VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITYINTERNATIONAL UNIVERSITY INVESTIGATING THE INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY PRACTICES ON BUSINESS FINANCIAL PERFORMANCE A MEDIATIO
Corporate reputation
Corporate reputation, the new buzz word has formed several waves in the business world and thus has become a topic of interest of many researchers and received a lot of attention from media and business (Baruah & Panda, 2020) This is a growing focus point in management field as corporate reputation can affect the attitudes and behaviors of stakeholders towards organizations (Chun, 2005) Corporate reputation can bring numerous benefits to an organization such as a mean for financial return (Roberts &Dowling, 2002) an intangible/strategic asset (Danko et al., 2018), a tool for staff recruitment and commitment, a competitive advantage (Deephouse, 2002; Miotto et al.,2020) However, academics raise concerns about defining corporate reputation due to various measure dimensions and conceptualization In this study, the research tried to give out the general and simplified concept of corporate reputation for readability and understanding Corporate reputation is hardly defined due to interchangeable use of corporate reputation, corporate identity and corporate image (Walker, 2010) That is why the concept of corporate reputation causes confusing, and corporate reputation differs from corporate identity and corporate image.
Fombrun (1996) defined one of the most widely used concept of corporate reputation Reputation refers to four features: “reliability, credibility, responsibility, and trustworthiness” These features are represented under three dimensions: perception, cumulative perception and competitivity Before this study, corporate reputation was studied under three main themes: strategic tool, a signal and business-centric viewpoint (Money et al., 2017) Corporate reputation is viewed as a strategic tool for its linkage to financial benefits, while a signal refers to the case of how a firm gets reputation by the signal of quality Under the theme of business-centric viewpoint, corporate becomes a focal and innovative approach to enhance profiliation of organizational image According to Brown et al (2006), firms cannot control and manipulate corporate reputation Hence, corporate reputation is created based on perceptions of internal and external stakeholders. Derun (2018) proposed that corporate reputation is created by external stakeholders’ conceptualization Corporate reputation is thus originated from cumulative perceptions of stakeholders and have comparative characteristics Corporate reputation comes from collective perception of all stakeholders and it has to reflect the same view and perception of the stakeholders Reputation can be recognized by internal and external stakeholders for each specific theme such as environmental activities, social contributions, profitability (Veh et al, 2019; Walker, 2010) Although there are different types of reputation, for each reputation, it must be aggregated by all stakeholder’s perception Stakeholders believe in the firm ability to create values and deliver benefits (Garcia-Sanchez et al., 2022). Corporate reputation is enhanced from stakeholders’ perception on the responsiveness of firms in delivering values to them Stakeholder perception defines and sharps the form of corporate reputation, meanwhile corporate reputation has to bring leading market comparison with other rivals In order to clarify the comparative attribute of corporate reputation, Wartick (2002) points out that firms need to not only compare with its own previous reputation but also with average level of industrial reputation Besides the three
54 attributes of corporate reputation, regarding to Brown et al (2006); Mahon (2002) and Rhee and Haunschild (2006), it is important to notice the negativity and positivity of corporate reputation Reputation can be either positive or negative in accordance with the aspects of business practices Negative reputation can be costly to business for financial loss, however, in some circumstances, negative reputation can spread out the brand name to publics in a fast pace The negative or positive reputation results from personal judgement or beliefs (Davies et al., 2001) The cognitive process depends on how firms can create values to stakeholders The last dimension of corporate reputation used to clarify Fombrun’s definition is stability Stability refers to the long-term benefits that corporate reputation, in the way how it helps firms survive in the intensive market According to Barnett et al (2006) time is an important factor to define the stable reputation Reputation should be correlated with time In general, corporate reputation represents the twofold ideas of how to define reputation: corporate reputation has various attributes and typical types of reputation; different groups of stakeholders may perceive corporate reputation in different ways.
Brown and Losgdon (1999) suggested that corporate reputation is a long-term assessment of stakeholders about organizational performance on (1): it has to meet stakeholders’ expectations and indicate commitment to comfort the stakeholders, (2): how well it is associated with sociopolitical system Similarly, Brammer and Pavelin (2006) also agreed on the stakeholder’s expectation, they figured out that corporate reputation referred to how stakeholders are satisfied with provided products and services.Rothenhoefer (2019) revealed that corporate reputation was the reflection of organizational past actions The corporate reputation is formed from what firms have done However, as discussed above, meeting stakeholder expectations is a dimension of corporate reputation.Thus, corporate reputation can reflect past actions and predict future actions of organizations Firms with good reputation can attract investment, build trust and enhance its business activities Generally, it indicates that corporate reputation from the collective cognition of business ability to meet and satisfy stakeholder’s requirements and interests all the time.
Financial performance
Financial performance is the outcome of firm performance to demonstrate business effectiveness and success Financial performance indicates how well firms can use assets to generate revenue and reflect firm’s financial health (Kenton & Scott, 2021) Financial performance is a reflection of profit maximization which is the most desirable objective of firms Financial performance assists managers in evaluating the past and present business activities And financial performance is a multidimensional construct which is measured under different aspects There is not much debate on financial performance in literature (Boaventura et al., 2012) The measures for financial performance are used to describe financial performance because the measures can indicate an organization’s performance that is not impacted by organizational size differences (Fauzi, 2009) The traditional financial performance is measured by three indicators: return on asset (ROA); return of equity (ROE), return on investment (ROD), and to see the return rate for each measure field (McGuire et al, 1988) These three measures are classified as accounting-based measures of financial performance According to Grewatsch and Kleindienst (2017) accounting- based measures are conceptualized as a reflection of past, short-term financial performance, while market-based measures are seen as a reflection of future, long-term financial performance, such as Tobin’s q or cumulative abnormal returns (CAR) However, it is necessary to notice that the choice of financial performance measures based mostly on research objective The measures are not always accurate in all circumstances, at least it can help answer the research question Each type of measurement has its own limitation, for example: the biggest limitation of market-based measures is that they are only available for publicly listed companies (Galant & Cadez, 2017) The accounting-based measures cannot identify the intangible asset of business performance such as market share or goodwill The accounting-based measures can be influenced by respondents when answering the questions (Wang & Berens, 2015) Using accounting-based measures is
56 devised with the purpose of the research perspectives If researchers want to investigate the utilization of asset and capitals, ROA, ROE, ROI, ROS are the most appropriate tool to examine it The subjective financial performance measures should be adopted to reduce the manipulation of managers in research survey The accurate financial numbers can be switched in the percentage measurement or subjective description In this research, return on assets, return on equity and return on sale are adopted to measure financial performance.These are popular measures suggested by Boaventura et al (2012) and Thanos andPapadakis (2012).
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Corporate Social Responsibility and Financial Performance
Corporate Social Responsibility (CSR) and financial performance (FP) have a corelated relationship CSR is known as an incentive tool for a better financial performance However, the empirical research on the CSR-FP relationship provides inconsistent results: negative, neutral and positive (McWilliams & Siegel, 2001) The CSR-
FP relationship is going to reviewed under this part and to propose research hypotheses for the research As firms implement CSR practices, the firms try to meet the social demands: social and legal restriction from government, transparent marker required by the customers (Waddock, 2004) This creates an increasing pressure for firms to conduct CSR performance or put CSR into practices More importantly, CSR is a way to attract investors as they tend to focus on how firms can fulfil social responsibilities rather than just economic performance Thus, it challenges firms to look at a broader way of achieving financial performance along with social responsibility However, researchers found out the unrelated relationship between CSR and FP (Patten, 1991; Nollet et al., 2016) These studies propose that the relationship is so complicated to test its direct effects due to numerous intervening variables, thus there is no relationship between CSR and FP Another school of thought which is against the CSR-FP relationship is how CSR is a burden for business activities This leads to belief that CSR is a way to create financial disadvantages due to operation cost (Aupperle et al., 1985) The cost of CSR implementation cause loss of
57 shareholders dividends and this is somehow viewed as an unethical action Thus, the CSR-
FP relationship is a negative effect (Brammer & Millington, 2008; Crisóstomo et al., 2011) Although the negative or neutral effect of relationship, a dominating result of CSR-FP studies provides positive effect (Barauskaite & Streimikiene, 2021) According to Waddock and Graves (1997), the CSR-FP relationship exists because of implicit and explicit operational costs Lack of social responsibilities may lead to higher costs than explicit costs such as dividend payments CSR performance is a good indicator of firm performance including economic advantages The CSR-FP relationship is also affected by external variables in the market The level of competition is one of the factors that directly affect this relationship In the study of Kim, Kim and Qian (2015), firm performance can be enhanced by positive or negative social practices under the level of market competition. For example, for highly competitive market, positive social responsibilities lead to financial performance, however, financial performance is the result of negative (irresponsible) social practices in a low competitive market According to Campbell (2007), firms tend to act less responsible if there is either too strong competition or too weak competition As the firms hold leading positions in the market, they tend to act under their rules and seem to neglect CSR practices, on the other hand, firms in highly intensive competition, firms try to cut their operational costs so that irrepressible social practices exist Stakeholders expect firms to conduct different types of CSR practices which enable firms to achieve competitive advantage and better organisational performance (Coles et al.,
2013, Hwang & Lyu, 2018, Memon et al., 2019), valuation (Awaysheh et al., 2020) In the study of Cho, Chung and Young (2019), firms can gain higher growth rate and profitability when doing more social contribution Furthermore, in developing context, firms in service sector can improve financial performance and set visions and strategic goals by integrating CSR practices to balance score card system (Nguyen et al., 2019) These fulfilled practices enhance bonding between firms and stakeholders, which increase the operational effectiveness CSR practices aligned with business strategies enhance the business competitiveness, thus improve financial performance.
Mikotajek-Gocejna (2016) reviewed 53 studies on the relationship between CSR and financial performance, finding a predominantly significant positive relationship, while no significant and negative relationships account for 15% and 3%, respectively Similarly, Margolis and Walsh (2003) indicated most extant studies show positive correlations, while a minority identify a negative relationship, no relationship, or have inconclusive results. This illustrates the high probability of a positive outcome of CSR practices in terms of economic benefits A high percentage of CSR and financial performance research shows a positive relationship, meaning that “Good ethics is good business” (Van Beurden & Gửssling, 2008, p 407) In other words, CSR provides economic benefits in return (Okafor et al, 2021) More importantly, CSR practices in employment such as policies, training, or a safe working environment led to value creation for a business Rani and Mann (2018) analysed performance of 500 firms regarding the relationship between CSR and financial performance Their study proposed firms directly contribute to social development and improve the community, earning significant economic advantages in return to their investment and employed capital Firms focusing on environmental sustainability also achieve good economic returns (Mishra & Suar, 2013).
To measure CSR precisely, it is important to consider different aspects As a multi- dimensional concept, the measurement of CSR should be disaggregated into various dimensions (Feng et al., 2017) Feng et al (2017) adopted the CSR categories of Mandl and Dorr (2007) towards employee, society, environment, and market The practices focus on different stakeholder groups and ensure they all benefit from CSR performance By investigating the influence of CSR on the different aspects of financial performance across
10 industries, Feng et al (2017) find that each CSR category affects financial performance in different ways Wang and Berens (2015) also investigated how four CSR types (ethical, legal, economic and philanthropic CSR practices adopted from Carroll (1979) affect financial performance under the mediation of reputation, finding a significant relationship. According to Blasi et al (2018) different CSR dimensions have different impacts on financial performance, the effect is varied according to industrial type.
2.7.1.1 Economic CSR responsibility and financial performance
Economic responsibility is the first mandatory responsibility that a firm need to undertake This is a base for other types of CSR responsibility as economic responsibility is the core for the firm’s and other CSR practices’ presence The society requires firms to be profitable, without profitability, firms cannot exist This is the foremost dimension of CSR that is required by the society as the society need goods and services from firms The society requires firms to fulfil their responsibility in long term business survival of being at profits for providing good and services This is also a fundamental responsibility to ensure business wellbeing and sustainability (Wang & Berens, 2015) The firms need to meet different demand of customers and other primary stakeholders for effective business operations The role of economic is so mandatory as firms are sources of employment, social and economic development (Park, 2019, Robertson, 2009) The long-term growth, firm capabilities and competitive can be incentivized by economic responsibilities.
Besides legal requirements for fundamental business practices, firms are encouraged to conduct business activities that exceeds regulatory compliance The presence of proactive CSR program enhances the economic responsibilities of firms in the market Proactive CSR program refers to business practices that go beyond the law requirements to contribute to social-economic system (Dzhavdatovna, et al., 2015; Mousavi, 2013; Torugsa, O’Donohue & Hecker, 2013) Firms who are proactive in CSR performance can achieve significant outcomes Economic responsibility infers the business case to promote economic growth and well-being, and requires firms to address issues with customers, investors, suppliers for proactive business practices Firms need to do business in the way that there is an integration between economic responsibilities and core business practices along with the process of making decision (Torugsa et al., 2013) This core integration ensures either short term or long-term profitability, and also market exploitations, which contributes to the whole economic system through higher living standards The living standards are improved by proactive economic responsibility in terms of product innovation and new products As firms can meet customer desires, they have
60 more opportunities to exploit the market In order to manage the economic responsibility, it is crucial to adopt an effective management system in which ensures the cashflow for shareholder requirements (Dyllick & Hockerts (2002) Fulfilling economic responsibility, managers should be aware of the dependence on the customers and suppliers for applying economic CSR activities (Vitell et al., 2000) Firms which have advantages of business capabilities, are easy to take advantages of opportunities from changing market to achieve financial outcomes Thus, it is well indicated that pursing economic responsibilities is associated with better financial outcomes The first hypothesis was proposed as following: H1.1 Economic CSR practices positively affect financial performance
2.7.1.2 Legal CSR responsibility and financial performance
Legal responsibility refers to how firms conduct their business under legal requirements and law systems For developing countries, the economic system is not solid and transparent due to the chaos in management capabilities Thus, the legal system is the core guideline for firms to do business in the acceptable manner A market economy is constructed by the legal framework under institutional and constitutional approach, hence the ethic codes for business are enacted legally (Luetge, 2005; Vanberg, 2011) The legal framework set out compulsory guidelines as well as constrains for business actors in the economic market Responsibility of economic fulfilment is associated with legal guidelines and requirements According to Quayes and Joseph (2017), economic environment is affected by legal systems and the legal system is associated with economic models in the market The differences of legal system can have implications on business environment in either constraints or support The legal systems issue environmental and social policies that requires organisations take accountability for their performance For example, regarding to Gainet (2010) the common law supports the rights of environmental protection and encourages firms to actively disclose environmental practices The law is the reflections of ethic norms to require firms for fulfilling economic responsibility Hence, firms conduct legal responsibility as the responsibility is accepted and reinvigorated by the society (Wagner-Tsukamoto, 2019) More importantly, the corporate legal responsibility
61 contributes to the positive stakeholder’s perception and financial outcomes (Wang & Berens, 2015) The legal responsibility is the fundamental for achieving legitimacy that firms need to conform to do so in the society According to Schwartz and Carroll (2003) the society expects firms to be a law-abiding citizen in terms of complying with legal principals and government policies And through legal responsibility performance, firms are eligible for financial outcomes as their performance is accepted by the society under legal requirements In other words, according to Lekovié et al (2019) it is necessary for firms to do business under law requirements and legal system to make profits With the law guidelines, firms are aware of their activities in business operations, hiring employees, meeting stakeholder’s requirements, making peace with the society All of these legally operational practices enhance the success of business (Galbreath, 2010; Rashid et al., 2014) As law requirements are aligned in business strategies, it improves the business sustainability as long as competitive advantage, enhance business performance in returns. For example, treating employees and customers according to legal guidelines can enable employee commitment and customer satisfaction, thus the business performance is improved in the good manner Generally, a hypothesis was proposed.
H1.2 Legal CSR practices positively affect financial performance
2.6.1.3 Ethical CSR responsibility and financial performance
Another responsibility that society expects firms to conduct is ethical responsibility. Ethical responsibility which is related to addressing social and environmental issues is out of law guidelines Since the study separates social and environmental dimension, in this part, the ethical responsibility is only associated with cotemporary social issues The ethical responsibility is out of law obligations that can address issues satisfying stakeholders needs In the future, this type of obligations can be converted to legal responsibility (Lu et al., 2020b) Moreover, employee performance towards business activities ensures the working and employee wellbeing, can enhance employee commitment (Dogl &Holtbriigge, 2014), and this improves business performance According to Lin et al (2019)Asian businesses tend to focus more on economic CSR activities than other CSR types, especially internal CSR activities in terms of employee’s wellbeing, however this is a backward in management since CSR implementation is related to financial performance. The ethical programs in terms of employee and society wellbeing can be an overhead cost for businesses, however it leads to financial benefits in return (Rani & Mann, 2018, Saleh et al., 2011) Firms put efforts into implementation of these programs to gain an image of
“good citizenship”, with the high expectation for better financial performance A firm is considered as a good citizen as they perform different levels of ethical CSR performance, rather than just focuses on social issues (Wang & Berens, 2015) The ethical CSR performance is reckoned as “The Good” of business as it is associated with moral norms and activities that not only address organisational issues but also social issues.
Making peace with society and satisfying different stakeholders from inside stakeholder (employees) to outside stakeholder (customers) bring the win-win situation for firms and lead to improve profits (Madorran & Garcia, 2016) Firms need to address employee needs and protect employee interests to improve ethical behaviour at the organisational level Furthermore, a full package of fair appraisal and remuneration policies is necessary in the working environment For customer, it is an ethical initiative when firms can meet customer demand and interests by offering good products and services at fair price Through these basic ethical practices, firms can gain confidence in profits Regarding to Nejjari and Aamoum (2020) an ethically oriented firm can build trust and guarantee long-term success The ethic business initiatives are created by adjusting strategic issues with moral norms and commitment to different groups of stakeholders The ethical actions are associated with higher rate of survival for rational ethical decisions Sound ethical initiatives enable not only immediate financial outcomes but also the long-term success. For example, profit is the key objective of firms, they can earn short term profits, however, integration with ethical behaviours leads to long term success of organisational performance (Goel & Ramesh, 2016) Based on the review, the researcher proposed a hypothesis as below.
H1.3 Ethical CSR practices positively affect financial performance
2.7.1.4 Environmental CSR responsibility and financial performance
Corporate social responsibility and corporate reputation
Regarding to Porter and Kramer (2006) and Smith (2003), CSR investment is a driver of competitive advantage and a strategy for a better financial performance Besides the outcome of financial performance, CSR is also considered as a tool to improve corporate reputation Suggested by Barnett, Jermier and Lafferty (2006), corporate reputation is built by evaluation of triple bottom line performance (economic, social and environment) during a particular of time This indicates that there is a correlation between CSR and corporate reputation Firms that fulfil their commitment of providing good produces and services, society contribution and environment protection, meeting stakeholder requirements are highly likely to gain corporate reputation In other words, corporate reputation is the reflection of how firms can meet the interests of stakeholders
66 over a period of time (Zhu et al., 2014) Furthermore, investment in CSR practices can create intangible benefits and create long term values (Miles & Covin, 2000) CSR initiatives and programs can be considered as a strategic tool to respond to stakeholder requirements to improve brand image and maintain reputation (Garberg & Fombrun, 2006; McWilliams et al., 2006) Corporate reputation must be evaluated and accepted by different groups of stakeholders Corporate reputation is the representative of social value created by stakeholder acceptance.
According to Yoon, Giirhan-Canli and Schwarz (2006), customers learn and perceive the cause of effects of CSR practices, they can express either sincere or insincere towards CSR The positive sincere of customers helps firms create the positive corporate image and enhance the relationship with customers For example, firms with high attention to environmental and social concerns can change corporate image (Arnold, 2001; Yoon et al., 2006) Firms with bad reputation, especially for vulnerable industries can also improve their image through CSR implementation In the studies of Gupta (2002); Walsh, Mitchell, and Jackson (2009) and Saeidi et al (2015), corporate reputation is the reflection of how stakeholder needs are satisfied and reputation is created from long term customer satisfaction Furthermore, CSR practices significantly affect how customers choose products as evidenced by the study of Gupta (2002), customers opt for products of firms who pay attention to CSR practices when they are uncertain to choose which product.
Generally, CSR implementation indicates a positive relationship with corporate reputation (Li et al., 2020, Lu et al., 2020a), especially how CSR practices can affect customers perception and satisfaction to build a good reputation More importantly, different types of CSR practices can have various effects on corporate reputation (Wang & Berens, 2015).
2.7.2.1 Economic CSR responsibility and corporate reputation
Economic CSR responsibility is the societal requirements for high quality goods and services Carroll (1991) identified the economic responsibility is to provide goods and
67 services at profitable level It is the fundamental of other responsibilities, furthermore, the wellbeing of society depends on the economic CSR responsibility (Wang & Berens, 2015). Since the relationship between economic CSR responsibility and society is integrated, the economic CSR reasonability foremostly fulfil the needs of individuals Every single business activity is observed and evaluated by individuals and the whole society Firms perform their economic responsibilities according to the society requirements; firms can receive good evaluation from the society Their reputation is enhanced by fulfilment of economic responsibility (Wang & Berens, 2015; Galbreath & Shum, 2012) Profits and reputation are two correlated concepts Maximizing the profits acquires firms to be proactive in their business activities, firms need reputation to maximize profits However, maximizing profits also generates reputation Firms need a large customer base for profitability, and by the ways of reaching customers, firms are creating their reputation. The corporate reputation can be built internally and externally based on the stakeholder evaluation Corporate reputation does not depend on the evaluation of external stakeholders such as customers and publics (Brammer & Pavelin, 2006), it can be built by internal stakeholders According to Lee (2020) as firms are responsible for-profit maximization aligned with strategic visions and they are ready to give resources back to the communities and society, firms are evaluated prestigiously by their employees In other words, firms can enhance their relationship with employees by economic CSR responsibility as they are aware of internal and external reputation generated by CSR implementation A hypothesis was formed as following.
H2.1 Economic CSR practices positively affect corporate reputation
2.7.2.2 Legal CSR responsibility and corporate reputation
Legal CSR responsibility is in the second phase of CSR pyramid, which indicates the societal requirement for law compliance Besides requirements for economic contribution, firms need to fulfil their legal responsibility to the society Regarding to Wang and Berens (2015), legal CSR responsibility is positively associated with corporate reputation, especially, reputation among customers and other financial stakeholders Legal
68 system is the framework and guidelines for firms to do business in accordance with the society requirement Firms need to avoid business activities that are not allowed by the law Avoiding bad is crucial to business performance and sustainability According to Lin-
Hi and Blumberg (2018), avoiding bad enables firms to commit their business activities in line with legal requirements and moral norms The law system is based on social norms, thus doing business in line with social norms plays an important role in business success. The law and social norms require firms to have practices that do not violate human rights and ensure a safe working environment Bad reputation is the result of unethical and not law-abiding behaviours such as cheating customers, causing environmental issues (Lin-Hi
& Blumberg, 2018) To distinguish themselves from bad reputational companies, prestigious firms foremostly need to comply law requirements and accept moral norms. The difference can be widespread and reputation is formed, so the implicit contract between firms and society is maintained (Carroll, 1991) Stakeholders perceive firms as a good or bad organization based on their performance (Franco et al., 2020) Avoiding bad activities encourages the perception of good image from stakeholders, and form a good reputation from stakeholder perception Thus, the research made a following hypothesis. H2.2 Legal CSR practices positively affect corporate reputation
2.7.2.3 Ethical CSR responsibility and corporate reputation
The ethical is the fundamental for what is right and fair for behaviour The judgement of what is right or wrong is based on the ethic codes A business is considered as a business ethic organization as it fulfils socially responsible behaviours According to Cacioppe, Forster and Fox (2008), ethic codes appeared in all of the business activities from inside to outside performance For the internal environment, ethics are required to ensure a good working environment, to meet employee requirements For the external environment, firms are required to meet the demands of ethical customers and ethical investors Ethical customers are the group of people who care for ethical business behaviours, while ethical investors are the one not only care about interest but also the transparency of invested business It indicates that internal and external stakeholders pay
69 high attention to ethical business behaviours As firms are ethically responsible for their business performance, they can seek for better brand image and corporate reputation (Skotnicki, 2000) Firms that offer products without using child labour, unfair treatment, receive a higher chance of getting reputation Furthermore, if the same products of different producers are offered at the similar price, customers are willing to buy from the more ethically responsible one Ethical responsibility is the tool for firms practicing CSR initiatives can gain corporate reputation Therefore, the researcher suggested the following. H2.3 Ethical CSR practices positively affect corporate reputation
2.7.2.4 Environmental CSR responsibility and corporate reputation
The environment is suffering from the negative effects of business performance in terms of environmental damages, global climate change, water and air poisons The consequences challenge firms to meet the public requirements as they claim firms for environment threats Firms are expected to fulfil their environmental CSR responsibility, and when firms engage in corporate environmental responsibility, they can gain corporate reputation (Dửgl & Holtbriigge, 2014; Galbreath 2010) In order to enhance environmental responsibility, firms should form an eco-friendly culture where environmental practices and strategies are applied In the study of Sharma (2000), environment related strategies and culture were the framework to guide managers regarding environmental issues in operations and performance Firms pay attention to environmental impacts have business practices that reduce wastes and encourage green management system Furthermore, firms can have other types of green practices such as green recruitment and innovation, green communication with the stakeholders These practices enhance firm position in the market and improve reputation in the stakeholder’s eyes The strategic implementation related to addressing environmental issues enable firms be advantageous in performance such as corporate reputation and employee commitment (Dégl & Holtbriigge, 2014) For emerging markets, implementation of environmental responsibility is an ideal strategy to improve business performance According to the studies of Testa et al (2016), Wọtzold et al. (2001), firms with environmental certification are reputationally recognized by public
70 authorities, and they have more advantages in legitimacy and regulatory Therefore, a hypothesis was formed.
H2.4 Environmental CSR practices positively affect corporate reputation
2.7.2.5 Philanthropic CSR responsibility and corporate reputation
Philanthropic initiatives refer to firm voluntariness in contribution to a better living environment in the society by worthy giving of labour and finance (Lii & Lee, 2012) Being a good citizen is the condition for firms to survive in the market as they can fulfil their social responsibilities It is necessary for firms to perform “doing good” activities. According to Lin-Hi and Blumberg (2018); Spiess et al (2013), doing good is related to initiatives that go beyond law requirements and social norms The reason for doing good is based on the nature of voluntariness, however, firms can achieve strategic objectives by philanthropic practice as sponsorship The philanthropy can lead to twofold outcomes: strategic outcomes and altruistic outcome Wang and Berens (2015) proposed that philanthropic activities lead to the increase of corporate reputation Corporate reputation is formed by the impression and evaluation of stakeholders on firm behaviours (Bartholow et al., 2001) Publics always keep an eye on business performance as the consequences of business activities can directly and indirectly affect human life Furthermore, donations or charities are the essential ways to get attention from publics Giving resources to social development wide spreads the brand image Under marketing-based view, philanthropy such as sponsorship is also a tool to improve marketing performance In general, doing philanthropy can meet the stakeholder expectations and generate a good reputation for business Therefore, the researcher proposed a hypothesis.
12.5 Philanthropic CSR practices positively affect corporate reputation
Corporate reputation and financial performance
According to Sabate et al (2003), to identify the link between reputation and financial performance, researchers need to address two issues: how corporate reputation affect financial performance (positive, negative or neutral) and the actual direction of
71 causality (reputation affects financial performance or financial performance affects reputation) Many studies support the positive relationship between corporate reputation and financial performance (Nguyen & Huynh, 2019; Wang & Berens, 2015; Zhu et al., 2014) Corporate reputation is formed by stakeholder perception, and this is also a tool to differentiate firm identity and explain how firms are performing (Boyd et al., 2009). Corporate reputation differentiates organization by distinguishing it from the rival businesses, and help firms to reduce false information and avoid customer uncertainty. Corporate reputation is the key to explain this firm can outweighs the other firms Due to the benefits of corporate reputation, many authors try to link corporate reputation to firm performance (Shamsie, 2003; Deephouse, 2000) Building corporate reputation as a strategic tool can enable firms gain superior performance By differentiating effect of corporate reputation, firms can achieve competitive advantages and performance success. Achievement of strategic objectives and investment in corporate social responsibility or non-financial activities lead to both financial and non-financial (social) reputation (Aguinis
& Glavas, 2012; Martine et al., 2017) Corporate reputation helps firms to gain financial access and it is a predictor to increase of profitability and better financial performance For example, firms with high reputation can lower the requirement to maintain market values from shareholder group Also, they suffer the less effects from market downturn than the firms with lower or non-reputation They can maintain their share values during the turbulence of the market economy Martine et al (2017) stated that corporate reputation is also a result of long-term superior performance Corporate reputation is an essential strategy to gain access to resources in which firms can reach more investor attraction, better interest rate, etc Firms apply both social practices and financial practices are able to satisfy stakeholder requirements Furthermore, firms are effective and efficient in resource allocation to meet obligations of stakeholders, they are highly likely to gain financial success (Martine et al., 2017) For firm who are actively engaged in social responsibility can achieve social reputation These firms can satisfy the expectations from customers,organizations, medias and communities The supports from these groups of stakeholders ease the obstacles for firms to gain high level of financial performance A hypothesis was formed as below.
H3 Corporate reputation positively affects financial performance
CSR practices, financial performance, and the mediating role of corporate
Many scholars have investigated the direct relationship between CSR and financial performance; however, due to its complexity this relationship can be better explained by using mediating variables (Abugre & Anlesinya, 2020; Adekoya et al., 2020) CSR practices have a significant effect on corporate reputation in the long run According to Nguyen and Nguyen (2020), it is crucial to study CSR-FP relationship with intervening variables to address the complexity Fernandez Sanchez et al (2015) investigated the relationship between CSR and corporate reputation before and after the recent economic downturn, finding out this relationship is strengthened during the turbulent period When firms want to improve corporate reputation, they can focus on CSR as strategic planning. Academics and experts pay more attention to the mediating role of corporate reputation, as corporate reputation generally leads to higher firm value Corporate reputation improves when stakeholders perceive firms’ ethical behaviours (Cacioppe et al., 2008; Taghian et al., 2015) For example, corporate reputation built based on CSR performance establishes brand identity, which helps consumers make comparisons with the other brands for purchases Since more consumers are aware of the negative effects of business unethical behaviours, CSR practices can affect consumer attitudes, as the consumers perceive ethical motives in the business context (Yoon et al., 2006) Firms use effective communication for CSR disclosure, not only to promote CSR reputation but also corporate reputation (Lee, 2016) As such, CSR practices can help firms recover their damaged image.
Firms with better reputation tend to enjoy higher profits For instance, El-Garaihy et al (2014) found that CSR is a strategic mean to create intangible assets in terms of corporate reputation and customer satisfaction, which in turn generate competitive advantage Additionally, highly ethical leaders promote CSR activities, thus improving
73 reputation, and all these effects result in better financial performance (Zhu et al., 2014) In other words, strategic CSR practices are an effective way to establish good corporate reputation, which enables firms to enjoy long-term financial performance (Orlitzky et al., 2003; Park, 2017) Corporate reputation is a good explanation for business outperformance and helps firms achieve better financial outcomes (Boyd et al., 2009) Managers are thus encouraged to align CSR activities in terms of strategy, brand image, identity, and reputation (Esen, 2013) Unlike the studies investigating the effects of CSR on firm performance through corporate reputation, Wang and Berens (2015) study the effects of disaggregated CSR practices on financial performance They find that each CSR dimension has different effects on financial performance under the mediation of corporate reputation. Understanding these different effects helps managers better evaluate CSR investment. Therefore, the researcher proposed the following hypotheses.
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.
Based on the literature review, the researcher proposed a conceptual framework to illustrate the relationships between five types of CSR practices, corporate reputation and financial performance.
Clark (1916); Usunier et al (2011); Kitzmueller &
(2017); Haase (2017); Yeo et al (2018) Alvarado-
Herrera et al (2017); Wagner-Tsukamoto (2019
Sharabati (2018); Lu et al (2020b); Dzhavdatovna, et al., (2015); Mousavi (2013); Torugsa, O’Donohue & Hecker (2013); (Torugsa et al (2013); Dyllick & Hockerts (2002) Figure 2.5 Literature review map
(2003); Buehler & Shetty (1974); Chih et al (2010); Samy et al (2015)
Lu et al (2020b); Luetge, (2005); Vanberg (2011);
Wang et al (2016); Khan, & Ibrahim (2017); Orlitzky et al (2003); Rowe & Morrow
(1999); Margolis & Walsh (2003); Popa et al (2012);
Molina-Azorin et al (2009); Aras et al (2010)
Lin-Hi and Blumberg (2018; Corporate reputation
Cone Khan al Jenkins (2002); Esen, (2013);
Brown et al (2006); Mahon, (2002) ; Rhee & Haunschild ằ> (2006); Davies et al., (2001);
Déegl, & Holtbriigge, (2014); Money et al (2017); Logsdon &
Gangi et al (2020); Galbreath Wood (2002)
Boyd et al (2009), Lin-Hi &
Holtbriigge (2014); Martinez et al (2017); Sabate et al.
Zhu et al (2014); Pradhan (2016); Koh et al (2009)
Wang & Berens (2015); Cacioppe et al (2008); Skotnicki (2000); Fan (2005); Brunk (2010); Sims (2009)
Rani & Mann (2018); Sharabati (2018); Lu et al (2020b); Cacioppe et al (2008);
Rongjia et al (2020); Dogl & Holtbriigge (2014); Rani & Mann (2018); Saleh et al.
Lin-Hi and Blumberg (2018); Spiess et al [76
Rani & Mann (2018), Wang et al (2008); Lu et al (2020b); Park (2019); Woolley & Fishbach (2017); Li et al (2013)
Mishra & Suar (2013); Sharabati (2018), Lu et al (2020b); Rongjia et al (2020); Buysse and Verbeke (2003);
The chapter reviewed the key papers related to CSR, corporate reputation and financial concepts In accordance with the Carroll pyramid model of CSR, the researcher modified the model by adding environmental dimension The modified five types of CSR were illustrated in the new pyramid The aim to modifying the Carroll model was to suit to the context of Vietnam where environmental issues are highly concerned Based on the study of Wang and Berens (2015), revieing the mediating variable role affects the relationship of CSR and financial performance, the researcher built a research model that is related to the developing context The research model of the relationships between five types of CSR (economic, legal, ethic, environmental and philanthropic) and financial performance with the mediating role of corporate reputation was built to be the fundamental of this empirical research.
The chapter also discussed the theories used to explain CSR behaviors and its outcomes To explain the CSR field, use of single theory cannot address fully the complexity of the phenomenon Thus, the integrated combination of theories in terms of stakeholder, legitimacy and good management theory was used to address it These theories are integrated to complete each other Each theory was clearly synthesized from literature review and discussed for its use and relation to CSR concept The theoretical framework was developed to get insights into the complex phenomenon of CSR world.
This chapter discusses how research methodology is chosen for this study Basias and Pollalis (2018) said that research includes creative work conducted in a systematic method to improve knowledge and to solve the problems, test hypotheses or even develop theories In order to utilize researched knowledge in strategic management, researchers need to choose a method, for example quantitative or qualitative method Researchers use either qualitative method or quantitative method to conduct their research The choice for qualitative or quantitative approach depends on research questions, research objectives to collect and analyze data However, the choice for mixed methods of qualitative and quantitative approach has been of interests for research (Bazeley, 2015; Reilly & Jones, 2017) Mixed methodology can solve the disadvantages for each research approach, and complement advantages for better and 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 The chapter begins with the overview of research paradigm, and clarify how the researcher perceives in research methodology through research philosophy The study also states the reasons for choosing mixed methods which qualitative approach is conducted in the first stage and quantitative approach is conducted in the second stage.
This part discusses the philosophy of the researcher to conduct this research The discussion is analyzed with the researcher’s philosophical assumptions The philosophical assumptions are divided in two stages of ontology and epistemology Firstly, the researcher explains how she views and perceives the social reality The researcher needs to understand how to view the world based on ontological nature For this research, ontologically, the researcher adopts nominalist perspective for the first phase and realist perspective for the second phase The ontology guides the research to acknowledge of how a social reality is
78 perceived, whether by the objective identity of external to social actors or by the construction of the reality from multiple perceptions (Bryman, 2006)
The researcher begins the research methodology with nominalist perspective as human knowledge comes from experience The experience helps tell the story of how things happen to our life (Smith, 2019) Thus, it is important to explore the CSR world by interviewing the participants to understand more about CSR through their experiences. Their contribution would be a strong foundation for the researcher to get insights what CSR is in Vietnam, and to prepare for survey in later stage With the nominalist perspective, the researcher can understand that for each individual, their own interests, desires, point view and knowledge are different in the society Thus, there is no universally objective perspective applied to all people (Smith, 2019) The different stories of participants give out a rich source of data for deeply insights of the CSR phenomenon For nominalist perspective, researchers can acknowledge there are various realities, this is contrast to realist perspective due to one single reality (Zhao, 2014) In the other words, in the realist perspective, people accept only one universal reality and this reality is applicable to all contexts In order to evaluate this universal truth, the researcher need to be aware of their role as independent researcher After synthesizing the ideas of participants to form a picture of CSR in Vietnam, the researcher started to acknowledge the single reality of the CSR phenomenon This is the condition for the researcher to get involved in the second phase of realism The single reality is assured by the beliefs that multiple tests of the same phenomenon results in the same outcome (Neuman, 2009) Thus, with the realist perspective, the researcher can confirm the validity and reliability of the research The objectivism of realist perspective helps the researcher be aware of the CSR phenomenon is a single reality that CSR phenomenon is external to multiple CSR-related parts This indicates the objectivity in studying CSR reality.
On epistemological assumptions, this phase is concerned with the question of what should be considered as acceptable knowledge (Bryman, 2006) When considering what is acceptable knowledge, researchers raise a high concern for if it is necessary to apply the
79 same procedures, rules and principles to address a social reality To answer this question, there are two assumptions of epistemological positions: positivism and anti-positivism. According to Williamson (2006) positivism hold the beliefs of objective and generalized results with the independent relationship between the known and knower, meanwhile anti- positivism refers to the subjective findings generalized to the research sample with the strong relation between the known and knower.
For the epistemological assumptions of this research, the researcher believes in anti- positivism in the first stage and positivism in the second stage Holding the belief of anti- positivism means that the researcher wants to start with the small sample of participants to study their perception about CSR in Vietnam At this phase, the researcher can have strong interdependence with the researched participants to construct the real reality of CSR phenomenon In-depth interviews are the useful source for interpretivism For interpretivism, it is necessary to understand CSR is formed by various factors, thus under personal perspectives, human may perceive CSR in different ways As an interpreter, the researcher can respect the differences between the objects in nature and people, so that they can form a subjective mindset of an issue Suggested by Guba and Lincoln (1994) to clarify the subjectivity of social reality, academies also use constructivism which have similar nature with interpretivism Constructivism is a part of interpretivism, and it guides the researcher to get into a social phenomenon in subjective approach by conducting social interactions, language and writing As the world keeps changing every day, the researcher needs to continuously interpret the world by holding interpretive beliefs Acknowledgment of this matter enables the researcher easily understand more about CSR through social interaction of in- depth interviews The researcher can understand how firms conduct CSR in Vietnam by the supports of managers or similar positions (researched participants) through sharing their belief, perception and the construction of their CSR practices.
However, in the second phase of survey, the researcher needs to be aware of the positivism Questionnaires and data are under prediction and control, and this phase is to ensure the reality found in the first stage At the present, the research should view the
CSR phenomenon with objective mind There is one universal truth about CSR and the generalizability of the research findings is also improved by conducting quantitative approach.
According to Jonker and Pennink (2010) research paradigms are used to explore the philosophy of social sciences Simply, a research paradigm guides the researcher’s behavior during the research process by a cognitive framework created from assumptions and beliefs of seeing the world Positivism and interpretivism are the key research paradigms to explore a complex phenomenon The differences between these two paradigms are how philosophical assumptions are based on the assumptions of philosophical dimensions (epistemology and ontology) Both of them refer to “nature of knowledge the development of that knowledge” (Wahyuni, 2012, p 69) Ontology emphasizes how people perceive the reality, and the reality is perceived by objective and subjective thinking Objectivism refers to the independence of researcher and reality, while subjectivism relates to the dependence of researcher and reality Bryman (2012) and Collis; Hussey (2009) are famous for their research on distinction between positivism and interpretivism in terms of epistemological approach, ontological approach, methodological approach and research purpose With the purpose of explaining causal relationship, positivistic paradigm assumes that there is an independence between researcher and research object Knowledge is objective and supported by social fact, the researcher needs to adapt deductive approach of theory testing for methodology According to Weber (2004), the knowledge objective of positivism is objective because the knowledge of reality is the reflection of objective reality built by human knowledge The positivistic paradigm is supposed to improve generalizability by using samples to test theory Hypotheses and possibly true assumptions are built on literature review, previous empirical researches and research theories The positivistic researcher tests the hypotheses by statistical analysis tools and quantitative data to prove the validity and reliability The collected data is valid when it passes the requirements internal validity, external validity and construct validity.
On the other hand, according to the interpretivist paradigm, knowledge is subjective and researchers have a strong interaction with the research object during the research process The researchers favor in dialog with the key informants to understand the reality. The researchers believe that reality is built by an interaction between social actors and human perception about them (Wahyuni, 2012) The subjectivism exists as the theory is generated (or reality construction) by human perceptions and experiments, furthermore, the perceptions may be changed due to the context and time, thus a constructed reality may have different perspectives Researchers try to construct knowledge by the reflection of making sense of social phenomenon (Weber, 2004) By conducting inductive approach, the research can generate and discover some new aspects of theory and furthermore, the researchers can interpret the research phenomenon to understand more realties.
Due to the different assumptions of two research types, positivistic research adopts surveys, field and lab experiments and statistical analysis to address empirical data in a very large amount According to Wahyuni (2012), researchers apply a scientific method of using numeric measures to develop acceptable knowledge The researchers believe that when use the large amount of data to test theory they can ensure the generalizability in different contexts Interpretive research prefers ethnomethodology, case study, ethnography, phenomenography For interpretivism, it is not necessary to use rich quantitative date but a small number of samples (Collis & Hussey, 2009) The dependence of what is researched gets researchers to be involved in the process of collecting rich and qualitative data to generate new theory However qualitative findings are deemed reliable, but it is not The findings are high in validity and low in reliability The reliability is remained as there is an ‘interpretive awareness’ of researchers in terms of acknowledging the subjectivity in the research (Weber 2004, p 9) However, in reality, it is difficult to maintain the subjectivity during the whole research process The researchers may step in the research process purposely to address issues based on their perceptions and observation.
Using positivistic paradigm or interpretive paradigm for research depends on the researcher’s view and perception Due to the differences of perception, the findings may