An examination of linkages between corporate social responsibility and firm performance: Evidence from Moroccan listed firms/Revisi
| Autor | Kammoun, Souhaila |
| Cargo | Research article |
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Introduction
Over recent years, the issue of corporate social responsibility (CSR) has become an indispensable preoccupation parallel to focusing on profitability enhancement. Henceforth, in addition to their economic responsibility, today's companies acknowledge social and environmental responsibilities (Taleb, 2013; Lin, Lin., Chang & Dang, 2015; Lin, Pi-Hsia., De-Wai & Lai, 2018; Meseguer-Sánchez, Abad-Segura, Belmonte-Ureña & Molina-Moreno, 2020). In this line of thinking, a new approach emerges, stipulating that social responsibility creates added value. Following this approach, a great deal of research has been conducted to explore the relationship between corporate social responsibility and the Financial Performance (FP) such as Freeman (1984), Cornell and Shapiro (1987); Becchetti (2007); Waworuntu, Wantah and Rusmanto (2014); Nollet, Filis and Mitrokostas (2016); Rodriguez-Fernandez (2016); Maqbool and Zameer (2018); Kammoun, Loukil and Ben Romdhane (2020a); Kammoun, Loukil, Ben Romdhane and Ibenrissoul (2020b). This paper addresses the following question: What is the nature of the relationship between CSR and firm performance in developing countries where CSR is still evolving? To put it another way, can CSR have an effect on Moroccan firms' financial performance and does financial performance help improve social behavior in business?
The motivation for this research arises from the mixed results of a growing number of empirical studies which examine the relation between CSR and FP. A thorough literature review reveals that the issue of the relationship between CSR and FP was generally addressed in one way. Even though some studies explain the effect of CSR on FP or the opposite direction, empirical studies investigating the relationship through the direction of causality remain limited. To help address the linkage between the two concepts, further research on the underpinnings of the complexity of this relationship is needed, especially since CSR and FP are both multidimensional concepts and there is a wide variety of ways to measure the two concepts and the association between them (Kooskora, Juottonen & Cundiff, 2019).
The overarching purpose of this paper is to explain the complex relationship between CSR and firm performance in Morocco through a bidirectional sense of causality and to investigate the main underlying factors behind this association.
The choice is mainly justified by the following reasons. First, the study focuses on the relationship between CSR and FP in different industries, which is quite unique. Second, while the majority of empirical studies focus on developed countries, this paper proposes broadening the scope of the study to a developing country such as Morocco, especially since the Moroccan government is on the verge of obliging all companies to devote part of their profits to social responsibility. Given the recent engagement of Moroccan companies in CSR, we suggest measuring the firm's performance through turnover, operational profit and return on equity. Theoretically, the more the firm is performing the higher turnover and profits it will achieve. Third, the complex relationship between CSR and firm performance was evaluated through a unidirectional impact but for a better understanding of this linkage and to assess reverse causality, we suggest a bidirectional impact.
Using data surveyed from 74 Moroccan firms and a causal business model, we study the impact of firm performance on the improvement of social performance and the impact of CSR strategies on firm performance. We find consistent evidence that firms making more extensive investment in social commitment are more profitable and profitable firms are socially responsible. We prove the positive bidirectional linkage between CSR and firm performance. Important implications for government and decision makers are extracted. We suggest setting up tax and social incentives in favor of firms so they will be encouraged to be more socially committed.
The remaining part of the paper is structured as follows: in the second section, we present a review of the literature on the relationship between CSR and FP in order to formulate the hypotheses underlying our research question. The third section outlines the dataset and the research methodology to examine the relationship between CSR and firm performance in both directions. The fourth section depicts the main findings and sets out managerial implications. The last section concludes and suggests directions for further research.
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Theoretical background
This section gives an overview of the concepts of CSR and financial performance, sets out the key empirical findings on the connection between the two concepts and outlines the main reasons for the inconclusiveness of the relationship between CSR and FP.
2.1 Concept of CSR
The issue of CSR has attracted the interest of researchers and practitioners alike. Admittedly, the concept of CSR is a fairly old concept whose foundations come from philanthropic practices in companies over a century old. Moreover, deficits in social and environmental responsibility have been put forward as a solution to a system in crisis. Thus, CSR has become one of the standard business practices and consequently, one of the major concerns of financial actors. In his book, Bowen (1953) explains the religious roots of CSR and brings about great evolution of the concept both theoretically and conceptually. In this respect, the Islamic financial system with its moral and ethical foundations is nowadays, presented as reliable and concrete innovation in order to remedy the various hazards that disrupt the current economy and to ensure financial stability in harmony with the characteristics of CSR (Williamson, Lynch-Wood & Ramsay, 2006; Al Baali, 2008; Al Haïti, 2009; Alsairfi, 2007; Al-Zahi, 1998). Indeed, Islamic finance has strong interactions with the theme of Social Responsibility, as it aims to promote the well-being of all human beings. It also emphasizes the need to preserve resources and the environment for present and future generations. Thus, it is based on more sustainable moral and ethical principles since the entrepreneur is not only guided by profit maximization, but above all by the realization of human welfare. In this sense, we recognise that the entrepreneur has social responsibilities towards all stakeholders, namely: consumers, employees, shareholders and civil society (Ayyash, 2010).
Despite growing academic research on CSR to develop a theoretical framework, there is still no common definition of what CSR is (McWilliams & Siegel, 2001; Dahlsrud, 2008) and how it is composed. In his study, Dahlsrud (2008) states 37 definitions of CSR and defines CSR as the integration of social and envi-ronmental preoccupations in a firm's activities and its interactions with all stakeholders voluntarily (Carrigan & Attala, 2001; Anselmsson & Johansson, 2007). Although CSR has been widely analysed by several researchers with sometimes different or other times similar points of view, the issue is still ongoing (Bayoud, Kavanagh & Slaughter, 2012; Aguinis & Glavas, 2012; Asatryan & Brezinová, 2014; Wahba & Elsayed, 2015; Jitaree, 2015; Croker & Barnes, 2016; Jamali & Charlotte, 2018; Maqbool & Zameer, 2018). According to Dahlsrud (2008), the confusion is not so much related to the divergence of definitions as to the way CSR is socially constructed in a specific context. From this point of view, some researchers argue that CSR differs across countries (Frynas & Yamahaki, 2016), activity sectors (Colombo, Guerci & Miandar, 2017) or firm size (Spence, Frynas, Muthuri & Navare, 2018). Notwithstanding, this lack of consensus, diverse research papers have aimed to understand the various elements that influence CSR and examining the financial impacts of socially responsible activities.
2.2 Association between CSR and FP
The concepts of CSR and FP are crucial for the long-term success and sustainability of a business. Accordingly, the relationship between CSR and FP has gained substantial interest in literature and still continues to draw the attention of scholars and practitioners alike. Although many studies have investigated the relationship between CSR and FP, no consistent conclusion has been drawn from empirical evidence, showing positive, negative and no links (Galant & Cadez, 2017; Feng, Chen & Tang, 2018; Mouatassim-Lahmini, 2018; Broadstock, Meyer & Tzeremes, 2019). In the following overview, we provide a brief summary of background literature on the links between the two concepts. Herein, we briefly outline the main findings from three schools of thought.
The first school of thought argues that CSR offers a competitive advantage, which results in an improvement in a firm's brand image and therefore, its financial condition (Cornell & Shapiro, 1987; Margolis, Elfenbein & Walsh, 2009; Famiyeh, 2017; Galant & Cadez, 2017). For instance, Simionescu and Gherghina (2014) and Waworuntu et al. (2014) found a positive relationship between CSR and FP and confirmed that CSR engagement improves firm performance. Additionally, Rodriguez-Fernandez (2016) analysed the two-way relationship between CSR and FP in Spanish companies and found positive relationships in both directions. The study concludes that the existence of the components of social behaviour in corporate policies should be mandatory to ensure significant profitability. The second school of thought found that corporate social actions have costs that negatively influence their profits (Friedman, 1970; Wright & Ferris, 1997; Peng & Yang, 2014; Nollet et al., 2016). To put it in other terms, investing resources in CSR activities (charity, ecofriendly equipment, pollution control, etc.) involves costs which will deteriorate firm performance (Maqbool & Zameer, 2018). The third group of researchers found no significant association between CSR and FP (So loman & Hansen, 1985; Nelling & Webb...
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