This study advances research on corporate social responsibility (CSR) through investigating the CSR-firm financial performance (FP) link. It develops a model based on legitimacy and institutional theories and considers two important intervening variables – corporate governance (CG) and corporate image (CI). The CSR practices are supposed to affect the CG codes and principles in different contexts, especially in developing countries. Empirical results, based on a sample of 155 firms in a developing country, support the link between CSR and FP; however, the effect is indirect while CG and CI fully mediate this link. The findings indicate that the CSR engagements help better governance practice and improve CI through establishing good internal controls and monitoring that ultimately enhance FP. The implications are valuable for academics, managers, and policy makers who are interested to measure the impact of intervening variables on the CSR-FP relationship.
Get full access to this article
View all access options for this article.
References
1.
AdamsC. A., and KuasirikunN. (2000), ‘A comparative analysis of corporate reporting on ethical issues by UK and German chemical and pharmaceutical companies’, European Accounting Review, Vol. 9, No. 1, pp. 53–79.
2.
AguinisH. (2011), ‘Organizational responsibility: Doing good and doing well’, in ZadeckS. (ed.) APA handbook of industrial and organizational psychology, Washington, DC: American Psychological Association, pp. 855–879.
3.
ArendtS., and BrettelM. (2010), ‘Understanding the influence of corporate social responsibility on corporate identity, image, and firm performance’, Management Decision, Vol. 48, No. 10, pp. 1469–1492.
4.
BarclayD., HigginsC., and ThompsonR. (1995), ‘The partial least squares (PLS) approach to causal modeling: Personal computer adoption and use as an illustration’, Technology Studies, Vol. 2, No. 2, pp. 285–309.
5.
BaronR. M., and KennyD. A. (1986), ‘The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations’, Journal of Personality and Social Psychology, Vol. 51, No. 6, pp. 1173–1182.
6.
BebbingtonJ., Larrinaga-GonzálezC., and Moneva-AbadíaJ. M. (2008), ‘Legitimating reputation/the reputation of legitimacy theory’, Accounting, Auditing & Accountability Journal, Vol. 21, No. 3, pp. 371–374.
7.
BelalA. R. (2001), ‘A study of corporate social disclosures in Bangladesh’, Managerial Auditing Journal, Vol. 16, No. 5, pp. 274–289.
8.
BelalA. R., and CooperS. (2011), ‘The absence of corporate social responsibility reporting in Bangladesh’, Critical Perspectives on Accounting, Vol. 22, No. 7, pp. 654–667.
9.
BelalA. R., and OwenD. (2007), ‘The views of corporate managers on the current state of, and future prospects for, social reporting in Bangladesh’, Accounting, Auditing & Accountability Journal, Vol. 20, No. 3, pp. 472–494.
10.
BermanS., WicksA., KothaS., and JonesT. (1999), ‘Does stakeholder orientation matter? The relationship between stakeholder management models and firms' financial performance’, Academy of Management Journal, Vol. 42, No. 5, pp. 488–506.
11.
BhagatS., and BoltonB. (2008), ‘Corporate governance and firm performance’, Journal of Corporate Finance, Vol. 14, No. 3, pp. 257–273.
12.
BrennanN. M., and SolomonJ. (2008), ‘Corporate governance, accountability and mechanisms of accountability: An overview’, Accounting, Auditing& Accountability Journal, Vol. 21, No. 7, pp. 885–906.
13.
CarrollA. B. (1979), ‘A three-dimensional conceptual model of corporate social performance’, Academy of Management Review, Vol. 4, No. 4, pp. 497–505.
14.
CarrollA. B. (1999), ‘Corporate social responsibility: Evolution of a definitional construct’, Business & Society, Vol. 38, No. 3, pp. 268–295.
15.
ChenH., and WangX. (2011), ‘Corporate social responsibility and corporate financial performance in China: An empirical research from Chinese firms’, Corporate Governance, Vol. 11, No. 4, pp. 361–370.
16.
ChinW. W. (1998), ‘Commentary: issues and opinion on structural equation modeling’, MIS Quarterly, Vol. 22, No. 1, pp. vii–xvi.
17.
ChinW. W. (2010), ‘How to write up and report PLS analyses’, in Esposito VinziV., ChinW. W., HenselerJ., and WangH. (eds.), Handbook of partial least squares, pp. 655–690, Berlin: Heidelberg.
18.
ClarksonM. (1995), ‘Stakeholder framework for analysing and evaluating corporate social performance’, Academy of Management Review, Vol. 20, No. 1, pp. 92–117.
19.
CowenS., FerreriL., and ParkerL. (1987), ‘The impact of corporate characteristics on social responsibility disclosure: a typology and frequency-based analysis’, Accounting, Organisation and Society, Vol. 12, No. 2, pp. 111–122.
20.
DawkinsJ., and LewisS. (2003), ‘CSR in stakeholder expectations and their implication for company strategy’, Journal of Business Ethics, Vol. 44, No. 2-3, pp. 185–193.
21.
DeeganC. (2002), ‘The legitimising effect of social and environmental disclosures – a theoretical foundation’, Accounting, Auditing & Accountability Journal, Vol. 15, No. 3, pp. 282–311.
22.
DonaldsonT., and PrestonL. E. (1995), ‘The stakeholder theory of the corporation: Concepts, evidence and implications’, Academy of Management Review, Vol. 20, No. 1, pp. 65–91.
23.
DowlingG. R. (1986), ‘Managing your corporate image’, Industrial Marketing Management, Vol. 15, No. 2, pp. 109–115.
24.
European Commission, (2002), Corporate social responsibility: a business contribution to sustainable development, Luxembourg: Office for Official Publications of the European Communities.
25.
FarooqueO. A., van ZijlT., DunstanK., and KarimA. K. M. W. (2007), ‘Corporate governance in Bangladesh: Link between ownership and financial performance’, Corporate Governance: an International Review, Vol. 15, No. 6, pp. 1453–1468.
26.
FornellC., and LarckerD. F. (1981), ‘Structural equation models with unobservable variables and measurement error: Algebra and statistics’, Journal of Marketing Research, Vol. 18, No. 3, pp. 382–388.
27.
GalbreathJ. (2010), ‘How does corporate social responsibility benefit firms? Evidence from Australia’, European Business Review, Vol. 22, No. 4, pp. 411–431.
28.
GalbreathJ. (2013), ‘ESG in focus: The Australian evidence’, Journal of Business Ethics, Vol. 118, No. 3, pp. 529–541.
29.
GalbreathJ., and ShumP. (2012), ‘Do customer satisfaction and reputation mediate the CSR- FP link? Evidence from Australia’, Australian Journal of Management, Vol. 37, No. 2, pp. 211–229.
30.
Gallardo-VázquezD., and Sanchez-HernandezM. I. (2014), ‘Measuring corporate social responsibility for competitive success at a regional level’, Journal of Cleaner Production, Vol. 72, No. 1, pp. 14–22.
31.
GovindanK., KannanD., and ShankarM. (2014), ‘Evaluating the drivers of corporate social responsibility in the mining industry with multi-criteria approach: A multi-stakeholder perspective’, Journal of Cleaner Production, Vol. 84, No. 1, pp. 214–232.
32.
GoyalP., RahmanZ., and KazmiA. A. (2013), ‘Corporate sustainability performance and firm performance research: Literature review and future research agenda’, Management Decision, Vol. 51, No. 2, pp. 361–379.
33.
GrayE. R., and BalmerJ. M. T. (1998), ‘Managing corporate image and corporate reputation’, Long Range Planning, Vol. 31, No. 5, pp. 695–702.
34.
GrayR., KouhyR., and LaversS. (1995), ‘Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure’, Accounting, Auditing & Accountability Journal, Vol. 8, No. 2, pp. 47–77.
35.
GregoryH. J., and SimmsM. E. (1999), ‘Corporate governance: What it is and why it matters’, paper presented at 9th International Anti-Corruption Conference, 10th-15th October 1999, Durban, South Africa.
36.
GriffinJ. J., and MahonJ. F. (1997), ‘The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research’, Business & Society, Vol. 36, No. 1, pp. 5–31.
37.
GuthrieJ., and AbeysekeraI. (2006), ‘Content analysis of social, environmental reporting: What is new?’, Journal of Human Resource Costing and Accounting, Vol. 10, No. 2, pp. 114–126.
38.
HackstonD., and MilneM. J. (1996), ‘Some determinants of social and environmental disclosures in New Zealand companies’, Accounting, Auditing & Accountability Journal, Vol. 9, No. 1, pp. 77–108.
39.
HammondS., and SlocumJ. (1996), ‘The impact of prior firm financial performance on subsequent corporate reputation’, Journal of Business Ethics, Vol. 15, No. 2, pp. 159–165.
40.
HarjotoM. A., and JoH. (2011), ‘Corporate governance and CSR nexus’, Journal of Business Ethics, Vol. 100, No. 1, pp. 45–67.
41.
HenselerJ., RingleC. M., and SinkovicsR. R. (2009), ‘The use of partial least squares path modeling in international marketing’, Advances in International Marketing, Vol. 20, pp. 277–319.
42.
HoC. K. (2005), ‘Corporate governance and corporate competitiveness: An international analysis’, Corporate Governance: An International Review, Vol. 13, No. 2, pp. 211–253.
43.
HossainM. M., AlamM., IslamM. A., and HecimovicA. (2015), ‘Do stakeholders or social obligations drive corporate social and environmental responsibility reporting? Managerial views from a developing country’, Qualitative Research in Accounting& Management, Vol. 12, No. 3, pp. 287–314.
44.
HullandJ. (1999), ‘Use of partial least squares (PLS) in strategic management research: A review of four recent studies’, Strategic Management Journal, Vol. 20, No. 2, pp. 195–204.
45.
HustedB., and AllenD. (2007), ‘Strategic corporate social responsibility and value creation among large firms’, Long Range Planning, Vol. 40, No. 6, pp. 594–610.
46.
IgbariaM., GuimaraesT., and DavisG. B. (1995), ‘Testing the determinants of microcomputer usage via a structural equation model’, Journal of Management Information Systems, Vol. 11, No. 4, pp. 87–114.
47.
IslamM. A., and DeeganC. (2008), ‘Motivations for an organisation within a developing country to report social responsibility information: Evidence from Bangladesh’, Accounting, Auditing & Accountability Journal, Vol. 21, No. 6, pp. 850–874.
48.
JacobsB. W., SinghalV. R., and SubramanianR. (2010), ‘An empirical investigation of environmental performance and the market value of the firm’, Journal of Operations Management, Vol. 28, No. 5, pp. 430–441.
49.
JamaliD., SafieddineA. M., and RabbathM. (2008), ‘Corporate governance and corporate social responsibility synergies and interrelationships’, Corporate Governance: An International Review, Vol. 16, No. 5, pp. 443–459.
50.
JoH., and HarjotoM. A. (2011), ‘Corporate governance and firm value: The impact of corporate social responsibility’, Journal of Business Ethics, Vol. 103, No. 3, pp. 351–383.
51.
KamalY., and DeeganC. (2013), ‘Corporate social and environment-related governance disclosure practices in the textile and garment Industry: Evidence from a developing country’, Australian Accounting Review, Vol. 23, No. 2, pp. 117–134.
52.
KashifR. (2008), A comparison of Corporate Governance and Firm Performance in Developing (Malaysia) and Developed (Australia) Financial Market, a thesis submitted in partial fulfilment of the requirements of Victoria University for the degree of Doctor of Philosophy, Melbourne, Australia: Centre for Strategic Economic Studies, Faculty of Business and Law, Victoria University.
53.
KiernanM. J. (2007), ‘Universal owners and ESG: Leaving money on the table?’, Corporate Governance: An International Review, Vol. 15, No. 3, pp. 478–485.
54.
KleinP., ShapiroD., and YoungJ. (2005), ‘Corporate governance, family ownership and firm value: The Canadian evidence’, Corporate Governance: An International Review, Vol. 13, No. 6, pp. 769–784.
55.
KolkA., and PinkseJ. (2006), ‘Stakeholder mismanagement and corporate social responsibility crises’, European Management Journal, Vol. 24, No. 1, pp. 59–72.
56.
LaiC. S., ChiuC. J.YangC. F., and PaiD. C. (2010), ‘The effects of corporate social responsibility on brand performance: The mediating effect of industrial brand equity and corporate reputation’, Journal of Business Ethics, Vol. 95, No. 3, pp. 457–469.
57.
LuW., ChauK. W., WangH., and PanW. (2014), ‘A decade's debate on the nexus between corporate social and corporate financial performance: A critical review of empirical studies 2002-2011’, Journal of Cleaner Production, Vol. 79, No. 15, pp. 195–206.
58.
MahoneyL., and RobertsR. W. (2007), ‘Corporate social performance, financial performance and institutional ownership in Canadian firms’, Accounting Forum, Vol. 31, No. 3, pp. 233–253.
59.
MaignanI., and FerrellO. C. (2001), ‘Corporate citizenship as a marketing instrument-Concepts, evidence and research directions’, European Journal of Marketing, Vol. 35, No. 3-4, pp. 457–484.
60.
McGuireJ. B., SundgrenA., and SchneeweisT. (1988), ‘Corporate social responsibility and firm financial performance’, Academy of Management Journal, Vol. 31, No. 4, pp. 854–872.
61.
McWilliamsA., and SiegelD. (2000), ‘Corporate social responsibility and financial performance: Correlation or misspecification?’, Strategic Management Journal, Vol. 21, No. 5, pp. 603–609.
62.
MominM. A., and ParkerL. D. (2013), ‘Motivations for corporate social responsibility reporting by MNC subsidiaries in an emerging country: The case of Bangladesh’, The British Accounting Review, Vol. 45, No. 3, pp. 215–228.
63.
MoneyK., and SchepersH. (2007), ‘Are CSR and corporate governance converging?: A view from boardroom directors and company secretaries in FTSE100 companies in the UK’, Journal of General Management, Vol. 33, No. 2, pp. 1–11.
64.
NessK. E., and MirzaA. M. (1991), ‘Corporate social disclosure: A note on a test of agency theory’, British Accounting Review, Vol. 23, No. 3, pp. 211–217.
65.
OrlitzkyM., SchmidtF. L., and RynesS. L. (2003), ‘Corporate social and financial performance: A meta-analysis’, Organization Studies, Vol. 24, No. 3, pp. 403–441.
66.
PattenD. M. (1991), ‘Exposure, legitimacy, and social disclosure’, Journal of Accounting and Public Policy, Vol. 10, No. 4, pp. 297–308.
67.
PodsakoffP. M., MacKenzieS. B., LeeJ. Y., and PodsakoffN. P. (2003), ‘Common method biases in behavioral research: A critical review of the literature and recommended remedies’, Journal of Applied Psychology, Vol. 88, No. 5, pp. 879.
68.
RahimM. M. (2014), ‘The impact of corporate social responsibility on corporate governance: The rise of standardization of CSR principles’, in Yuksel MermodA., and IdowuS. O. (eds.) Corporate Social Responsibility in the Global Business World, pp. 93–113, Berlin: Springer.
69.
RahimM. M., and AlamS. (2014), ‘Convergence of corporate social responsibility and corporate governance in weak economies: The case of Bangladesh’, Journal of Business Ethics, Vol. 121, No. 4, pp. 607–620.
70.
RaoK. K., TiltC. A., and LesterL. H. (2012), ‘Corporate governance and environmental reporting: An Australian study’, Corporate Governance, Vol. 12, No. 2, pp. 143–163.
71.
RingleC. M., WendeS., and WillA. (2005), SmartPLS 2.0.M3.,Hamburg: SmartPLS, http://www.smartpls.de
72.
RobertsP. W., and DowlingG. R. (2002), ‘Corporate reputation and sustained superior financial performance’, Strategic Management Journal, Vol. 23, No. 12, pp. 1077–1093.
73.
RobertsR. W. (1992), ‘Determinants of corporate social responsibility disclosure: An application of stakeholder theory’, Accounting, Organisations and Society, Vol. 17, No. 6, pp. 595–612.
74.
SalehM., ZulkifliN., and MuhamadN. (2011), ‘Looking for evidence of the relationship between corporate social responsibility and corporate financial performance in an emerging market’, Asia-Pacific Journal of Business Administration, Vol. 3, No. 2, pp. 165–190.
75.
TuttleB., and DillardJ. (2007), ‘Beyond competition: Institutional isomorphism in U.S. accounting research’, Accounting Horizons, Vol. 21, No. 4, pp. 387–409.
76.
UllmannA. (1985), ‘Data in search of a theory: A critical examination of the relationships among social performance, social disclosure, and economic performance of US firms’, Academy of Management Review, Vol. 10, No. 3, pp. 540–557.
77.
VilanovaM., LozanoJ. M., and ArenasD. (2009), Exploring the nature of the relationship between CSR and competitiveness, Journal of Business Ethics, Vol. 87, No. 1, pp. 57–69.
78.
WaddockS. A., and GravesS. B. (1997), ‘The corporate social performance’, Strategic Management Journal, Vol. 8, No. 4, pp. 303–319.
