Management perception of the impact of corporate social responsibility on corporate reputation in Vietnam

The impact of CSR activities in term of employee responsibilities on financial performance and corporate reputation .... 61 5.2.2 The impact of CSR activities in term on community respon

BÙI THỊ DIỄM NGA

MANAGEMENT PERCEPTION OF THE IMPACT

OF CORPORATE SOCIAL RESPONSIBILITY ON CORPORATE FINANCIAL PERFORMANCE

AND CORPORATE REPUTATION

IN VIETNAM

MASTER THESIS

HO CHI MINH CITY – 2013

BÙI THỊ DIỄM NGA

MANAGEMENT PERCEPTION OF THE IMPACT

OF CORPORATE SOCIAL RESPONSIBILITY ON CORPORATE FINANCIAL PERFORMANCE

AND CORPORATE REPUTATION

DR NGUYỄN THỊ NGUYỆT QUẾ

HO CHI MINH CITY – 2013

ACKOWLEDGMENT

First of all, I would like to indicate my deep gratitude to Dr Nguyen Thi Nguyet Que, my promoter Throughout the entire research, she offered valuable advice, helpful guidance and comments as well as encouragement during difficult times I sincerely appreciate you, both personally and professionally

I am also grateful to my classmates who were unfailingly kind, offered ongoing encouragement, and helped me whenever it was necessary

In addition, I‟d like to send my special thanks to all of my colleagues- Ms Tien,

Ms Loan, Ms Thu and my director- Ms Nguyen Vu Thanh Uyen at Dang Hung Chemical Company for your persistent support, encouragement Without your help,

my dissertation couldn‟t be finished in time

I will be forever indebted to my beloved family members, especially my parents and

my parents-in-law They have supported me in a consistently loving manner

I am especially grateful to my husband, Kim Do, for his love, thoughtfulness, and endless support Thanks for looking after our daughter- Lucie so well whenever I were busy and focus on this dissertation

Lucie, thank you so much for your precious existence in my life! While it is true that you make my life increasingly busy Without you, my life would have no meaning at all

Once again, I extend my profound thanks to all of you, as well as to others whose names are not mentioned here but who also contributed directly or indirectly to this thesis

Bui Thi Diem Nga

Ho Chi Minh City, 26 September, 2013

COMMITMENT

I certify that the ideas, analyses, and conclusions reported in this thesis

“Management Perception Of The Impact Of Corporate Social Responsibility On Corporate Financial Performance And Corporate Reputation In Vietnam” are entirely my own effort The data was collected in reality and it has clear origins I also certify that the work is original and has not been previously submitted for any other award

TABLE OF CONTENT

ACKOWLEDGMENT I COMMITMENT II LIST OF FIGURES VI LIST OF TABLES VII

ABSTRACT 1

CHAPTER 1: INTRODUCTION 3

1.1 Research background 3

1.2 Research Issues, Objectives & Questions 4

1.3 Research methodology 5

1.4 Significance of study 5

1.5 Structure of study 6

CHAPTER 2: LITERATURE REVIEW: 7

2.1 Introduction 7

2.2 Concept of Corporate Social Responsibilities 7

2.2.1 Definition of Corporate Social responsibility 7

2.2.2 CSR components 11

2.3 Review of previous studies on CSR and organization performance 12

2.3.1 Related CSR and financial performance 13

2.3.2 Related to CSR and corporate reputation 15

2.4 Development of theoretical model and research hypothesis 21

2.4.1 CSR and Financial performance 22

2.4.2 CSR and corporate reputation 25

2.5 Summary 28

CHAPTER 3: RESEARCH METHOD 29

3.1 Introduction: 29

3.2 Research design 29

3.3 Questionnaire development 31

3.3.1 Scale of independent variables 31

3.3.2 Scale of dependent variables 32

3.3.3 Translation of the Questionnaire 35

3.4 The pilot study 35

3.5 Main survey 36

3.5.1 Target population 36

3.5.2 Sample method 36

3.5.3 Sample size 37

3.5.4 Questionnaire administration 37

3.6 Methods of data analysis 38

3.7 Summary 40

CHAPTER 4: DATA ANALYSIS 41

4.1 Introduction 41

4.2 Descriptions of sample 41

4.3 Reliability and validity of the measurement scale 42

4.3.1 Reliability (Cronbach Alpha) 42

4.3.2 Exploratory factor analysis (EFA) 44

4.4 Testing the research model and the hypotheses 47

4.4.1 Testing correlations of constructs 48

4.4.2 Regression Analysis 51

4.4.3 Test the violations of assumptions in linear regression 58

4.5 Conclusion 58

CHAPTER 5: CONCLUSION AND IMPLICATION 60

5.2 Discussion of findings 60

5.2.1 The impact of CSR activities in term of employee responsibilities on financial performance and corporate reputation 61

5.2.2 The impact of CSR activities in term on community responsibilities on financial performance and corporate reputation 62

5.2.3 The impact of CSR activities in term of customer responsibilities on financial performance and corporate reputation 63

5.2.4 The impact of CSR activities in term of environment responsibilities on financial performance and corporate reputation 64

5.3 Practical implications and contribution of study 64

5.4 Limitation and future research 66

5.5 Conclusion 67

LIST OF REFERENCE 67

APPENDIX A 73

APPENDIX B 78

APPENDIX C 81

APPENDIX D 83

LIST OF FIGURES

LIST OF TABLES

Table 2.2 Definitions of CSR based on representatives organizations 9

Table 4.3 KMO and Barlett's Test of independent variables 45

ABSTRACT

Nowadays, the Vietnamese business community has been facing with important issues for its sustainable development, especially societal and environmental including energy saving, waste management, workplace safety standards, take care

of its employee and so on Recent numerous cases of health safety problems especially tainted milk distribution, toxic ingredients found out in food, consumer goods,…, have been raising a greater concern on Corporate Social Sesponsibility (here in after refered to as CSR) in Vietnam Beside that, Vietnamese export-oriented companies have been also encountering problems of good citizenship when their foreign investors and buyers require them to take business practices based on respect for people, communities and the environment

Corporate social responsibility (here in after referred to as CSR) has been considered as non-tariff barriers and challenging to the developing countries including Vietnam Being aware of the important of CSR and the impact of it on the organization performance are necessary to help organization overcome these

invisible barriers as well as to have a suitable investment on CSC activities

There are many researches examining the impact of CSR activities on the organization performance in the world They are investigated not only in developed countries but also in developing countries The result of these researches show the positive, negative or neutral impact, however, most of these researches find the positive impact of CSR activities on organization performance Other two known researches which are investigated in emerging economic also show the positive relationship between CSR and organization performance, in other word, CSR can bring determined advantages for organization

In Vietnam, CSR is still new concept not only toward customer but also toward Vietnamese enterprise Based on the attitudes of CSR experts, because the lack of in-depth knowledge and professional research about CSR in Vietnam has led to

incomplete provided information, which then turns into inaccurate news and articles that can influence consumers, governments and enterprises as well Therefore it‟s essential to raise the level of awareness of CSR and their roles in Vietnam That is the reason to implement this study

This study aims to examine the perception of managers of the impact of CSR on organization performance in terms of financial performance and corporate reputation This relationship between corporate social responsibility activity and organizational performance attracts the interest of significant stakeholder groups (customer, employee, community and environment) Research was conducted in Southern Vietnam which main concentrate at Hochiminh city, Binh Duong province, Dong Nai province and somewhere else near to HCMC The results of the study find that CSR activities in environment have positive impact on financial performance of organization In addition implementation of CSR toward environment and customer has positive effect on corporate reputation as well

CHAPTER 1: INTRODUCTION

1.1 Research background

The ongoing globalization has made people, capital and goods move quickly around the world and easier access information and communication A large part of international enterprises move their investment in to developing countries to save production cost and take advantage from local market This transformation brings not only many new opportunities and advantages but also new challenge to the developing countries including Vietnam For the challenge, after joining to the World Trade Organization Vietnam must to invest more in environment policies, legal framework and especially CSR activities because of strict requirements from partner and international organization Furthermore, societal and environmental issues rise during the last few years in Vietnam are considered worldwide as corporate social responsibility that businesses should commit to their stakeholders such as the community, employees, and customers for the sake of positive long term benefits

In 2007, Vietnam Chamber of Commerce and Industry (VCCI) had a report to evaluating status CSR in Vietnam This report shows that CSR still a new concept

in Vietnam, it fist introduced to Vietnam in form of Code of Conduct or Social standard requirements (VCCI, 2007) In Vietnam, CSR is applied firstly in footwear and apparel industries (VCCI, 2007) after that it is extended to the other sectors In

a report of VCCI regarding to the CSR in Vietnam in year 2011, CSR is still the hot issue which is considered in terms of environmental issues (water/ air pollution…), social responsibilities (human right, poverty rate…) and ethical issue (fight against corruption) There are some barriers to implementation CSR in Vietnam According

to VCCI (2011), barriers can be listed such as lack of awareness of the relative actor and hierarchy preference, lack of support from government, limit in resource, lack

of CSR model for Vietnam…Furthermore some Vietnamese companies assume that CSR should be only for big companies or for international company only Therefore

it is importance to change their mindset from “CSR as a cost” to “CSR as an investment” To do this thing, it needs more studies to investigate the impact of CSR in Vietnamese enterprises

There are many researches in the world show the positive impact of CSR on organization performance in term of financial performance and corporate reputation (Taneja et al 2011, p 351), it is not only true to the developed countries but also for the developing countries We do this research aims to examine this relationship in Vietnam based on the managerial perception in Vietnam The result from this research will bring a clear insight about CSR in Vietnam then we will have more facilitate to make decision in implementation CSR in Vietnam

1.2 Research Issues, Objectives & Questions

Knowing thoroughly CSR and their benefit in Vietnam are still big questions which are concerned by many enterprises, governmental organizations and consumer as well This study aims to answer the following questions:

1 Is there a positive association between CSR activities and financial performance?

2 Is there a positive association between CSR activities and corporate reputation?

3 To which extent category of CSR activities impacts on financial performance and corporate reputation?

This study examines the impact of each category of CSR activities on organization performance in terms of financial performance and corporate reputation Categorization of CSR activities in this study is based on the approach of CSR to different stakeholder groups There are four categories of CSR activities which include CSR toward employee, customer, community and environment The objectives of this study are:

- To examine the impact of CSR activities including community responsibilities, employee responsibilities, customer responsibilities and environment responsibilities on financial performance

- To examine the impact of CSR activities including community responsibilities, employee responsibilities, customer responsibilities and environment responsibilities on corporate reputation

In addition, the objective of this research is to understand the meaning and importance of CSR in Vietnam so that they can help managers and professionals elaborate an effective integrated communication strategy to meet the requirements

of investor and customer and to enhance their company‟s sustainable reputation

1.3 Research methodology

This research is conducted in the Southern Vietnam where numbers of enterprises operate hear The research process includes two main steps First step is pilot test by in-depth interview with managers to modify the scale to be appropriate for Vietnam The second step is main study which the quantitative research method is applied Convenience sampling method is used by sending hard copy and soft copy via email to respondents

The Statistical Package for the Social Sciences (SPSS0) software version 20 is used

to analysis in this study The scale of variables is verified by Cronbach Alpha for the reliability and Exploratory factor analysis (EFA) for validity After verifying the scale, two model of Multilinear Regression are applied to examine the impact of each category of CSR activities on financial performance and corporate reputation

1.4 Significance of study

This study aim to finding the relationship between CSR activities and organization performance in terms of financial performance and corporate reputation in Vietnam thence it brings a clear insight about CSR in Vietnam to make decision in implementation CSR

This research contributes to the literature regarding the CSR activities and their impacts in Vietnam In addition, this study is expected to help enterprises, researchers, regulators, and stakeholders in Vietnam comprehend the impact of CSR activities on the organization performance

1.5 Structure of study

This research is divided into five chapters

Chapter 1 – Introduction: This chapter presents the purpose of research, research objectives and questions, research method and structure of study

Chapter 2 – Literature review: It reviews CSR definitions and their categories as well as these researches regarding impact of CSR activities on organization performance

Chapter 3 – Research method: It presents the method to collect data, evaluate scale and data analysis which are used in this study

Chapter 4 – Data analysis and finding: It discusses about the result of analyzing data

CHAPTER 2: LITERATURE REVIEW:

2.2 Concept of Corporate Social Responsibilities

2.2.1 Definition of Corporate Social responsibility

CSR is an abstract definition and it is defined in many ways and no universal accepted definition (Kakabadse et al 2005 p.280) The different may come from literary translation, employ, promote or interpretation by the people within (or outside) the CSR field For this reason it is still no unified CSR definition and still lack of general platform to assert legitimacy, creditability and value of research which is accepted by majority development (Kakabadse et al 2005 p.280) Abundance of CSR definitions is a problem because it is not representative to all therefore prevent the development and implementation of the concept (Van Marrewijk, 2003)

CSR is defined by International Organizations, academics, or policy maker The concept of CSR is often put into the relation with the other concept such as corporate social performance or sustainability but it concentrates in expression social‟s expectation as a role and responsibilities of business (Kakabadse et al

2005, p.280) In the research of Kakabadse et al (2005), definitions of CSR which are defined by academic researches and organizations are listed in the below table:

Table 2.1: Definitions of CSR – academic research

– use one‟s resources and conduct operations with a view to increasing one‟s resources as long as this increasing remains in conformity with the game rules In other words, one should get involved only in open and free competition without any tricks and fraud

Griffin

(1999, p 144)

Social responsibility is a set of commitments on the side of the company to protect and strengthen the community within which it functions

Żemigała

(2007, p 9)

Acontemporary company should be an organisation that serves its environment since it realises apart from economic tasks also social tasks including environmental ones Companies should bear responsibility for social progress and for what is related to it – the natural environment

Lisiecka

(2003, p 13)

Corporate social responsibility concerns, among other things, limiting and ceasing any actions that are socially and physically harmful, providing goods and services where a profit cannot be made (communal services), taking responsibility for positive social progress

Urbaniak Corporate social responsibility is a concept being the realisation of the

(2007, p 11) implementation of the sustained (permanent) development with the

consideration of economic, environmental and social aspects

Kawka- Tomczak

(3/2003 p 55)

Socially responsible business is, in particular, a strategic partnership committed to building an adequate image of the company and its activity This is also a philosophy of doing business, shaping relations between all stakeholders, that is the cooperation between employees, customers, suppliers, stockholders, competitors, local community, and state administration

Maignan & Ferrell

(2004)

The implementation of CSR does not consist of the launching of a few benevolent initiatives such as philanthropy programs, environmental protection policies, or employee-friendly practices Instead, to enact their commitment to CSR, businesses must embrace a solid set of principles and processes that can help to systematically address stakeholder demand and secure stakeholder support

CSR Europe (2003) Corporate Social Responsibility is the way in which a company

manages and improves its social and environmental impact to generate value for both its shareholders and its stakeholders by innovating its strategy, organization and operations

opportunities and, in the process, to provide jobs and to produce goods and services that consumers want to buy However, corporate responsibility goes beyond this core function Businesses are expected to obey the various laws which are applicable to them and often have to respond to societal expectations that are not written down as formal law

as well as within their wider spheres of influence

Novethic (2003) Linked to the application by corporations of the sustainable

development principle, the concept of CSR integrates three dimensions: an economic dimension (efficiency, profitability), a social dimension (social responsibility) and an environmental dimension (environmental responsibility) To respect these principles, corporations must pay more attention to all the stakeholders which inform on the expectations of civil society and the business environment

Novo Nordisk (2003) Social responsibility for Novo Nordisk is about caring for

people This applies to our employees and the people whose healthcare needs we serve It also considers the impact of our

Source: Kakabadse et al 2005

Dahlsrud (2008) review the context in which definition of CSR existing and find that definitions are divided into five dimensions as stakeholder, social, environment,

voluntary and economic dimension The stakeholder theory is one of the most important to approach CSR and it has been used in many areas (Bayoud et al 2012) Definition of CSR of Maignan & Ferrell (2004) is chosen in this research because it considers CSR activities to stakeholder demands Moreover, this research carry out CSR activities to stakeholder in term of managerial perception thus author uses CSR definition of Maignan and Ferrell (2004) in this research

To sum up, the definition of CSR should be flexible, met over time and server particular purpose in order to improve organization performance (Bayoud et al 2012) CSR is approached by different dimensions but the stakeholder theory is used more

2.2.2 CSR components

In general CSR includes of four categories of information, they relate to environmental, consumer, employee and community involvement information (Bayoud et al 2012) Report of CSR in organization which is sent to stakeholder often includes activities toward environment, customer, community, employee, shareholder (investor) and external stakeholder such as supplier

Environmental responsibilities:

CSR in environment mentions about the implementation of organization to political environment (Bayoud et al 2012) Environment disclosure includes the following items: waste management, measure and access the environment programs, energy conservation activities, emission level control and environmental audit

Community responsibilities:

Based on studies of Bayoud et al (2012) and Rettab et al (2009), Corporate social responsibility in term of community relate to activities to support community where organization operate Community responsibilities encompass the following items: financial support to local school where organization operate, financial support to

community activities, help to improve quality of life in community and charity and donation policies

Customer responsibilities:

In CSR, customer is one of the most importance issue need to be concerned due to the quality aspect and stakeholder right (Bayoud et al 2012) The activities of CSR toward customer which are examined by Bayoud et al (2012), and Rettab et al (2009) include these actions: providing good quality product and clear information needed to customer to make purchasing decision, satisfying customer complains about product/service of company, improving product/service to enhance customer satisfaction and reliability

2.3 Review of previous studies on CSR and organization performance

CSR is one of the hot topics which is interested by many researchers in the world especially in recent years To summarize these announced CSR researches from year of 1970 to 2008, Taneja et al (2011) do a research for this Authors find that the number of CSR research significant increase from 2001 to 2008 Most of methodology of reviewed researches is qualitative method, however, the research trend move from qualitative to quantitative in recent time (Taneja et al (2011) CSR researches which are reviewed in the research of Taneja et al (p.259, 2011) are grouped into five major: definition of CSR, CSR model, factor determining CSR initiatives, CSR in action and the impact of CSR on the organization performance

My research is also in these groups

There are many researches to examine the impact of CSR on the organization performance (Luu, 2012; Bayoud et al 2012; Orlitzky et al 2003; Schniet & Epstein 2005; Wright & Ferris 1997; Bayoud et al 2012; Nelling & Webb 2009; Rettab et al 2009; Michiel 2006; McGuire & Schneeweis 1988), the above researches find that there is a relationship between CSR and organization performance which has positive, negative, mixed or no-significant results In other side, some of these researches find the positive relationship between CSR and organization performance (Luu 2012; Rettab, et al 2009; Bayoud et al 2012) Furthermore, Rettab et al (2009) points out in their study that it has a positive relationship between CSR and organization in term of financial performance, corporate reputation and employee commitment in Dubai - an emerging economic

In Vietnam, there is also have some studies in CSR however, most of them concentrate in the evaluation of CSR practices in Vietnam (Pham 2010; Tran 2009; Nguyen 2008; Ho 2008; Shizuo Fukada 2007; Charlotta Undén 2007) On the other hand, it also has a research to examine the linkage between CSR and brand equity in healthcare service in Vietnam (Luu 2012) In this study, Luu (2012) find that implement ethical CSR initiatives such as charity check-up, charity surgery, and healthcare programs for pupils, will be placed in a competitive position in the marketplace and thus be able to build successful and differentiated brand equity (Luu 2012) Luu (2012) find there is no clear link between legal CSR, economic CSR and brand equity as well

In Vietnam, it is still lack of research to measure the impact of CSR on the organization performance and the perception of manager for this issue

2.3.1 Related CSR and financial performance

Based on Orlitzky et al (2003), financial performance is considered one of the most importance indicators of the strategic value of CSR Financial performance is the main objective which is used by investor to examining corporate portfolio and

evaluating the way corporate meet their social responsibility (Barnett & Salomon 2006) This is the reason corporate shift their attention on financial orientation including with CSR activities This increases the debate over whether CSR affect on financial performance in term of employee commitment, firm‟s share price, its consumer support (Bayoud et al 2012) Moreover, orientation and attention of corporate in priority CSR practice can lead to conflicting in the demand of each stakeholder group therefore understanding the relationship between CSR and financial performance is really importance for managers to keep balance stakeholder expectation and demand (Bayoud et al 2012) McGuireet al (1988), Michiel (2006), Rettab et al (2009) point out principle impact of CSR on financial performance such as increasing productivity based on improvement employee‟s moral, save cost associated recruitment, training, recycle programs, enhance satisfaction of stakeholder…

There are two types of empirical study to test the relationship between CSR and financial performance (Bayoud et al 2012) First type is event study methodology

to examine the short-term impact and the second type is market based-measure of financial performance such as firm‟s share price to test the long-term impact

Previous studies of relationship between CSR and financial performance have concluded the beneficial effect, negative effect or no relationship but most of them are positive impact (Margolis & Walsh 2003) Margolis & Walsh (2003) statistic that four percent of 160 reviewed studies find the negative relationship between CSR and Financial performance, fifty five percent find the positive relationship and twenty two percent find no relationship McGuire& Schneeweis (1988) find that each component of financial performance is different affected by CSR for example, the return on asset and total asset have positive relation with CSR in the mean while, operating income growth has negative correlation with CSR In another research of the impact of CSR on financial performance of Bayoud et al (2012) find that each component of CSR activities have positive impact on financial

performance in different level such as significant, strong link or no doubt Rettab et

al (2009) examining firms in the UAE market as an emerging economy the result

of this research find the positive relationship between CSR and financial performance The research of Bayoud et al (2012) is considered the latest study which is reviewed in this study regarding to CSR and corporate social and financial performance, it also find the positive relationship between them

2.3.2 Related to CSR and corporate reputation

It has much research to define corporate reputation (Bayoud et al (2012), p 85) Siltaoja (2006, p 91) give the definition of corporate reputation as follow:

“[T]he most important competitive advantage that companies can have assessments about what the organization is, how well it meets its commitments and conforms to stakeholders‟ expectations, how effectively its overall performance fits with its socio-political environments.”

In term of CSR and corporate reputation, CSR create reputation for firm which makes reliability and honest (McWilliams & Siegel (2000) In addition, Bebbington

& Moneva (2008) show that in time of crisis, “CSR can build a reservoir of goodwill that firm can draw up” Regarding to the research of relationship between CSR and corporate reputation, Branco et al (2006) find that CSR disclosure is particularly importance in enhancing impact of CSR on corporate reputation Branco also show that improving relationship with external stakeholder such as supplier, investor, customer and competitor and internal stakeholder is related to having a good reputation for good social responsibility Research of Bayoud et al (2012) and Rettab et al (2009) also find the positive relationship between CSR and corporate reputation in Libya, this suggest that relationship between CSR and corporate reputation not only right to the developed countries but also for the developing countries

Researches of the impact of CSR on the organization performance are summarized

in the below table:

Table 2.3: Abstract of CSR researches

relationship

1 Luu

(2012)

Linkage among CSR, leadership and brand equity

in healthcare service

Quantitative research Using both SEM

-No relation between transformational leadership with brand equity

-Research not yet test the effect of culture issue in to variables

2 Bayoud et

al (2012)

Relationship between CSR disclosure and Organization performance in Lybia

Relation of CSR disclosures (employee, consumer, community and environment)

Combine both of Qualitative and Quantitative methods

- CSR disclosure has positive relationship with corporate reputation and financial performance but it not significant impact

on employee commitment in Libya

- Corporate reputation is one of the competitive advantage and has positive

with Corporate performance correlation with four CSR dimensions

- Research reveals the nature of the relationship between level of CSRD and organizational performance in spite of a lack of CSR data in annual reports of developing countries comparing with developed countries

3 Nelling &

Webb

(2009)

CSR and Financial performance

responsibility and financial performance: the „„virtuous circle‟‟ revisited

Use old OSLS regression

Quantitative Using time series fixed effect approach

CSR is driven more by unobservable firm characteristic such as strong stock market performance than by financial performance

CSR activities do not affect financial performance

4 Rettab et

al (2009)

Management‟s perception on the impact of CSR in Corporate performance in term of financial performance, employee

Quantitative research

analysis

-Based on management perception, CSR positive effect on financial performance, employee commitment and corporate reputation

in Dubai

-Financial performance will be affected by the

commitment and corporate reputation in emerging Economic

way which a firm satisfy their stakeholder and communicate CSR activities to stakeholder -Firm gets tangible benefit from CSR implementation

- This research encourages management in emerging economic to implement CSR to get sustainable competitive advantage

5 Michiel

(2006)

Overview CRS in textile industry in the world

Report Most of scientific research papers show the

positive relationship between CSR and corporate financial performance & Corporate performance

Several studied China factories which implement CSR show: Decreasing of turnover rate; increasing productivity; save cost associated recruitment, training; lost productivity

Going up wage based on increasing percentage

of worker earning minimum wage and reduce overtime

CSR implementation bring profit on financial in side of environmental sector

Applying CSR bring more opportunities for enterprise for international trade and foreign clients

- CSR helps companies to: reduce production costs; attract and retain talented staff; use resources more efficiently; produce safer and better products; reduce levels of pollution and risk; comply with many International standards and codes of conduct; link up with international markets and to improve company image

- ROA and total asset show positive relationship with CSR

- Operating income growth has negative correlation with CSR

- Accounting and stock market based risk measure and CSR is negative correlation

-Firms do not off between CSR and Financial performance

trade-2.4 Development of theoretical model and research hypothesis

According to the above literature, CSR is defined in many different ways, it depends on the approach way In this research, author use CSR definition of Maignan & Ferrell (2004) and Carroll (1979) Based on two definitions, “CSR include activities economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time” and these CSR activities need

to help to systematically address stakeholder‟s demand and secure stakeholder support In the researches of Rettab et al (2009) and Bayoud et al., (2012) CSR activities to the stakeholder is measured by four components: environmental responsibilities, community responsibility, employee responsibilities and customer responsibility In this research author also use these four dimensions to measure CSR activities in organization

In previous studies in both developed and developing countries, organization performance in relationship with CSR is measured by three dimensions: employee commitment, financial performance and corporate reputation However, the result

of these researches finds no differentiation between developed countries and developing countries regarding to the impact of CSR on “employee commitment” Furthermore, this linkage between the two factors is very strong and it has no difference between finding and hypothesis in these known researches which was implemented in developing countries In the meanwhile, financial performance and corporate reputation in relationship with CSR activities have difference between hypothesis and research result According to Rettab et al (2009), overall past research shows that a firm‟s social responsibility action matters to its employee In addition, Maignan, et al., (1999) show that organization that engage in CSR activities can enhance level of commitment of its employee To clarifying this point, Branco and Rodrigues (2006) reported that firms perceived to have a strong social responsibility image often have an increased ability to attract better job applicants,

retain them once hired, and maintain employee morale Furthermore, firm that engage in CSR tend to implement activities internally to their employee (Rupp et al

2006 cited in Rettab et al., 2009, p 376) In developing country like Libya, Bayoud

et al., (2012) explants that firm applied CSR may increase current employees‟ morale and motivation and their commitment and loyalty to the company

For the above reasons, we thereby study the impact of CSR on organization performance in terms of the financial performance and corporate reputation in this research

2.4.1 CSR and Financial performance

The implementation of CSR in Vietnam is lack of concern from stakeholder in organization and each stakeholder group has their own expectation on the CSR activities therefore it is lack of consistent in CSR implementation and evaluation

In Vietnam, there have been many cases that firm extremely violate environment such as Vedan case or companies are not really care about the consumer‟s healthy

in term of food safety The cause of these bad practices comes from the lack of CSR concern as well as desire short-term profit, they do not think about the sustainable development These typical cases let researcher wants to examine whether CSR affect on financial performance of organization in Vietnam

As the above literature, there are many researches show the positive relationship between CSR and financial performance (McGuire et al 1988, Michiel 2006, Rettab et al 2009, Bayoud et al 2012) In developing countries and emerging economic, this relationship is examined through two research of Brik, et al., (2009) and Bayoud, et al., (2012), the result also show that CSR significant affect on financial performance

Based on the research of Rettab et al., (2009), he supposes that there is no relation between CSR and financial performance in Dubai The reason of this hypothesis is firm in emerging economic do not appreciate the critical important of

communicating CSR activities to their stakeholder Furthermore, the way which firm satisfies their stakeholder and communicate their CSR activities to stakeholder can affect their financial performance (Orlitzky et al., 2003, p 405) Because Dubai

is lack of effectively communication channels with stakeholder and failure to manage stakeholder strategically thus Rettab et al., (2009) assume that there are no relationship between CSR and financial performance However, the result of research is opposite with the hypothesis, it show that CSR significant affect on financial performance in organization

The impact of each component of CSR on financial performance is provided in the following sections:

Employee responsibilities and financial performance:

Recently research of Bayoud et al.(2012) in Libya, he examine the relationship between CSR and financial performance by both qualitative and quantitative method the result find that it has positive relation between two variables Beside that Bayound, N.S., (2012) also examine the impact of each component of CSR activities on the financial performance The research find that most of manager believe that CSR activities and disclosure toward employee is positive association with financial performance because they think that information and activities of CSR will attract good skills and experience staffs to fullest achieve their duties and commitment to the company (Bayound et al 2012, p 184) Furthermore, productivity and job performance are enhanced if employees are satisfied by the CSR activities

Accordingly Hypothesis H1a is suggested:

H1a: Corporate social responsibility toward employee is positive association with financial performance

Community responsibilities and financial performance:

CSR in term of community responsibilities has strong link on financial performance

in the research of Bayound et al., (2012) with 61% interviewed managers believe that there is positive link between two variables because community responsibilities

of corporate allow customer and investor know their contribution to the community thus it influent investment and purchasing decision This contribution also encourages some stakeholders such as investor, consumer, employee and management of company to retain with this company (Bayound et al., 2012) In Vietnam, CSR activities to community usually do in form of donation or financially support education in the communities where firm operate Consequently, following hypothesis is suggested that:

H1b: Corporate social responsibility toward community is positive impact on financial performance

Customer responsibility and financial performance:

As the above literature, customer is one of the most importance stakeholders which organization needs concentration in the CSR activities If corporate perform well their responsibilities to customer, the customer satisfaction is enhanced consequently sale increasing According to Bayoud et al (2012), customer responsibilities is more importance than the other CSR activities, positive information about CSR activities toward customer can increase financial performance such as revenue, profit, return on asset or return on equity Based on these literatures, author proposes the following hypothesis:

H1c: Corporate Social Responsibility toward customer is positive impact on

financial performance

Environment responsibilities and financial performance:

Environmental issues is very sensitive toward firm therefore CSR activities need to

be considered in this component If organization performs well in environmental policies such as waste reducing by applying Lean production, cleaner production,

using recycled material…it will bring benefit in financial performance Moreover failure of a company to follow the methods of environmental protection and safety often cost huge amounts of money as there are some laws that obligate the company

to assume its responsibilities as a result of damage caused to the environment and safety (Bayoud et al., 2012) A typical example for this issue in Vietnam is discharging waste water without treatment of Vedan, this problem cause serious affect not only on financial performance but also on corporate reputation

In addition, Bayoud et al (2012) shows that 71% interviewed managers in Libya believe that the relationship between environment responsibilities and financial performance is positive Explanation for this relationship Bayoud et al (2012) points that business activities of corporate will be significant affected in case they have problem in environment thus perform well environmental policies in term of CSR is very importance to the organization performance in general and particularly

in financial performance The following hypothesis is hence posited:

H1d: Corporate social responsibility toward environmental issue is related to financial performance in organization

2.4.2 CSR and corporate reputation

In the previous researches, CSR activities positive impact on corporate reputation but lack of study to examine association of each component of CSR to different stakeholder (Bayoud et al 2012) In this research, author investigates the impact of CSR on corporate reputation by considering the interests of different stakeholders in Vietnam so that we have deeper understanding in this association and more facilitates to investigate on CSR activities

The effect of each component of CSR on corporate reputation is supposed in the following sectors:

Employee responsibilities and corporate reputation

Corporate reputation is built based on their own foundation which it includes firm‟s employee Employee is the importance part to create and maintain corporate reputation In organization, employee is considered as a represent image therefore corporate should perform CSR to their employees Employee benefits which are obtained from a company such as training help to increase employee skills Consequently, these skills could enable a company to improve the quality of company‟s performance in terms of accurate and quick work

In addition, Bayoud et al., (2012) confirm that CSR in term of employee responsibilities has positive impact on corporate reputation More than 84% interviewed managers in his research believe that CSR is positive impact on corporate reputation Furthermore, disclosing of CSR activities toward employee in CSR report show the extent interest of corporate in their employee, it reflects a positively in performance The following hypothesis is hence supposed:

H2a: Corporate social responsibility toward employee positive impact on corporate reputation

Community responsibilities and corporate reputation

As the above literature, community in term of CSR include activities such financial support for education, improve quality of life of community where organization operate…these activities of organization make people aware of them more It is clear that community responsibilities bring reputation for corporate and support to extent firm‟s reputation

Bayoud et al., (2012) finds that most of managers believe community responsibilities are association with corporate reputation in a developing country like Libya The subsequent hypothesis thus emerged:

H2b: Corporate social responsibility toward community is positive impact on corporate reputation of organization

Customer responsibilities and corporate reputation

Customer is the most importance part to evaluate reputation of organization CSR implementation toward employee can‟t disregard in CSR activities CSR towards customer is implemented through the commitment of organization about product/service quality, considering customer interest In term of ethical, CSR may increase brand equity since it creates customers‟ trust in and loyalty to a brand through corporate ethical behaviors, and since customers‟ affective and emotional network, which the brand belongs to, is further activated when the company looks beyond profitability and rules/laws (Luu 2012)

In addition, Bayoud et al (2012) measure relationship between customer responsibilities and corporate reputation by interview managers in financial sector, the result of research show that 87% manager mention this relationship is positive Following hypothesis is supposed:

H2c: corporate social responsibility toward customer is positive impact on corporate reputation

Environment responsibilities and corporate reputation

Environment responsibilities are always priorities in CSR activities (Bayoud et al.2012) CSR implementation is not only basic compliant with governmental environmental regulations but also voluntary exceed it Vietnam has awards for enterprises good implementing environment protection such as Award of Vietnam Chamber of Commerce and Industry (VCCI) for organizations good implement environmental management Thank to these rewards, organizations are known more thus their reputation also enhance Furthermore, organization has good environment policies they will reduce risk in production and avoid scandal in business

The relationship between environment responsibilities and corporate reputation is verified by Bayoud et al., (2012) It has 74% of interviewed manager say that there

is a positive relationship between the two variables Interview managers also show

that most companies disclose environment in their CSR activities lead to enhance and improve reputation hence the following hypothesis is suggested:

H2d: corporate social responsibility toward environment responsibilities is positive impact on corporate reputation

2.5 Summary

This chapter has reviewed the available researches in the impact of CSR on organization performance, the relationship of each component of CSR with financial performance and corporate reputation In addition, this chapter also argues the below research model:

Figure 2.1: Research Model

CHAPTER 3: RESEARCH METHOD

3.1 Introduction:

This chapter focused on research methodology which aimed to evaluate the scales for measuring variables and to verify the hypothesis The purpose of this study is to explore and understand perception of managers in the nature of the relationship between CSRD and organizational performance in terms of financial performance and corporate reputation Questionnaire is used as a quantitative method to measure the relationship between the CSR and organizational performance To accomplish this target, a survey which consists of several existing instruments is done in a careful manner to ensure the best result This chapter includes these steps: research design, questionnaire development, pilot test, main survey and data analysis technique The detail of each step is presented in the below sections

3.2 Research design

This research was implemented through two main steps: (1) pilot survey, and (2) main survey The main survey was approached by quantitative study as it was more efficient, less costly and it enabled the researcher to make inferences of a larger population by using a small number of the representative sample

The procedure of this research is implemented following steps:

Step 1: Questionnaire design:

After reviewing these literatures of CSR, this study adapted scale which was used in the previous researches of Bayoud, et al., (2012) in Dubai and Rettab, et al., (2009)

in Libya, the validity and reliability of the questionnaire and the pilot study hence, were tested A first draft scale was built to measure variables

Step 2: Pilot test:

The qualitative research was applied for pilot test Because wording and language took numerous goals such as keeping the language simple, and the questions short

therefore individual interview with department managers who had experiences with CSR practice in Vietnam was used to modify the scale to be appropriated for Vietnam

Step 3: Main survey:

The main survey was carried by quantitative method 150 samples were sent to respondents by hard copy and sending email The purpose of this step was collecting data for verifying the research model In this step, the scale was verified

by Cronbach alpha and EFA After deleting the unsuitable items (total feedback: 89 samples), the remained items (86) were chosen to verify the hypothesis Two models of Multilinear regression were used to verify research model in this study

Figure 2.2: Research process

The final measurement scales

Using: Cronbach alpha, EFA and Regression