IMPACT OF CORPORATE SOCIAL RESPONSIBILITY

ON THE FINANCIAL PERFORMANCE OF FIRMS

A PROJECT
SUBMITTED TO
H.N.B. GARHWAL UNIVERSITY
FOR THE COMPLETION OF THE DEGREE OF
MASTER OF COMMERCE (M.Com.)

UNDER THE GUIDANCE OF: SUBMITTED BY:

Prof. G.P. DANG MANAN BHATIA

Department of Commerce Enrollment No.: G182070474
DAV (PG) College, Dehradun Roll No.: 21207322047
M.Com. Batch: 2021 – 2023
D.A.V. (P.G.) College, Dehradun

H.N.B. GARHWAL UNIVERSITY

SRINAGAR-GARHWAL (UTTARAKHAND)
2023
 CERTIFICATE

This is to certify that the project entitled “Impact of Corporate Social Responsibility on
the Financial Performance of Firms” is being submitted by Manan Bhatia for the
fulfillment of the award of the degree of Master of Commerce at H.N.B. Garhwal
University, Srinagar-Garhwal, is record of the work carried out by her under my guidance.
The matter in the project has not been submitted for the award of any degree elsewhere.

I, therefore, recommend this project for the award of the degree of Master of Commerce.

Date: Prof. G.P. Dang

Department of Commerce

DAV (PG) College, Dehradun

i
 DECLARATION

This is to certify that the matter embodied in the project entitled “Impact of Corporate
Social Responsibility on the Financial Performance of Firms” is the outcome of my
own research work and the same has not been submitted in part or full to H.N.B. Garhwal
University, or any other University for any degree or diploma. An indebtedness to others’
work has been duly acknowledged at the relevant places.

(MANAN BHATIA)
Enrollment No.: G182070474
Roll No.: 21207322047
M.Com. Batch: 2021 – 2023
D.A.V. (P.G.) College, Dehradun

ii
 ACKNOWLEDGEMENT

This project is a result of contributions made by dozens of people, prayers, efforts and
blessings of many. I would like to thank all of them and would like to specially
acknowledge and extend my heartfelt gratitude to few of them who have made the
completion of this research work possible.

First and foremost I would like to express my gratitude to my worthy supervisor, Prof. G.P.
Dang for his precious guidance and mentoring. His constant guidance, support and
invaluable suggestions throughout the research work have enabled me to complete this
project successfully.

I also express my sincere thanks to all the faculty members of the Department of
Commerce, DAV (PG) College, Dehradun. I further express my appreciation to my family
members for their love, support and sacrifices.

Last but not the least, I sincerely want to thank all those who contributed directly or
indirectly in various ways during this research work and whose name could not be
acknowledged individually.

(MANAN BHATIA)

iii
 TABLE OF CONTENTS
PAGE
CHAPTER PARTICULAR
NO.
Certificate i
Declaration ii
Acknowledgement iii

1 INTRODUCTION
1.1 Background
1.2 Meaning and Concept of CSR
1.3 Evolution of CSR
1.4 Provisions of Indian Companies Act relating to CSR
1.5 Six Core Characteristics of CSR
1.6 Principles of CSR
1.7 Development of CSR policy
1.8 Classification of CSR Activities
1.9 Increasing Importance of CSR
1.10 Main Approaches to CSR
1.11 Why companies should embrace CSR
1.12 How to get companies involved in CSR?
1.13 Benefits of CSR for the Society
1.14 Top 10 CSR and Sustainability Reports of 2021-2022
1.15 Some Top MNCs and their CSR Activities
1.16 CSR and Accountability
1.17 Organisational Challenges and Limitations

2 REVIEW OF LITERATURE
2.1 Corporate Social Responsibility
2.2 Corporate Social Responsibility and Financial Performance
of Firms
2.3 Mediating role of Customer Satisfaction, Corporate Image
and Competitive Advantage
2.4 Classification of CSR Activities
2.5 CSR And Innovation

iv
 2.6 Research Gap

3 OBJECTIVES AND RESEARCH METHODOLOGY

3.1 Objectives of the Study

3.2 Hypotheses of the Study

3.3 Conceptual Framework

3.4 Research Methodology

4 DATA ANALYSIS AND INTERPRETATION

4.1 Structural Equation Modeling

4.1.1. Measurement Model

4.1.2. Structural Model

4.1.3. Hypotheses Testing

5 CONCLUSION AND SUGGESTIONS

5.1 Challenges and Solutions

5.2 Suggestions for the policymakers of business firms to

integrate CSR into core operations as a strategy to gain
financial benefits

5.3 Conclusion

BIBLIOGRAPHY

ANNEXURE
I. Questionnaire

v
 CHAPTER – I
INTRODUCTION

1.1. Background:
In the changing scenario of doing business, it becomes imperative for business firms to
integrate Corporate Social Responsibility (CSR) in their daily operations for their mere
acceptance in society. Corporate Social Responsibility is defined by the United Nations
Industrial Development Organization (UNIDO) as a management concept in which
companies integrate social and environmental issues into their business operations and
interactions with stakeholders. CSR involves fulfilling the responsibility by the business
entities towards society. The conventional concept of performing business activities by the
entities used to emphasize exclusively in earning profits, however this approach has now
been changed. Nowadays, the interest of the stakeholders is seemed to be a major concern for
business firms, wherein stakeholders include employees, shareholders, customers, suppliers,
government and community at large (Freeman, 1984). Every business entity needs a sound
and educated workforce, sustainable resources and proficient government to manage
efficiently. Hence, they are bound to care about society, wherein they are required to produce
high-quality products to build their customers’ trust, treat their employees well to retain them
in the organization and not to pollute the environment as it would affect their brand.
Profitability is the requirement of the business firm, but it cannot be said the end goal.
Nowadays, the business entities are not only taking care of customer satisfaction, but also
giving due importance to the interest of society, including employees. All these contributions
in CSR practices enable the business entities in the creation of favourable goodwill and
achieving the targets of maximization of profits and returns to the shareholders. It is therefore
realized that profit should not be the only aim of business, the welfare of society should also
be protected.
CSR involves satisfying the needs of the customers of the organization while giving due
attention to the other stakeholders, including employees, shareholders, suppliers, investors,
government and community at large.
CSR initiatives can enhance the financial performance of business firms significantly, as
more socially responsible organizations show stronger economic results. Moreover, the
inclusion of social and environmental concerns into business operations ensures the attention
of stakeholders that will ultimately lead to maximization of profits and wealth of the
1
shareholders (Rodriguez-Fernandez, 2016). A company indulged in performing CSR
activities gives a positive impact on the minds of customers while using the products of the
company, as it has got a touch of humanity, which serves much more than the advertisement
made. Doing good for the welfare of society automatically provides recognition and publicity
to the business organizations.
It is realized by most of the organizations that apart from some key stakeholders, such as
government, customers and investors, that influence the behaviour of organizations;
community as stakeholders also seeks greater attention, as they are the ones who are
impacted most by the company’s business operations. Thus, a strong CSR programme that
satisfies the expectations of these communities will be able to allow the business entities to
survive in a competitive environment. The previous researchers have observed that the
organizations committed towards CSR are able to attract, retain and motivate their
employees. The employees’ participation and involvement in CSR activities boost their
morale and sense of belonging to the organizations.
The socially responsible business firms are able to gain the trust of society by bringing
quality in their products and services, abiding with the laws and codes of conduct, dealing
ethically with all the stakeholders and focusing on the welfare of their employees. This way,
CSR results in achieving the satisfaction of the customers, building corporate image and
providing a competitive advantage to the business firms, ultimately leading to the
enhancement of their financial performance.

1.2. Meaning and Concept of CSR:

CSR has been defined as “the obligation of the firm to use its resources in ways to benefit
society, through committed participation as a member of society, taking into account the
society at large and improving welfare of society at large independent of direct gains of the
company.” (Hill et al, 2003, p.340)
Moreover, it has been stated that “CSR is about being concerned with the welfare of all of an
entity’s stakeholders, whether primary or secondary – everyone who would be affected either
directly or indirectly by its actions including its competitors” (Idowu and Filho, 2009, p.16)
At the same time, the essence of CSR can be explained in simple terms. For instance, it is
noted that “Corporate social responsibility – CSR – is underpinned by public policy. It has
undeniable links with law. But the relationship between CSR, law and public policy has been
difficult to pin down, whether prescriptively or descriptively. A major reason is differing

2
views on the optimal relationship between state and market among people working to
promote CSR”
Corporate Social Responsibility (CSR) is a concept whereby organizations consider the
interests of society by taking responsibility for the impact of their activities on customers,
employees, shareholders, communities and the environment in all aspects of their operations.
This obligation is seen to extend beyond the statutory obligation to comply with legislation
and sees organizations voluntarily taking further steps to improve the quality of life for
employees and their families as well as for the local community and society at large.
The debate about CSR has been said to have begun in the early 20th century, amid growing
concerns about large corporations and their power. The ideas of charity and stewardship
helped to shape the early thinking about CSR in the US. There is no universally accepted
definition of CSR- Selected definitions by CSR organizations include:
★ "Corporate Social Responsibility is the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life of the
workforce and their families as well as of the local community and society at large" World
Business Council for Sustainable Development
★ "CSR is about how companies manage the business processes to produce an overall
positive impact on society."
★ "Corporate social responsibility is undertaking the role of "corporate citizenship" and
ensuring the business values and behaviour is aligned to balance between improving and
developing the wealth of the business, with the intention to improve society, people and the
planet"
★ "CSR is a company's commitment to operating in an economically, socially and
environmentally sustainable manner whilst balancing the interests of diverse stakeholders."
CSR Asia
★ "Corporate social responsibility is the commitment of businesses to contribute to
sustainable economic development by working with employees, their families, the local
community and society at large to improve their lives in ways that are good for business and
for development." International Finance Corporation.
To demonstrate good business citizenship, firms can report compliance with a number of
CSR standards The scale and nature of the benefits of CSR for an organization can vary
depending on the nature of the enterprise, and are difficult to quantify, though there is a large
body of literature exhorting business to adopt measures beyond financial ones CSR may be

3
based within the human resources, business development or public relations departments of
an organization, or may be given a separate unit reporting to the CEO or in some cases
directly to the board.
Some companies may implement CSR-type values without a clearly defined team or
program. The business case for CSR within a company will likely rest on one or more of
these arguments:
A CSR program can be seen as an aid to recruitment and, particularly within the competitive
graduate student market. Potential recruits often ask about a firm's CSR policy during an
interview and having a comprehensive policy can give an advantage. CSR can also help to
improve the perception of a company among its staff, particularly when staff can become
involved through payroll giving, fundraising activities or community volunteering. In
crowded marketplaces companies strive for a unique selling proposition which can separate
them from the competition in the minds of consumers.
CSR can play a role in building customer loyalty based on distinctive ethical values. Business
service organizations can benefit too from building a reputation for integrity and best
practice. So businesses should be more responsible for their environment. It is difficult to
concede if CSR is purely driven by the intentions of corporate members to exert ethical
conduct or is it a distraction and/or opportunity to over shadow or distract society and
consumer perception based on the moral standing of an organization
There are major challenges in today's corporate arena that impose limitations to the growth
and potential profits of an organization. Government restriction, tariffs, globalization,
environmentally sensitive areas and exploitation are problems that are costing millions of
dollars for organization. It may be apparent that in some cases, ethical implications are
simply a costly hindrance that potentially forces businesses to finding alternative means to
shift viewpoints.
It is certainly a potential strategic tactic to gain public support to sustain a competitive
advantage. Another plausible driver of CSR is by independent mediators to ensure that
corporate goals don't harm or disadvantage anyone or environment. Unfortunately many
consequential events are a reason why CSR policies become evident. But CSR opens up a
whole new horizon for safer and better opportunities for both the employer and employee. It
is now for more organizations to realize the importance of CSR, and take the right step
towards success.

4
Corporate Social Responsibility (CSR) has permeated management practice and theory up to
a point where CSR can be referred to as the latest management fad (Guthey, Langer,
&Morsing, 2006). However, so far CSR integration into business processes has been very
uneven. Hockerts (2008), for example, finds that most firms conceptualize CSR primarily as
a tool to reduce risks and operational cost. Only a minority of firms is actually using CSR as
a means to drive innovation. In their study of 150 German and British pharmaceutical
companies Blum-Kusterer and Hussain (2001) similarly find that regulation and
technological progress are the two main drivers for sustainability innovations. They observed
that the lure of emerging market niches was no important motivator for the firms studied.
This is unfortunate since bringing stakeholders into the innovation process offers important
opportunities to increase both the social and financial performance of firms.

1.3. Evolution of CSR:

The evolution of the concept of CSR until its current state needs to be analysed as it is
explained by secondary data authors. It has been stated that “the ideology of CSR in the
1950s was primarily based on an assumption of the obligation of business to society. This
obligation arose because some scholars and practitioners saw business as an instrument of
society and managers as public trustees whose main job was to balance often competing
demands of employees, customers, suppliers, communities and shareholders” (Banarjee,
2007, p.6)
Moreover, it needs to be stressed that “despite the absence of a comprehensive international
law of corporate governance and responsibility, or any other accepted global framework for
CSR, a significant part of this evolving CSR landscape involves the ongoing sensitization of
corporate governance law, regulation and practice to CSR influences” (Horrigan, 2010, p.4)
At the same time, authors like Banarjee (2007), Freitag (2008), and Schwartz (2011)
associate the evolution and increasing importance of CSR with the role and activities of
media, as well as, various non-government organisations.
A number of authors such as Hopkins (2007), Mallin (2009), Horrigan (2010) and others
have offered their viewpoints regarding the reasons behind increasing importance of CSR.
“CSR is an area in which investors, especially institutional investors, are showing an
increasing interest. The interest of institutional investors is often driven by the expectations of
their clients” (Mallin, 2009, p.1).

5
Attempts have been made by some authors to distinguish company CSR initiatives from other
business and social activities. Specifically, it has been stated that “CSR is a complete
opposite to beggar-thy-neighbour policies. This is because its positive impacts in stakeholders
would mean that consumers would be able to earn adequate wages to purchase the products
they produced, the environment would improve and create less drag on the company and its
surroundings; improved governance would reduce transaction costs; human rights policies
would provide dignity to workers and communities, and improve productivity in local outlets
and facilities” (Hopkins, 2007, p.12).

1.4. Provisions of Indian Companies Act relating to CSR:

The Indian Companies Act 2013 contains provisions related to Corporate Social
Responsibility (CSR) under Section 135. According to this section, certain companies
meeting specific criteria are required to undertake CSR activities and report on their CSR
initiatives. Here are the key points of the CSR rule outlined in the Indian Companies Act
2013:
 Applicability: The CSR provisions are applicable to companies that meet any of the
following criteria in the preceding financial year: a. Companies with a net worth of
rupees 500 crores or more. b. Companies with a turnover of rupees 1,000 crores or
more. c. Companies with a net profit of rupees 5 crores or more.
 CSR Spending: The Act requires eligible companies to spend at least 2% of their
average net profits made during the three immediately preceding financial years on
CSR activities.
 CSR Activities: The Act provides a broad list of activities that can be undertaken as
part of CSR initiatives. These activities include but are not limited to: a. Eradicating
hunger, poverty, and malnutrition. b. Promoting education and gender equality. c.
Improving maternal and child health. d. Ensuring environmental sustainability. e.
Supporting rural development projects. f. Contribution to the Prime Minister's
National Relief Fund or other government funds. g. Supporting technology incubators
within academic institutions.
 CSR Committee: Companies meeting the CSR criteria are required to constitute a
CSR Committee consisting of at least three directors, including an independent
director. The committee oversees the company's CSR policy and implementation.

6
  CSR Policy: The company must formulate a CSR policy that outlines the CSR
activities to be undertaken, the manner of implementation, and the reasons for not
spending the required CSR amount if applicable.
 Reporting: The company must include a detailed CSR report in its annual financial
statements, specifying the CSR activities undertaken during the year and the amount
spent. If the company fails to spend the entire allocated CSR amount, it must provide
reasons for the same in its report.
It's important to note that CSR provisions under the Indian Companies Act 2013 apply to
eligible companies, and non-compliance could lead to penalties or additional compliance
requirements. The Act aims to encourage businesses to contribute positively to society and
promote sustainable development.

1.5. Six Core Characteristics of CSR:

There are six core characteristics of CSR. According to modern researchers, there is hardly
any definition of CSR that includes all of these characteristics. However, they are the
essential features of the CSR concept that are being reproduced in all the CSR definitions.
(Crane, Matten, Spence, 2008, p.6)
1. Voluntary: The first characteristic is that CSR is voluntary. Although a lot of CSR
activities are described by the law, many definitions of CSR state these activities to be
voluntary. A vivid example is the European Commission definition given above.
(Crane, Matten, Spence, 2008, p.7)
2. Internalizing or managing externalities: These together are the second
characteristic of CSR, where externalities are the positive and negative side effects of
economic behavior of others on the company. They are not taken into account in a
firm’s decision making process. A classic example of externality is pollution.
Through such regulations as pollution fines the firms can be forced to internalize the
cost of this externality, but CSR represents a voluntary approach. For example, a firm
investing in clean technologies that prevent pollution. (Crane, Matten, Spence, 2008,
7)
3. Multiple stakeholder orientation: It goes without saying that companies have
responsibilities to their shareholders. However, companies rely on various
constituencies such as suppliers, employees, consumers and local communities in
order to survive and prosper. Therefore, companies have responsibilities to them as

7
 well. There are debates on to which extent shareholders and stakeholders should be
taken into account in a company’s CSR. (Crane, Matten, Spence, 2008, p.8)
4. Alignment of social and economic responsibilities: Although this is much debated
about, many definitions of CSR stress that social and economical responsibilities of a
company are aligned, and profitability is an important issue. This characteristic of
CSR prompts attention to how firms can benefit economically from being socially
responsible. (Crane, Matten, Spence, 2008, p.8)
5. Practices and values: It is obvious that CSR implies a particular set of business
practices and strategies that deal with social issues. Moreover, many write that CSR is
a philosophy or set of values that underpins these practices. Therefore, it is often
being discussed not only what companies do in the social arena, but why they do it.
(Crane, Matten, Spence, 2008, p.8)
6. Philanthropy: Sometimes CSR is mainly about philanthropy, which means, for
example, corporate generosity towards the less fortunate. Currently it is being stated
that CSR should also be about how the entire
Operations of the company impact our society. Among core business functions one can name
production, marketing, procurement, human resource management, finance, and so on. This
core characteristic implies that CSR needs to be mainstreamed into normal business practice
rather than being left only to discretionary activity. (Crane, Matten, Spence, 2008, p.8)

1.6. Principles of CSR:

The main principles involving corporate social responsibility involve economic, legal, ethical
and discretionary aspects. A corporation needs to generate profits, while operating within the
laws of the state. The corporation also needs to be ethical, but has the right to be discretional
about the decisions it makes. Levels of corporate social responsiveness to an issue include
being reactive, defensive, responsive and interactive. All terms are useful in issues
management. Selecting when and how to act can make a difference in the outcome of the
action taken.

1.6.1. Principles and Guidelines of CSR in Indian Context:

Corporate Social Responsibility (CSR) in the Indian context is governed by a comprehensive
framework that outlines the principles and guidelines for businesses to engage in socially
responsible practices. The key principles relating to CSR in India are primarily derived from

8
the Companies Act, 2013, and further elaborated through various notifications and guidelines
issued by the Ministry of Corporate Affairs (MCA). Here are the main principles:

 Mandatory Spending: The Companies Act, 2013, introduced the mandatory CSR
provision, which applies to certain eligible companies. As per the law, companies
meeting specific financial criteria are required to spend at least 2% of their average
net profits from the preceding three financial years on CSR activities.
 CSR Policy: Every eligible company is required to constitute a CSR Committee of its
Board of Directors. This committee is responsible for formulating and recommending
a CSR policy to the board. The CSR policy should include the company's CSR
objectives, areas of focus, implementation plans, and monitoring mechanisms.
 Identifying Focus Areas: The CSR policy must identify and specify the areas in
which the company intends to undertake CSR activities. These areas could include
eradicating hunger, poverty, promoting education, gender equality, healthcare,
environmental sustainability, or any other activities outlined in Schedule VII of the
Companies Act.
 Local Impact: Companies are encouraged to give preference to the local areas where
they operate for implementing their CSR activities. This ensures that the communities
surrounding the company's operations benefit from the initiatives, fostering
sustainable development.
 Partnerships and Collaboration: Collaboration with other companies, NGOs,
government bodies, and stakeholders is encouraged to maximize the effectiveness and
impact of CSR initiatives. This approach helps in pooling resources and expertise for
more significant outcomes.
 Employee Engagement: Companies are encouraged to involve their employees in
CSR activities, promoting a culture of volunteerism and a sense of responsibility
towards society. Employee engagement can strengthen the impact of CSR efforts and
enhance employee satisfaction.
 Measurable Impact: CSR activities should be planned and executed in a manner that
allows for measuring their impact effectively. Companies are expected to establish
key performance indicators (KPIs) to monitor the outcomes of their CSR initiatives.
 Disclosure and Reporting: Companies are required to disclose their CSR activities
and spending in their annual reports, including details about the CSR projects

9
 undertaken, the amount spent, and the progress made. This ensures transparency and
accountability in CSR practices.
 Long-Term Perspective: CSR initiatives are meant to create sustainable and lasting
impacts on society. Therefore, companies are encouraged to adopt a long-term
perspective while planning and executing CSR activities.
 Respecting Local Culture and Values: While undertaking CSR initiatives,
companies must respect and consider the local culture, customs, and values of the
communities they are working with. This helps in avoiding any cultural insensitivity
or unintended negative consequences.
 Environmental Responsibility: CSR efforts should also address environmental
concerns. Companies are encouraged to adopt environmentally sustainable practices
and contribute to biodiversity conservation and climate change mitigation.
 Beneficiary Participation: Involving the beneficiaries of CSR initiatives in the
planning and execution process fosters a sense of ownership and ensures that the
projects cater to the actual needs of the community.

These principles guide Indian companies in their CSR endeavours and aim to create a
positive impact on society while fostering sustainable development and inclusive growth. It is
essential for companies to adhere to these principles and actively contribute to the betterment
of the communities they operate in.

1.7. Development of CSR policy:

Creating an effective CSR policy requires careful planning, alignment with business values,
and a commitment to making a positive impact on society. Here's a step-by-step guide on
how a company can develop an effective CSR policy:

 Identify Stakeholders and Prioritize Objectives: Understand the expectations of

your stakeholders, including employees, customers, investors, local communities, and
regulatory bodies. Prioritize the areas where your CSR efforts can have the most
significant impact based on the needs of these stakeholders and the broader society.
 Board and Top Management Commitment: Obtain commitment and support from
the board of directors and top management. A strong commitment at the highest level

10
 of the organization is crucial to ensure sufficient resources and attention to CSR
initiatives.
 Conduct a CSR Assessment: Conduct a thorough assessment of the company's
existing social and environmental impact. Identify potential risks and opportunities,
and analyze how the company's core business activities might align with CSR goals.
 Set Measurable Goals and Targets: Define clear and measurable CSR goals and
targets that align with the company's overall mission and values. These goals should
be specific, achievable, relevant, and time-bound.
 Focus on Core Competencies: Leverage the company's core competencies and
expertise to create a more meaningful impact. Align CSR initiatives with the
company's strengths and industry domain to achieve better results.
 Engage Employees: Involve employees in the CSR policy development process and
encourage their participation in CSR activities. Engaged employees are more likely to
support and actively contribute to the company's CSR efforts.
 Collaborate with Stakeholders: Form partnerships and collaborations with NGOs,
government agencies, industry peers, and local communities. Working together can
leverage expertise, resources, and networks to amplify the impact of CSR initiatives.
 Address Material Issues: Focus on addressing material issues that are relevant to the
company and stakeholders. These are issues that have a significant impact on society
and are directly related to the company's operations.
 Allocate Adequate Resources: Allocate sufficient financial, human, and
technological resources to implement CSR initiatives effectively. CSR should not be
seen as an add-on but as an integral part of the company's overall strategy.
 Transparency and Reporting: Commit to transparency in all CSR activities.
Regularly report on progress and outcomes to stakeholders through annual reports,
sustainability reports, and other communication channels.
 Long-Term Perspective: Emphasize long-term sustainability in your CSR policy.
Avoid short-term projects that may provide immediate benefits but lack lasting
impacts.
 Impact Assessment and Course Correction: Regularly assess the impact of CSR
initiatives against predefined KPIs. If certain initiatives are not achieving the desired
results, be open to making adjustments or realigning efforts to ensure effectiveness.

11
  Incorporate Environmental Sustainability: Integrate environmental sustainability
into your CSR policy. Focus on reducing the company's ecological footprint and
promoting eco-friendly practices.
 Empower Local Communities: Empower local communities to actively participate
in decision-making and implementation processes. Respect their culture and traditions
while designing and executing CSR projects.
 Continual Improvement: CSR is an evolving process, and companies should
continually seek opportunities to improve and expand their CSR efforts. Regularly
review the CSR policy and make necessary adjustments based on changing
circumstances.
An effective CSR policy aligns the company's business objectives with the needs of society,
fostering a positive impact while contributing to sustainable development and societal well-
being. By integrating CSR into the company's core values and operations, businesses can
build stronger relationships with stakeholders and create a more responsible and purpose-
driven brand.

1.8. Classification of CSR Activities:

According to Blowfield and Murray (2008, p.21), as taken from Carroll (1979), company
CSR activities can be classified into the following four groups:

1. Economic responsibility: The responsibility of private entities of offering products and

services to the marketplace according to the needs of society in order to make a profit.
2. Legal responsibility: Companies have to operate within the boundaries of law in order to
achieve their aims and objectives.
3. Ethical responsibility: Ethical responsibilities of businesses include the types of
responsibilities that are important, but at the same time they are not covered by law e.g.
fair-trade.
4. Discretionary responsibilities: Company responsibilities in this form, like philanthropy
initiatives are not necessarily expected by societies, but they are usually welcomed by
societies and create positive image for the business.

Alternatively, CSR initiatives are classified by Kotler and Lee (2005) into six broad
categories that can are illustrated on the following table:

12
Type of CSR activity Descriptions
Cause promotions Resources spent by companies to promote a specific cause that
benefits society in many levels such as eliminating poverty or
fighting against child abuse
Cause –related marketing A marketing campaign initiated by a business that highlights
positive correlation between the amount of sales for the
business and the amount of contribution to support a specific
cause.
Corporate Social Marketing Businesses promoting social causes such as healthy eating,
caring about parents, quit smoking etc.

Corporate Philanthropy This form of CSR involves businesses donating money or

products of the company in substantial amounts in order to
support specific causes.

Community volunteering Businesses engaging their employees to work in a community

sector for a specified number of hours on a voluntary basis

Socially responsible business Engaging in fair trade when dealing with suppliers and
practices sustaining ethical business norms and practices.

Source: Kotler and Lee (2005)

Banerjee (2007) mention three important characteristics of CSR activities: a) CSR can be
perceived as a company commitment formed and regulated through company policies and
action; b) CSR activities engaged by businesses usually exceed law requirements; c) CSR
activities are voluntarily and cannot be enforced upon businesses by law.
Lepoutre and Heene (2006), on the other hand, divide CSR activities on the following seven
main groups: a) leadership, vision and values, b) marketplace activities, c) workforce
activities, d) supply-chain activities, e) environmental activities, d) community activities and
e) stakeholder engagement.

1.9. Increasing Importance of CSR:

Nowadays Corporate Social Responsibility (CSR) has become an essential part of big,
multinational corporations without which any corporation of a substantial size would face

13
difficulties from various fronts – non-government organizations, governments, public
(including existing and potential customers), and even workforce itself. People justifiably
reason that since global multicultural corporations are earning revenues which are calculated
at millions, or even billions of pounds, they are expected to give something back to the
community they are operating in or to the wider community to compensate for a wide range
of inconveniences and difficulties the operation of the business is causing to local
community, nature or the wider area.
“A business that accepts Corporate Responsibility will be prepared to be responsible for and
willing to justify its actions. It will also consider the impact of its actions on a variety of
individuals and groups, both inside and outside of the organization”. (Hall et al, p.789) The
importance of CSR to both society and the businesses have been acknowledged by scholars in
the field long ago, and nowadays there is no such an argument if companies need to engage in
CSR, but there is a still an argument among some authors of the field as regard what forms of
CSR needs to be focused at etc.
CSR is closely related to the credibility of the company. Credibility with stakeholders is
specified as a determinant of an efficiency of a company by Davis(2005, p.108).
Fombrun and Shanley (1990, p.239) consider engaging in CSR as important elements of
product differentiation and building a reputation. Forwarding a specific course some
companies associate themselves with the solution of that problem and it adds to their
popularity and the goodwill of the public towards the brand. Corporate Social Responsibility
(CSR) continues to be an important business concept and in a world of increased
globalisation is to be found among large companies in most countries around the world
(Welford, 2004).

CSR is becoming increasingly important in India for several reasons. As society evolves,
there is a growing recognition of the need for businesses to go beyond profit-making and
contribute to the well-being of communities and the environment. Here are some reasons why
CSR is gaining significance in India:
 Social Expectations and Reputation: As public awareness increases, consumers,
investors, and other stakeholders are placing more importance on a company's social
and environmental impact. Engaging in CSR initiatives can enhance a company's
reputation and strengthen its brand image, leading to increased trust and loyalty from
customers and investors.

14
 Regulatory Mandate: The Companies Act, 2013, made CSR mandatory for certain
eligible companies, specifying that they must spend a portion of their profits on CSR
activities. This legal requirement has significantly raised the profile of CSR in India
and made it an essential part of corporate governance.
 Inclusive Growth and Development: India faces various social and economic
challenges, such as poverty, illiteracy, healthcare gaps, and environmental
degradation. CSR initiatives play a vital role in supporting government efforts and
filling gaps in addressing these issues, contributing to inclusive growth and
sustainable development.
 Stakeholder Engagement and Risk Management: Companies with robust CSR
practices tend to have better stakeholder relations. Engaging with local communities
and addressing their concerns helps companies manage potential risks related to social
conflicts, protests, or negative publicity.
 Talent Attraction and Retention: Today's workforce seeks purpose and meaning in
their careers. Companies that demonstrate a commitment to CSR and sustainability
are more likely to attract and retain talented employees who want to work for
organizations aligned with their values.
 Innovation and Efficiency: CSR initiatives often drive companies to adopt
innovative solutions and more efficient practices, leading to cost savings and better
resource utilization. For example, adopting eco-friendly technologies can reduce a
company's carbon footprint and operational costs.
 Access to New Markets: CSR initiatives can open up new markets and business
opportunities. Targeting social and environmental issues can create demand for
products and services that cater to socially responsible consumers.
 Enhanced Access to Finance: Investors and lenders are increasingly considering a
company's environmental, social, and governance (ESG) performance when making
investment decisions. Strong CSR practices can improve a company's access to
finance and attract responsible investors.
 Resilience in Times of Crisis: Companies with a strong CSR foundation tend to
demonstrate better resilience during crises. Engaging in CSR activities can help
companies build a buffer of goodwill and support from stakeholders during
challenging times.
 Global Competitiveness: In a globalized world, companies operating in India must
compete not only with domestic rivals but also with international players.
15
 Demonstrating a commitment to CSR and sustainability can improve a company's
global competitiveness.
 Environmental Concerns: With increasing environmental degradation and climate
change impacts, CSR initiatives that focus on sustainability and eco-friendly practices
have become critical for businesses to reduce their environmental footprint.
 Aligned with Sustainable Development Goals (SDGs): The United Nations
Sustainable Development Goals provide a global framework for addressing pressing
societal issues. CSR initiatives that align with the SDGs contribute to global efforts
towards a more sustainable world.
Overall, CSR has become important in India as businesses recognize the role they can play in
making a positive impact on society, the environment, and the economy. By integrating CSR
into their core operations, companies can create a more sustainable, ethical, and socially
responsible business ecosystem that benefits all stakeholders and fosters long-term growth
and prosperity.

1.10. Main Approaches to CSR:

Mohr et al (2010) divide distinctive profiles of CSR practices into three categories: business
case, social values, and syncretic stewardship.

The business case model of CSR is driven primarily by the ability of CSR initiatives to
create positive business results. Because serving shareholders is paramount, a strong tie to the
economic outcomes drives CSR initiatives” (Mohr et al, 2010, p.440). Companies operating
under business case model usually adopt reactive approach towards CSR issues and may
engage in such activities due to the pressure form various groups, or in the search of
competitive edge.

Social values model of CSR, on the other hand, involves companies associating with a
specific social cause and “it is integrated into the organisational fiber in every way: visible
symbols of the cause can be found everywhere in the company” (Mohr et al, 2010, p.441).

Businesses operating under syncretic stewardship CSR model aim to harmonise and balance
the ex-demands of various stakeholders of his business. In other words, these companies
focus on profit maximisation objective of the business as the business case model, but at the

16
same time, they also comprehend the importance of CSR and aim to address it an effective
manner.
Four approaches to CSR have been specified by Tudler and Zwart (2006) as inactive,
reactive, active and proactive (interactive). It is important to note that “these approaches
emerged at different stages of societal development and they are neither mutually exclusive
nor do they represent ‘best’ practice models” (Tulder and Zwart, 2006, p.143)

The following table illustrates the viewpoints associated with each individual CSR approach:
Inactive Reactive Active Pro-/interactive
‘Corporate self- ‘Corporate social ‘Corporate social ‘Corporate societal
responsibility’ responsiveness’ responsibility’ responsibility’
Inside-in Outside-in Inside-out In/outside-in/out
‘Doing things right’ ‘Don’t do things ‘Doing the right ‘Doing the right things
wrong’ things’ right’
‘Doing well’ ‘Doing well and doing ‘Doing good’ ‘Doing well by doing
good’ good’
‘Just do it’ ‘Just don’t do it’ ‘Do it just’ ‘Just do it just’
Efficiency Efficiency Equity/Ethics Effectiveness
Utilitarian motive: Negative duty ‘Positive duty’ or Interactive duty
profit maximization approach: quarterly ‘virtue based’: values approach: medium-
profits and market (long-term term profitability and
capitalization profitability) sustainability
Indifference Compliance Integrity Discourse ethics
Business and Society Business and Society Business in Society Business-Society
Management Management Management Management

1.11. Why companies should embrace CSR?

The six business reasons why companies should embrace corporate social responsibility.
1. Innovation – I know, I know, it’s an over-used term. Just typing the word into
Amazon will bring up nearly 150,000 items. But in the context of CSR, innovation is
a huge benefit to a company and society. For example, I recently watched a video of a
brief talk by Geoff McDonald who is the Unilever Global VP for HR, Marketing,
Communications and Sustainability. Using the “lens of sustainability” as McDonald

17
 described it, Unilever was able to innovate new products such as a hair conditioner
that uses less water. Without sustainability, the company’s research and development
efforts possibly wouldn’t have led to such a product.
2. Cost savings – One of the easiest places for a company to start engaging in
sustainability is to use it as a way to cut costs. Whether it’s using less packaging or
less energy, these savings add up quickly. For example, General Mills is on a path to
reduce its energy savings by 20% by 2015. According to its 2011 CSR report, after
installing energy monitoring meters on several pieces of equipment at its Covington,
Ga. plant, the company saved $600,000.
3. Brand differentiation – In the past, brand differentiation was one of the primary
reasons companies embraced CSR. Companies such as Timberland were able to find
their voice and incorporate the company’s values into their business model. However,
as CSR has become more commonplace, using it to differentiate your brand is getting
harder to do. For example, the “Cola Wars” is one of the longest running rivalries in
business. Coke and Pepsi are constantly looking to grab as much market share as they
can from each other. Yet they are both adopting similar, although slightly different,
approaches to CSR. Both Pepsi and Coke are pursuing strategies of zero net water
usage. Both companies offer water bottles made from sustainable packaging as well.
In the end, although neither company is necessarily going to see strong differentiation
benefits, I see the diminishing returns on brand differentiation as a sign that CSR is
taking hold and is not just a fad.
4. Long-term thinking – “The only reason we’re doing sustainability is to drive the
growth of Unilever,” McDonald said in the video mentioned above. Indeed, CSR is an
effort to look at the company’s long-term interest and ensuring that the company’s
future is… well… sustainable. Hence, that’s why I prefer the term sustainability to
CSR. It is a shift from worrying about the next fiscal quarter’s financial results to the
impact business decisions today have on financial (and social) results ten years from
now.
5. Customer engagement– What’s the point of doing CSR if no one knows about it?
For the past few years, Walmart has established itself as a leader on environmental
efforts. Yes, you read that correctly, Walmart is a leader in environmentalism. In
2008, Walmart ran an ad campaign designed to raise awareness about the
environment and the product choices consumers could make. Using CSR can help you
engage with your customers in new ways. Since the message is about something
18
 “good,” it can often b’;/;’e an easier way to talk to your customers. This is an
underused tool for business-to-business company communication.
6. Employee engagement – Along similar lines, if your own employees don’t know
what’s going on within your organization, you’re missing an opportunity. Companies
like Sara Lee created a cross-functional, global Sustainability Working Team to help
create a strategy for sustainability. At a more grass roots level, the Solo Cup Company
created the Sustainability Action Network to activate employees in community
service focused on the company’s CSR priorities.

1.12. How to get companies involved in CSR?

 Encouraging them to have a Code of Conduct: There are provisions in Companies
Act for big sized companies. Such code of conduct is mandatory for the companies
under section 135 of the act. According to this section, certain companies meeting
specific criteria are required to undertake CSR activities and report on their CSR
initiatives.
Code of Conduct is a text in which the duties of both, employees and the company
towards shareholders are outlined. Adams et al (2001) inform that there is more
encouraging and supportive environment as regards to ethical behaviour in companies
where Code of Conduct is practiced as compared to companies where there is no
Code of Conduct. Graafland and Stoffele (2003, p.47) state that Code of Conduct
generally includes three main categories: a) mission statement, b) value declaration,
and c) rules of conduct.
 Government intervention: Government intervention does make a difference on the
degree of association of small and medium enterprises with social responsibility
activities. Aldareda et al (2008, p.348) inform that having joined to the other
stakeholders in 1990′s governments are assuming the role of drivers of CSR and
government initiatives conversed with the activities of international organizations
such as UN Global Compact and European Commission. Nevertheless, the role of UK
government in motivating small and medium businesses to recognize their
social responsibilities yet to be played to its full potential.
 Self-regulation: Promoting self-regulation for small and medium enterprises to
engage in CSR aspect of the business is considered as one of the tools to achieve the
objective. However, a study by Margaret (2010) calls not to rely on self-regulation but

19
 to lobby for governments to device proactive legislation under which companies
would have to deal with CSR as required by law.
 Market pressure: Standing (2007, p.4) informs that United Nations Global Compact
was launched in July 2000 and is aimed at promoting responsible corporate
citizenship. Companies, that signed up to the Compact have to follow ten designated
principles in business activities worldwide. However, UN does not enforce or
measure the adherence to the principles set.The forms and variations of corporate
social responsibility in small businesses are described by Spence (2007, pp.537-538)
as the following: a) offers of individual incentives for accepting socially responsible
projects; b) using an opportunity to increase their elasticity; c) social responsibilities
of small and medium businesses to be produced in formal writing and used as a guide;
d) being highly accountable to the owner of the business; e) supporting workers in all
aspects of their jobs professionally and personally; f) the importance of the frame
work of the industry which guided by SCR; g) the involvement of small and medium
businesses in local communities.

1.13. Benefits of CSR for the Society:

Corporate Social Responsibility (CSR) refers to a company's commitment to operating
ethically and contributing positively to society and the environment. It goes beyond merely
maximizing profits and involves taking responsibility for the company's impact on various
stakeholders, including employees, customers, local communities, the environment, and
society at large. CSR initiatives can bring several benefits to society:

 Poverty Alleviation and Inclusive Growth: Many CSR programs focus on poverty
alleviation, empowering marginalized communities, and promoting inclusive
economic growth. Companies can invest in skill development, vocational training,
and income-generation activities, enabling individuals to improve their livelihoods
and break the cycle of poverty.
 Education and Skill Development: CSR initiatives often support education by
building schools, providing scholarships, or enhancing educational infrastructure.
Skill development programs can equip individuals with the necessary skills to enter
the workforce and lead productive lives.

20
 Healthcare and Sanitation: Companies can contribute to improving healthcare
facilities and access to medical services in underserved areas. CSR efforts may
include setting up medical camps, providing healthcare equipment, or supporting
disease prevention and awareness programs.
 Environmental Conservation and Sustainability: CSR initiatives can address
environmental challenges by promoting sustainable practices within the company and
beyond. Companies can invest in renewable energy projects, support conservation
efforts, and implement waste reduction and recycling initiatives.
 Women Empowerment: CSR can play a vital role in empowering women by
promoting gender equality and providing opportunities for women's education, skill
development, and entrepreneurship. Empowered women contribute to stronger
families and communities.
 Community Development: Companies can support community development by
investing in infrastructure projects, clean water initiatives, and community centers.
These efforts enhance the overall quality of life for the local population.
 Disaster Relief and Humanitarian Aid: CSR plays a crucial role in providing
support during natural disasters and humanitarian crises. Companies can contribute
funds, resources, and volunteers to aid relief efforts and help affected communities
rebuild.
 Promoting Arts, Culture, and Sports: CSR initiatives can also focus on promoting
arts, culture, and sports. Companies may sponsor events, support cultural heritage
preservation, or fund sports facilities and training programs for talented athletes.
 Ethical Business Practices: A company's commitment to CSR often leads to the
adoption of ethical business practices. This includes fair treatment of employees,
responsible sourcing, and maintaining high standards of corporate governance.
 Social Innovation and Technology: CSR can drive social innovation by investing in
technology and innovative solutions to address societal challenges. Technological
advancements can lead to better healthcare, education, and economic opportunities.
 Employee Engagement and Satisfaction: Engaging employees in CSR activities
fosters a sense of pride and purpose among the workforce. Employees are more likely
to feel connected to their company and be motivated to contribute positively to
society.

21
  Enhancing Stakeholder Relationships: CSR efforts can improve the company's
relationships with various stakeholders, including customers, suppliers, investors, and
regulators. Positive social impact can lead to increased brand loyalty and trust.
 Long-Term Sustainable Development: By focusing on CSR, companies contribute
to sustainable development that benefits current and future generations. This ensures
that economic growth is balanced with social and environmental well-being.

Therefore, CSR benefits society by addressing social, economic, and environmental

challenges while fostering a more responsible and sustainable business environment. When
companies actively participate in CSR initiatives, they become important agents of positive
change, helping to build a better and more inclusive society.
Corporate social responsibility (CSR) is the organization’s efforts to enhance the
socioeconomic welfare over and above its profit-making motives. CSR can have an impact on
firm financial performance (FFP) through various mechanisms, such as:
 Productivity: CSR can help firms develop productive intangibles, such as human
capital, innovation, and reputation, that can improve their efficiency and
profitability. For example, a study found that total factor productivity (TFP) mediates
the relationship between CSR and FFP.
 Reputation: CSR can enhance the firm’s image and goodwill among its stakeholders,
such as customers, employees, suppliers, and communities, that can increase their
loyalty and satisfaction. For example, a study found that CSR expenditure of the firm
has a significant relationship with its reputation.
 Advertising: CSR can be used as a marketing strategy to differentiate the firm from
its competitors and attract more customers. For example, a study found that
advertising intensity moderates the relationship between CSR intensity and corporate
reputation2.
 Competition: CSR can help firms gain a competitive edge in the market by creating
entry barriers, reducing regulatory risks, and fostering innovation. For example, a
study found that competitive intensity has a positive impact in the reputation–
performance linkage2.
 Internal control: CSR can improve the firm’s internal governance and risk
management by aligning the interests of managers and shareholders, enhancing
transparency and accountability, and reducing agency costs. For example, a study

22
 found that CSR fulfillment effectively improves the internal control quality of the
firm.
Therefore, CSR can have a positive role on FFP by creating value for both shareholders and
stakeholders. However, the impact of CSR on FFP may also depend on various factors, such
as the industry context, the life cycle stage of the firm, and its corporate governance structure.
Hence, firms need to adopt a strategic approach to CSR that aligns with their core business
and operations.

1.14. Top 10 CSR and Sustainability Reports of 2021-2022:

Here are some notable companies known for their CSR activities in India:

 Tata Group: The Tata Group, one of India's oldest and largest conglomerates, has
been a pioneer in corporate social responsibility. The group's CSR initiatives span
various sectors, including education, healthcare, rural development, and
environmental conservation.
 Reliance Industries Limited: Reliance is a diversified conglomerate with a
significant presence in petrochemicals, refining, telecommunications, and retail. The
company's CSR initiatives focus on education, healthcare, rural development, and
sustainable livelihoods.
 Hindustan Unilever Limited (HUL): HUL is one of India's leading consumer goods
companies, with a strong commitment to CSR. Their initiatives target health and
hygiene, women's empowerment, water conservation, and rural development.
 Infosys: As a leading IT services company, Infosys is known for its CSR efforts in
education, environmental sustainability, healthcare, and community development.
They have several programs to promote digital literacy and STEM education.
 Wipro: Wipro is another major IT services company that actively engages in CSR
activities, including education, healthcare, community development, and
environmental sustainability.
 Mahindra Group: The Mahindra Group is a diversified conglomerate with interests
in automobiles, technology, finance, and more. Their CSR initiatives focus on
education, skill development, and rural development.

23
  ITC Limited: ITC is a prominent player in the FMCG, hospitality, and agribusiness
sectors. The company's CSR efforts center around sustainable agriculture,
environment, education, and rural development.
 HDFC Bank: HDFC Bank, one of India's leading private sector banks, has a strong
focus on CSR activities related to education, healthcare, rural development, and
financial inclusion
 Aditya Birla Group: The Aditya Birla Group is a conglomerate with interests in
various sectors, including metals, textiles, and cement. Their CSR initiatives cover
education, healthcare, women's empowerment, and community development.
 Larsen & Toubro (L&T): L&T is a major engineering and construction
conglomerate. Their CSR initiatives focus on education, skill development, and
community welfare.

These companies are just a few examples of those actively contributing to CSR activities in
India. Many other Indian companies are also making significant efforts to create a positive
impact on society and the environment through their CSR initiatives. Please refer to more
recent sources to get the most up-to-date information on CSR activities of Indian companies.

1.15. Some Top MNCs and their CSR Activities:

 Unilever: Unilever is a multinational consumer goods company known for its

sustainable business practices. Its Sustainable Living Report provides detailed insights
into its progress towards achieving various environmental and social goals.
 Nestlé: Nestlé is another major player in the consumer goods industry with a strong
focus on sustainability. The company's Creating Shared Value (CSV) report outlines
its initiatives and efforts to create value for both shareholders and society.
 Microsoft: Microsoft is known for its commitment to environmental sustainability
and social responsibility. Its annual Sustainability Report highlights the company's
efforts to reduce its carbon footprint, promote accessibility, and support communities.
 IBM: IBM's annual Corporate Responsibility Report outlines its CSR initiatives and
sustainability efforts, including its focus on technology for good, diversity and
inclusion, and environmental stewardship.

24
  Novartis: Novartis, a pharmaceutical company, publishes an annual Corporate
Responsibility Report that provides insights into its efforts to improve global health,
promote access to medicines, and ensure ethical business practices.
 Adidas: The Adidas Sustainability Report outlines the company's commitment to
sustainable sourcing, responsible manufacturing, and efforts to address social and
environmental issues within the supply chain.
 Walmart: Walmart's ESG (Environmental, Social, and Governance) Report provides
details on its initiatives related to climate action, diversity and inclusion, responsible
sourcing, and community engagement.
 Patagonia: Patagonia, an outdoor clothing brand, is known for its dedication to
environmental conservation. Its annual Environmental and Social Initiatives report
discusses the company's initiatives to protect the planet and support social causes.
 Starbucks: Starbucks' Global Social Impact Report focuses on the company's ethical
sourcing, community engagement, environmental commitments, and efforts to create
a positive social impact.
 Siemens: Siemens' Sustainability Report provides comprehensive information on its
activities related to sustainable technology, environmental protection, and social
responsibility.

1.16. CSR and Accountability:

Accountability is one of the processes whereby a leader, company, or organization
seeks to ensure integrity. In a global stakeholder society, accountability is among the key
challenges of organizations. Responsible leaders are concerned with reconciling and aligning
the demands, needs, interests, and values of employees, customers, suppliers, communities,
shareholders, nongovernmental organizations (NGOs), the environment, and society at large.
A company’s track record in terms of CSR accounting will be effective when appropriate
CSR measures are included in its internal as well as its supply-chain activities. Furthermore,
the literature reflects a growing need for dissemination of good practice in CSR
accountability and a need for more pressure to be exerted on NGOs to prove themselves as
ethical, transparent, and accountable as those they seek to influence (Frame, 2005).
A relevant point raised in some literature has to do with the effectiveness of strategies
undertaken by communities to demand corporate accountability (Garvy& Newell, 2005). This

25
literature argues that the success of community-based strategies for corporate accountability
is conditional upon the right combination of state, civil, societal, and corporate factors.

1.17. Organisational Challenges and Limitations:

While Corporate Social Responsibility (CSR) has gained traction in India, several
challenges hinder its effective implementation. These challenges can vary depending on the
size of the company, industry, location, and the specific nature of the CSR initiatives. Here
are some common problems faced during the implementation of CSR in India:

 Lack of Awareness and Understanding: Many companies, especially smaller ones,

may have limited awareness and understanding of the concept of CSR and its
potential benefits. This lack of awareness can lead to a lack of commitment and
enthusiasm for CSR initiatives.
 Budget Constraints: Some companies, especially smaller ones or those facing
financial difficulties, may find it challenging to allocate sufficient funds for CSR
activities. The mandatory 2% spending on CSR for certain eligible companies can be
a burden for some, leading to limited or suboptimal CSR efforts.
 Unclear CSR Strategy and Goals: Companies may struggle to formulate a clear and
well-defined CSR strategy that aligns with their business values and objectives.
Without a well-defined strategy, CSR initiatives may lack direction and fail to make a
significant impact.
 Difficulty in Measuring Impact: Assessing the impact of CSR initiatives can be
challenging, particularly when dealing with long-term projects or qualitative social
outcomes. Lack of clear metrics and data collection mechanisms can hinder proper
impact evaluation.
 Resource Management: Efficiently managing CSR initiatives requires proper
planning and coordination. Companies may face challenges in effectively utilizing
human resources, technology, and other assets to implement CSR activities.
 Sustainability Concerns: Some CSR initiatives might face sustainability challenges,
particularly if they rely heavily on company resources and cannot be sustained over
the long term.
 Lack of Stakeholder Engagement: Effective CSR initiatives involve engaging with
various stakeholders, including local communities, NGOs, and government bodies.

26
 Failure to involve stakeholders can lead to resistance or non-acceptance of CSR
activities.
 Limited Collaboration and Partnerships: Collaborations with other companies,
NGOs, or government agencies can enhance the impact of CSR initiatives. However,
building and maintaining effective partnerships can be time-consuming and may face
bureaucratic hurdles.
 Changing Government Policies: CSR regulations and guidelines in India may
evolve over time. Companies need to adapt their CSR strategies to comply with
changing policies and priorities.
 Geographical Disparities: Implementing CSR initiatives in geographically diverse
areas can be challenging due to variations in social and cultural contexts,
infrastructure, and accessibility.
 Perception of Tokenism: Some critics may view CSR activities as token gestures by
companies to improve their image without a genuine commitment to social impact.
 Negative Stakeholder Perception: Despite good intentions, companies may face
skepticism or criticism from stakeholders who doubt their motives or question the
effectiveness of CSR initiatives.
 Government Bureaucracy: While the government encourages CSR activities,
companies may face bureaucratic challenges and delays in obtaining necessary
approvals for their projects.

Overcoming these challenges requires a concerted effort from companies, government

bodies, NGOs, and other stakeholders. Companies should develop a well-defined CSR
strategy, foster a culture of responsibility, and engage in meaningful partnerships to make a
lasting positive impact on society and the environment.

27
 CHAPTER – II
REVIEW OF LITERATURE

2.1. Corporate Social Responsibility:

In the modern era, business firms are supposed to be socially responsible for their mere
survival in the competitive business world. Corporate social responsibility has become a
concern of strategic importance for every business firm, as customers are now aware of the
relevance of environmental issues and social responsibilities of the business entities. This
ultimately influences their buying decisions (Ferrell, 2004).
“Corporate Social responsibility involves the conduct of a business so that it is economically
profitable, law-abiding, ethical and socially supportive. To be socially responsible then means
that profitability and obedience to the law are foremost conditions when discussing the firm’s
ethics and the extent to which it supports the society in which it exists with contributions of
money, time and talent” (Carroll, 1983, p. 604). Carroll (1979) in his research had
categorized the firm’s social responsibility into four groups viz. economic, legal, ethical and
discretionary. The author gave primary emphasis on socio-economic legal aspects and further
concern for the ethical and discretionary aspects. Baden (2016) in his study had improved a
model of Carroll to measure CSR. The author argued that the four categories of CSR
developed by Carroll must be reviewed and sequenced according to the relative importance
of business responsibilities. A revised pyramid was developed by ranking the responsibilities
as: ethical, legal, economic and philanthropic.

2.2. Corporate Social Responsibility and Financial Performance of

Firms:
Camilleri (2017) opined in his research that the concept of CSR helps the business firms in
the enhancement of financial performance through satisfied stakeholders, including workers,
clients, investors and community at a large. Spending in CSR by firms brings customers’
loyalty and trust leading to improvement in the financial performance of the firms. Madueno,
Jorge, Conesa, and Martinez (2016) have explained that CSR is related to competitive
performance. It was analyzed that adoption of CSR practices by the business entities leads to
improvement in their competitive performance both directly and indirectly. It was also opined
that relational improvements of the business firms with their stakeholders mediates the effect

28
of CSR on competitive performance. The concern for stakeholders allows the firms to attain
competitive advantage by gaining their trust and confidence. Fernandez (2015) in his research
has opined that there is an interchangeable relationship between social responsibility and
profits, i.e., fulfilling social responsibility enhances profits of the firm and higher profits
result in adopting socially responsible policies. This relationship encourages firms to make
CSR a part of their financial policies and verify whether CSR investments are leading to
improved financial returns.
H1: There is no significant impact of corporate social responsibility on the financial
performance of firms.

2.3. Mediating role of Customer Satisfaction, Corporate Image and

Competitive Advantage:
Contribution to the well-being of society is considered a key concern of business entities in
order to build corporate image and relationships with customers (Lee, Kim, & Jin, 2015).
Hence, organizations must be socially responsible so that customers’ trust can be achieved,
thereby enhancing the corporate image. Ceglinski and Wisniewska (2017) have suggested the
adoption of CSR by business enterprises in order to gain a competitive advantage. CSR
improves a company's image and brings employees’ motivation and dedication towards work,
which increases creativity and productivity. A positive image of a company helps in
collaborating with the business partners, leading to the enhancement of sales and profits.
Adoption of CSR practices enables the business entities to meet out the need of the
customers, thereby generating a competitive advantage. Consumers are aware of and applaud
companies that engage in CSR activities that are customized to their requirements. As a
result, the consumer's trust and commitment to the company grows, resulting in higher levels
of customer satisfaction and loyalty (Khadka and Maharjan, 2017). Madueno, Jorge, Conesa,
and Martinez (2016) concluded in their research that adopting CSR practices in business
firms help in strengthening the relationships with stakeholders that positively affect firms’
competitiveness. The contribution in CSR increases the competitive performance of the
business firms that helps them in managing their stakeholders in a better way.
Several studies have analyzed the relationship between CSR and the financial performance of
firms, however it is observed that CSR does not directly impact the firm’s financial
performance. There are certain factors involved that influence the relationship between CSR
and the financial performance of firms. Garaihy, Mobarak, and Albahussain (2014) in their

29
study have examined the mediating effect of customer satisfaction and corporate image
between the relationship of CSR and competitive advantage. Saeidi, Sofian, Saeidi, Saeidi,
and Saaeidi (2015) have studied the impact of corporate social responsibility on the financial
performance of firms with mediating effects of competitive advantage, reputation, and
customer satisfaction. It was analyzed that taking the direct effect of CSR on financial
performance makes the study incomplete, as there are more factors that need to be considered
to study the actual impact of CSR on the performance of the firms. The findings disclosed
that engagement in CSR by the business firms results in improved reputation and competitive
advantage, ultimately leading to greater customer satisfaction, hence indirectly improving the
financial performance of business firms.

2.4. Classification of CSR Activities:

Corporate Social Responsibility (CSR) is rooted in many platforms, and is implemented for
various reasons. Forte (2013) takes the position that the average U.S. citizen expects
companies not to only generate profits, but also conduct themselves in an ethically and
socially responsible manner. Dedication to CSR enhances community relations and
contributes to a favorable public image, which can also manifest itself into 4 long-term
profits. Forte also noted that social responsibility benefits long-term stock prices as the
market deems socially responsible firms less risky. Many corporations are focused on the
short-term return of their corporate actions, but this study concludes that CSR
implementation will begin to show equal importance in the medium to long-term returns that
will come in response to the improvement in consumer image and reputation. Carroll (1991)
elaborates on the consumer’s role in implementing Corporate Social Responsibility by
demonstrating the decisions that management must make when balancing the corporation’s
responsibility in providing a maximum financial return to shareholders and the newly adopted
commitment to stakeholders and the environment. This study notes that there are four kinds
of social responsibility which constitute total CSR: economic, legal, ethical, and
philanthropic. While maximizing profits as part of a corporation’s economic responsibility,
management must also decide which stakeholders merit and should receive consideration in
the decision-making process. Carroll creates a CSR pyramid which concludes that the
conflict is not “concern for profits” versus “concern for society,” but rather that the firm must
engage in decisions and actions that simultaneously fulfill all components which constitute
CSR. The CSR firm should strive to make a profit, obey the law, be ethical, and be a good

30
corporate citizen. A socially responsible corporation is not one in which there is only concern
for legal, ethical, and philanthropic principles, but also one which has a focus on economic
responsibility and profit maximization for its shareholders. Clarkson (1995), proposes that
social responsibility can be analyzed and 5 evaluated by using a framework based on the
management of a corporation’s relationships with its stakeholders rather than by using a
model which focuses on corporate social responsibility methodologies and responsiveness.
This study distinguished between stakeholder issues and social issues because corporations
and their managers manage relationships with their stakeholders and not with society. In a
theoretical sense, the economic and social purpose of the corporation is to create and
distribute wealth and value to all primary stakeholder groups without favoring one group over
another, though stakeholder value are not defined only by increased share price, dividends or
profits. According to Business Dictionary, stakeholder value can also manifest itself through
minimized cost and waste while improving the quality of its products, enhanced skill and
satisfaction of employees, and contributions to the development of the community from
which the business draws its resources and sustenance. This study focuses on the equilibrium
that must be maintained between stakeholder groups; if the corporation favored one
stakeholder group’s interests over another, the disfavored group might seek alternatives and
potentially withdraw from the entity entirely. This view negates the idea that profit
maximization is the primary goal of a business; it reinforces the principle that CSR is based
on social responsibility rather than economic responsibility. If one accepts the legitimacy and
the desirability of adopting Corporate Social Responsibility policies, there is value in
recognizing and analyzing the results of those policies. The following research focuses on the
effect of CSR on stock price and the equity market. Orlitzky (2013) expands on the idea that
the CSR movement may, in the 6 long run, lead to excess market volatility and stock price
bubbles. This study challenges the conventional idea that CSR measures increase the present
value of a firm’s future cash flows and maximize the market value of the socially responsible
firm. Though CSR can materialize into benefits as it increases trust between the firm and its
stakeholders, because of its inherent costliness, CSR may also reduce current and future firm
cash flows. The costs associated with CSR create noise in the stock market because observers
cannot infer that CSR will change a firm’s underlying economic fundamentals. It is difficult
to determine the true benefits of CSR in the stock and equity markets due to information
asymmetry -- the principle that the seller has more information than the buyer. Because of the
information disparity, firms may send false market signals about their commitment to CSR
and the economic results of their actions. Orlitzky concludes that this noise and information
31
asymmetry associated with CSR may not only lead to excess stock market volatility but also
unjustifiably high stock prices of firms that are widely regarded as socially responsible.
Investors may begin to invest in companies, not because of their financial performance, but
rather because of the initiation of a social program or initiative. For this reason, it might be
difficult for an efficient market to determine if a company’s increased performance is rooted
in true economic upward mobility, or rather a bubble created by information asymmetry
which will be proven to be untrue and ineffective in the long-run. Becchetti and Ciciretti
(2008) come to a similar conclusion in that individual “Socially Responsible” stocks have on
average significantly lower returns and variance than control sample stocks when controlling
for industry effects. The study is based on 7 the idea that if socially responsible firms
underperform a control sample of firms in regards to shareholders’ interests, the incentive to
adopt CSR will weaken because of loss of competitive position as well as loss of access to a
lower cost of capital. They find that the consequence of social responsibility actions is lower
performance in terms of shareholders’ returns, ultimately rendering these firms more
susceptible to takeover. Lam, Zhang, and Jacob (2015) examine how stock prices are affected
within firms which are socially responsible in certain dimensions of Corporate Social
Responsibility but are socially irresponsible in other aspects. Their study concluded that these
firms, also known as ‘Grey’ companies, earn an annual abnormal return of up to 3.6%
relative to neutral portfolios containing neither socially responsible nor irresponsible firms.
The stakeholder theory and investor recognition theory predict that socially responsible firms
have a higher valuation, lower returns and lower risk compared to socially irresponsible
firms. The research of these academics adds to the discussion of firms which do not fall
within the category of definitively socially responsible versus irresponsible. Their research
also determined that the ‘Grey’ portfolios are overpriced within the market, contributed in
whole by both the “community” and “environment” sub-dimensions of CSR, of which the
market mis-prices firm’s socially ambiguous actions. Prior research on the relationship
between Corporate Social Responsibility initiatives and stock price reactions have determined
that there may be a positive relationship between being socially responsible and having lower
returns despite higher valuation, but this research explains the ambiguity in measuring this
relationship in a typical business environment with imperfections. 8 After analyzing literature
focusing on CSR in the equity market, the following scholarly articles emphasize the impact
that CSR has on financial performance. Wood and Jones (1995) add to prior research on the
stakeholder theory, but use this principle to find a relationship between social and financial
performance, rather than market value or to determine the cost of capital in the equity market.
32
This study focuses on Wood’s (1991) argument that the stakeholders define the norms for
corporate behavior; these normal behaviors are acted upon by firms, and they make
judgments about these experiences. In prior research, there was a mismatch of variables
which are mixed and correlated with a set of stakeholder-related performance variables that
are not theoretically linked. Wood and Jones spotlight the mismatch of variables in their
research and determine that the relationship between CSR and financial performance is
ambiguous because there is no theory to clarify how they should be related, there is no valid
measure of CSR, and there is confusion about which stakeholders are represented by which
financial measures. Though Wood and Jones came to an inconclusive result on the
relationship between CSR and economic performance, they were again able to conclude that
there is a connection between social and financial performance when using market-based
theory. As such, social performance hurts the company financially, but it cannot yet be
proven if the relationship also works positively, in that good social performance would help a
company financially. In a Forbes magazine David Vogel (2008), breaks down the idea that
CSR performance will allow firms to gain a competitive advantage by appealing to a growing
number of socially and environmentally oriented consumers, investors and employees. 9 The
hard truth, he finds, is that there is little real-world support to back this idea. CSR does not
necessarily pay because ‘ethical’ products are a niche market, and almost all goods and
services continue to be purchased on the basis of price, convenience, and quality. Consistent
with Lam, Zhang, and Jacob’s (2005) study on ‘Grey’ companies, Vogel found that few firms
were consistently responsible or irresponsible across all of their business operations. Vogel
concludes on the idea that managers should try to act more responsibly, but not because the
market will reward their business or punish their less responsible competitors. The following
empirical studies by Mikolajek-Gocejna (2016) and Nizamuddin (2018) showcase the impact
of Corporate Social Responsibility initiatives and programs on corporate financial
performance, while utilizing data from 53 studies and results obtained from 16,119
companies. Mikolajek-Gocejna focuses her research on Socially Responsible Investments
(SRI), and whether it pays for organizations to concern themselves with social responsibility,
and whether there are any trade-offs to sustainable investing. Her conclusion is that the
relationship between CSR and corporate financial performance is a positive one. Upon
analysis of the 16,119 companies in this study, the result was that 81.1% of the analyzed
companies had data supporting that CSR pays -- that there is a positive correlation between
CSR and corporate financial performance. Additionally, only 3.1% of the companies
analyzed presented results that CSR costs -- that there is a negative correlation between CSR
33
and corporate financial performance. One of the limitations of this study may be the
measurement of CSR; it has history of being a subjective variable used to compare to 10
objective measures of financial performance. Nizamuddin (2018) focused his research on an
examination of the various approaches used in a number of empirical studies for measuring
Corporate Social Responsibility and Corporate Financial Performance to discover
measurement challenges and alternative methods of measurement. Nizamuddin notes that the
difficulties related to measuring CSR can be focused on the fact that CSR is a non-financial
variable that is sought out to be quantified in financial performance. Further, in many
countries, CSR reporting is not mandatory but voluntary. Nizamuddin concluded that all
approaches to CSR performance measures are biased when used to investigate the
relationship between CSR and financial performance. One way to remove this bias would be
to implement mandatory disclosure of CSR programs and information. This research also
breaks down the use of CSR into unidimensional and multidimensional measures.
Unidimensional measures have been used in many empirical studies; multidimensional
measures have been in employed in reputation indices, questionnaire-based surveys, and
content analysis. Ultimately each measurement is limited due to the researcher’s subjectivity
and bias in selecting variables for CSR and selecting companies to analyze. The explicit
disclosure of Corporate Social Responsibility programs and initiatives began internationally,
before being established in the United States. Therefore, there has been extensive research
conducted on the relationship between socially responsible firms and economic or financial
results. Jain, Keneley, and Thomson (2015) expand on international research on Corporate
Social Responsibility by evaluating the extent of CSR reporting by banks in Japan, China,
Australia, and India. During the 11 seven-year period from 2005 to 2011, there was no
legislative requirement for CSR reporting in these Asia-Pacific countries, but the extent of
reporting in each of these countries increased over time, indicating a growing voluntary
commitment to CSR activities. Despite concluding that CSR reporting had increased in
international nations, the motives did not seem to be economic but rather based on strategic
incentives. The European Commission, the governing body of the European Union (EU)
responsible for proposing legislation, implementing decisions, and upholding the EU treaties,
has published their position on Corporate Social Responsibility throughout the European
Union. The European Commission (2017) states that CSR is important to the interest of
enterprises by providing benefits to companies in risk management, cost savings, access to
capital, customer relations, HR management, and ability to innovate. Additionally, CSR is
important for the EU economy, as CSR makes companies more sustainable and innovative,
34
which contributes to a more sustainable economy. The EU has also created their own agenda
for action to support CSR, which includes improving and tracking levels of trust in
businesses, enhancing market rewards for CSR, as well as better aligning European and
global approaches to CSR. It is evident by the European Union’s program to implement
better Corporate Social Responsibility initiatives that they believe that support of CSR action
could improve the economy of the union as a whole, as well as businesses, as demonstrated
by their enhancement of market rewards for CSR. To the EU, social responsibility does not
seem to be definitively a social program, but also a matter of financial and economic
integration. The European CSR Awards were launched in 2012, funded by the European 12
Commission, to deliver the European CSR Award Scheme for Partnership, Innovation, and
Impact. These awards are designed to give higher visibility to CSR excellence and raise
global awareness on the positive impact that business can have on society, bring the best
European CSR multi-stakeholder projects into focus, enhance the exchange of CSR best
practice across Europe, encourage CSR collaboration between enterprises and stakeholders,
and finally, create innovative solutions to tackle sustainability issues. In light of the European
CSR Award Scheme, it is evident that the European Union believes in the benefits of CSR
not only on society, but also in the economy, and dedicated itself to awarding those
businesses and projects that have succeeded in bringing CSR into their trade. From a business
and economic standpoint, winning such an award could bring attention to those business
recognized in each accolade category. That could bring a new group of consumers and
investors to their business. For this reason, the European Union has succeeded in showing
their support for Corporate Social Responsibility, as well as attempting to shed light and
success onto those businesses who have taken the CSR initiative and integrated it into their
business plan. Marsat and Williams (2011) performed empirical research internationally on
the relationship between CSR and market firm valuation, where they distinguish between the
financial benefits resulting from ethical behavior and the possible competitive disadvantages
that can result when taking externalities into account. Their study separates their empirical
observations and results by industry, year, and region, which allows them to further refine
their results based on international expectations. Their results conclude that there is a
negative relationship between CSR performance and 13 firm value, as the market considers
the costs of CSR programs to exceed the benefits received, though this may not be reflected
in the equity asset valuation process.
Cheit, 1964; Heald, 1970; Ackermann & Bauer, 1976; Carroll, 1979: In recent years the
business strategy field has experienced the renaissance of corporate social responsibility
35
(CSR) as a major topic of interest. The concept has not surfaced for the first time. CSR had
already known considerable interest in the 1960s and 70s, spawning a broad range of
scholarly contributions (Cheit, 1964; Heald, 1970; Ackermann & Bauer, 1976; Carroll,
1979), and a veritable industry of social auditors and consultants. However, the topic all but
vanished from most managers' minds in the 1980s (Dierkes&Antal, 1986; Vogel, 1986).
Having blossomed in the 1970s CSR all but vanished and only re-emerged in recent years.
CSR resurfaced forcefully over the past ten years in response to mounting public concern
about globalization. Firms find themselves held responsible for human rights abuses by their
suppliers in developing countries; interest groups demand corporate governance to be
transparent and accountable; rioters from Seattle to Genoa protest violently against the cost of
free trade and other perceived negative consequences of globalization. However, nearly two
decades of neglect have helped to undo much of the past achievements of corporate social
responsibility. It is thus no surprise that both practitioners and scholars are struggling once
again to answer the question what the strategic implications of CSR are. The literature on
CSR and innovation draws on a number of different theoretical traditions, which often are in
contradiction to each other. Wood (1991) describes three levels of analysis: institutional,
individual, and organizational. We add to this analysis a fourth level which we will
characterize as global.

Davis (1973): describes the iron law of responsibility, as the fact that firms exercising power
will eventually be held accountable by society. At this level CSR can be best understood as a
quest for organizational legitimacy. Firms are under the obligation not to abuse the power
invested on them by society or they risk losing society's implicit endorsement. More recently
this view point has resurfaced as a firm's need to retain it's "license to operate" (Post, Preston,
& Sachs, 2002: 21).

Ackermann (1975): At the individual level, CSR has been constructed by Ackermann (1975)
as managerial discretion. According to this view managerial actions are not fully defined by
corporate policies and procedures. So although managers are constrained by their work
environment they nonetheless have to weigh the moral consequences of the choices they
make. The view of CSR is strongly anchored in the business ethics literature (Jones, 1991;
Donaldson &Dunfee, 1994; Crane &Matten, 2003).

36
Freeman's (1984): With Freeman's (1984) seminal book the focus moved from legitimacy and
morals towards a new theory of the firm. Social considerations are thus no longer outside an
organization but are part of its purpose of being. CSR thus becomes a question of stakeholder
identification, involvement, and communication (Mitchell, Agle, & Wood,
1997; Morsing& Beckmann, 2006; Morsing& Schultz, 2006).
"The purpose of stakeholder management was to devise a framework to manage strategically
the myriad groups that influenced, directly and indirectly, the ability of a firm to achieve its
objectives." (Freeman &Velamuri, 2006)
The aim of stakeholder management is thus to analyze how a company can serve its
customers and be lucrative while also serving its other stakeholders such as suppliers,
employees, and communities. Recently the stakeholder perspective has dominated the
reinterpretation of CSR pushing the question of the legitimacy of corporate power as well as
the moral dimension of managerial decisions more into the background.
Brundtland Commission (1987): The latest literature tradition to have impacted our
understanding of corporate social responsibility is that of sustainable development. It was the
Brundtland Commission (1987) that for the first time systematically emphasized the link
between poverty, environmental degradation, and economic development. Its definition of
sustainable development, as meeting the needs of the present, without compromising the
ability of future generations to meet theirs, extends the responsibility of firms both inter- and
intra-generationally. Thus firms are expected to also consider traditionally unrepresented
stakeholders such as the environment and as well as future generations. Although many CSR
authors have taken up the notion of a "triple bottom line" (Elkington, 1997) there remain
important tensions between the CSR and the sustainable development debate (i.e.
Dyllick&Hockerts, 2002).
Eric von Hippel (1979; 1986; 2001): has introduced the notion of (lead) user-driven
innovation to describe the ability of user communities to initiate and develop exceedingly
complex products sometimes even without any specific manufacturer involvement. He
speculates that the power and pervasiveness of such communities could become enormously
amplified by the Internet's capacity to support collaboration and distribution. While
incremental user innovation has been known for many years it is the question whether users
can also drive radical innovations that is most debated (Lettl&Gemiinden,
2005; Lettl, Herstatt, &Gemuenden, 2006).
Empirical research has studied user innovation in so disparate sectors as the medical sector
(Shaw, 1985), the sports industry (Shah, 2000; Luthje, 2002; Franke& Shah, 2003; Hienerth,
37
2004, 2006), and software development (von Hippel, 2001; Franke&Hippel, 2003; von
Krogh, Spaeth, &Lakhani, 2003).
Franke& Shah, 2003: Recent research has focused on what commercial firms can do to
motivate and capture such innovations and their related benefits. Learning and innovation
efforts from which a firm may benefit need not necessarily be located within the
organization, but may well reside in the consumer environment (Franke& Shah, 2003). These
learning processes can, however, be structured, motivated, and partly organized by a
commercial firm by organizing the infrastructure for consumers' interactive learning activities
(Jeppesen&Molin, 2003; Jeppesen, 2005; Baldwin, Hienerth, & von Hippel, 2006; Hienerth,
2006). But user-driven innovation does not only benefit firms. It also creates public goods as
well as specific benefits for the involved users (Harhoff, Henkel, & von Hippel, 2003; Henkel
&Hippel, 2004). Since 2005 the Danish Government has made support of "user-driven
innovation" a national priority, launching a particular program to build the abilities of Danish
companies to change on user generated knowledge. IT company Intel provides an example of
user-driven innovation in the 1990's with the launch of two in-house departments
implementing concrete product innovations and long-term strategic implications directly
derived from user-obtained knowledge.
Bruyat&Julien, 2000: For a long time research of entrepreneurship has been part of either
economic research or business strategy research. It is only over the past two decades that
entrepreneurship has emerged as its own field of research. It is thus not very surprising that
the exact definition and focus of this field is still debated among its members (Bruyat&Julien,
2000; Shane &Venkataraman, 2000; Low, 2001; Ucbasaran, Westhead, & Wright, 2001).
Stevenson &Gumpert, 1985: For this report entrepreneurship shall be defined as the
discovery and profitable exploitation of (so-far unrealised) opportunities to create new
competitive space by generating market disequilibria (Stevenson &Gumpert, 1985; Drucker,
1986; Shane &Venkataraman, 2000). An entrepreneurial opportunity allows the generation of
entrepreneurial profits. However, as Schumpeter (1962 [1934]: 133) explains, this profit is
only temporary. Once an entrepreneurial venture has been successful, other market players
are likely to follow the example, thereby competing away the entrepreneurial profit. At this
point most entrepreneurial enterprises become just another optimizing firm, unless they can
identify a new entrepreneurial opportunity and exploit it.

38
2.5. CSR And Innovation:
Literature bringing together CSR and innovation has emerged gradually over the past decade.
One interpretation of "social innovation" can refer to improvements in the CSR process.
Examples could be improved social reporting tools or CSR management systems. In this
review we do, however, not consider these kinds of improvements and instead focus mainly
on product related social innovation. In the following we will discuss some of the main
themes standing out from literature. Broadly speaking there are two schools of thought: The
first line of publications deals with innovations aiming at social improvements (i.e. health,
education, community development). Here the term social innovation can refer to product
innovations with a social purpose. A subgroup of these types of innovations concerns "Base
of the Pyramid" thinking. Social innovation is also used to refer to the process of starting and
improving social enterprises. A second group of authors put environmental innovation at the
heart of their work. These literature contributions have coalesced around the theme of eco-
innovation, which more recently has spawned the discipline of clean-technology venturing.
Rosabeth Moss Kanter (1999: 125): The term "corporate social innovation" was first
introduced by Rosabeth Moss Kanter (1999: 125) who argues that firms should use social
issues as a learning laboratory for identifying unmet needs and for developing solutions that
create new markets. She describes, for example, BankBoston's effort in setting up a
Community Bank, which has eventually evolved into a new market for the bank. Similarly
Bell Atlantic has equipped schools with HDSL computers, in the processing learning a lot
about how to use and market this new technology. The term corporate social innovation is
increasingly taken up by practitioners. Patrick Cescau CEO of Unilever for example defines
corporate social innovation as a way of "finding new products and services that meet not only
the functional needs of consumers for tasty food or clean clothes but also their wider
aspirations as citizens."(cited in Webb, 2007) However, as pointed out by Hockerts (2008),
most firms remain focused on CSR as a tool to reduce risks and operational cost. In his study
of twelve multinationals he finds that only firms with very high social performance rankings
think about CSR as a means to drive product innovation. He proposes that corporate social
innovation requires the creation of knowledge structures that result from investments in
corporate social performance. Examples for such scripts could be CSR management and
communication tools (i.e. Kuhndt, Tunger, &Liedtke, 2003; Seuring, 2004; Beske, Koplin,
&Seuring, 2006; Burritt &Saka, 2006; Morsing, 2006; Perrini, 2006b; Von Hauff&Kleine,

39
2006; Vallentin, 2007) that in turn can initiate corporate learning processes
(Miiller&Siebenhiiner, 2005).

Prahalad and Hart (1999): An important subtheme of corporate social innovation is the focus
on low-income markets. Prahalad and Hart (1999) talk in this context of the potential of the
bottom or base of the pyramid (BOP). The BOP premise is that by focusing on the unmet
needs of low-income populations firms can create profitable markets while also helping the
poor address some of their most urgent needs (Christensen, Craig, & Hart, 2001; Prahalad&
Hammond, 2002; Prahalad& Hart, 2002). Prahalad's most notable assumption is that BOP
markets have to pay a "poverty premium"(Prahalad& Hammond, 2002: 8). This means that
many poor have to pay more for products and services such as food, water, medication,
credit, or telecommunication, than their middle or upper class compatriots. By using BOP
thinking MNCs are believed to better target their design as well as improve the distribution so
as to bring down the poverty premium. The Mexican cement manufacturer Cemex launched
an initative that enable low-income rural Mexican households to by the cement to build a
house. The purchase includes low-weekly payments and consultation and inspections from
Cemex architects. The initiative allows a great deal of flexibility and assistance to the poor,
who would not have been able to construct a house at traditionally fluctuating market prices.

Boschee, 1995; Henton, Melville, &Walesh, 1997: The concept of social entrepreneurship
has emerged in the late 1990s in the U.S. (Boschee, 1995; Henton, Melville, &Walesh, 1997;
Bornstein, 1998; Dees, 1998b, a; Brinckerhoff, 2000; Dees, Emerson, & Economy, 2001a, b;
Drayton, 2002), and the UK (Leadbeater, 1997; Warwick, 1997; Zadek&Thake, 1997; SSE,
2002). However, it has only recently reached the acacedmic debate (Haugh, 2006; Light,
2006; Mair& Marti, 2006; Mair, Robinson, &Hockerts, 2006; Perrini, 2006a; Hockerts, 2007;
Robinson, Blockson, & Robinson, 2007).

Hockerts, 2007: 422: According to Hockerts it describes "the discovery and sustainable
exploitation of opportunities to create public goods" (Hockerts, 2007: 422). This is usually
done through the generation of disequilibria in market and non-market environments. Social
Entrepreneurship can in some cases lead to the creation of social enterprises. These social
ventures are hybrid organizations exhibiting characteristics of both the for-profit and not-for
profit sector. Successful examples of social innovation often originate from social enterprises
and firms thus can learn a lot from the NGO or voluntary sector (Hockerts, 2003).
40
SustainAbility is an example of a value-driven for-profit organization specializing in
sustainable business models. The company consults MNCs like Coca Cola, Ford, Nestle and
Nike in implementing sustainable business strategies.

Hockerts, 1999, 2003: The notion that sustainable development drives disruptive innovations
has come quite naturally to the sustainability debate (Hockerts, 1999, 2003). Sustainability
innovations (also called eco-innovations, eco-design, eco-preneurship, or cleantechnology
venturing) have been proposed as a source for "environmentally benign growth" (Dyllick,
1994: 60), as a "breakthrough discipline for innovation" (Fussler, 1996), as a "source of
creative destruction" (Hart & Milstein, 1999: 23), as well as the beginning of the "next
industrialrevolution" (Braungart& McDonough, 1998: 82; Lovins, Lovins, &Hawken, 1999:
1; Senge&Carstedt, 2001: 24), or a source for "the great leap downward" (Christensen, Craig,
& Hart, 2001: 92). From this has emerged a large number of publications advancing
management tools for furthering the creation of new markets through environmental
innovation (Fussler, 1996; McDonough &Braungart, 2002b, a; Randelovic, O'Rourke,
&Orsato, 2003; Wustenhagen, 2003; Kolk&Pinkse, 2004; Cohen, Smith, & Mitchell, 2008).
Bowen, 1953:Scholars started introducing the concept of social responsibilities of
businessmen (Bowen, 1953). By using the social contract theory and the legitimacy theory,
they subscribed to the position that business has responsibilities towards society.
Milton Friedman (1970) argued that the responsibility of corporations is “to conduct the
business in accord with [shareholders’] desires, which generally will be to make as much
money as possible while conforming to the basic rules of the society, both those embodied in
law and those embodied in ethical custom.”
Votaw (1973) stated it right when he said that “corporate social responsibility means
something, but not always the same thing to everybody”.
Ackermann (1975) view CSR as a managerial discretion. According to this view managerial
actions are not fully defined by corporate policies and procedures. So although managers are
constrained by their work environment they nonetheless have to weigh the moral
consequences of the choices they make.

Carroll (1979) offered the first strong conceptual model that comprehensively described the
fundamental aspects of what he calls ‘corporate social performance’ (CSP). He suggested a
model of corporate social performance (CSP), with (1) a basic definition of CSR, (2) an

41
overview of the social issues for which a firms have a social responsibility, and (3) a
specification of the philosophy of response.

Freeman’ s (1984) “ Strategic Management: A Stakeholder Approach”. With this new

stakeholder approach the question changedinto“ towardswhom should business be social
responsible?” . Freeman (1984)introduced the stakeholder theory to create a new way of
thinking about the essence ofa corporation. The essential question for Freeman (1994) is for
whose benefit andwhose expense the firm should be managed. He include
suppliers,customers, employees, stockholders, and the local community as well as
managementin its role as agents for these groups”.

Brundtland Commission (1987) define CSR as a meeting the needs of the present, without
compromising the ability offuture generations to meet theirs, extends the responsibility of
firms both inter- and intra-generationally.

(Business Week 1999, from Orlitzky, Schmidt &Rynes, 2003). Or as Bowman &Haire (1975)
stated: “Does responsible activity come, net, out of the stockholder’ s pocket?”

Margolis & Walsh, 2003; Campbell, 2006; Basu& Palazzo, 2008. According to them, most
previous theories were very much based on the content of CSR and its activities. This critique
was formulated from two different perspectives: the institutional theory of CSR.

Vogel (2005) considers the nature of CSR and evaluates the evidence on its effects as well as
its Potential. He (p. 2) defines CSR, or business virtue, as “practices that improve the
workplace and benefit society in ways that go above and beyond what companies are legally
required to do.”

Campbell (2006) states that much of the literature on CSR has been too descriptive or
normative, and instead should have focused more on the external mechanisms that influence
whether corporations behave in a social responsible way or not, such as the presence of
strong and well-regulated state regulations and the presence of a system of well-organized
and effective industrial self-regulation.
Khunpolkaew, C. (2007) classified the CSR in two categories: CSR in process and CSR after
process. CSR in process practices means CSR activities that occur within the organization or
42
within processes of the organization and CSR after process practices means CSR activities
that separate from business process or occur afterwards. In other words, CSR after process
practices are performed as additional activities voluntarily.

Gray et al (2007:789) indicate that a business that accepts Corporate Social Responsibility
will be prepared to be responsible for and willing to justify its actions. It will also consider
the impact of its actions on a variety of individuals and groups, both inside and outside the
organization.

Geva, 2008:the great bulk of empirical research on CSR contributions has focused on the
relationship between the social and the financial performance of business corporations”

Hockerts (2008), for example, finds that most firms conceptualize CSR primarily as a tool to
reduce risks and operational cost. Only a minority of firms is actually using CSR as a means
to drive innovation.

2.6. Research Gap:

Corporate social responsibility (CSR) is a concept that has gained prominence and importance in both
academia and industry in recent years. However, the relationship between CSR and firm financial
performance (FFP) remains unclear and inconclusive. An effort has been made to study the impact of
CSR on Financial performance of the business firms.

43
 CHAPTER – III
OBJECTIVES AND RESEARCH METHODOLOGY

3.1. Objectives of the Study:

The following objectives are the objectives of the study:
1. To examine the impact of corporate social responsibility on firms’ financial
performance with the mediating role of competitive advantage, corporate image and
customer satisfaction.
2. To give valuable suggestions for the policymakers of business firms to integrate CSR
into core operations as a strategy to gain financial benefits.

3.2. Hypotheses of the Study:

The following hypotheses were tested to achieve the above objectives of the study:
H01: There is no significant impact of corporate social responsibility on the financial
performance of firms.
H02a: There is no significant impact of corporate social responsibility on customer
satisfaction.
H02b: There is no significant impact of corporate social responsibility on corporate image.
H02c: There is no significant impact of corporate social responsibility on competitive
advantage.
H03a: There is no significant impact of customer satisfaction on the financial performance of
firms.
H03b: There is no significant impact of corporate image on the financial performance of firms.
H03c: There is no significant impact of competitive advantage on the financial performance of
firms.
H04: There is no mediating effect of customer satisfaction between corporate social
responsibility and the financial performance of firms.
H05: There is no mediating effect of corporate image between corporate social responsibility
and the financial performance of firms.
H06: There is no mediating effect of competitive advantage between corporate social
responsibility and the financial performance of firms.

44
3.3. Conceptual Framework:
Considering the above stated hypotheses, following conceptual framework was prepared:

Customer
Satisfaction

Corporate
Image
Ethical
Responsibilities

Firms’ Financial
Economic Corporate Social
Responsibilities Performance
Responsibility
Legal
Responsibilities

Discretionary
Responsibilities

Competitive
Advantage

Figure 1: Conceptual Framework

3.4. Research Methodology:

The present study is based on a survey of Indian manufacturing companies, who have
adopted CSR practices and are listed on the Bombay Stock Exchange (BSE). These
companies are indulged in manufacturing goods for consumers. A structured questionnaire
was developed based on a seven-point Likert’s scale that was divided into five sections:
Corporate Social Responsibility, Customer Satisfaction, Corporate Image, Competitive
Advantage and Financial Performance. The questionnaire was sent through mails to the
respondents with the help of google forms. For the purpose of this study, the questionnaire
was addressed to the companies’ senior managers, the members of the board of directors of
the CSR committee and persons in charge of the social responsibility issues. The details, such
as email IDs and contact numbers of the respondents were gathered from the respective sites
of the targeted companies. The questionnaire was forwarded to 224 respondents, wherein
only 182 effective responses were received representing the sample of the study. The

45
questionnaire was framed using a seven-point Likert’s Scale, whereby ‘7’ indicates ‘strongly
agree’ and ‘1’ indicates ‘strongly disagree’.

3.4.1. Measurements of Constructs:

Independent Variable:
Corporate Social Responsibility: The Carroll’s model is adopted for the measurement of
CSR to carry out the present study (Carroll, 1979, 1991). The model was also later on
validated by the other authors (Galbreath & Shum, 2012; Maignan & Ferrel, 1999) in their
studies. Carroll’s Corporate Social Responsibility Pyramid establishes four kinds of social
responsibilities that constitute total CSR viz. economic responsibilities, legal responsibilities,
ethical responsibilities and discretionary responsibilities. The questions based on the seven-
point Likert Scale were asked from the respondents relating to the four parameters of CSR.
The four parameters of Carroll’s model are defined as under:
1. Economic Responsibilities: The business entity significantly contributes to the
economic development of the country. The main goal of every business organization is to
earn profits; therefore, every business entity is expected to satisfy customers’ demands
and earn adequate profits. Business firms are required to earn enough profits in order to
discharge their other essential social responsibilities towards the shareholders and the
stakeholders.

2. Legal Responsibilities: Besides economic responsibilities, business firms are expected

and required to obey their legal responsibilities by complying with the laws and
regulations made by the government. Therefore, while producing goods and services,
business firms must fulfill minimum legal requirements.

3. Ethical Responsibilities: Although, Economic and Legal Responsibilities are considered

as primary concerns of any business entity, but exercising fair practices towards the
stakeholders, including employees, shareholders and customers of the organizations,
cannot be overlooked. It is therefore expected from the business entities to obey ethical
duties towards all their stakeholders as well. Ethical responsibilities are voluntary
initiatives that a firm implements, as it believes that it is a morally correct thing to do
rather than because it is obligated to do so. It is possible that ethical responsibilities are

46
 not binding as per law, but it enhances the possibility of acceptance of various norms,
practices and activities by the business entities.

4. Discretionary Responsibilities: It is the duty of the business firms to promote social

activities whether it is mandatory as per law or not. Such discretionary power of business
firms doing social welfare would lead to the adoption of ethics and good practices. If an
organization is obeying the practice of Corporate Social Responsibility, whether it is
mandatory or voluntary, it indicates that the organization is leading towards the stage of
good Corporate Citizenship.
The figure below represents the CSR Pyramid developed by Carroll giving a brief overview
of four social responsibilities that constitute CSR:

Be a good global
corporate citizen Do what global
stakeholders desire
Philanthropic
responsibility
Do what global
Be ethical
stakeholders expect
Ethical responsibility

Obey the law Do what global

Legal responsibility stakeholders require

Be profitable Do what global

Economic responsibility
capitalism requires

Figure 2: Carroll’s Corporate Social Responsibility Pyramid

Source: Carroll, 1979, 1999, 2004 and Raczkowski , Sulkowski, & Fizalkowska, 2016, p. 132

Intermediate Variables:
Consistent with the literature and following the research of Saeidi, Sofian, Saeidi, Saeidi, and
Saaeidi (2015), the three constructs have been taken as mediating variables for this study,
namely customer satisfaction, corporate image and competitive advantage.
Customer Satisfaction: It is a major component of improving the financial performance of
firms. Customers get satisfied when a firm produces goods and services according to their
expectations. In the present study, indicators for measuring customer satisfaction were

47
adopted from Garaihy, Mobarak, and Albahussain (2014), which were originally taken from
Oliver and Swan (1989) and Ping (1993).
Corporate Image: Companies that participate in CSR practices are able to attract a big
number of clients because they establish a corporate image by fulfilling their social duties.
For measuring corporate image, the study has used the reputation scale, which is developed
by Weiss, Anderson, and MacInnis (1999).
Competitive Advantage: Participation in CSR activities enables the businesses to be in a
favourable or superior business position that results in providing a competitive advantage to
the firms. Based on the past studies (Garaihy, Mobarak, & Albahussain, 2014; Koufteros,
Vonderembse, & Doll, 2002; Tracey, Vonderembse, & Lim, 1999), the present study has
identified four aspects boosting competitive advantage. These four aspects are termed as
product innovation, price as well as the cost of goods, quality and time to market.

Dependent Variable:
Financial Performance: For the present study, financial performance has been taken as the
dependent variable that was measured using Balanced Scorecard (BSC) methodology. The
methodology was developed by Robert Kaplan and David Norton in 1992, wherein business
performance can be measured from four perspectives: customer perspective, internal business
perspective, innovation and learning perspective and financial perspective of businesses. The
present study chooses the financial perspective of the Balanced Scorecard Methodology for
measuring the financial performance of business entities. The respondents were given a
questionnaire carrying the seven-point Likert Scale, which includes questions relating to
growth in sales, market share, net profit and return on equity. The questions were asked in
such a way that the respondents can compare their own financial performance with that of
competitors and then answer the questions on a seven-point Likert scale, whereby ‘7’
indicates ‘strongly agree’ and ‘1’ indicates ‘strongly disagree’.

48
 CHAPTER – IV
DATA ANALYSIS AND INTERPRETATION

4.1. Structural Equation Modeling:

Since the study required multiple regression technique for analyzing the association between
CSR and financial performance of firms, along with three mediating variables, therefore, to
test the hypotheses of the study, Structural Equation Modeling was applied. This technique
primarily involves the application of factor analysis to identify the factors to be considered in
the study and thereafter, multiple regression analysis is used. The main purpose of applying
the Structural Equation Model is to analyze the structural relationship between measured
variables and latent constructs.
The proposed hypotheses of the study were tested using the Partial Least Squares – Structural
Equation Modeling (PLS-SEM) technique, which involves the examination of the
measurement model as well as the structural model. The measurement model helps in
estimating the reliability and validity of the constructs, whereas the structural model
establishes the association between the variables present in the study.

4.1.1. Measurement Model:

The measurement model was run in SMART PLS to assess the reliability and validity of the
constructs. The factor loadings of all the variables in the model were above the prescribed
value of 0.70, therefore all the items were retained in the questionnaire. The reliability was
assessed with the help of Cronbach’s alpha, rho_a and composite reliability, the values of
which are over and above the minimum threshold of 0.7 (Sarstedt, Ringle, & Hair, 2017),
hence proving the internal consistency among the variables of the constructs. Also, the values
of rho_a are between the Cronbach’s alpha and composite reliability (Sarstedt, Ringle, &
Hair, 2017), indicating good reliability. The criterion for adequate convergent validity was
met, as Average Variance Extracted (AVE) values for all the constructs were more than 0.50.
(see Table 1)

49
 Table 1: Item loadings, reliability and convergent validity
Item
α rho_A CR AVE
loadings
Corporate Social Responsibility
Economic Responsibilities 0.905 0.911 0.933 0.778
EC1 0.885
EC2 0.853
EC3 0.899
EC4 0.890
Legal Responsibilities 0.857 0.875 0.902 0.698
L1 0.837
L2 0.875
L3 0.812
L4 0.816
Ethical Responsibilities 0.830 0.844 0.899 0.748
ET1 0.905
ET2 0.781
ET3 0.903
Discretionary Responsibilities 0.897 0.903 0.928 0.763
D1 0.896
D2 0.845
D3 0.873
D4 0.879
Customer Satisfaction 0.885 0.887 0.929 0.814
CS1 0.897
CS2 0.939
CS3 0.869
Corporate Image 0.885 0.902 0.920 0.743
CI1 0.873
CI2 0.878
CI3 0.891
CI4 0.804
Competitive Advantage 0.817 0.818 0.891 0.732
C CA1 0.846
CA2 0.858
CA3 0.863
Financial Performance 0.934 0.936 0.953 0.835
FP1 0.894
FP2 0.935

50
 FP3 0.903
FP4 0.922

The discriminant validity also showed favourable results as square roots of AVE estimates of
constructs are greater than the inter-construct correlations (Sarstedt, Ringle, & Hair, 2017)
(Table 2). The discriminant validity was also assessed using the heterotrait-monotrait ratio of
correlations, the values of which must be less than the conservative threshold of 0.85
(Henseler, Ringle, & Sarstedt, 2015) (Table 3).
Table 2: Discriminant validity (Fornell and Larcker Criterion)
CA CI CS D EC ET FP L
CA 0.856
CI 0.541 0.862
CS 0.314 0.301 0.902
D 0.247 0.310 0.421 0.873
EC 0.318 0.365 0.444 0.544 0.882
ET 0.238 0.382 0.299 0.515 0.459 0.865
FP 0.547 0.602 0.499 0.266 0.454 0.324 0.914
L 0.295 0.287 0.271 0.495 0.331 0.370 0.238 0.835
Abbreviations: CA = Competitive Advantage, CI = Corporate Image, CS = Customer
Satisfaction, D = Discretionary Responsibility, EC = Economic Responsibility, ET = Ethical
Responsibility, FP = Financial Performance, L = Legal Responsibility

Table 3: Discriminant validity (Heterotrait-Monotrait (HTMT) Ratio of Correlations)

CA CI CS D EC ET FP L
CA
CI 0.629
CS 0.370 0.331
D 0.284 0.337 0.474
EC 0.366 0.400 0.494 0.600
ET 0.291 0.434 0.347 0.597 0.537
FP 0.624 0.652 0.548 0.287 0.491 0.365
L 0.345 0.310 0.302 0.562 0.368 0.433 0.260
Abbreviations: CA = Competitive Advantage, CI = Corporate Image, CS = Customer
Satisfaction, D = Discretionary Responsibility, EC = Economic Responsibility, ET = Ethical
Responsibility, FP = Financial Performance, L = Legal Responsibility.

51
The figure below represents the measurement model assessed using SmartPLS software:

Figure 3: Measurement Model

4.1.2. Structural Model:

The structural model was assessed followed by the favourable results obtained in the
measurement model. The impact of the independent variable (CSR) on the dependent
variable (Financial Performance), along with mediating variables (Customer Satisfaction,
Corporate Image and Competitive Advantage), was measured with the help of the structural
model in PLS-SEM. The values of R2 revealed the coefficient of determination that explained
the variance in the dependent variable due to the independent variables. The R 2 measures the
explanatory power of the model, with higher values of R2 indicating the greater explanatory
power of the model (Sarstedt, Ringle, & Hair, 2017). Table 4 represents the values of R2 of
the endogenous variables, which are more than 0.1 in every case, hence the explanatory
power of the model is established (see Table 4).
Table 4: Values of R2
R Square
CS 0.326
CI 0.273
CA 0.200
FP 0.593
Abbreviations: CS = Customer Satisfaction, CI = Corporate Image, CA = Competitive
Advantage, FP = Financial Performance.
52
In order to test the formulated hypotheses, the procedure of mediation developed by Baron
and Kenny was used (Baron & Kenny, 1986). For establishing mediation, they suggested four
steps: First, there must be a significant direct relation of the independent variable on the
dependent variable. Second, a significant relationship between the independent variable and
mediating variable is required. Third, there must be a significant relation of mediating
variable on the dependent variable. Fourth, to establish that the mediating variable completely
mediates the relationship, the effect of the independent variable on the dependent variable
should be no longer significant.
In accordance with the four steps developed by Baron and Kenny, hypothesis one was tested
and the results showed a positive significant relation of CSR on firms’ financial performance
(β = 0.506, t = 5.740, p < .001). This rejects the null hypothesis (H01), proving that
contribution to CSR practices by the business firms enhances their financial performance.
It is also analyzed that there is a significant positive relation of Corporate Social
Responsibility with the mediating variables and of the mediating variables with firm’s
performance (see Table 5).
The hypothesis (H02a) was tested to measure the effect of CSR on customer satisfaction. The
results showed that the participation in CSR practices significantly influence the customer
satisfaction (β = 0.571, t = 7.543, p < .001).
The hypothesis (H02b) was tested to measure the effect of CSR on corporate image. The
results showed that the participation in CSR practices significantly influence the corporate
image (β = 0.522, t = 5.810, p < .001).
The hypothesis (H02c) was tested to measure the effect of CSR on competitive advantage. The
results showed that the participation in CSR practices significantly influence the competitive
advantage (β = 0.448, t = 4.685, p < .001).
The hypothesis (H03a) was tested to measure the effect of customer satisfaction on financial
performance of business firms. The results showed that the customer satisfaction significantly
influences the financial performance (β = 0.321, t = 4.282 p < .001).
The hypothesis (H03b) was tested to measure the effect of corporate image on financial
performance of business firms. The results showed that the corporate image significantly
influences the financial performance (β = 0.380, t = 3.854 p < .001).
The hypothesis (H03c) was tested to measure the effect of competitive advantage on financial
performance of business firms. The results showed that the competitive advantage
significantly influences the financial performance (β = 0.267, t = 2.246 p = 0.025).

53
 Table 5: Direct Relationships
Relationship β SD t-value p-values Hypotheses
CSR -> FP 0.506 0.088 5.740 0.000 H01 rejected
CSR -> CS 0.571 0.076 7.543 0.000 H02a rejected
CSR -> CI 0.522 0.090 5.810 0.000 H02b rejected
CSR -> CA 0.448 0.096 4.685 0.000 H02c rejected
CS -> FP 0.321 0.075 4.282 0.000 H03a rejected
CI -> FP 0.380 0.099 3.854 0.000 H03b rejected
CA -> FP 0.267 0.119 2.246 0.025 H03c rejected
Abbreviations: CSR = Corporate Social Responsibility, CS = Customer Satisfaction, CI =
Corporate Image, CA = Competitive Advantage, FP = Financial Performance.

4.1.2.1. Mediation Analysis:

The mediation effect was determined by analyzing the indirect effects of each of the
mediating variables between the independent variable and the dependent variable. The results
showed that all the three mediating variables, i.e. customer satisfaction, corporate image and
competitive advantage mediate the relationship between CSR and financial performance (see
Table 6)

Table 6: Mediation results

Total effect (CSR->FP) Direct effect (CSR->FP) Indirect effects of CSR on FP
Coefficient p-value Coefficient p-value Coefficient SD T Values p-value
0.502 0.000 0.001 0.992 CSR -> CS -> FP 0.184 0.053 3.460 0.001
CSR -> CI -> FP 0.199 0.067 2.960 0.003
CSR -> CA -> FP 0.119 0.060 2.001 0.046

Abbreviations: CSR = Corporate Social Responsibility, CS = Customer Satisfaction, CI =

Corporate Image, CA = Competitive Advantage, FP = Financial Performance.

The fourth hypothesis (H04) was tested to measure the mediating effect of customer
satisfaction between CSR and the financial performance of business firms. Participation in
CSR practices influences the customer satisfaction leading to increase in sales and profits of
the firms (β = 0.184, t = 3.460, p = 0.001).
The fifth hypothesis (H05) states that there is no mediating effect of corporate image between
CSR and financial performance of firms, which was rejected, indicating that the corporate
image acts as a mediating factor between CSR and firms’ financial performance. This implies

54
that the corporate image of a firm is being influenced by the contribution in CSR that
ultimately enhances the firm’s performance (β = 0.199, t = 2.960, p = 0.003).
At last, the sixth hypothesis (H06) was tested and it was concluded that competitive advantage
also acts as a mediating role between CSR and the financial performance of the firms (β =
0.119, t = 2.001, p = 0.046).
Further, it was seen that after mediation, there exists no significant relationship between
Corporate Social Responsibility and the firm’s financial performance (β = 0.001, t = 0.010, p
= 0.992). It reveals that customer satisfaction, corporate image and competitive advantage
fully mediate the relationship of CSR with the firm’s financial performance.

The figure below shows the structural model which was assessed using SmartPLS software:

Figure 4: Structural Equation Model

55
 4.1.3. Hypotheses Testing:
Table 7: Hypotheses Results
S.No. Hypotheses Direct Indirect Results H0
Effect Effects Accepted/Rejected
H01 There is no significant impact of
Significant
corporate social responsibility on the 0.000 - Rejected
Impact
financial performance of firms
H02a There is no significant impact of
Significant
corporate social responsibility on 0.000 - Rejected
Impact
customer satisfaction
H02b There is no significant impact of
Significant
corporate social responsibility on 0.000 - Rejected
Impact
corporate image
H02c There is no significant impact of
Significant
corporate social responsibility on 0.000 - Rejected
Impact
competitive advantage
H03a There is no significant impact of
Significant
customer satisfaction on the financial 0.000 - Rejected
Impact
performance of firms
H03b There is no significant impact of
Significant
corporate image on the financial 0.000 - Rejected
Impact
performance of firms
H03c There is no significant impact of
Significant
competitive advantage on the financial 0.025 - Rejected
Impact
performance of firms
H04 There is no mediating effect of customer
satisfaction between corporate social Significant
- 0.001 Rejected
responsibility and the financial Impact
performance of firms
H05 There is no mediating effect of the
corporate image between corporate Significant
- 0.003 Rejected
social responsibility and the financial Impact
performance of firms
H06 There is no mediating effect of
competitive advantage between Significant
- 0.046 Rejected
corporate social responsibility and the Impact
financial performance of firms

56
 CHAPTER – V
CONCLUSION AND SUGGESTIONS

5.1. Challenges and Solutions:

Challenges:
Corporate social responsibility (CSR) is the organization’s efforts to enhance the
socioeconomic welfare over and above its profit-making motives. CSR can have an impact on
firm financial performance (FFP) through various mechanisms, such as productivity,
reputation, advertising, competition, and internal control. However, CSR also faces many
issues and challenges in its implementation, especially in a developing country like India.
Some of the major issues and challenges of CSR implementation in India are as under along
with some possible solutions.
 One of the issues and challenges of CSR implementation in India is the lack of clarity
and consensus on the definition, scope, and measurement of CSR. The Companies
Act 2013 mandates that certain companies spend at least 2% of their average net
profits on CSR activities in every financial year. However, the Act does not provide a
clear and comprehensive list of what constitutes CSR activities, leaving it to the
discretion of the companies and their boards. This creates confusion and inconsistency
among the companies and their stakeholders on what counts as CSR and how to report
it. Moreover, there is no uniform and standardized framework for measuring and
evaluating the impact and outcomes of CSR activities on the society and the
environment. Different companies may use different indicators, methods, and tools to
assess their CSR performance, making it difficult to compare and benchmark them.
 Another issue and challenge of CSR implementation in India is the lack of awareness
and participation of the community and other stakeholders in CSR initiatives. Many
companies tend to adopt a top-down approach to CSR, where they design and
implement CSR programs without consulting or involving the beneficiaries or the
local communities. This may result in mismatched expectations, ineffective delivery,
or unintended consequences of CSR interventions. For example, a company may
build a school or a hospital in a rural area without considering the availability of
teachers, doctors, or other resources. Moreover, many stakeholders, such as
customers, employees, suppliers, regulators, media, and civil society organizations,

57
 are not well informed or engaged in the CSR activities of the companies. This may
limit their feedback, support, or oversight of the CSR performance of the companies.
 A third issue and challenge of CSR implementation in India is the lack of capacity
and quality of the implementing agencies or partners. Many companies outsource
their CSR activities to non-governmental organizations (NGOs) or other
intermediaries who have expertise and experience in working with the target groups
or issues. However, there is a wide variation in the capacity and quality of these
agencies or partners in terms of their governance, management, accountability,
transparency, and impact. Some NGOs may lack adequate resources, skills, or
professionalism to execute CSR projects effectively and efficiently. Some NGOs may
also have ulterior motives or vested interests that may compromise their integrity or
credibility. Furthermore, there is a lack of coordination and collaboration among the
various agencies or partners involved in CSR activities, leading to duplication,
fragmentation, or wastage of efforts and resources.
Solutions:
Some possible solutions to address these issues and challenges are:
 Developing a clear and comprehensive definition and framework for CSR that covers
its objectives, principles, scope, activities, indicators, reporting standards, and
evaluation methods. This can help create a common understanding and language
among the companies and their stakeholders on what constitutes CSR and how to
measure it.
 Enhancing the awareness and participation of the community and other stakeholders
in CSR initiatives by conducting stakeholder analysis, consultation, communication,
education, feedback mechanisms, grievance redressal systems etc. This can help
ensure that CSR programs are aligned with the needs and aspirations of the
beneficiaries and that they have ownership and involvement in their implementation.
 Strengthening the capacity and quality of the implementing agencies or partners by
conducting due diligence, monitoring, evaluation, auditing etc. This can help ensure
that they have adequate resources, skills, and professionalism to deliver CSR projects
effectively and efficiently and that they are accountable and transparent to the
companies and the society.
 Fostering coordination and collaboration among the various agencies or partners
involved in CSR activities by creating platforms, networks, or alliances that can
facilitate information sharing, learning, or joint action. This can help avoid
58
 duplication, fragmentation, or wastage of efforts and resources and enhance synergy
and impact.
 There is no doubt that CSR is a concept that has gained prominence and importance in
India in recent years. However, it also faces many issues and challenges in its
implementation, such as lack of clarity, consensus, awareness, participation, capacity,
and quality. These issues and challenges can be addressed by developing a clear and
comprehensive framework for CSR, enhancing stakeholder engagement,
strengthening implementing agency capacity and quality, and fostering coordination
and collaboration among partners. By doing so, CSR can become a more effective and
meaningful tool for creating value for both shareholders and stakeholders.
5.2. Suggestions for the policymakers of business firms to integrate CSR
into core operations as a strategy to gain financial benefits:
The study proves that socially responsible entities are able to gain financial benefits. Hence,
policymakers of every business firm must integrate CSR practices into the core operations of
businesses that may act as a strategy to gain financial benefits. Participation in CSR activities
enables the business entities to motivate the stakeholders resulting in the improvement in
their performance at work. A motivated worker works diligently and leads the organization
towards profit-making organization. The companies who fulfill their social responsibility
towards society are in a state to earn their trust and confidence, as satisfied workers would
perform their duties diligently and efficiently resulting in cost reduction and improvement in
quality of products and services; satisfied clients would make repeated purchases from the
companies resulting in enhancement of sales and profits and prudent investors would provide
capital at economical rates leading to a diminished cost of capital. Apart from these benefits,
the CSR contributory companies get respect and admiration from the customers, which
provide a competitive advantage to the business firms. It has been observed that consumers
are willing to pay more for companies that are socially responsible. The numerous benefits
availed of by contributing to CSR activities stimulate the policymakers of business firms to
consider CSR as a voluntary activity rather than just discharging legal obligations.
The policymakers of the business entities must make strategies to give opportunities to
employees to volunteer the CSR activities on behalf of the organizations. This will make
them feel motivated and satisfied resulting in increased productivity. Active involvement of
employees in the organization always yields favourable results, as the more they are engaged
in an organization, the more productive they will be.

59
Active participation in CSR activities helps in building the brand image of organizations, as
consumers are attracted to buy products and services from companies that are serving for the
welfare of the community. Hence, it must be considered as an opportunity, which must be
grasped by publicizing the CSR initiatives in the organization. Letting the public know the
good deeds of an organization will increase the brand’s public image, as customers are more
loyal towards the organizations that are socially responsible.
It must be noted that CSR is a win-win situation. The contribution in CSR is no more to be
treated as an option, rather be integrated into core operations as a strategy to gain internal
benefits (such as engagement of employees and improvement in productivity) as well as
external benefits (such as improvement in sales, augmentation of customer loyalty and brand
awareness).
5.3. Conclusion:
The study concludes that in order to survive in a competitive business world, performing
social responsibilities by the business entities becomes essential. It is realized that the sole
purpose of business organizations is not only to earn profits, but to be socially responsible
owing to the duty towards society.
Considering the overall impact of participation in CSR activities on the financial performance
of firms, it could be observed that the companies are getting benefitted by performing their
social responsibilities, as they are gaining customers’ trust by building a brand image of the
organization. When a firm is able to perform its corporate social responsibility effectively by
reducing its cost of operations, contributing to the welfare of its employees, improving
corporate image and developing innovative products and resources, then it can achieve a
competitive advantage, thereby improving the financial performance of firms.
The present study proves that socially responsible firms are able to achieve a competitive
advantage, brand loyalty of the customers, corporate image and customer satisfaction. All the
three mediating variables, i.e., customer satisfaction, corporate image and competitive
advantage ultimately enhance the financial performance of the firms. Considering the
numerous benefits of CSR, strategic managers of the organizations are required to make CSR
a long-term business strategy so as to ensure enhanced profits and wealth of the shareholders.
CSR practices must be treated as one of the essential functions which will influence the long-
term profitability of the organization.

60
 BIBLIOGRAPHY

Abernathy, W. J., & Clark, K. B. 1985. Innovation: Mapping the Winds of Creative
Destruction. Research Policy, 14: 3-22.
Ackermann, R., & Bauer, R. 1976. Corporate Social Performance: The Modern Dilemma.
Reston: Reston Publishing Co.
Amit, R., Brander, J., &Zott, C. 2000. Venture Capital Financing of Entrepreneurship:
Theory, Empirical Evidence and Research Agenda. In D. L. Sexton, & H. Landstrom
(Eds.), Blackwell handbook of entrepreneurship: 259-281. Abingdon: Blackwell.
Antoncic, B., &Hisrich, R. D. 2001. Intrapreneurship: Construct Refinement and Cross-
Cultural Validation. Journal of Business Venturing, 16: 495-528.
Baden, D. (2016). A reconstruction of Carroll's pyramid of corporate social responsibility for
the 21st century. International Journal of Corporate Social Responsibility, 1(8), 2-15.
https://doi.org/10.1186/s40991-016-0008-2
Baldwin, C., Hienerth, C., & von Hippel, E. 2006. How user innovations become commercial
products: A theoretical investigation and case study. ResearchPolicy, 35: 1291-1313.
Baron, R., & Kenny, D. (1986). The moderator-mediator variable distinction in social
psychological research: Conceptual, strategic and statistical considerations. Journal of
Personality and Social Psychology, 51(6), 1173-1182. https://doi.org/10.1037/0022-
3514.51.6.1173
Beske, P., Koplin, J., &Seuring, S. 2006. The use of environmental and social standards by
German first-tier suppliers of the Volkswagen AG.Corporate Social Responsibility
and Environmental Management.
Blum-Kusterer, M., &Hussain, S. S. 2001. Innovation and Corporate Sustainability: An
Investigation into the Process of Change in the Pharmaceuticals Industry. Business
Strategy and the Environment, 10: 300-316.
Bornstein, D. 1998. Changing the World on a Shoestring.The Atlantic Monthly, 281: 3439.
Boschee, J. 1995. Social Entrepreneurship.Across the Board, 32: 20-24.
Bower, J. L., & Christensen, C. M. 1995. Disruptive technologies : catching the wave.
Harvard Business Review, 73: 43-53.
Boxenbaum, E. 2004.INSTITUTIONAL INNOVATION: The emergence of a proto-institution.
Paper presented at the DRUID summer conference 2004 on INDUSTRIAL

61
 DYNAMICS, INNOVATION AND DEVELOPMENT, June 1416, 2004, Elsignore,
Denmark.
Braungart, M., & McDonough, W. 1998.The next industrial revolution.The Atlantic
Monthly, 1998: 82-92.
Brinckerhoff, P. C. 2000. Social Entrepreneurship : The Art of Mission-Based Venture
Development. New York: John Wiley & Sons.
Brown, H., de Jong, M., &Lessidrenska, T. 2007.The Rise of the Global Reporting Initiative
(GRI) as a Case of Institutional Entrepreneurship.Boston: Harvard Business SChool.
Brundtland Commission. 1987. Our Common Future. Brussels: World Commission on
Environment and Development.
Bruyat, C., &Julien, P.-A. 2000. Defining the Field of Research in Entrepreneurship. Journal
of Business Venturing, 16: 165-180.
Burgelman, R. A. 1983. A Process Model of Internal Corporate Venturing in the Diversified
Major Firm.Administrative Science Quarterly, 28: 223-244.
Burritt, R., &Saka, C. 2006. Environmental management accounting applications and eco-
efficiency: case studies from Japan. Journal of Cleaner Production, 14:
1262-1275.
Camilleri, M.A. (2017). Corporate sustainability and responsibility: creating value for
business, society and the environment. Asian Journal of Sustainability and Social
Responsibility, 16(1), 59-74, DOI 10.1186/s41180-017-0016-5
Carroll, A. (1979). A three-dimensional conceptual model of corporate performance.
Academy of Management Review, 4(4), 497-505. https://doi.org/10.2307/257850
Carroll, A. B. (1983). Corporate social responsibility: Will industry respond to cutbacks in
social program funding? Vital Speeches of the Day, 49(19), 604-608.
Carroll, A. (1991). The pyramid of corporate social responsibility: Toward the moral
management of organizational stakeholders. Business Horizons, 34(4), 39-48.
https://doi.org/10.1016/0007-6813(91)90005-G
Carroll, A. B. (2004). Managing ethically with global stakeholders: A present and future
challenge. Academy of Management Executive, 18(2), 114-120.
https://doi.org/10.5465/ame.2004.13836269
Ceglinski, P. and Wisniewska, A. (2017). CSR as a Source of Competitive Advantage: The
Case Study of Polpharma Group. Journal of Corporate Responsibility and
Leadership, 3(4), 57-70. DOI: 10.12775/JCRL.2016.020

62
Cheit, E. F. 1964. Why Managers Cultivate Social Responsibility. California Management
Review, 7: 3-22.
Christensen, C. M. 1997.The Innovators Dilemma, When New Technologies Cause Great
Firms to Fail. Boston: Harvard Business Press.
Christensen, C. M., Craig, T., & Hart, S. L. 2001.The Great Disruption.Foreign
Affairs,
80: 80-95.
Christensen, C. M., &Overdorf, M. 2000. Meeting the Challenge of Disruptive
Change.Harvard Business Review, 79: 66-76.
Cohen, B., Smith, B., & Mitchell, R. 2008. Toward a sustainable conceptualization of
dependent variables in entrepreneurship research.Business Strategy and the
Environment, 17: 107-119.
Crane, A., &Matten, D. 2003. Business Ethics: A European Perspective. Oxford: Oxford
University Press.
Dees, J. G. 1998a. Enterprising Nonprofits.Harvard Business Review, 76: 54-66.
Dees, J. G. 1998b. The Meaning of Social Entrepreneurship.Website published on 31
October 1998.
Dees, J. G., Emerson, J., & Economy, P. 2001a.Enterprising Nonprofits: A Toolkit for Social
Entrepreneurs. New York: John Wiley & Sons.
Dees, J. G., Emerson, J., & Economy, P. 2001b.Strategic Tools for Social
Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit. New
York: John Wiley & Sons.
Dierkes, M., &Antal, A. B. 1986. Whither Corporate Social Reporting: Is It Time to
Legislate? California Management Review, 28: 106-121.
DiMaggio, P. 1988. Interest and agency in institutional theory. In L. Zucker (Ed.),
Institutional Patterns and Organizations: Culture and Environment: 3-21.
Cambridge, MA: Ballinger.
Donaldson, T., &Dunfee, T. 1994. Toward a Unified Conception of Business Ethics:
Integrative Social Contracts Theory.The Academy of Management Review, 19:
252-284.
Dorado, S. 2005. Institutional Entrepreneurship, Partaking, and Convening.Organization
Studies, 26: 385.
Drayton, W. 2002. The Citizen Sector: Becoming as Entrepreneurial and Competitive as
Business. California Management Review, 44: 120-132.
63
 Drucker, P. F. 1986. Innovation and Entrepreneurship.New York: Harper Business.
Dyllick, T. 1994. UmweltvertraglichesWachstumdurch Innovation.PolitischeStudien,
45: 60-69.
Dyllick, T. 1999. Environment and competitiveness of companies.In D. Hitchens, J. Clausen,
& K. Fichter (Eds.), International Environmental Management Benchmarks.Berlin:
Springer.
Dyllick, T., &Hockerts, K. 2002.Beyond the business case for corporate
sustainability.Business Strategy and the Environment, 11: 130-141.
Elkington, J. 1997. Cannibals With Forks: The Triple Bottom Line of 21st Century Business.
Oxford: Capstone.
Etzion, D., & Ferraro, F. 2006. Institutional entrepreneurship through voluntary standard
setting: The case of the global reporting initiative. 22nd EGOS Colloquium, July
2006.
Fernandez, M. (2015). Social responsibility and financial performance: The role of good
corporate governance. Business Research Quarterly, 19(2), 137-151.
https://doi.org/10.1016/j.brq.2015.08.001
Ferrell, O. (2004). Business ethics and customer stakeholders. Academy of Management
Executive, 18(2), 126-129. https://doi.org/10.5465/ame.2004.13836176
Freeman, R.E. (1984). Strategic Management: A stakeholder approach, Boston:
Pitman.
Galbreath, J., & Shum, P. (2012). Do customer satisfaction and reputation mediate the CSR-
FP link? Evidence from Australia. Australian Journal of Management, 37(2), 211-
229. https://doi.org/10.1177%2F0312896211432941
Gandhi, M, & Kaushik, N. (2016). Socially responsive consumption behaviour - an Indian
perspective. Social Responsibility Journal, 12(1), 85-102.
https://doi.org/10.1108/SRJ-08-2014-0110
Garaihy, W., Mobarak, A., & Albahussain, S. (2014). Measuring the impact of corporate
social responsibility practices on competitive advantage: A mediating role of
reputation and customer satisfaction. International Journal of Business and
Management, 9(5), 109-124. https://doi.org/10.5539/ijbm.v9n5p109
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing
discriminant validity in variance-based structural equation modeling. Journal of the
Academy of Marketing Science, 43, 115-135. https://doi.org/10.1007/s11747-014-
0403-8
64
 Khadka, K. &Maharjan, S. (2017). Customer Satisfaction and Customer Loyalty. [Degree
Program Thesis, Centria University of Applied Sciences],
https://core.ac.uk/download/pdf/161421179.pdf
Kim, S. B., & Kim, D. Y. (2016). The impacts of corporate social responsibility, service
quality, and transparency on relationship quality and customer loyalty in the hotel
industry. Asian Journal of Sustainability and Social Responsibility, 1, 39-55.
https://doi.org/10.1186/s41180-016-0004-1
Koufteros, X., Vonderembse, M., & Doll, W. (2002). Examining the competitive capabilities
of manufacturing firms. Structural Equation Modeling, 9(2), 256-282.
https://doi.org/10.1207/S15328007SEM0902_6
Lee, D. H., Kim, C. J, & Jin, C. H. (2015). The role of CSR activities on building corporate
image and customer loyalty. Journal of International Trade & Commerce, 11(6), 67-
91. https://doi.org/10.16980/JITC.11.6.201512.67
Madariaga, J., & Rivera, F. (2017). Corporate social responsibility, customer satisfaction,
corporate reputation, and firm's market value: Evidence from the automobile industry.
Spanish Journal of Marketing, 21(S1), 39-53.
https://doi.org/10.1016/j.sjme.2017.05.003
Madueno, J., Jorge, M., Conesa, I., & Martinez, D. (2016). Relationship between corporate
social responsibility and competitive performance in Spanish SMEs: Empirical
evidence from a stakeholders' perspective. Business Research Quarterly, 19(1), 55-72.
https://doi.org/10.1016/j.brq.2015.06.002
Maignan, I., & Ferrel, O. (1999). Corporate citizenship: Cultural antecedents and business
benefits. Journal of the Academy of Marketing Science, 27(4), 455-469.
https://doi.org/10.1177/0092070399274005
Oliver, R., & Swan, J. (1989). Consumer perceptions of interpersonal equity and satisfaction
in transactions: A field survey approach. Journal of Marketing, 53(2), 21-35.
https://doi.org/10.2307/1251411
Pérez, A. and Rodríguez del Bosque, I. (2015). Corporate social responsibility and customer
loyalty: Exploring the role of identification, satisfaction and type of company. Journal
of Services Marketing, 29(1), 15-25. https://doi.org/10.1108/JSM-10-2013-0272
Ping Jr, R. A. (1993). The effects of satisfaction and structural constraints on retailer exiting,
voice, loyalty, opportunism, and neglect. Journal of Retailing, 69(3), 320-352.
https://doi.org/10.1016/0022-4359(93)90010-G

65
Raczkowski , K., Sulkowski, L., & Fizalkowska, J. (2016). Comparative critical review of
corporate social responsibility business management models. International Journal of
Contemporary Management, 15(2), 123-150.
https://doi.org/10.4467/24498939IJCM.16.014.5554
Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role
of good corporate governance. Business Research Quarterly, 19(2), 137-151.
https://doi.org/10.1016/j.brq.2015.08.001
Saeidi, S., Sofian, S., Saeidi, P., Saeidi, S., & Saaeidi, S. (2015). How does Corporate Social
Responsibility contribute to firm financial performamce? The mediating role of
competitive advantage, reputation, and customer satisfaction. Journal of Business
Research, 68(2), 341-350. https://doi.org/10.1016/j.jbusres.2014.06.024
Sarstedt, M., Ringle, C.M., and Hair, J. (2017). Partial Least Squares Structural Equation
Modeling. Handbook of Market Research. Springer Publications.
Tracey, M., Vonderembse, M., & Lim, J. (1999). Manufacturing technology and strategy
formulation: Keys to enhancing competitiveness and improving performance. Journal
of Operations Management, 17(4), 411-428. https://doi.org/10.1016/S0272-
6963(98)00045-X
UNIDO (n.d.). What is CSR? Retrieved from unido.org: https://www.unido.org/our-
focus/advancing-economic-competitiveness/competitive-trade-capacities-and-
corporate-responsibility/corporate-social-responsibility-market-integration/what-csr
Walsh, G., & Bartikowski, B. (2012). Exploring corporate ability and social responsibility
associations as antecedents of customer satisfaction cross-culturally. Journal of
Business Research, 66(8), 989-995. https://doi.org/10.1016/j.jbusres.2011.12.022
Weiss, A. M., Anderson, E., & MacInnis, D. J. (1999). Reputation management as a
motivation for sales structure decisions. Journal of Marketing, 63(4), 74-89.
https://doi.org/10.1177/002224299906300407

66
 Appendix:

QUESTIONNAIRE:
This questionnaire is a part of research study, which aims to study the impact of CSR on the
financial performance of business firms. The responses will be used for the research purpose
only.

1. Name of the organisation: ………………………………………….

2. Details for organization:

 Kind of Organisation (Private or Public) : ………………………..

 Whether the organization exceeds any of the following specified limits?

S.No. YES/NO
1. Net worth of Rs. 500 Crore or more, or

2. Turnover of Rs. 1,000 Crore or more, or

3. Net profit of Rs. 5 Crore or more; during the

immediately preceding financial year.

 Whether your organisation makes contribution in CSR activities compulsorily

or voluntarily? …………………………
(If yes, then please answer to the questions given as under).

Please tick any of the options given below according to the extent of your agreement and
disagreement with the statement (Note: 7 = Strongly Agree, 6 = Agree, 5 = Somewhat
Agree, 4 = Neither Agree nor Disagree, 3 = Somewhat Disagree, 2 = Disagree, 1 =
Strongly Disagree.

S.No. 7 6 5 4 3 2 1
I. CORPORATE SOCIAL RESPONSIBILITY

LEGAL
1. The products of your company satisfy
legal standards
2. The directors in your company are
instructed about applicable
environmental laws
3. Your company obey all laws concerning
hiring and employee benefits
4. The contractual agreements are always
respected in your company

67
 ETHICAL
1. Your company makes sure that your
business practices do not have a
negative impact on society or the
environment
2. Your company ensures a good working
environment for employees, e.g. profit-
sharing, good working conditions,
training, etc
3. Your company adopts fair trading and
marketing policies and deals honestly
with customers and suppliers
ECONOMIC
1. The productivity of employees is
closely monitored by your
organization
2. The profits in your business have been
successfully maximized
3. The quality of products is successfully
enhanced in your organization
4. Your company makes great efforts to
lower the operating costs
DISCRETIONARY
1. Your company values and often
participates in charitable activities
2. Your organization provides free
services/products to needy people
3. Your company assists voluntarily
projects that enhance a community’s
quality of life
4. Your organization offers more
competitive salaries than any other
industry

II. CUSTOMER SATISFACTION

1. Your company satisfies the customers
by meeting their expectations for
quality of products and services
2. Your company is able to meet out the
demands of customers for products and
services
3. Your company is in a state to meet out
the expectations of the customers

68
 III. CORPORATE IMAGE
1. Your company is seen by customers as
being a very professional organization
2. Your firm is viewed by customers as
one that is successful
3. Your firm’s reputation is highly
regarded
4. Customers view your firm as one that is
stable and well established

IV. COMPETITIVE ADVANTAGE

1. Your firm provides better quality
products or services than other
organizations
2. The prices of your products or services
are low as compared to your
competitors
3. Your firm is considered as a market
leader by customers

V. FINANCIAL PERFORMANCE
1. Contribution in CSR activities helps
enhance sales growth
2. Participation in CSR practices enables
market share growth
3. Contribution in CSR activities enhances
net profit growth
4. Contribution in CSR activities helps in
increasing return on equity

69