The impact of corporate social responsibility on firm performance, the case of in vietnamese companies

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM ERASMUS UNVERSITY ROTTERDAM INSTITUTE OF SOCIAL STUDIES THE NETHERLANDS VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON FIRM PERFORMANCE: THE CASE OF VIETNAMESE COMPANIES BY TRAN PHUOC LOC MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHIMINHCITY, NOVEMBER2016 UNIVERSITY OF ECONOMICS VIETNAM HO CHIMINHCITY THE NETHERLANDS INSTITUTE OF SOCIAL STUDIES THE HAGUE VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON FIRM PERFORMANCE: THE CASE OF VIETNAMESE COMPANIES A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By TRAN PHUOC LOC Academic Supervisor: Prof Dr NGUYEN TRONG HOAI HO CHI MINH CITY, NOVEMBER2016 DECLARATION This is to certify that this thesis titled “The impact of Corporate Social Responsibility on Firm Performance: The case of Vietnamese companies”, which is submitted in fulfillment of the requirements for the degree of Master of Arts in Development Economics to the VietnamNetherlands Program (VNP) The thesis constitutes only my original work and due supervision and acknowledgement have been made in the text to all material used i ACKNOWLEDGEMENTS First of all, I would like to thank and gratefully express my special appreciation to my supervisor – Prof Dr Nguyen Trong Hoai for all of his guidance, useful recommendations and valuable comments for my thesis Secondly, I wish to convey my deep gratitude to Dr Pham Khanh Nam, Dr Truong Dang Thuy for their valuable suggestions and comments for my TRD as well as the econometrics models Furthermore, I will never forget the dedication of all VNP teachers and supporting staffs to give us high-quality lectures Next, I am also grateful to my wonderful teammates and classmates at VNP C21 for their help and motivation in our great time together Special thanks to my family, friends and colleagues who support and encourage me during the thesis and studying time in this program ii ABBREVIATIONS GSO General Statistics Office of Vietnam OLS Ordinary Least Square FEM Fixed effects model R&D Research and Development REM Random effects model ROA Return on assets ROE Return on equity SMEs Small and Medium Enterprises SOEs State-owned enterprises TCS Vietnam Technology and Competitiveness Survey UNIDO United Nations Industrial Development Organization VCCI Vietnam Chamber of Commerce and Industry VES Vietnam Enterprise Survey iii ABSTRACT This study attempts to identify the determinants of Corporate Social Responsibility (CSR) and to examine the impacts of CSR on firm’s financial performance of 6435 Vietnamese firms extracted from the combination of the Vietnam Technology and Competitiveness Survey (TCS) and the Vietnam Enterprise Survey (VES) within a three year period from 2010 to 2012 By applying the panel data and Fixed Effects Model, the empirical results suggest that CSR may have positive relationships with firm performance whereas the determinants of CSR include firm size, R&D participation, final goods ratio and ownership structures These results are supported by a majority of empirical papers about CSR (Erhemjamts et al., 2012; Margolis et al., 2007; Russo and Fouts, 1997) and theories about CSR such as stakeholder theory, resource-based view and stewardship theory In addition, the study also reveals the situation of CSR in Vietnam: although a large number of Vietnamese firms are already aware of CSR, most of firms only participate in Labor CSR, which is mandatory by laws while Community-related CSR is generally ignored Based on the findings, the thesis may propose several policy recommendations to improve the CSR practice in Vietnam iv TABLE OF CONTENTS Contents DECLARATION ACKNOWLEDGEMENTS ABBREVIATIONS ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES INTRODUCTION 1.1 Problem statement 1.2 Research objectives 1.3 Research questions 1.4 Research scope 1.5 Research methodology 1.6 The structure of this study LITERATURE REVIEW 2.1 2.1.1 Corporate Social Responsibility Definitions 2.2.2 Measurement of CSR 2.2 Firm Performance 2.2.1 Definitions 2.2.2 Measurements of firm performance 2.3 Corporate Social Responsibility and Firm Performance 2.3.1 Theoretical review 2.3.2 Empirical review RESEARCH METHODOLOGY 3.1 Data collection 3.1.1 Vietnam Enterprise Survey 3.1.2 Vietnam Technology and Competitiveness Survey 3.1.3 Data sample in this study 3.1.4 Corporate Social Responsibility Index (CSR Index) v 3.2 Variables and measurements 3.2.1 Dependent variables 3.2.2 Explanatory variables 3.2.3 Control variables 3.3 Conceptual framework and model specification 3.3.1 Conceptual framework 3.3.2 Model specification 3.4 Analytical approach RESEARCH FINDINGS AND DISCUSSIONS 4.1 Overview of Corporate Social Responsibility and performance in Vietnam 4.2 Descriptive analysis results 4.3 Empirical results 4.3.1 Determinants of CSR engagement 4.3.2 Effects of CSR on Firm Performance CONCLUSIONS AND RECOMMENDATIONS 5.1 Main findings 5.2 Policy implications 5.3 Limitations of the thesis 5.4 Future research REFERENCES APPENDIX Appendix 1: Regression results for Fixed Effect Model Appendix 2: Hausman test results Appendix 3: Awareness of CSR questionnaires on the Baseline Survey Report 2010 vi LIST OF TABLES Table 2.1: Theories about CSR 18 Table 3.1: Number of firms surveyed in VES and TCS dataset from 2010 to 2012 24 Table 3.2: Structure of Survey Questionnaires in TCS 25 Table 3.3: Categories of firm size 26 Table 3.4: Categories of ownership type 26 Table 3.5: Corporate Social Responsibility (CSR) Indicators 28 Table 3.6: Summary of variables, measurements and expectations 34 Table 4.1: Corporate Social Responsibility (CSR) Indicators by years .47 Table 4.2: Mean value of CSR aspects by Firm Size 48 Table 4.3: Mean value of CSR aspects by Ownership Type 48 Table 4.4: Descriptive Statistics of key variables 49 Table 4.5: Correlation Matrix of key variables 51 Table 4.6: Determinants of CSR participation 53 Table 4.7: Summary of Hausman test results for all regressions 53 Table 4.8: Regression results examining the impact of CSR on ROA 55 Table 4.9: Regression results examining the impact of CSR on ROE 56 Table 4.10 Regression results examining the effect of three dimensions of CSR on firm performance 58 LIST OF FIGURES Figure 2.1: The Pyramid Model of CSR 17 Figure 3.1: Conceptual Framework 36 Figure 4.1: CSR Awareness category 43 Figure 4.2: Awareness scores by sectors 43 Figure 4.3: Awareness on topics of social responsibility 44 Figure 4.4: Awareness on topics of social responsibility – by number of firms 45 vii CHAPTER I INTRODUCTION 1.1 Problem statement In recent decades, social effects of enterprises are increasingly becoming essential in the field of economics and management (Fiori et al., 2007) However, the main objective of an enterprise is to obtain profits or in other words, to increase firm’s financial performance Generally, performance may be affected by both firm’s own decisions and strategies in its business In this sense, researchers and scholars may raise a controversial question: what is the level of social and environmental adoption that firm should consider but still achieve the financial targets? Eventually, the concept of Corporate Social Responsibility (CSR) emerged as a new approach to resolve both social and environmental issues (Uadiale & Fagbemi, 2012) In general, CSR refers to the basic idea that enterprises attempt to satisfy social concerns and expectations in certain ways (Gossling & Vocht, 2007) Until the late 1970s, CSR was still considered as a joke or an opposite standpoint by contemporary investors and scholars (Lydenberg, 2005) However, from the 1990s, the concept of CSR has been widely accepted and promoted from governments, enterprises to individuals Nowadays, CSR has emerged and become an essential concept in the fields of management, economics and firm’s theory (Moir, 2001; Lindkvist & Llewellyn, 2003; Margolis & Walsh, 2003) Generally, CSR focuses on issues related to social and environmental effects from enterprises’ operations and decisions Carroll (1979, 1999) defines CSR as social responsibility that enables firm to operate in a profitable, law-abiding, moral and discretionary manners Previously, companies utilized many measures such as diversifying their products, improving the quality of goods and services to gain competitive advantages on the marketplace Nowadays, companies tend to reinforce their images, Huergo, E., & Jaumandreu, J., (2004) How does probability of innovation change with firm age? 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state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within overall corr(u_i, Xb)  For impacts of Total CSR on ROA xtreg roa Total_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust corr(u_i, Xb) = -0.2366 71 Prob > F = 0.0000 (Std Err adjusted for 6435 clusters in firm_id)  For impacts of Total CSR on ROE xtreg roe Total_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0588 overall corr(u_i, Xb) 72 sigma_e | 07260897 rho | 49565036 (fraction of variance due to u_i)  For individual impacts of three CSR dimensions on ROA xtreg roa Labor_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0490 overall corr(u_i, Xb) - xtreg roa Management_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0488 overall corr(u_i, Xb) 73 xtreg roa Community_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0456 overall corr(u_i, Xb)  For individual impacts of three CSR dimensions on ROE 74 xtreg roe Labor_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0503 overall corr(u_i, Xb) - xtreg roe Management_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0518 overall corr(u_i, Xb) 75 - xtreg roe Community_CSR firm_size firm_age rd_engage export leverage state_firm foreign_firm joint_stock_firm, fe robust Fixed-effects (within) regression Group variable: firm_id R-sq: within between = 0.0441 overall corr(u_i, Xb) 76 Appendix 2: Hausman test results  For determinants of CSR adoption hausman fixed random -f r fin st fore join -b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(9) = (b-B)'[(V_b-V_B)^(-1)](b-B) = Prob>chi2 =  For the impact of CSR on ROA hausman fixed random -T f r st fore join -b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic 77 chi2(9) = (b-B)'[(V_b-V_B)^(-1)](b-B) = Prob>chi2 =  For the impact of CSR on ROE hausman fixed random -b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(9) = (b-B)'[(V_b-V_B)^(-1)](b-B) = Prob>chi2 = 78 Appendix 3: Awareness of CSR questionnaires on the Baseline Survey Report 2010 In order to ascertain their awareness of CSR, the respondents were administered a list of statements which they had to rate on a point scale of importance: 0=not important 1=less important 2=important 3=very important The 20 statements covered the seven subjects of social responsibility as emphasized in the ISO Guidance on social responsibility: Subject 1: Organizational Governance Statement 1: The company consults employees on important issues Statement 2: The company ensures effective feedback (in the form of improving products, services, business relationships ) through regular dialogue/consultation with customers, suppliers and other people you business with Subject 2: Human Rights Statement 3: The company ensures adequate steps are taken against all forms of discrimination both in the workplace and at the time of recruitment Subject 3: Labor Practices Statement 4: The company monitors compliance with labor laws and fair working conditions for employees and home workers Statement 5: The company upholds health and safety policy and record formally work-related incidents, injuries and illnesses on an annual basis Statement 6: The company encourages employees to develop real skills and long-term careers 79 Subject 4: Environment Statement 7: The company monitors information on existing environmental laws Statement 8: The company saves money by reducing the environmental impact by energy consumption Statement 9: The company saves money by reducing the environmental impact by waste minimization and recycling Statement 10: The company saves money by reducing the environmental impact by pollution prevention Statement 11: The company gains an advantage over competitors by using the sustainability of your products and services Statement 12: The company adheres to an environmental management certification (for example ISO14000) in order to better compete in the global market place and increase your organization's competitive advantage Subject 5: Fair Operating Practices Statement 13: The company's values and roles of conduct are clearly defined Statement 14: The company registers and resolves complaints for customers, suppliers and business partners Statement 15: The company upholds a fair purchasing policy, provisioning for consumer protection and timely payment of suppliers' invoices Subject 6: Consumer Issues Statement 16: The company conducts assessments of the health and safety effects of your products on the wellbeing of customers through a quality control system, for example by identifying restricted substances used in your products 80 Statement 17: The company conducts surveys/enquiries to determine customer satisfaction Statement 18: The company supplies clear and accurate information on its products, services and activities to customers, suppliers, local communities through correct product labelling Subject 7: Community Involvement Statement 19: The company offers training opportunities to people from the local community Statement 20: There is an open dialogue (regular meetings where both sides can speak frankly) with the local community on adverse controversial an sensitive issues 81 .. .THE NETHERLANDS INSTITUTE OF SOCIAL STUDIES THE HAGUE VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON FIRM PERFORMANCE: THE CASE. .. one aspect In other words, the individual CSR Index is aggregately computed by other CSR indicators in the survey Finally, the overall CSR Index of one particular firm is the summary of CSR Indexes... considerations In the earlier definition, to be more specific in the general standards of CSR, Carroll (1979) proposes the definition of CSR as follows: CSR represents the social responsibility of a firm in