Influence of Corporate Digital Responsibility on Financial Performance: The Mediating Role of Firm Reputation

Abstract

This study examines the mediating role of firm reputation in the relationship between corporate digital responsibility (CDR) and financial performance in an emerging market, Ethiopia. An online cross-sectional survey was used to collect data from 126 agricultural, manufacturing, and service firms. The study used partial least squares structural equation modeling (PLS-SEM) to analyze the hypothesized relationship. Our findings reveal that the impact of CDR on financial performance is indirect only as firm reputation plays a full, complementary mediation role in the CDR—financial performance nexus. This implies that firms could leverage CDR as a competitive “inducing” strategy to enhance their firm reputation, which, in turn, can boost their financial prospects. Our study significantly contributes to the business ethics and digital economy literature by offering a pioneering empirical validation of the CDR phenomenon in an emerging context, thus extending the signaling and stakeholder theories to digitalization and reputation management domains. The findings offer managers fresh insight into the potential impact of a CDR strategy on firm reputation and financial performance, showing that firms can leverage CDR as a loss prevention strategy to gain a competitive advantage. Policymakers are therefore urged to promote soft-law regimes and policies on CDR to motivate companies to leverage it as a competitive tool.