Investigating The Influence Of Corporate Social Responsibility Practices On Business Financial Performance Amediation Analysis Of Corporate Reputation

VIETNAM NATIONAL UNIVERSITY HOCHIMINH CITY INTERNATIONAL UNIVERSITY NGUYEN KHOA TRUONG AN Student ID: PBAIU16001 SUMMARY OF PHD DISSERTATION INVESTIGATING THE INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY PRACTICES ON BUSINESS FINANCIAL PERFORMANCE A MEDIATION ANALYSIS OF CORPORATE REPUTATION HO CHI MINH CITY, May 2022 SUMMARY OF THE DISSERTATION This is the summary of the dissertation about CSR practices affect financial performance with the mediating role of corporate reputation The dissertation consists of five chapters Chapter 1: Introduction The chapter describes the overview and the structure of the thesis The chapter also mentions the rationales why the research is conducted and the significant contributions of the research Chapter 2: Literature review and theoretical research framework The chapter reviews a rigorous literature about CSR practices, financial performance and the mediating role of corporate reputation The grounded theories of CSR: stakeholder theory, legitimacy theory and good management theory are also discussed to support the research objectives Based on the literature review and grounded theories, the hypotheses and conceptual framework are formed to be the core for this research Chapter 3: Methodology The chapter describes how research methods are chose to conduct the research topic The chapter gives brief discussion on research paradigm and justification for research methods, in this case, qualitative and quantitative methods are chosen to conduct the research The mixed methods are used to ensure the validity and reliability of the research Chapter 4: Research findings The chapter presents the findings from qualitative and quantitative methods In terms of quantitative methods, the researcher uses in depth interviews and draw conclusion from data analysis For the quantitative method, the research uses software SMART-PLS to conduct empirical test and present the research findings Chapter 5: Discussion and Recommendations The final chapter deeply discusses the findings and how the findings can support the research objectives Base on the discussion, the research points out the recommendations in terms of theoretical implications and practical implications Limitations and future research are also described in this chapter CHAPTER 1: INTRODUCTION 1.1 Research background and problem statements Overview of CSR research The concept of corporate social responsibility (CSR) has been studied for many decades It has been researched for more than half of century in fields such as the managerial perception on CSR practices (Cacioppe et al., 2008; Singhapakdi et al., 1996; Smirnova, 2012), banking industry (Farook et al., 2011; Gangi et al., 2019), hospitality industry (Farrington et al., 2017; Fu et al., 2014), or food industry (Kong, 2012; Maloni and Brown, 2006; Zhang et al., 2014) Through years of research, the concept is generated in different terms such as business ethics, triple bottom lines, corporate citizenship, business social responsibility (De Bakker, Groenewegen, & Den Hond, 2005) Each concept has different dimensions explaining its features Dahlsrud (2008) analysed 37 concepts of CSR and came out with five common dimensions of CSR such as finance, society, environment, stakeholder and voluntariness Bowen (1953) initially identified CSR as social obligations of businessmen to meet society demands, on the other hand, Ryan (2002) describes CSR as the issues of motherhood in terms of environmental activities Despite the multi-concepts of CSR, mostly referred to two domains: economic benefits and social benefits These two domains were used in the concept of Carroll (1979), one of the most famous studies on CSR concept The concept focused on the four dimensions of CSR concept in terms of economic, legal, ethic and philanthropic aspects, which is then illustrated in the pyramid form The study of Carroll (1979) - possibly the most famous study of CSR has been cited more than 5000 times and the model has been reproduced in approximately 100 times (Carroll, 2016) Furthermore, CSR research is mostly conducted in developed countries, and rarely applied in developing countries (Moyeen & West, 2014) Amos (2018) states that frameworks and CSR results studied from developed countries should be tested in developing countries to study CSR in different institutional contexts Despite the great research of CSR in developed countries, with the unique social matters, the manifestation of CSR practices in developing countries is principally critical According to Hamann (2006) CSR approaches in advanced economy settings may not suit to the developing contexts Developing countries and developed countries cannot share the same social cultural values and religious values and society norms which cause the differences in CSR implementation Thus, the trend of CSR research in developing countries is essential There has been an increase of interest of understanding CSR practices in developing countries especially in countries that have experienced continuous economic development (Jamali & Carroll, 2017; Jamali & Karam, 2018; Tilt ,2016) Problem statements Vietnam is a developing country that has gained some impressive economic achievements, along came achievements also came raising concerns on business consequences related with environmental and social issues According to Bui (2010) the rapid growth of economic performance without concerning social responsibilities, has negatively affected sustainable development, especially societal and environmental aspects Issues of waste management, energy saving, workplace standards, safety and health for customers keep increasing in recent years For example, unprocessed waste water discharge caused serious pollution to the rivers and communities of Miwon Company, Hyundai Vinashin Company (Khanh Hoa), Viet Tri Paper Company; contaminated Thi Vai River and health safety problems such as tainted milk distribution toxic ingredients and banned chemicals in consumer goods; the production of foods containing substances harmful to human health, have raised significant concerns for business managers and government in Vietnam The competition to survive for any costs enables the side effects for the society and environment (Nguyen, 2010) Along with the rapid economic development, lack of CSR practices causes customer dissatisfaction, environmental damages, unethical business practices The reasons for these consequences may be rooted in the lack of understanding of CSR implementation and benefits CSR concept is introduced to Vietnamese business through foreign companies who propose codes of conduct for ethics and disciplines (Mai, 2017) These multinationals have specific CSR programs that contribute to Vietnam development For example, Honda Vietnam, Intel Products Vietnam and HSBC Vietnam implement charities and donations every year Foreign companies with CSR implementation have experienced significant success Following the examples of successful foreign companies, other business types in Vietnam should consider CSR implementation In the past, CSR research in Vietnam mainly focused on labour codes and safety (Twose & Rao, 2003) Recently, the CSR research trend has shifted to other areas, such as consumer and customer awareness (Bui, 2010; Pham, 2011, Truong 2016) and organisational outcomes (Trang & Yekini, 2014; Nguyen, Mai & Cao, 2021) However, according to Vu and Buranatrakul (2018), Vietnamese companies have not recognised the importance of CSR as a strategic tool for competitive advantage Good corporate social responsibility will not only help businesses to business, but also help businesses address strategic issues related to business and social issues Good social responsibilities help firms add more values, improve goodwill as well economic benefits and social-political benefits (Hoang, 2015).CSR practices are the significant conditions for sustainable development and internationalization as CSR is one of the requirements for expanding market The issues of business ethics are still the concerns for the authorities as well as the communities Vietnam is a potential land for studying CSR practices, also the Vietnam government expressed willingness to promote CSR practices (Jeppesen, Kothuis, & Tran, 2012) and integrate CSR practices into corporate culture (Clemence, 2017) The Vietnam Prime minister issues The National Action Plan implements the 2030 agenda for sustainable development (Decision 622/QĐTTg dated 10 of May, 2017) The action plan indicates the clear objective of sustainable development in relation to triple bottom line: economy, society and environment The economic development must go along with the society development and environment protection The objective 12.6 of the Action Plan points out that “Encourage the business community to adopt sustainable practices, including cleaner production technologies, efficient use of natural resources, and environmental protection; carry out social responsibility for the poor and disadvantaged groups; integrate sustainability information into your periodic reports” According to Dang (2016), when doing business activities, businesses need to have four subjects that they need to pay attention to: the market and consumer, employees, local communities and the living environment These are the important stakeholders that affect organizational success Research gap Many scholars have studied the CSR in different sectors, from services to manufacturing The research question why is CSR so important to businesses to have received so much attention? According to Choi (2012), ethical behaviours of firms can increase firm’s value Several authors studied the effectiveness of CSR on organizational performance especially financial performance According to Nguyen and Nguyen (2020) CSR research in Vietnam is limited in quantity and quality, it is important to conduct more rigours methodologies to measure a wide range of CSR practices and address the relationship between CSR and FP A lack of context-sensitive research on CSR in Vietnam along with the distinct social, political, economic and cultural context enables Vietnam a suitable location for evaluating the relevance of universal CSR theories in a local context (Nguyen, Bensemann & Kelly, 2018) The analyses of the relationship between CSR and financial performance provide inconsistent results, some identifying direct effects and some finding the support of mediating or moderating variables Further, researchers found mixed results in terms of neutral, negative, and positive effects (Galbreath & Shun, 2012; Margolis & Walsh, 2003; Orlitzky et al., 2003) The relationship between CSR and financial performance in so complex that testing for a direct effect could not explain the relationship As such, many researchers identified mediating and moderating variables that help explain this complexity, such as customer satisfaction, firm size, reputation, visibility (Galbreath & Shum, 2012; Orlitzky, 2001; Park, 2017) Corporate reputation has received increasing attention since researchers paid attention to the long-term effect of corporate reputation on the relationship between CSR and financial performance From some perspectives, CSR is likely to be understood as charity, donations, or philanthropic activities (Mishra & Nigam, 2015) However, the perspective beyond the philanthropic activities brings more advantages Specifically, firms fully integrating CSR performance into their strategy and business activities, can easily meet stakeholders’ expectations and increase their reputation and identity, eventually sustaining their survival and business growth CSR practices are a key determinant of corporate reputation, which can enhance organizational attractiveness (Esen, 2013) Many previous research studies the effects of Carroll’s pyramid (Carroll, 1979): economic, legal, ethical and philanthropic responsibility on organisational performance (Fauzi, Mahoney, & Rahman, 2007; Galbreath & Shum, 2012; Saeidi et al., 2015; Wang & Berrens; 2015 Zhu, Sun, & Leung, 2014) Although there is great research on the four Carroll’s dimensions of CSR practices with the confirmation of many empirical tests in different settings, the pyramid should be restudied due to the change of current business economy Lu et al (2020), one of the first research groups studies the effects of modified Carroll’s pyramid with added environmental dimension on the organisational performance The added environmental responsibility is to ensure sustainable development of manufacturers Their study aims to address the issues of manufacturing industry Furthermore, there are also few research studying the modified Carroll pyramid on organisational performance (Lu et al., 2020) Acknowledging of this matter, the thesis aims to clarify the relationship of modified Carroll’s pyramid and financial performance in manufacturing, real estate, trade and service industries of a developing setting Due to above reasons, the researcher has decided to make research on the relationship between CSR categories on financial performance which is mediated by corporate reputation, and hope that the research can somehow contribute to the field of business ethics which can improve business ethic practices in Vietnam 1.2 Research objectives and research question Research question The previous section provides the detailed background and the reasons why research about CSR in developing country is needed The call for CSR research in developing counties is practically critical due to the purpose of addressing issues for sustainable development Since Doi Moi policy issues in 1986, Vietnam has developed dramatically in economy and society, however, the rapid development comes with challenges Business plays an important role in the development, however their business performance without considerations for sustainable development causes so many issues for the society and environment The triple bottom of economy, society and environment is imbalance as economy develops but society and environment suffer from the economic development Since the researcher aims to clarify CSR practices in Vietnam and how CSR practices can affect business success, the researcher has raised the following research question: To what extent and how CSR practices directly and indirectly affect business financial performance? The research questions help the researcher to stay on track for the whole research process A good research questions is framed by the research outcomes, population, time line (Thabane et al., 2009) Based on the research question, the researcher can make research design, choose methodology and strategies for analysis More importantly, the research question guides the researcher to select research team members To ensure every research procedure for answering the research questions, the researcher needs to set up a set of research objectives, however according to Doody and Bailey (2016), researchers usually face challenges of converting issues to practical research Thus, it is important to have a clear set of research questions and objectives Research objectives are made to clarify the research questions To answer the research question of this dissertation, the researcher points out a list of following research objectives.: Research objectives Based on the research gaps and the business context in Vietnam The dissertation aims to deeply investigate how firms conduct CSR practices; and also aims to measure the direct effects of CSR practices on business reputation and financial performance; as well as to measure the indirect effects of CSR practices on business financial performance through the mediation of corporate reputation Finally, the dissertation tries to provide strategic and policy implications for organizational and social-economic management and development 1.3 Research methodology The main research questions are formed to understand how Vietnamese businesses conduct CSR practices and how these practices lead to organizational outcomes The research objectives are the foundation for clarifying the research questions CSR phenomenon is a complex phenomenon which requires a combined method approach to answer the questions Although content analysis is the most popular method for studying CSR disclosure (Sapkauskiene & Leitoniene, 2014), this research is suitable for correlation and regression analysis, as the research aims to explore the phenomenon of CSR practices in Vietnam and to investigate how the CSR factors and outcomes are correlated Before testing the correlations between CSR practices and outcomes, the research conducts the methodology as following: Firstly, the research started to answer the research questions by doing literature review CSR practices and CSR outcomes are the keywords for searching articles The articles were grouped into two sections: the independent variables (CSR practices) and dependent variables (corporate reputation and financial performance) The researcher tried to find the articles that describing the definition and background for CSR practices, corporate reputation and financial performance The researcher chose to review high impact articles to ensure the quality of literature review After reviewing the literature about these factors, the researcher explored the articles that indicating the relationships between CSR practices, corporate reputation and financial performance Based on the rigorous literature review, the researcher built a conceptual model with research hypotheses to deeply explore the CSR implementation in Vietnam In order to validate the conceptual framework, the researcher also described the grounded theories for the research The grounded theories were used to support the conceptual framework After building a conceptual framework, the researcher conducted the first stage of data collection by qualitative approach According to Chenitz and Swanson (1986), qualitative method is use to explore the psychological and social phenomena The sampling technique used for qualitative method is convenience sampling The convenience sampling Application this research in Explain why firms Explain conduct practices how firms Explain how good CSR CSR ensure social contract practices to lead meet with the society they financial improvement stakeholders’ operate within to gain requirements sustainability Synthesized by the author The figure 2.2 indicates that stakeholder and legitimacy are corelated to explain CSR performance This helps to understand the origin of CSR performance Firms mainly conduct CSR practices in order to meet the stakeholder requirements and ensure the social contract with the society, through these activities, firms can improve their economic performance and sustainable development The good management theory is related to the fact that as firms fulfil their responsibilities, they can receive financial performance These theories are the grounded to explain how firms conduct CSR practices and how CSR practices lead to financial performance, which are suitable for the research objectives Good management theory Stakeholder theory Accountability to all stakeholders Seeking for sustainably and good outcomes Legitimacy theory to Seeking for legitimacy to performance in the society CSR practices Figure 2.2 Grounded theoretical framework 2.5 Research model and hypotheses development 21 Legitimizing business performance and conduct accountability to all stakeholders to receive financial benefits and sustainability The research foundation for the research model is based on the conceptual model from study of Wang and Berrens (2015) This study focuses on how each type of Carroll CSR can affect financial and public reputations, leads to a good financial performance To highlight the study in Vietnam context, the conceptual model is modified in relation to the effects of five types of CSR practices (economic, legal, ethical, environmental and philanthropic aspect) on corporate reputation and financial performance In this research, economic, legal, ethical, philanthropic and environmental dimensions are the independent variables, financial performance is dependent variable, corporate reputation play both mediating variable and dependent variable Based on the literature review and the model of Wang and Berrens (2015), the researcher proposes the following hypotheses and research framework as below: Hypotheses indicate the effects of CSR on financial performance H1.1 Economic practices positively affect financial performance H1.2 Legal CSR practices positively affect financial performance H1.3 Ethical CSR practices positively affect financial performance H1.4 Environmental CSR practices positively affect financial performance H1.5 Philanthropic CSR practices positively affect financial performance Hypotheses indicate the effects of CSR on corporate reputation H2.1 Economic CSR practices positively affect corporate reputation H2.2 Legal CSR practices positively affect corporate reputation H2.3 Ethical CSR practices positively affect corporate reputation H2.4 Environmental CSR practices positively affect corporate reputation H2.5 Philanthropic CSR practices positively affect corporate reputation Hypothesis of the corporate reputation effect on financial performance H3 Corporate reputation positively affects financial performance 22 Hypotheses indicate the effects of CSR on financial performance with mediating role of corporate reputation H4.1: Corporate reputation mediates the relationship between economic CSR practices and business financial performance H4.2: Corporate reputation mediates the relationship between legal CSR practices and business financial performance H4.3: Corporate reputation mediates the relationship between ethical CSR practices and business financial performance H4.4: Corporate reputation mediates the relationship between environmental CSR practices and business financial performance H4.5: Corporate reputation mediates the relationship between philanthropic CSR practices and business financial performance Economic CSR H2.1 – H4.1 H1.1 Corporate Reputation H2.2 – H4.2 H2.3 – H4.3 Legal CSR H1.2 H2.4 – H4.4 H2.5 – H4.5 Ethical CSR Environmental CSR Philanthropic CSR H3 H1.3 Business Financial Performance H1.4 H1.5 Figure 2.3 Proposed conceptual framework CHAPTER 3: METHODOLOGY This chapter discusses the research methodology in terms of mixed method approach The choice for mixed methods of qualitative and quantitative approaches has been of interests for research (Bazeley, 2015; Reilly & Jones III, 2017) Mixed methodology can solve the disadvantages for each research approach, and complement advantages for better and 23 trusted results Acknowledging the benefits of mixed methods in business research, this study aims to use the mixed methods in terms of quantitative and qualitative approaches Below is the summary of qualitative and quantitative research that is synthesised from the study of Basias and Pollalis (2018) Table 3.1: Summary of qualitative and quantitative research Main features Investigate Qualitative research Quantitative research A phenomenon A phenomenon in the case of the cause and explanations are blur Interpret Coding, decoding and theming Systematic examination of collected data through statistical techniques General Interviewing method, enhancing Testing contexts observation, use of flexible statistical hypotheses, techniques using and questionnaires questionnaires, experimenting Open form Closed form Format of data Texts Quantified data Choosing • Interpretation in need • Being used when proceeding a justification • Addressing Form of questions questions the research related to large amount of numeric data to test hypotheses and • Questionnaire are easily to be antecedents consequences of an issue quantified and analysed • Uncertainty about concepts • High for considerations Benefits certainty about concepts for considerations • Examine the nature of a • Improving objectivity complex phenomenon or a 24 the phenomenon in a nature • Being able to proceed a large environment number of data and compare • Facilitation of new research the quantified data • Easier area • In depth study for highlining the differences and changes • Chance for developing better measurement scales Source: from Basias and Pollalis (2018) Stage 1: Qualitative approach In this stage, the researcher used a qualitative method to analyze the relationship between CSR practices and CSR outcomes Qualitative method provides a forum for both interviewer and interviewees to discuss an issue, especially for better understanding and clarification The study used semi-structured interview, which allowed the researcher to explore in-depth insights into the research objectives In-depth interviews are associated with exploring the world through participants’ stories, experiences, opinions During the interviews, the interviewees have significant role in addressing the issues, while the interviewers can “learn” about the issues The interviews would be more confortable with sharing information and it helps the interviewers gain in-depth knowledge through interviewees (Milena, Dainora, & Alin, 2008) The qualitative research method is used due to its benefits of low cost and rich information, which is hardly obtained by quantitative research (Milena et al.,2008) Furthermore, the qualitative research is appropriate to find the answer for “Why” question and to analyse the motivations or determinants of various actions participants who holding managerial positions were invited to participate in the in-depth interview They were chosen based on the medium and large size of business and having CSR disclosure Each interview lasted about two hours Interviewed data was then transcribed and analyzed the similarity of information to form finding themes Stage 2: Quantitative approach 25 The second stage of the methodology was using quantitative method to conduct empirical test The research designed questionnaire and sent to respondents As the study investigates the subjective opinions of executives in the business field, the participants were business executives or those holding similar positions from three sectors in Vietnam: manufacturing, trade and service, and real estate, as business sector is typically divided into these three main sectors 4,000 firms in Ho Chi Minh city and Binh Duong province – dynamic economic zones in Vietnam were target population Questionnaires were sent to respondent – over the six months from March 2019 to September 2019 The questionnaire was both online form and in a printed format In total, 869 complete answers were received in return Krejcie and Morgan (1970) suggest that a sample size of 351 is sufficient for a population of 4,000, which means our sample is large enough The descriptive statistics indicate that the respondents from the trade and service sector represented 43.3% of the sample, being followed by the manufacturing (39.7%) and real estate (17%) sectors Among these three categories, most firms were private (59.3 %), 32.9% were FDI firms, and public firms represented 7.8% CHAPTER 4: RESEARCH FINDINGS Findings from qualitative method In order to identify the theme emerged from the data set, the researcher noticed the similarities and differences when respondents mentioned about a related topic Finally, the results were categorized in accordance with definitions, similarities and grouped into bigger themes of CSR economic responsibility, legal CSR responsibility, ethical CSR responsibility, environmental CSR responsibility and philanthropic CSR responsibility The themes about financial performance and competitive advantage consisting of reputation and employee commitment were also revealed Furthermore, the researcher found out the two links between CSR practices and financial performance, and CSR practices and competitive advantage The findings are the useful supporting resource for the empirical test 26 CSR practices Financial performance Economic CSR Legal CSR Competitive advantage Ethical CSR Reputation Environmental CSR Employee commitment Philanthropic CSR Figure 4.1: Relationship of the themes: CSR and outcomes Findings from quantitative method The researcher received 869 valid responses from the participants The collected data was then analyzed by Smart PLS software to find out the relationship between variables After passing validity and reliability test of the constructs in terms of Cronbach’s Alpha, Composite reliability, Average Variance Extracted, Discriminant validity meeting the satisfaction points, the researcher run the data to test the structural equation modeling Table 4.1 indicates the significant results of model fit, which means that the model is ready for testing structural equation modeling The results are illustrated in table 4.2 Table 4.1 Structural model fit R Square Q square Corporate Financial Performance 0,393 0,231 Corporate Reputation 0,369 0,215 The table 4.2 illustrate the final results of hypotheses Economic and philanthropic CSR have positive effect on financial performance, while legal, environmental and ethical CSR did not For the direct effects of CSR practices on corporate reputation, economic CSR did not show the positive result why the rest did Corporate reputation also yielded a significant effect on financial performance In terms of mediation analysis, corporate reputation did not mediate the relationships between economic CSR and financial 27 performance; and ethical CSR and financial performance However, it mediated the relationships between legal, environmental, philanthropic CSR and financial performance Table 4.2 Summary of the hypotheses Hypothesis Relationship Path coefficient P value H1.1 ECO->FP 0,310 0,000* H1.2 LE->FP 0,066 0,158 H1.3 ETHC->FP 0,109 0,077 H1.4 ENVI->FP 0,076 0,147 H1.5 PHI->FP 0,103 0,051 H2.1 ECO->CORPU -0,076 0,091 H2.2 LE->CORPU 0,178 0,000* H2.3 ETHC->CORPU 0,182 0,001** H2.4 ENVI->CORPU 0,227 0,000* H2.5 PHI->CORPU 0,200 0,000* H3 CORPU->FP 0,112 0,013 H4.1 ECO->CORPU->FP 0,180 H4.2 LE->CORPU->FP 0,034 H4.3 ETHC->CORPU->FP 0,073 H4.4 ENVI->CORPU->FP 0,038 H4.5 PHI->CORPU->FP 0,016 Decisions Supported Not supported Not supported Not supported Supported Not supported Supported Supported Supported Supported Supported Not supported Supported Not supported Supported Supported Significance at p