tiểu luận kinh tế kinh doanh the impact of corporate social responsibility on firms’ profitability

And this means in turn that the economy‟s means of production should be employed in such a way that production and distribution should enhance total socio-economic welfare.” Later in 197

I CSR Definition:

According to Horrigan (2010), there’s no exact definition of CSR due to its vagueness and conversy Definitions of CSR according to various authors can

be listed

The earliest definition of CSR was given by Howard Bowen his landmark book

Social Responsibilities of the Businessman in 1953: “… the obligations of businessmen

to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.”

In 1960, Keith Davis wrote that "CSR is the concern and response of businesses to

issues beyond satisfying legal, economic and technological requirements while

Fredrick defined “ businessmen should oversee the operation of an economic

system that fulfils the expectations of the public And this means in turn that the economy‟s means of production should be employed in such a way that production and distribution should enhance total socio-economic welfare.”

Later in 1970, on New York Times, Milton Friedman concluded about CSR:

“there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules

of the game, which is to say, engages in open and free competition without deception

or fraud."

In 1983, Caroll: “CSR involves the conduct of a business so that it is economically

profitable, law abiding, ethical and socially supportive To be socially responsible then means that profitability and obedience to the law are foremost conditions to discussing the firms’ ethics and the extent to which it supports the society in which

it exists with contributions of money, time and talent Thus, CSR is composed of four parts: economic, legal, ethical and voluntary or philanthropic.”

Four years later, Epstein wrote that “Corporate social responsibility relates

primarily to achieving outcomes from organizational decisions concerning specific issues or problems which (by some normative standard) have beneficial rather than adverse effects on pertinent corporate stakeholders The normative correctness of the products of corporate action have been the main focus of corporate social responsibility.”

In one of the most recently study, Matten and Moon (2004) defined “CSR is a

cluster concept which overlaps with such concepts as business ethics, corporate

philanthropy, corporate citizenship, sustainability, and environmental responsibility.

It is a dynamic and contestable concept that is embedded in each social, political, economic and institutional context.”

The following table summarizes the evolving definition of CSR from the

1950s hitherto

Dimensions of CSR definitions

Source: Mediterranean Journal of Social Science - 2015, Vol.6 (4): pp 83-95

II Literature Review:

1 Brief introduction of theories about positive impacts of CSR:

1.1 Friedman’s shareholder theory (1970):

Corporate social responsibility began to be known by the famous American economist Professor Milton Friedman (won the 1976 Nobel Prize in Economics for research “Consumer analysis, calendar history and monetary theory ”) Milton Friedman

emphasized CSR would increase their profits In the book “Capitalism and Freedom”,

he anticipated: "There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (Friedman, September 13, 1970) This argument quickly

occupied the debate forums from the scientific and political circles to the businessmen and other intellectual classes of American society at that time

1.2 Caroll's (1979) theory:

Caroll's (1979) theory was also used and developed in many studies The first

is a three-circle concentric model with economic, social values and social issues, then evolved into a pyramid model (Carroll, 1991) that can be applied to all sectors, profession This model consists of 4 levels: economic responsibility, legal responsibility, moral responsibility and charity responsibility Because the factors are arranged in order based on CSR's requirements for each specific business, Maslow's demand tower (1954) is related The typical research using this theory is Lee et al (2012), Polychronidou et al (2014), Saeidi et al (2015) (Le Phuoc Huong, 2017)

1.3 Freeman’s Stakeholder Theory (1984):

Based on Freeman's stakeholder theory (1984), argues that a positive relationship exists between CSR activity and financial performance such as that of Bragdon and Marlin (1972), Heinze (1976), Sturdivant and Ginter (1977), Grave and Waddock (1994), Hart and Ahuja (1996), Klassen and McLaughlin (1996), Pava and Krusz (1996), Preston and O'Bannon (1997), Russo and Fouts (1997), Waddock and Grave (1997), Judge and Douglas (1998), Orlitzky et al (2003), Bird et al (2007), Aragón-Correa et al (2008), Nicolau (2008), Brammer and Millington (2008), Lee and Park (2009), Inoue and Lee (2011), Mustafa et al (2012), Wu and Shen (2013), Rhou et al (2016) In the view of this group, when the company makes decisions and performs activities in the interests of shareholders, it is necessary to consider other

objects such as customers, employees, suppliers, the community CSR activities will improve company value through cost savings and reputation enhancement However, this positive positive relationship is evident with some specific conditions According to Charleset al (2001) and Mather and Carstensen (2005), the positive effect comes from the older age group

1.4 Consumers’ satisfaction of Yuhei Inoue (2009-2017):

In 2009 and 2017, Inoue found that CSR has a positive impact on customers' satisfaction when using the product Specifically, customers feel confident about the quality of a product or service when they trust the business and believe that trusted businesses will have greater social and ethical responsibilities Moreover, customers may be more satisfied if the supplier is more socially responsible CSR can increase perceived benefits and values, thereby enhancing customer satisfaction In addition, CSR also impacts customer commitment (Inoue, 2017) when customers trust through corporate social responsibility, they tend to stick with the brand more, reduce brand transformation intentions and brand-customer relationship quality is further strengthened Stable customer base, good product, and reliability of the business will promote profit maximization

1.5 Other related benefits:

Becker-Olsen et al (2006) and McDonald and Rundle-Thiele (2008) used marketing theory to study CSR activities that influence the company's benefits through customer buying behavior In addition, some recent theories have been used such as social identification theory (He and Li, 2011); Organizational Theory (Lee, 2012); rational value theory (Carnevale et al., 2012); Bridge theory (Bauman and Skitka, 2012); Benefit-cost theory (Rhouet al., 2016)

Hoepner and Yu (2010) proved that investors can exploit this positive effect of CSR Forget (2011) found the relationship with customers and suppliers is crucial for good business Lee and Maxfield (2015) emphasized positive impact on environment

2 Brief intro of theories about negative impacts of CSR:

2.1 Friedman’s precedent towards bad financial performance:

The group of researchers based on Friedman's point of view (1970) argued that there was a negative relationship between CSR activity and financial performance through parameters such as stock price changes (Vance, 1975), profitability retained

(Wright and Ferris, 1997) and earnings / stock projections (Cordeiro and Sarkis, 1997) From this group's point of view, companies should conduct their own social activities on their own resources to increase profits for their owners, while trying

to optimize the distribution of scarce resources will adversely affect to financial efficiency Many studies support this inverse relationship, such as Pomering and Dolnicar (2009), Inoue and Lee (2011), Mustafaet al (2012), Rhouet al (2016), thereby stressing the importance of communicating CSR activities to appropriate stakeholders

2.2 Jensen and Meckling’s representative issue (1976):

There is always a conflict of interest between shareholders and business

managers This conflict is often referred to as a "representative issue." In general, a

company is composed of different interest groups and a unique representation problem can be solved when the equilibrium of different interests can be achieved (Krisnawati et al., 2014) According to this theory, the interests of shareholders and corporate managers will never be linked and social responsibility may be the result of conflicts (Jensen and Meckling, 1976) Therefore, socially responsible activities can lead to poor corporate performance and the wealth of shareholders may decrease This theory holds that resources and investments for corporate social responsibility must be spent effectively to improve the firm's performance, but it will not benefit the managers' interests (Thi, 2018)

2.3 Roper and Parker (2012):

Using a sample of 1000 consumers, from UK residents internet survey, Roper and Parker highlighted that fast-food packaging (an action) results in wastes (an effect), that has harmful social, environmental and economic costs to society The result was that the multiple levels of brand evaluation are adversely affected when the brand packaging is seen as a litter and quantifies its financial impact

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4 Sum-up: Current situation of CSR research:

There have been several studies on CSR yet the overall impact remains inconclusive with all kinds of impact: negative (6 studies), positive (38 studies), and non-significant (21 studies) ones

Friedman (1970) argues that there is a negative correlation between CSR and financial performance through parameters such as stock price change (Vance, 1975), retained earnings (Wright and Ferris, 1997) and earnings/equity forecasts (Cordeiro and Sarkis, 1997) In view of this group, companies should conduct their own social activities with their own resources in order to maximize profits for their owners, instead of trying to optimize the distribution of scarce resources that will have a negative impact on financial efficiency Many studies support this negative relationship, such as Pomering and Dolnicar (2009), Inoue and Lee (2011), Mustafa

et al (2012), Rhou et al (2016)

Meanwhile, the other group based on Freeman's theory of stakeholders (1984) argues that there is a positive relationship between CSR and financial performance such as that of Heinze Grave and Waddock (1994), Russo and Fouts (1997), Waddock and Grave (1997), Orlitzky et al (2003), Brammer and Millington (2008), Lee and Park (2009), Inoue and Lee (2011), Mustafa et al (2012), Wu and Shen (2013), In view of this group, when a company makes decisions and conducts its activities in the interests of shareholders, it is important to consider other stakeholders such as customers, employees, suppliers, and the community CSR activities will improve the company's value through cost savings and reputation

The third group suggests that there is no significant relationship between CSR and financial performance, as reported by Aupperle (1985), Abbott and Monsen

(1979), Teoh et al (1999) due to too many factors affecting company performance However, the findings above should be treated with caution because these studies were conducted with different key factors such as time periods and measures of CSR and financial performance

About the changes in social responsibility research, Lee (2008) said that CSR studies over time have changed dramatically, moving from research at the macro level (society) to the micro one (organization, company), and from ethical research to research that focuses on management effectiveness

III Theoretical Effects:

1 Positive Effects: How CSR boosts profitability?

Studying CSR, we focus on the way how CSR helps the firm boost its profitability CSR can promote company’s reputation in the marketplace which results in higher sales, enhance internal personnel and employee loyalty, and focus on sustainability that relates to lower costs and better efficiency We look at these perspectives through various theory

1.1 Shareholder Theory (Friedman, 1970):

Friedman introduced this theory on New York Times in 1970 He concluded that a firm has no ‘social responsibility’ to the society but only to its shareholders which is making profits (1970) He wrote, "In a free-enterprise, private-property sys-tem, a corporate executive is an employee of the owners of the business He has direct responsibility to his employers That responsibility is to conduct the business in accordance with their desires the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation and his primary responsibility is to them."

Stakeholder is a party having interest in a firm, who can either affect or be affected by the firm’s business Stakeholders can be from internal or external of the firm Having a long term relationship, they mostly concern about the result and some managerial aspects of the firm So how this relationship boosts firm’s profitability?

Stakeholders have a financial interest in the success of the firm To satisfy their financial interest, they can directly/indirectly operate the firm, which has effect on the cash flow They also have the right to control the firm (based on the amount of shares they own), manage it based on their visions and concerns In the end, how much the firm earns influences the shareholders’ dividends and their decision on investing Therefore, focusing on the value of the shareholders extends the firm’s profit However, by enhancing their value, this might create a conflict of interest with the stakeholders

1.2 Pyramid of CSR - Economic responsibilities (Caroll, 1979):

“Carroll’s CSR Pyramid is probably the most well-known model of CSR…” (Visser, 2006) If going online and search for this on Google, there will be various studies and articles related to it In this theory, Caroll (1979) depicted CSR as a