performance (i.e., economic value added and market value added).  The positive coefficient of variables indicates that increasing the economic, ethical and legal dimensions of corporate social responsibility increases the companies’ economic performance and the hypotheses are confirmed. The seventh to twelfth hypotheses investigate the moderating effects of the business strategy on the relationship between corporate social responsibility and the economic performance of companies. The moderating effect of the business strategy has been studied in two ways, strategy and strategy type. In both methods, the moderator role of the strategy on the relationship between corporate social responsibility and economic value added is positive and significant, and the hypotheses are confirmed. Also, the impact of strategy on the relationship between the economic and ethical aspects of corporate social responsibility and market value added is positive and significant. But the significance of the legal dimension has not been confirmed. The results indicate that, regardless of the presented method and the corresponding calculations, aggressive strategy has a greater impact on the relationship between corporate social responsibility and the economic performance of companies.
Conclusion: Based on the statistical results, the positive effect of economic, ethical and legal dimensions of corporate social responsibility on economic performance is confirmed. The results are in accordance with the instrumental theory in which the purpose of corporate social responsibility is earning profit and acquisition of economic benefits for the shareholders. The stakeholder and legitimacy theories support the research findings too. According to the stakeholder theory, the value of the firm is increased by respecting the rights of all the stakeholders. Therefore, paying attention to their various demands by the management will lead to the survival of the organization. Respecting the social norms and the observance of rules and regulations to confirm the legitimacy by the government and general public can also lead the company to achieve its goals. Firms that follow a prospective strategy compete together to produce products and find new markets. They are always looking for innovation in product and market development. On the other hand, firms following a defensive strategy focus on a limited product market, and their efforts are to increase production efficiency. Taken together, the results suggest that business strategy is an important determinant of corporate social responsibility performance. The performance of defenders is similar to the strategy of cost leadership, and the performance of prospectors is similar to the strategy of differentiation. Hence, prospectors take advantage of corporate social responsibility, as their innovation-oriented strategy, and enjoy the benefits of corporate social responsibility more than other companies.

Keywords

References

Abugre, J .B., & Anlesinya, A. (2020). Corporate social responsibility strategy and economic business value of multinational companies in emerging economies: The mediating role of corporate reputation. Business Strategy and Development, 3(1), 4-15.
Ahn, S. Y., & Park, D. J. (2018). Corporate social responsibility and corporate longevity: The mediating role of social capital and moral legitimacy in Korea. Journal of Business Ethics, 150(1), 117-134.
Alafi, K., & Hasoneh, A. B. (2012). Corporate social responsibility associated with customer satisfaction and financial performance a case study with Housing Banks in Jordan. International Journal of Humanities and Social Science, 2(15), 102-115.
Barin Cruz, L., Boehe, D. M., & Ogasavara, M. H. (2015). CSR-based differentiation strategy of export firms from developing countries: An exploratory study of the strategy tripod. Business & Society, 54(6), 723-762.
Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71-86.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.
Bentley, K. A., Omer, T. C., & Sharp, N. Y. (2013). Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), 780-817.
Branco, M. C., & Rodrigues, L. L. (2006). Corporate Social Responsibility and Resource-Based Perspectives. Journal of Business Ethics, 69(2), 111-132.
Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(12), 1325-1343.
Brower, J., & Mahajan, V. (2013). Driven to be right: A stakeholder theory perspective on the drive of corporate social performance. Journal of Business Ethics, 117(2), 313-331.
Carroll, A. B. (2016). Carroll’s pyramid of CSR: taking another Look. International Journal of Corporate Social Responsibility, 1(1), 1-8.
Carroll, A. B. (1991). The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders. Business Horizons, 34(4), 39-48.
Carroll, A. B., & Shabana, K. M. (2010). The business case for corporate social responsibility: A review of concepts, research and practice. International Journal of Management Reviews, 12(1), 85-105.
Chen, C. Y. R., & Lee, C. H. (2017). The Influence of CSR on Firm Value: An Application of Panel Smooth Transition Regression on Taiwan. Applied Economics, 49(34), 3422-3434.
Chen, Ch .J., Guo, R. Sh., Hsiao, Y. Ch.,  & Chen, K. L. (2018). How business strategy in non-financial firms moderates the curvilinear effects of corporate social responsibility and irresponsibility on corporate financial performance. Journal of Business Research, 92(C), 154-167.
Chen, Y., & Jermias, J. (2014). Business strategy, executive compensation and firm performance. Accounting & Finance, 54(1), 113-134.
Clarkson, M. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of management review, 20(1), 92-117.
Cordeiro, J. J., & Sarkis, J. (1997). Environmental activism and firm performance: Evidence from security analyst earnings forecast. Business Strategy and the Environment, 6(2), 104-114.
Cormier, D., Houle, S., & Ledoux, M. (2013). The Incidence of Earnings Management on Information Asymmetry in an Uncertain Environment: Some Canadian Evidence. Journal of International Accounting, Auditing and Taxation, 22(1), 26-38.
Crisóstomo, V. L., Freire, F. D., & de Vasconcellos, F. C. (2011). Corporate social responsibility, firm value and financial performance in Brazil. Social Responsibility Journal, 7(2), 295-309.
Currás ‐Pérez , R., Dolz-Dolz, C., Miquel-Romero, M. J., & Sánchez‐García, I.  (2018). How social, environmental, and economic CSR affects consumer‐perceived value: Does perceived consumer effectiveness make a difference?. Corporate Social Responsibility and Environmental Management, 25(5), 733-747.
Darabi, R., Vaghfi, S. H., &  Salmaniyan, M. (2016). Investigating the Relationship between Corporate Social Responsibility Reporting and Values and Risks of the Companies Listed on the Tehran Stock Exchange. Iranian Journal of Value & Behavioral Accounting, 1(2), 119-213. [In Persian]
Deephouse, D. L., & Carter, S. M. (2005). An examination of differences between organizational legitimacy and organizational reputation. Journal of Management Studies, 42(2), 329-360.
Dentchev, N. A. (2004). Corporate social performance as a business strategy. Journal of Business Ethics, 55(4), 395-410.
Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of Management Review, 20(1), 65-91.
Epinosa, A., & Porter, T. (2011). Sustainability, complexity and learning: Insights from complex systems approaches. The Learning Organization, 18(1), 54-72.
EU Commission . (2011). A renewed EU strategy 2011-14 for corporate social responsibility. COM (2011) 681 final, Brussels.
Famiyeh, A. (2017). Corporate social responsibility and firm performance: Empirical evidence. Social Responsibility Journal, 13(2), 390-406.
Farooq, O., Rupp, D. E., & Farooq, M. (2017). The multiple pathways through which internal and external corporate social responsibility influence organizational identification and multifoci outcomes: The moderating role of cultural and social orientations. Academy of Management Journal, 60(3), 954-985.
Flammer, C. (2018). Competing for government procurement contracts:The role of corporate social responsibility. Strategic Management Journal, 39(5), 1299-1324.
Flammer, C., & Kacperczyk, A. (2015). The impact of stakeholder orientation on innovation: Evidence from a natural experiment. Management Science, 62(7), 1982-2001.
Freeman, R. (1984). Strategic management: A stakeholder perspective. Englewood Cliffs, NJ: Prentice-Hall.
Freeman, R. E., Harrison .J. S., Wicks, A. C., Parmar, B. L., &  de Colle, S. (2010). Stakeholder theory- the state of the art. Cambridge University Press.  Cambridge.
Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. New York Times, September. 13, 122-126.
Gaioa, C., & Raposo, C. (2011). Earnings quality and firm valuation: international evidence. Accounting and Finance, 51(2), 467-499.
Galbreath, J., & Shum, P. (2012). Do customer satisfaction and reputation mediate the CSR-FP link? Evidence from Australia. Australian Journal of Management, 37(2), 211-229.
Ganda, F. (2018). The effect of carbon performance on corporate financial performance in a growing economy. Social Responsibility Journal, 14(4), 895-916. 
Garriga, E., & Melé, D. (2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53(1-2), 51-71.
Ghoul, S. E., Guedhami, O., & Kim, Y. (2017). Country‐level institutions, firm value, and the role of corporate social responsibility initiatives. Journal of International Business Studies, 48(3), 360-385.
Grewatsch, S., & Kleindienst, I. (2017). When does it pay to be good? Moderators and mediators in the corporate sustainability-corporate financial performance relationship: A critical review. Journal of Business Ethics, 145(2), 383-416.
Hajiha, Z. (2018). Competitive strategies, firm performance and corporate social responsibility as third strategy. Journal of Management Accounting, 11(36), 31-43. [In Persian]
Hambrick, D. C. (1983). Some tests of the effectiveness and functional attributes of Miles and Snow’s strategic types. Academy of Management Journal, 26(1), 5-26.
Heikkurinen, P. (2010). Image differentiation with corporate environmental responsibility. Corporate Social Responsibility and Environmental Management, 17(3), 142-152.
Higgins, D., Omer, T. C., & Phillips, J. D. (2015). The influence of a firm’s business strategy on its tax aggressiveness. Contemporary Accounting Research, 32(2), 674-702.
Hoseini-Amiri, S. M., & Khorasani-Ejbarkolaei, Z. (2019). Impacts of Social Responsibility on the Promotion of Business Performance. Journal of Business Administration Research, 10(20), 91-114. [In Persian]
Imani, P., Hajiha, Z., & Amir Hosseyni, Z. (2017). The examination of effect of earnings persistence and profitability on disclosure level of Corporate Social Responsibility listed in Stock Exchange in Tehran. Journal of Management Accounting, 10(33), 55-66. [In Persian]
Janamrung, B.,  &  Issarawornrawanich, P. (2015). The association between corporate social responsibility index and performance of firms in industrial products and resources industries: empirical evidence from Thailand. Social Responsibility Journal, 11(4), 893-903.
Javed, M., Rashid, M. A., & Hussain, G. (2016). When does it pay to be good-A contingency perspective on corporate social and financial performance: would it work?.  Journal of Cleaner Production, 133, 1062-1073.
Jensen, M. C., &  Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jones, B.,  Bowd, R.,  & Tench, R. ( 2009). Corporate irresponsibility and corporate social responsibility: competing realities. Social Responsibility Journal, 5(3), 300-310.
Jung, H. J., & Kim, D. O. (2016). Good neighbors but bad employers: Two faces of corporate social responsibility programs. Journal of Business Ethics, 138(2), 295-310.
Karami, Sh., Rahnamay Roodposhti, F., & Dianati dilame, Z. (2016). Investigating impact of Tax Avoidance on Earning Informativeness of Firms Accepted in Tehran Stock Exchange. Journal of Management Accounting, 9(28), 15-37. [In Persian]
Kasznik, R. (1999). On the Association between Voluntary Disclosure and Earnings Management. Journal of Accounting Research, 37(1), 57-81.
Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility?. The Accounting Review, 87(3), 761-796.
Kim, K. H., Kim, M., & Qian, C. (2018). Effects of corporate social responsibility on corporate financial performance: A competitive‐action perspective. Journal of Management, 44(3), 1097-1118.
Lee, D. D., Faff, R. W., & Langfield‐Smith, K. (2009). Does superior corporate social performance lead to improved financial performance. Australian Journal of Management, 34(1), 21-49.
Lee, J., Graves, S. B., & Waddock, S. (2018). Doing good does not preclude doing well: corporate responsibility and financial performance. Social Responsibility Journal, 14(4), 764-781.
Lin, Ch. H., Yang, H. L., & Liou, D. Y. (2009). The impact of corporate social responsibility on financial performance: Evidence from business in Taiwan. Technology in Society, 31(1), 56-63.
Lin, W. L., Law, S. H., & Azman-Saini. W. N. W. (2020). Market differentiation threshold and the relationship between corporate social responsibility and corporate financial performance. Corporate social responsibility engagement and environmental management, 27(3), 1279-1293.
Lu, W., Ye, M., Chau, K. W., & Flanagan, R. (2018). The paradoxical nexus between corporate social responsibility and sustainable financial performance: Evidence from the international construction business. Corporate Social Responsibility and Environmental Management, 25(5), 844-852.
Makni, R., Francoeur, C., & Bellavance, F. (2009). Causality between corporate social performance and financial performance: Evidence from Canadian firms. Journal of Business Ethics, 89(3), 409-422.
Malik, M. S., & Kanwal, L. (2018). Impact of corporate social responsibility disclosure on financial performance: Case study of listed pharmaceutical firms of Pakistan. Journal of Business Ethics, 150(1), 69-78.
Manchiraju, H., & Rajgopal, S. (2017). Does corporate social responsibility (CSR) create shareholder value? Evidence from the Indian Companies Act 2013. Journal of Accounting Research, 55(5), 1257-1300.
Marfou, M., & Robab Shakeri, R. (2018). Business Strategies and Corporate Financial Performance. Empirical Research in Accounting, 8(29), 157-183. [In Persian]
Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268-305.
Marin, L., Rubio, A., & Maya, S. R. (2012). Competitiveness as a strategic outcome of corporate social responsibility. Corporate Social Responsibility and Environmental Management, 19(6), 364-376.
Masoud, N. (2017). How to win the battle of ideas in corporate social responsibility: the International Pyramid Model of CSR. International Journal of Corporate Social Responsibility, 2(4), 1-22.
McNichols, M. (2002). Discussion of  The Quality of Accruals and Earnings: The Role of Accruals Estimation Errors. The Accounting Review, 77 (s-1), 61-69.
McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification. Strategic management journal, 21(5), 603-609.
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117-127.
Miles, R. E., & Snow, C. C. (1978). Organizational strategy, structure, and process. New York: McGraw-Hill.
Miles, R. E., & Snow, C. C. (2003). Organizational strategy, structure, and process. Stanford, CA: Stanford University Press.
Mishra, D. R. (2017). Post-innovation CSR performance and firm value. Journal of Business Ethics, 140(2), 285-306.
Miska, C., Hilbe, C., & Mayer, S. (2014). Reconciling different views on responsible leadership: a rationality-based approach. Journal of Business Ethics, 125(2), 349-360.
Mosavi, S. A., Rezayee, F., & Shahveisi, F. (2016). Developing the corporate social responsibility Model and its Impact on Stock Price Risk. Financial Accounting Knowledge, 3(3), 47-74. [In Persian]
Naseem, T., Shahzad, F., Asim, G. A., Rehman, I. U., & Nawaz, F. (2020). Corporate social responsibility engagement and firm performance in Asia Pacific: The role of enterprise risk management. Corporate social responsibility engagement and environmental management, 27(2), 501-513.
Peteraf, M. A., & Barney, J. B. (2003). Unraveling the resourcebased tangle. Managerial and Decision Economics, 24(4), 309-323.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: The Free Press.
Preston, L. E., & O'Bannon, D. P. (1997). The corporate social‐financial performance relationship. Business & Society, 36(4), 419-429.
Rezaei, F., & Ghanaeenejad, M. (2014). A Review on transparency in financial reporting and its effects on tax avoidance and firm value. Journal of Commerce & Accounting Research, 3(2), 8-21.
Rezaei, F., & Ramezan Niya, H. (2017). Investigating Corporate Corporate Responsibility Effects on Systematic Risk and NonSystematic Risk: Using Data Envelopment Analysis Model. Iranian journal of Value & Behavioral  Accounting, 2(4), 214-189. [In Persian]
Rezvani, H. R., &  Sahamkhadam, M. (2013). Business strategy correspondence with Environmental Uncertainty. Journal of Business Administration Research, 4(7), 88-104. [In Persian]
Said, R., Abd Samad, K., Mohd Sidek, N. Z., Ilias, N. F., & Omar, N. (2018). Corporate social responsibility disclosure index of Malaysian Shariah - compliant companies. International Journal of Ethics and Systems, 34(1), 55-69. 
Saleh Abadi, A., &  Ahmadpour, A. (2010). Correlation between EVA to Capital with Market Value Added Value (MVA) to Capital in Tehran Stock Exchange. Economic Research, 10(4), 255-271. [In Persian]
Sanoubar, N., khalili, M., & Saghafian, H. (2011). A Study of Relationship between Corporate Social Responsibility and Financial Performance. Journal of Business Administration Research, 2(4), 28-52. [In Persian]
Schwartz, M. S., & Carroll, A. B. (2003). Corporate Social Responsibility: A Three-Domain Approach. Business Ethics Quarterly, 13(4), 503-530.
Sepasi, S., &  Hassanzadeh, M. (2016). The effect of economic dimension of corporate social responsibility on sustainability of earnings. Iranian Journal of Value and Behavioral Accountings, 1(1), 123-138. [In Persian]
Sharabati, A. A. A. (2018). Effect of Corporate Social Responsibility on Jordan Pharmaceutical Industry’s Business Performance. Social Responsibility Journal, 14(1), 566-583.
Su, W., Peng, M. W., Tan, W., & Cheung, Y. L. (2016). The signaling effect of corporate social responsibility in emerging economies. Journal of Business Ethics, 134(3), 479-491.
Surroca, J., Tribó, J. A.,  & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31(5), 463-490.
Vahidi Elizayee, I. & Fakhari, M. (2015). The Effect of Corporate Social Responsibility on Corporate Financial Performance. Accounting and Audit Research, 7(27), 81-99. [In Persian]
Van Beurden, P., & Gössling, T. (2008). The worth of values- A literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82(2), 407-424.
Visser, W. (2011). The age of responsibility: CSR 2.0 and the new DNA of business. West Sussex: John Wiley & Sons.
Vyas, V., & Raitani, S. (2015). An examination of linkages between CSR and cross-buying. Social Responsibility Journal, 11(3), 622-640.
Waddock, S. A., & Graves, S. B. (1997). The Corporate Social PerformanceFinancial Performance Link. Strategic Management Journal, 18(4), 303-319.
Wagner, M. (2010). The role of corporate sustainability performance for economic performance: A firm-level analysis of moderation effects. Ecological Economics, 69(7), 1553-1560.
Walker, K., Zhang, Z., & Ni, N. (2019). The Mirror effect: Corporate social responsibility, corporate social irresponsibility and firm performance in coordinated market economies and Liberal market economies. British Journal of Management, 30(1), 151-168.
Wang, Q., Dou, J., & Jia, S. (2016). A meta-analytic review of corporate social responsibility and corporate financial performance. Business & Society, 55(8), 1083-1121.
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171-180.
Wood, D. J. (2010). Measuring corporate social performance: A review. International Journal of Management Reviews, 12(1), 50-84.
Wu, M. L. (2006). Corporate social performance, corporate financial performance, and firm size: A meta‐analysis. Journal of American Academy of Business, 8(1), 163-171.
Yang, L., Yaacob, Z., & Teh, S. Y. (2017). Does reputation mediate the relationship between corporate social responsibility and performance of SMEs in China. International Journal of Economics & Management, 11(2), 335-354.
Yuan, Y., Yi Lu, L.,   Tian, G., & Yu, Y. (2020). Business Strategy and Corporate Social Responsibility. Journal of Business Ethics, 162(2), 359-377.
Yuen, K. F., Thai, V.V., & Wong, Y.D. (2017). Corporate Social Responsibility and Classical Competitive Strategies of Maritime Transport Firms: A from a Transition Economy in Sub-Saharan African. Journal of Business Research, 61(4), 346-354.
Journal of Business Administration Researches
Volume 13, Issue 26
February 2022
Pages 165-205

Files

Share

How to cite

Statistics