Providing Value to SMEs and Their Stakeholders Through Corporate Social Responsibility Initiatives: An Abstract

Abstract

The business case for CSR refers to “the arguments or rationales supporting or documenting why the business community should accept and advance the CSR ‘cause’” (Carroll & Shabana, 2010, p.86). The business case yet has “neither been made nor discredited” (Barnett, 2007, p.795) despite extensive research. Although numerous studies report evidence that a firm’s CSR action may positively affect some dimension of its competitiveness, the results do not provide substantive evidence for a clear link between CSR actions and firm competitiveness. This research aspires to further examine this relationship by focusing on small and medium enterprises recognizing SMEs’ collective importance for every country’s economy and their underrepresentation in CSR research; CSR research has traditionally been associated with large companies, but SMEs operate with different characteristics, processes, and functions than larger firms. We attempt to shift the question from if CSR works (i.e., contributes to firm competitiveness) to when it works. The central hypothesis of this paper is that when stakeholder demands and CSR actions are aligned, then these actions will offer more to the firm’s performance than an ad hoc chosen CSR action would. We conceptualize this by arguing that the importance (salience) of a given stakeholder will positively moderate the relationship between the CSR action(s) addressing this stakeholder and firm competitiveness. Through a quantitative survey of 140 SMEs, we test for the link between CSR actions and financial performance and also how the affected stakeholder’s salience moderates this relationship. We find and report conclusive evidence that CSR actions lead to financial performance of SMEs, albeit not all actions equally: a number of regression models were estimated, where the dependent variable was competitiveness, and the independent variable was CSR performance while the models also addressed the moderating role of stakeholder salience (the cumulative sum of power, urgency, and legitimacy) and, separately, that of proximity. This study can help policy makers and practitioners to improve and reconsider their efforts to facilitate SME CSR participation. Educating SMEs on the potential business benefits from CSR and encouraging them to shift their choice of CSR strategy from ad hoc criteria to a profit-maximizing stakeholder management strategy can motivate more firms to implement CSR actions.