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The influence of firm size on the relationship between corporate social responsibility and firm performance

Bachelor thesis research by Anna Sotiriadis

 

Anna Sotiriadis is currently doing her bachelor Bedrijfseconomie at Tilburg School of Economics and Management, and wrote her bachelor thesis in the area of corporate social responsibility.

Businesses from all industries and of all sizes engage in corporate social responsibility (CSR) activities, each moved by their own motivations. Although the rise in popularity of CSR is to some extent due to governmental regulation, expectations have shifted towards a view in which businesses do not solely aim at huge economical turnovers and large societal influence, but also at using their resources and influence responsibly (Jenkins, 2006). It is argued that CSR can be used as a strategy to attain a better reputation amongst customers, causing the firm’s overall performance to increase. For the small and medium enterprises, researchers do not particularly agree on whether CSR would be harmful or should be seen as a competitive advantage. Hence, the problem statement of this bachelor thesis is: “What effect does firm size have on the relationship between corporate social responsibility and firm performance?”

Scientists have managed to reach consensus (to a large extent) on using corporate social performance (CSP) as a construct for CSR. Motivations driving the CSR efforts are left out of the equation and only the outcomes and impacts of CSR efforts on different parts of society are measured and taken into account. Although some studies have found a negative or no relation between CSP and corporate financial performance, meta-analyses from Orlitzky (2001), Griffin & Mahon, (1997), and Peloza (2009) found a positive, albeit modest, relationship meaning that CSR improves firm financial performance.

Since CSR implementation could require organizational restructuring and reallocation of resources, operating on a large scale with larger budgets can be seen as an advantage (Van de Ven & Jeurissen, 2005). Another structural difference is that large firms have well-defined objectives, goals and procedures. Because of the clear strategic vision generally present in the large firm – as opposed to the more “going along mentality” for the smaller firms – the use of resources is planned. Consequently, large firms such as multinational corporations find themselves in a better situation to implement CSR activities and can expect better outcomes. In addition, large firms have better means to communicate their “virtuous” behaviour. As Lewis (2003) pointed out, customer awareness of a firm’s CSR efforts has a positive effect on its financial performance. This can be attributed to consumers, suppliers, shareholders and other parties favouring a company that does “good” over its competitors that does not extend to such efforts.

Considering these organizational differences and theoretical arguments posed, one can expect that large firms are in a more favourable position than their counterparts when it comes to successfully implementing CSR policy. Therefore, the positively moderating effect of firm size on the relationship between corporate social responsibility efforts and firm financial performance can be assumed.

Griffin, J.J. & Mahon, F.F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business & Society, 36(1), 5-31.

Jenkins, H. (2006). Small business champions for corporate social responsibility. Journal of Business Ethics (67), 241-256.

Lewis, S. (2003). Reputation and corporate social responsibility. Journal of Communication Management, 7(4), 356-366.

Orlitzky, M. (2001). Does firm size confound the relationship between corporate social performance and firm financial performance? Journal of Business Ethics, 33, 167-180.

Peloza, J. (2009). The challenge of measuring financial impacts from investments in corporate social performance. Journal of Management, 35(6), 1518-1541.

Van de Ven, B. & Jeurissen, R. (2005). Competing responsibly. Business Ethics Quarterly, 15(2), 299- 317.