Effect of Corporate Social Responsibility on Firms Performance Telecommunication Industry in USA
Corporate Social Responsibility as an area of research has evolved over a period of time. There are different studies on the impact of CSR on firms’ performance across different industries and countries. Mostly, the studies have focused on evaluating impact of CSR on the financial performance of the corporation (Mujahid and Abdullah, 2014; Murtaza et al., 2014; Chetty et al., 2014; Kim et al., 2015) given the fact that the financial aspect offers the most tangible performance measurement criterion.
This research study aims to explore the impact of firm’s CSR commitment on both the financial and non-financial performance of the organization. The study will focus on telecommunication industry in USA and will explore different financial and non-financial aspects of firm’s performance to determine if CSR shows any significant impact on firm’s overall performance and whether this impact is direct or indirect, and short term or long term.
CSR has gained the attention of corporations over the last few decades and several organizations are streamlining their CSR efforts to ensure they become socially responsible organizations and ultimately avail the benefits of corporate citizenship. Today’s competitive environment and keen focus of businesses on giving back to the community has motivated many organizations to display socially responsible behaviors. Literature shows that Corporate Social Responsibility brings several benefits for the firms and has a significant impact on firm’s financial performance (Mujahid and Abdullah, 2014; Murtaza et al., 2014; Chetty et al., 2014; Kim et al., 2015). This study will evaluate if a relationship exists between CSR and thefinancial and non-financial performance of the organizations in telecommunication industry in USA.
Before studying the impact of CSR on the performance of the organization, it is important to determine if there exist a relationship between the financial and non-financial performance of the organization. Studies focused on evaluating performance of the organizations identified that both financial and non-financial measures determine the overall performance of the organization. Zuriekat et al (2011) while exploring the subject put forward empirical evidence showing that the relationship between financial and non-financial measures is not that of substitutes but that of additives where non-financial measures work as a supplement for financial performance of an organization as shown in figure-I. This relationship between the two measures leads to the development of frameworks that are focused on both the financial and non-financial performance measures given the fact that financial information alone cannot determine overall organization’s performance (Berrah et al., 2006). Hoque and James (2000) and Laitinen (2002) also affirm that it is important to focus on both financial and non-financial information if a true picture is to be drawn for the overall performance of the organization.
Figure I – Relationship between financial and non-financial measures in determining overall organizational performance
Having said that, there are different studies that explore impact of CSR on firm’sfinancial and non-financial performance;however, there are none or fewer researches that study the impact of CSR on firm’s financial as well as non-financial performance simultaneously along with determining if the impact is visible in short-run or long-run and whether its direct or indirect. This study is important as it aims to investigate the impact of CSR on firm’s financial and non-financial performance while aiming to determine if CSR efforts of a firm significantly influences non-financial performance measures having indirect impact on firm’s financial performance.
The purpose of this qualitative study is to investigate if CSR has an effect on the short-run and long-run financial and non-financial performance of the organizations in telecommunication sector in USA.
Following are the objectives of the study:
- To investigate the relationship between Corporate Social Responsibility and the performance of the organization in telecommunication sector in USA.
- To analyze the impact of CSR on non-financial performance of the organization.
- To analyze the impact of the CSR on the financial performance of the organization.
- To determine if CSR efforts of a firm, by influencing firm’s non-financial performance, can significantly impact firm’s financial performance.
This research study aims to answer following questions:
- Is there a relationship between Corporate Social Responsibility and the financial and non- financial performance of the organization?
- If there is a relationship, is it short term or long term with respect to the financial and non- financial performance of the organization?
- If there is a relationship, does theimpact of CSR on firm’s non-financial performance indirectly impacts firm’s financial performance?
Literature review as defined by Machi and McEvoy (2009, p. 4) “is a written document that presents a logically argued case founded on a comprehensive understanding of the current state of knowledge about a topic of study. This case establishes a convincing thesis to answer study’s question”. The literature presented for the purpose of this study will explore the research studies conducted on the effect of CSR on firm’s financial performance and non-financial performance and based on that determines if there exist a direct or indirect link between the two. It will also help achieve the objectives of this research and answer the study’s questions. Literature will also provide a base for the study by developing the case and setting a framework for the study. Ultimately, this framework will help relate the findings of the study with the existing knowledge base and help identify similarities and highlight the new contributions by the study towards the existing body of knowledge.
This section explores the existing literature and research studies and provides a critical analysis on the subject matter. The section starts with a brief history about the concept of Corporate Social Responsibility and moves on to the research carried out in this area to provide a deeper understanding of the topic. Finally, the section relates the literature to the current topic of study.
Corporate Social Responsibility (CSR) has been defined in several ways and there is no one definition of CSR that is widely accepted (Hopkins, 2012). However, the concept of CSR is more or less same as explained by different authors which refers to the responsibility of a corporation to act ethically and responsibly towards the variety of stakeholders including the community and society at large (Hopkins, 2012). Sims (2003, p. 43) has taken one useful definition of CSR as that it requires “the continuing commitment by business to behaving ethically and contributing to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large”.
The term ‘Corporate Social Responsibility (CSR)’ was first coined by Bowen (1953) where the author emphasized on the responsibility of the businessmen to ensure their actions and policies are complementing society’s values while contributing to the betterment of the overall community. This concept was further augmented by several authors in 1960’s with prominent contributions by Davis (1960), Fredrick (1960), McGuire (1963) and Walton (1967) (Aras and Crowther, 2016).
Initially, the concept of Corporate Social Responsibility was referred to as ‘Social Responsibility’ and the focus was mainly on businessman; however in 1967, Davis generalized the term to include institutions and corporations as well. At different periods of time, different terms were coined parallel to CSR such as corporate citizenship or corporate sustainability (Hopkins, 2012). One of the recent perspective on CSR is illustrated by Beal (2013) where the author explained that the CSR can be used as a tool to align corporate and individual interests in order to enable economic markets to function properly. The author explained that once the interests of the corporations are aligned with the common interest of the society, the need to assess the impact of corporations’ doings on the society will diminish.
There is a range of literature available on CSR and its impact on different facets of the corporations. One of the major areas studied in this regards is the effect of CSR on firm’s financial performance. Firm’s performance as defined by Rayner (2002) is a combination of processes, methods, metrics and systems, to manage and monitor a company’s performance. The author explained that for performance management it is vital to set performance dimensions and measurement criteria in the light of company’s targets, business objectives and strategic goals.
A study carried out by Kanwal et al. (2013) explored some of the large corporations in Pakistan and determined that corporations having prominent CSR campaigns and large CSR spending have seen positive relationship between their CSR efforts and the financial performance of the organization. The researchers found that spending on CSR have helped these corporations benefit from sustainable image development and financial returns. In another study by Murtaza et al., (2014) on the food sector of Pakistan, the researchers found that higher the spending of firm on social exercises, higher are the benefits with regards to financial gains and image building.
Another study carried out by Malik and Nadeem (2014) investigated the impact of CSR on firm’s financial performance in the banking sector of Pakistan. Using regression model, the researchers established that there is a positive correlation between the CSR program implementation by the organizations and the profits earned in the long run. The researchers have linked these findings with the overall lack of CSR in Pakistan which according to them results high impact of such activities on the profits of the corporations.
However not all research studies show similar findings; in a study carried out by Chetty et al. (2014) on South African firms, the researchers have interrogated if it is worth spending on CSR to gain long run benefits even if it requires a sacrifice in short term profits. The researchers took 10 years data starting 2004-2013 and found that there is no significant relationship between firms CSR efforts and long run financial performance of the firm. Similarly, in another study carried out by Hirigoyen and Rehm (2015) also found that there is a negative relationship between CSR and firm’s financial performance and increasing CSR spend results in decreased returns and profits.
Yet other researchers have analyzed the topic with a distinct view such as the research carried out by Kim et al. (2015) studied the relationship between CSR and the firm’s financial performance using competitive action perspective. The researchers have used 113 listed firms from the software industry in the U.S. and using five years data from year 2000-2005 found that competitive action has higher impact on firm’s financial performance than firm’s CSR and other moral initiatives. The researchers established that if the competitive action level is high, the CSR activities (positive CSR) leads to higher financial performance, however if the competitive action level is low, then the socially irresponsible activities (negative CSR) also leads to high financial performance. Hence the researchers concluded that for CSR to have positive impact on firm’s financial performance competitive action level of the firm should also be high.
There is literature on the impact of CSR on firm’s non-financial performance measures such as organizational commitment, employee performance and corporate reputation. Turker (2009) studied the effect of CSR on organizational commitment and found that CSR initiatives by the organizations for its employees and customers are good predictors of organizational commitment however there is no relationship between CSR and employee commitment levels.
In another study conducted by Gond et al. (2010) on analyzing the impact of CSR on employees found that how employee perceives CSR contributions of the organizations will decide their behavior and attitudes in the workplace. The research further elaborates on how CSR affects organizational performance by influencing employees’ behavior and attitudes.
Yoon et al. (2006) in their study on effect of CSR on companies having bad reputation found that effectiveness of CSR on company’s reputation is determined by the perceived sincerity of company’s CSR activities by the consumers. The researchers found that if the CSR efforts of the company is deemed as sincere by the consumers, it will have a positive impact on company’s reputation; if the CSR efforts of the company is deemed as ambiguous by the consumers, CSR efforts will be ineffective in creating any impact on company’s reputation; and if the CSR efforts of the company is deemed as insincere by the consumers, it will hurt company’s reputation.
Khan et al (2013) while exploring the effect of CSR on company’s reputation found that there is a strong positive impact of CSR on company’s reputation.
From the review of literature, it can be determined that there are none or fewer researches that study the impact of CSR on firm’s financial as well as non-financial performancesimultaneously along with determining if the impact is visible in short-run or long-run. This study aims to investigate the impact of CSR on firm’s financial and non-financial performance while aiming to determine if CSR efforts of a firm significantly influences non-financial performance measures having indirect impact on firm’s financial performance.
For the purpose of this study, core financial performance indicator such as profits, and return on investment are focused on while the non-financial measures considered for this study are corporate reputation, and employee commitment and satisfaction and customer satisfaction.
The premise followed by this study will be that the financial measures show impact on firm’s financial performance in the short run while the non-financial measures effect firm’s financial performance in the long run as determined by many studies such as Ittner and Larcker (1998) and Banker et al. (2000). Following presents the theoretical framework for the study.
|Telecommunication Industry in USA
Short-run Impact vs. Long-run Impact
|Impact of CSR|
|On Firm’s Financial Performance|
|On Firm’s non-financial Performance|
|Indirect / direct link|
Figure II – Theoretical Framework for Current Study
Several quantitative studies have been carried out to determine the impact of CSR on firm’s financial and non-financial performance, however none of the studies have taken a holistic viewwhile deep diving into the subject and identifying how and why CSR possibly impact or doesn’t impact firm’s financial and non-financial performance, if this effect is seen in long run or short run and if the relationship among these elements is direct or indirect if any.
This research will use an interpretivist paradigm that believes reality is based on subjective interpretations and that there is an associated social meaning to every occurrence. The study will focuson research questions to guide the study rather than hypotheses, which is one of the premise of interpretivist research according to Croucher and Cronn-Mills (2014).
The study will use case study method to unveil the impact of CSR on firm’s performance. Yin (1994, p.13) defines case study as “an empirical inquiry that investigates contemporary phenomenon within its real life context, especially when the boundaries between phenomenon and context are not clearly evident”.
Since the literature shows that even using same quantitative approaches and analyses fail to get same results and the findings of the studies vary significantly with the change in context (industry, country and so on), an in-depth analysis of the case is proposed. This research study will use case study method where two big corporations from the telecommunication industry in the USA will be selected and different aspects of their CSR efforts will be evaluated to determine its impact on firm’s performance. It would be interesting to compare the findings of two cases to see if there are areas where the both case analyses suggest similarities and vice versa.
Both secondary and primary data collection methods will be used in this study. For secondary research, data available on two corporations from telecommunications industry in USA (to be selected) will be used to dissect the cases and present an analysis on the impact of CSR on their business performance, whereas primary data will be collected through semi-structured interviews with the representatives of the two organizations. Schensulet al. (1999, p. 149) explained that “semi-structured interviews consist of predetermined questions related to domains of interest, administered to a representative sample of respondents to confirm study domains and identify factors, variables, items or attributes of variables for analysis or use in a survey”.
This study will use Philipp MAYRING’s data analysis approach which is a qualitative content analysis approach defined by MAYRING (2000, p. 2) as “an approach of empirical, methodological controlled analysis of texts within their context of communication, following content analytical rules and step by step models, without rash quantification”. This approach was developed in 1980s and is good to analyze lots of content that comes from open ended questionnaires / interviews. According to MAYRING (2000) this approach helps “to preserve the advantages of quantitative content analysis as developed within communication science and to transfer and further develop them to qualitative-interpretative steps of analysis”.
While carrying out data collection for the study, it will be ensured that the confidentiality of the information shared by the interviewees and data protection of the organization is taken care of. Other than data protection and confidentiality, it will be ensured that those interviewees who will agree to take part in the study will give informed consent and has the right to withdraw from the study at any time if they feel they do not want to participate.
Detailed analysis of the cases are expected to take around 4 weeks. The first week will be dedicated to analyze the cases in detail while evaluating different aspects of CSR in the selected corporations. Second week will be dedicated to relate the findings to the literature in order to see areas where strong relationship can be established and where the findings are not matching at all. Third week will focus on developing relationship between financial and non-financial performance of the corporations with regards to CSR and last week will be dedicated to compare the two cases and see if the information has some connection.Task of report writing will take place simultaneously.
|Week 1||Week 2||Week 3||Week 4|
|Selection of the corporations for study in telecom industry of USA|
|Deep analysis of the cases to evaluate impact of CSR on firm’s financial and non-financial performance|
|Making sense of the data – relating the findings of the study to the literature|
|Answering research questions and meeting sims of study|
|Comparing the findings of two cases to conclude the study|
|Report compiling and proofreading|
Figure III – Proposed Timeline for the Study
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