corporate social responsibility

Definition of corporate social responsibility


Organisations in various industries such as financial services, retail, IT software, pharmaceutical products etc. spend considerable amount of resources on corporate social responsibility (CSR) activities. In 2014, Financial Times reported that the Fortune 500 companies have devoted more than $15 billion on CSR, and the research shows that companies engage with CSR activities in different forms, which includes offering partly free or free educational programs in developing countries (Cisco), providing free medical supports to people with no stable financial incomes (GlaxoSmithKline) and switching to clean energy (TOYOTA).

The idea of CSR began in the 1920s, but the concept of CSR only started to shine in the spotlight in 1951, due to the World War II and Great Depression (Smith, 2011). Over the following decades, research on CSR research and adoptions of CSR policies has been expanded extensively. In 1970, the US Committee for Economic Development recognised the needs for balancing between social and economic interests (Smith, 2011).

CSR continued to evolve when academics and business leaders started to link CSR programs with business strategies. Stakeholder theory (Freeman, 1984) gained its attentions in early 1980s and viewed stakeholders’ interests are as important as those of shareholders’. However, Friedman (1970) hold a different view, as he proposed that businesses’ sole responsibility is to maximise shareholder’s wealth.

The potential relationship between corporate social responsibility and corporate financial performance (CFP) has been a popular topic of study over the past 35 years. Numerous theoretical and empirical studies have investigated the impact of CSR and its relationship to CFP. However, the results are still controversial due to discrepancies in the theoretical and methodological frameworks (Griffin and Mahon, 2002; Waddock and Graves, 1997). Wang and Sarkis (2013) have found a positive association between CSR and financial performance which is consistent with the findings of Orlitzky et al, (2003) and Aupperle et al, (1985). On the other hand, many researchers have observed a negative association between CSR and CFP (Vance, 1975; Wright and Ferris, 1997). Alternatively, it has been noticed that, there could be no significant relationship between these variables. For instance, McWilliams and Siegel (2000) revealed that, no relationship exists between CSR and CFP.

A limited number of studies focussed on CSR’s impact on business performances (Palmer 2012). In addition, the most recent study of CSR’s impact on UK’s supermarket industry was developed by Moore in 2001. Some past literature only considered one CSR factor when measuring CSR performance, for example Iwata and Okada (2011) who specifically investigated the relationship between greenhouse emission gas and the business financial performance. This paper measures CSR performance from five different dimensions to ensure the accuracy of the results. Hence, a better understanding of this topic would be invaluable, to all stakeholders including business directors, shareholders and external parties.

This paper aims to investigate the impacts of corporate social responsibility on companies’ financial performance. Multiple regression analysis will be used to determine the relationships between CSR and financial performance. Overall, the empirical findings reveal a mixed view with both positive and negative relationships between CSR factors and firm’s performance. This means that both supporters and critics of the CSR are right, to some extent.

This rest of the paper is structured as follows. The literature review section explains recent trends of CSR and previous research findings. The methodology section describes the working approach of this project. This is followed by the data analysis section, which will present descriptive data and analyse the results through various regression models. The conclusion will summarise the findings. Finally, a limitation and future research recommendations section about this paper will be provided.

Definition of Corporate Social Responsibility (CSR):

In the past few decades, CSR has gained more attentions and became one of the most popular study areas. The trends and fundamental changes of the social, political and economic sphere of life caused many CSR debates in the existing empirical studies.

Friedman (1970) suggested that “The business of businesses is business. The social responsibility of business is to increase profits so long as it stays within the rules of the game”. The objective for a corporation is simple and complements the primary financial goals for the shareholders. However, several of stakeholders can have impacts to an organisation, such as employees, suppliers and local communities other than shareholders, who are interested in not just financial activities but also non-financial activities such as the company’s influences on environment and local community.

Moreover, McWilliams and Siegel (2000) explain CSR as the policies or actions that would contribute positively to the society, beyond the financial interests of the firm and that which is required by law. In other words, CSR policies are the actions that go beyond obeying the law to make a positive impact to the society (the consumers, suppliers, employees, etc). Examples of CSR actions can be seen from different aspects of the business, such as embracing responsible human resource management programs, developing environmental-friendly products and services, supporting local businesses, reducing pollutions and recycling wastes.

Understanding the concerns from stakeholders is not sufficient, businesses should account other parts of CSR to establish a bigger picture of the responsibilities that stakeholder expect them to embrace. Academics and researchers often refer to the CSR pyramid (Figure 1) constructed by Carroll (2004) when identifying and recognising the components of CSR. The CSR pyramid is built to follow the four categories of CSR that identified by Carrol himself in 1979.

Carroll (2004) suggested that CSR can be split into four components and they could be depicted as a pyramid, which starts with economic responsibility as the base foundation. Every business is an economic contributor in society; a business is responsible to make profit to create wealth for its shareholders.

Meanwhile, rules, standards and regulations are set for businesses to follow and comply. Obeying these rules constitutes the legal responsibilities of the business. In addition to the ethical norms embodied in the first two categories, there are other moral/ethical actions which are not required by law but expected by the society.

It is difficult to determine what to include in the ethical responsibilities, but it is reasonable to make general assumptions that ethical responsibilities are something or actions exceed the requirements of the law. Discretionary responsibilities are more inconclusive and blur than ethical responsibilities. Businesses have to make their own choices and judgements to these. It is up to business leaders to decide whether to fulfil them or not. Laws and regulations do not require the business to engage with discretionary responsibilities, it is led by the business’s desire to be involved in this role and contribute to the society.

In conclusion, it is apparent that the bottom line of the definitions above is the volunteering obligation that the organisations must have to take care of their stakeholders which sometimes may go further than their legal requirements.

Recent trends of Corporate Social Responsibility:

Enron scandal came up to public in late 2001; thousands of jobs have been affected in the US. One year later, in 2002, Forbes published an article that revealed the number of unethical business practices has reached its highest point with 20 cases of corporate malpractice in 9-month time from October 2001 to June 2002. As a result, the reputation of business and accounting professions’ ethical practices has reached its lowest point measured by client trust and consumer confidence during the year 2001 to 2002.

More recently, in 2012, Barclays, one of the world’s largest and influential banks, manipulated the interbank interest rate to gain profits and to limit their losses. Moreover, in 2014, Tesco, the biggest supermarket retailer in the UK, admitted having overstated its profit figure by £250 million. Consequently, the stakeholders of organisations reacted to these incidents by demanding organisations to devote more resources to CSR policies and programs to save the deteriorated reputation of the industry (Palmer, 2012)

In the past decade, corporate giving and corporate social reporting have been increased to meet the demands of the stakeholders with improved integration of CSR policies in business operations.

According to Charities Aid Foundation (CAF), corporate giving has increased as a proportion of revenue, as shown in Figure 2. Charitable donations given by FTSE 100 firm in 2009 accounted for 0.15% of their total revenues, compared to 0.25% in 2014, an increase of 0.10%. However, as seen in Figure 3, FTSE 100 giving has fallen year-on-year for the first time in 2014. The fall, measuring £420 million, or 17% in absolute terms, puts donations in 2014 at lowest level since 2009. This is because 52 of the 100 companies experienced a fall in revenue in that time. Therefore, corporations did increase their giving over the past years as a proportion of revenue, which demonstrates that corporations are spending more in CSR.

Every year, KPMG publishes “The State of Global Corporate Social Responsibility Reporting”, which outlines detailed researches on the CSR policies and programs of corporations across 49 countries. In the latest report of 2017 (KPMG REPORT, 2017), KPMG reviewed Global Fortune Top 250 companies and found that 93% of companies issue yearly CSR reports to explain and communicate their CSR strategies with their stakeholders.

In comparison, in 2002, KPMG report had found that only 45% of top 250 companies issued a separate CSR report. The report also shows that the proportion of large companies that include corporate responsibility information in their annual financial reports continues to grow. In 2011’s report only a minority 44% of Top 250 companies included CR data in their annual reports but in 2017 the figure increased to 78%. The increase of 34 percentage points indicate that business directors believe CSR data is relevant for their business. Moreover, increased CSR reporting is beginning to be certified by independent third-part. The Global Reporting Initiative (GRI) issued a report in 2013 indicated that 46% of reports listed on GRI’s database have some form of external assurance. By doing this, companies enhance the credibility, reliability and recognition of their CSR reports to stakeholders. In the same way that financial statement audits, provide a true and fair view of the company’s financial position, audits of CSR reports lead to increase in trust and confidence from stakeholders.

CSR and Corporate Financial Performance (CFP)

Managers found economic benefits from engaging with CSR programs, as the expenditures in enhancing the performance of organisation’s social responsibilities that have been increased in the past decade. However, researches of CSR and corporate financial performance have been started decades ago and the results have been controversial. Between CSR and CFP, there are three possible relationships: positive, no relationship and negative.

Positive relationship between CSR and CFP:

The instrumental stakeholder theory (Jones, 1995) supports the positive association between CSR and CFP and it’s formed from two theories. The instrumental theory, which predicts the potential outcomes, will occur when business leader makes strategic decisions (Jones, 1995) R. Edward Freeman was the first scholar who introduced the stakeholder theory. In 1984, he proposed that, firms have interactions with different groups and individuals and the stakeholders who are impacted by the firm’s activities. Hence, businesses have the responsibilities to satisfy the needs of stakeholders to create or increase the wealth of its shareholders. On the other hand, Milton Friedman proposed shareholder theory in an article he wrote for New York Times in 1970, which views that the only goal for a business is to maximise the wealth of its shareholders. The instrumental stakeholder theory, then, views the firm as a connection point of contracts (Jenson and Meckling, 1976) and suggests that by minimizing the contracting costs, the firm would be able to increase its competitive advantage, which can be achieved by developing trusting relations with its various stakeholders (Wicks et al, 1999). Jones (1995) also concluded that, firms engaging with stakeholders based on trusts and co-operations have the commitment to demonstrate their positive impacts to the stakeholders. The commitment of the firms will lead them to achieve a competitive advantage. Furthermore, stakeholder theory suggests that business leaders can increase the efficiency of their organizations by meeting the desires of stakeholders. Hence, the instrumental stakeholder theory supports the positive relations between CSR and CFP. Harrison and Freeman (1999) viewed social demands as a way of communication between society and the business. Thus, a company should listen to the society and integrate social demands in its business management. Hundreds of published empirical studies (for example, Aupperle et al. 1985; Griffin and Mahon 1997; Husted 2000) have emphasized that, stakeholders as a whole find some value in CSR programs. Waddock and Graves (1997) performed an empirical test of the CSR framework developed by Carroll (1979), which is used to access the performance of business in CSR programs. The results show that a positive association exists between CSR and CFP. In addition, a meta-analysis of 52 studies with 33,878 companies in total over a 30-year-span was performed by Orlitzky et al in 2003, in search of the relationship between CSR and CFP. The outcomes confirm that social responsibility investments pay off. It also suggested that a bidirectional relationship exists between the two, which means not only does CSR have a positive impact on CFP, but it can also be benefited by CFP. This echoes the instrumental stakeholder theory because business leaders take financial advantages by meeting the needs of stakeholders. The empirical findings of Simpson and Kohers (2002)analysed that, the data from a group of US commercial banks, also support the notion of a positive relationship between CSR and CFP. More recently, Palmer (2012) found that, CSR activities lead to an increase in customer’s base because the customers are willing to spend money with an organisation that supports a moral cause, which further increases the revenue of the firms. More recently, Palmer (2012) found that, participating in CSR programs increases the number of customers as they are willing to support an organisation that demonstrates the commitment on CSR integration, which ultimately translates into increase in total sales. The result echo back the past studies (Orlitzky et al, 2003; Goll and Rasheed, 2004; Allouche and Laroche, 2005), which they found that firms gain financial benefit from taking part of CSR programs (especially, an increase in Return on Asset). Therefore, the following hypothesis has been structured:

No Relationship:

A different group of studies have shown there is no significant relation between CSR and CFP. These studies suggested that being socially responsible does not help business to achieve its financial target, but it does not deteriorate it either. In other words, the benefits and drawbacks of CSR on CFP apparently balanced themselves out. Barnett and Salomon (2012) suggested that a U-shaped relationship exists between CSR and CFP. Their results conclude that companies with insufficient CSR programs have good CFP, companies with moderate CSR performance have poorer CFP, and companies with high CSR score have the highest CFP. Blowfield and Murray (2011) also assert that social issues and companies’ business performance usually have a neutral correlation. Kneader et al. (2001) studied the financial performance of 80 international funds, which 40 are ethical and 40 are non-ethical, all sample funds have been analysed against three different benchmarks to ensure the validity of results: a national benchmark, an international benchmark from UK perspective and a two-index model (Gregory et al, 1997, Fama and French, 1998) and the results suggested that, there is no statistical difference between their performance. The cross-sectional analysis confirm that size, age or ethical status have no significant impacts on the risk-adjusted returns. Likewise, Moneva and Ortas (2008) found no association between CSR disclosure by European companies using the GRI guidelines and financial performance for the year 2004 and 2005. In 1985, Ullman proposed that there are so many intervening variables between CSR and CFP that there is no reason to expect any associations at all. Ullman (1985) suggested that between CSR and CFP, there are so many intervening variables, and thus there is no reason to believe any relationship at all. In addition, Ullman (1985) also suggested that the intangible impacts of CSR are difficult to measure as there is a not standard to follow. CSR are not as quantitative as financial investment on CSR policies and activities, hence when measuring CSR, it requires certain amount of ethical judgments. It is therefore difficult to measure the validity of CSR, as there maybe confounding factors affecting CSR and CFP results. The awareness levels of stakeholder to a firm’s CSR strategies may also contribute the neutral relationship between CSR and CFP. Stakeholders’ decisions and attitudes toward the corporation will be not affected when there is information asymmetric, and thus there is no influence on financial performance (Palmer, 2012). In conclusion, there is still no definitive evidence that shows the links between CSR and business financial performance, therefore the second hypothesis is:

Negative relationships between CSR and CFP:

The third potential relationship between CSR and CFP is a negative one, as being socially responsible incurs additional unnecessary expenses. An investigation carried out by Moore in 2001, suggests that the relationship between CSR and CFP is negative. To measure CSR, the study considered six stakeholder groups: customers, employees, shareholders, suppliers, community and environment, with one general measure of firms’ disclosed acknowledgement of responsibilities to these stakeholder groups. To measure CFP, the study used accounting-based factor rather than market-based ones that includes growth in profitability, turnover, earnings per share and return on capital employed. The finding of the study suggested a negative relationship between the two, where social performance improves but financial performance deteriorating. A study carried out by López et al in 2007, also suggested that, the negative association between CSR and CFP, because there will be unnecessary and avoidable costs when company start to engage with CSR programs, which is in conflict with the interest of a business. Similarly, studies of Jones et al (2007) show the relationship between corporate sustainability disclosure and share returns for Australian companies for 2003-2004 is negative but weak. Friedman (1970) added that, increasing the shareholders’ wealth is the only social responsibility of business. In a free society, businesses’ only responsibility is to create value for the entire shareholder as long as it obeys the laws and regulations. He argued that managers use CSR as a tool to benefit their own political, social or career agendas, at the expenses of shareholders, which then leads to conflicts of interests between managers and shareholders. Friedman (1970) also believes CSR should not be adopted by businesses because this is outside of their profit-making scope. However, progressing deeper into his argument, Friedman supports that the business should integrate CSR into their daily operations when benefit exceeds the costs and he did not believe that CSR should be treated as one of the main purposes of business. Jensen and Meckling (1976) developed Friedman’s (1970) view into agency theory, which illustrates how managerial stakes lead to increase in non-pecuniary spending by managers as they do not fully internalize the costs. According to this view, firm’s efficiency and performance could be improved if the resources devoted to CSR wisely spent internally. Wright and Ferris performed a test study in 1997, the results found that stock price reacted negatively when the sample company announced asset divestment plans in South Africa, which was aimed to avoid monopoly in the IT industry and they interpreted as being consistent with agency theory. After discussing these views from past literatures, the third hypothesis has been proposed as follow:

Sample and Research Methodology

The researcher has reviewed the financial information and annual reports of the UK’s 6 leading food retailers (See Table 1), as identified by Retail Economics (2017). The data used in this study is secondary data, which is the data that has already been obtained and published by a third party (Saunders et al, 2016). This is aimed to shed new light and perhaps to find any potential gaps in the current subject matter, by providing answers to the research questions (Bernard & Ryan, 2010). Although primary research can also contribute to this matter, secondary data collection requires less time compared to primary research, as long as relevant and appropriate sources are available for this subject (Bernard & Ryan, 2010). Due to time constraints, it is not possible to analyse the entire population of the companies in the UK. Therefore, a total of 6 UK retailers were selected for this study. This paper collects the data from a 5-year period from 2012 to 2017 to allow comparisons to be made. However, although it might represent the larger UK food retailers, it may not provide much insight into smaller size retailers or other types of supermarkets. The companies’ financial performance data were collected from the Financial Analysis Made Easy (FAME) database (FAME, 2018). The other part of the data is the companies’ CSR report, such as environmental issues and employee relations (ER). These were sourced from each selected company’s audited annual report to ensure its reliability. Data for supplier partnership were sourced from Groceries Code Adjudicator (GCA), an industry watchdog that monitors the relationship between retailers and their suppliers. In order to avoid biasness of the data, the information for customer relations (CR) were collected from a public survey company. Both Orlitzky et al (2003) and Moore (2001) used ER and CR as part of their measurements of CSR activities to determine the relationship between CSR and CFP. Moreover, Moore (2001) measured CSR with not only ER and CR but also included supplier partnership (SP) and community engagement (CE). Iwata and Okada (2011) supported the use of greenhouse gas emission (GHG) as they found GHG and business financial performance are positively related. Size is another important variable to consider, as Pamler (2012) believed that, CSR investment grows with the size of the firm. This echoes back to Arlow and Gannon (1982), who found firm size to be a significant variable. Moore (2012) also suggested that firm age should be considered as he found there is a link between age and the performance. These factors are used to control for additional factors that can affect business financial performance. The study will then use the Return on Asset (ROA) and Return on Equity (ROE) as the dependent variable to examine the relationship between CSR and business financial performance. The use of ROA and ROE echo the observations of De Klerk et al (2014), who used ROA and ROE to test the links between CSR and financial performance for 333 American companies. Below in Table 2 are the definitions of each variable used in the analysis for this study. This paper utilises multiple regression analysis (MRA) to help the researcher explore the impacts of CSR on the business financial performance of the 6 supermarket retailers in the UK. MRA allows the testing of multiple independent variables against the dependent variable, by examining the changes in dependent variables when one of or some of the independent variable is modified. The relationship between dependent variable and each independent variable can be tested with this method. Therefore, the regression formulas can be calculated as following: Both quantitative and qualitative research methods can be used by researchers. Quantitative method uses quantifiable and measurable data to establish facts and reveal patterns in study. On the other hand, qualitative research is primarily exploratory research and often involves less statistical calculation compare to quantitative method (Strauss et al, 1988). The aim of qualitative research is to understand the thoughts, opinions and motivations of individuals and groups as much as possible. It is also used to collect unquantifiable data for specific subject areas and to form hypothesis for later studies. There are numbers of advantages for quantitative research. The primary reason why researchers use this method is perhaps its ability to allow the broad and complex survey data, and the results can be analysed through statistical tools (Buglear, 2012). This method of research is also reliable and credible as long as model specification bias has been avoided by the researcher, by using well-structured and formulated forms of measurement (Berg, 2004). Since this method is numerical, the outcome of quantitative studies is not affected by the values and beliefs of the researchers. On the other hand, this method of research has a number of limitations. One drawback can be the amount of data available being insufficient, which will lead to inaccurate results. Quantitative method also requires a large set of sample data to be collected and studies; the larger the sample size, the more statistically accurate the result will be (Rahman, 2016). While both quantitative and qualitative research methods are valuable in different ways, quantitative data provides more suitable material for this research paper. This is because the matter being tested is quantitative in nature, there is a sample size of 6 companies with different types of variables and this will enable the use of statistics to analyse the results. Cappon et al (1990) stated that quantitative data is excellent for the establishment of potential relationship between a few variables. Palmer (2012) used this approach in his paper, which investigated the relationship between CSR and financial performance for 333 companies in the US. In addition, quantitative data has also been used by Moore (2001) to investigate the impacts of CSR on corporate operating results. This paper will utilise the deductive approach (Denzin & Lincoln,2011), which involves examining the empirical findings to validate the hypotheses set above and the findings will be used to test the validity of the hypotheses, as the purpose of this research is to test what is the relationship between CSR and CFP. Therefore, the quantitative method is more relevant and feasible for this research paper. Annual reports are a reliable and trustful source of information, as they are both internally and externally audited which add addition creditability to the quality of reporting (Bergstresser et al, 2006). One potential drawback of using annual reports could undermining the results of the study is that the company is committing fraud, which would mean that the information is not trustworthy. Publicly available sources can also have negative aspects. As there are issues with information sensitivity (Meek et al, 1995), problems with the depth of the information or data that is publicly available may arise, which could affect the ability of researchers to picture the whole scenario. Moreover, the fact that the data are secondary, the data is collected for a specific research question or just meet certain criteria. As a result, secondary data may provide broad information, but quality is not synonymous of appropriateness and information may be incomplete for the subject (Denscombe, 2017). Thus, the researcher is restricted on what they can analyse.

Empirical Findings and Discussion of Results

This is section will provide a detailed description of the statistical results and the analysis of the MRA model outcome, from which the proposed hypothesis will be tested against.

Descriptive Statistics

Below in Table 3 represents sample companies’ descriptive statistics over a period of 5 years, it also shows the dependent and independent variables with number of observations made.

Table 3 provides an overview of the financial and CSR data collected for the sample companies. Due the unavailability of ASDA’s 2017 financial statements, independent variables ER, GGE, CE and S only have 29 observations compare to 30 in SP, CR and A. Similar to this, ROA and ROE have only 29 observations.

The average company in the sample experiences a ROA of 2.88% while more than half of the firm-years in the sample show a positive ROA over the period of analysis (Median is greater than 0). Standard deviation is a measure of how spread out numbers is. With a standard deviation of 4.70814, which is 63% more than the mean, it is clear that not all sample companies are having the same issue. One reason why these sample companies have a low mean is because Tesco was involved in profit-overstating scandal in 2014. ROE has a high standard deviation of 20.00301, which reveals that sample companies are performing quite differently over the period 2012 to 2017, with minimum and maximum figure being a negative 90.17% and positive 10.45% respectively. One reason why some companies have a low ROE is they made a relatively large loss in 2014/15 financial year. According to FAME, both Morrison’s and Tesco experienced a profit slide in 2014/2015 financial year with a decrease in profit of 350% and 382% respectively. This is because both Morrison’s and Tesco suffered £1.27bn and £4.7bn loss in property write-downs respectively in 2014. Customers have chosen to spend more time shop online and use convenience stores to top up as they need rather than doing a single weekly shop. As a result, Morrison’s and Tesco had to close their existing stores and cancelled development projects to management their loss. Another point to notice is that the CR. The mean (0.61033) is very close to the median (0.63), with a small standard deviation of 0.12268. However, the minimum figure is 0.3 which is only half of the mean and median. This could provide a clear indication when analysing the influence of this variable on the outcomes. GGE also has the similar pattern; the minimum is only 38% of the mean (59.93186). With different companies have different policies and energy suppliers all around the country.

Table 4 presents the number of improvements on CSR programs from the period 2012 to 2017, due the unavailability of ASDA’s CSR data; some variables have only 23 observations. The result shows that during the past 5 years, sample companies have made 76 improvements on CSR out of 117 observations. Therefore, sample companies CSR programs have been improved in average over the past 5 years.

ROA Regression Results

The regression results for dependent variable ROA and the independent CSR variables are presented in Table 4. The relationship between ROA and independent variables is calculated to be 63.815%, which represents about two thirds of the variances in the dependent variable (ROA) can be explained by the independent variables. In other words, this shows that there is a median to low-high goodness to fit.

Employees Relation:

Figure 4 demonstrates the total employee remuneration as a percentage of total assets from year 2012 to 2017. Only Waitrose had a 3% cut in total employee remuneration, as 2017 had 2700 less people compared to 2016. Employee’s relation has a significant negative relationship with ROA (-45.45605). This could be attributed to the quality and number of employees in the company, as the sample companies are large organisations and have employees all over the country, some employees might have poorer performance than others. In other words, increase in employee relation does not necessarily mean increase in productivity (Mosley, 2011). However, this result contradicts the observations of Main et al (1996), who found that companies could benefit from the employee pay rise, with economic benefits exceeding the increased remuneration costs.

Greenhouse Gas Emissions:

GHG is shown to have a negative correlation with ROA (-0.02441), this indicates that the more greenhouse gas emissions produced the smaller ROA can be. This result echoes the findings of Tidy et al (2016), who suggested that consumers are becoming more receptive to environmental-friendly products. This result was proven by Wang et al (2014), who found a positive relationship between GHG and ROA, based on the data collected from 69 Australian public companies listed on the ASX 200. GHG has a P value of 0.7464 which is above the common alpha threshold of 0.05. The P-value is greater than 0.05, this demonstrates changes in the independent variable are less significance than those independent variables with a P-value smaller than 0.05.

Supplier Partnership:

Supplier partnership has a positive relationship with ROA (4.45969). This could be accredited to the discounts or offers offered by suppliers to sample companies when there is a healthy and long-term partnership exists. As a result, companies can reduce their cost of sales and eventually this leads to increase in profit. On the other hand, this result contradicts the observations of Mondini et al (2014), who observed 174 Brazilian companies and the results showed no statistically significant relationship between supplier relation and financial performance, this may be due the differences in sample sectors selected.

Community Engagement:

Community engagement has a small P-value of 0.00106, demonstrating it is a valid predictor for ROA. Despite with the low P-value, community engagement can be seen to have a negative effect on ROA (-11.65940). This may due to the information asymmetry on corporate giving; with consumers have little or none information about companies’ charity/community funds. Thus, charity/community funds have an adverse effect on ROA. On the contrary, Wang and Qian (2011) investigated 1453 Chinese firms for a period from 2001 to 2006 and found corporate philanthropy improves financial performance.

Customer Relation:

A weak positive relationship between customer relation and ROA can be observed, with a coefficient (1.99983). This indicates better customer relation leads to better ROA. It is apparent from Figure 4 that 2013/2014 has the lowest rate comparing to the other periods. This is due to the Tesco horse meat scandal in 2013, which hit the customer rate and lowered the average.

Size and Age:

Both size and age have a positive coefficient (0.00011 and 0.04584 respectively), with 0.00011 being the weakest out of all positive figures. These results are relative to Moore (2001)’s finding, with a similar correlation coefficient for age (0.417) but a slightly higher figure for size (0.751). This may be because, Moore (2001) used average turnover to measure the size of companies, whereas total assets were used in this paper.

ROE Regression Results

Table 5 presents the MRA results for the dependent variable ROE and the independent CSR variables. The R2 value of 0.86815 shows a better goodness to fit than ROA, as well as a greater F value of 19.75.

Employee Relation:

It is clear that there is a negative relationship between GHG and ROE, with a coefficient of -0.06285. This shows that the greater amount of CO2e produced the smaller ROE can be. Thus, less amount of CO2e produced will result in a greater ROE. Iwata and Okada (2011) affirmed this result in their paper, which they found that greenhouse gas reduction increases firm’s long-term financial performance. Similar to ER, GHG has a negative low t-value (0.32899) and high P-value (0.74542), implying that this variable has no significant influence on the model.

Supplier Partnership:

Community engagement seems to have the strongest negative effects on ROE, with a coefficient of -71.60032. Sometimes, charity event can also put companies in difficult situation. KFC, for example, in 2010, KFC organised “Bucket for the cure” event to raise money for Breast cancer, by selling fried chicken in pink buckets, which promoted anger that it was using the disease to sell unhealthy food. As a result, KFC did not just suffered losses in sales but also the damage to their reputation.

Customer relations:

Customer relation has a positive coefficient of 9.18971 with ROE. Williams and Naumann (2009) conveyed tha,t there are significant positive association between customer satisfaction levels and a company’s financial performance, more specifically the level of sales. Moreover, positive customer relation is also supported by Palmer (2002), who stated that higher customer loyalty lead to a better long-term financial performance. However, with a low t-value (0.40863) and high P-value (0.68695), means this variable is not statistically significant.

Size and age:

The size of firm has a positive but weak relationship with ROE, with a coefficient of 0.00002, which is consistent with the results from Orlitzky (2001), who review 41 existing literature and found that the relationship between organisational size and financial performance is positive, with a coefficient of 0.06. On the other hand, age shows a negative relationship with ROE (-0.10329). Moore (2001) confirms that firm age has a positive impact on company’s financial performance. This may be due to the time period of research, as the data collected by Moore was in the period from 1997 to 1999, and it may not still be relevant now


This research paper investigates the relationship between CSR and CFP and attempts to contribute to the existing body of research on this topic. This study aims to examine the level of influences of CSR on the performance of 6 UK leading supermarkets. The existing literatures have come to a variety of conclusion, with many findings contradicting each other. As retail industry is dynamic and ever-changing, it has been proved that, CSR in retail is unique and distinctive from that of other sectors, since the retail business is naturally complex and complicated. Based on the empirical findings of this study, there is no definitive or conclusive evidence to support or reject the hypothesis that, CSR has a direct impact on company’s performance. Both ROA and ROE are benefited from a better customer relation. This is consistent with the findings of Palmer (2012), who stated that improvement in customer relation will lead to a better long-term financial performance. However, it could be mentioned that from a statistical point of view, the relation is insignificant as shown by both t-value and P-vale. Therefore, a positive relationship might be found by chance. Future studies could collect a larger set of data for a longer period, to examine this. It can be seen from the regression results that, GHG has a small negative effect on ROA and ROE. This means that less greenhouse gas lead to greater ROA and ROE, which reiterates Iwata and Okada (2011) that, reduction in greenhouse gas results in better long-term financial performance. However, this result only considers the effect of GHG and has not taken into account other environmental factors, such as reusable energy, and recycling sources. Having other ways to fight environmental issues might attract potential investors as more and more people are realising the importance of environment protection. Supplier partnership was found to have a strong positive relationship with ROA and ROE. This is in line with stakeholder theory (Freeman, 1984) that firms can boost its performance by building and improving relationship with stakeholders, including suppliers. The industry watchdog GCA has revealed that Tesco, ASDA and Morrison’s did not fully comply with the standard supplier code as they purposely delayed the payments to their suppliers in 2014. Therefore, it may have been beneficial to collect the supplier satisfaction rate prior to 2014, when sample companies have not been warned about breach of GCA code, this could provide a true and fair view of the effectiveness of supplier partnership. The regression results suggested that there is a link between CSR and firm’s performance. However, further studies are needed to conclude definitive results on the topic, as some independent variable are not as significant as the other.

Limitations and future research

Similar to many research projects, the empirical results of this paper are subject to limitations. In turn, these drawbacks can have an important impact on the validity and reliability of the project and its empirical findings (Saunders et al, 2016) The primary issue is that this research did not include some control variables, which can also have an impact on firm’s performance. For example, sustainability is important, which is proved to have an impact on the performance of a firm. Another example is corporate governance, which is proved to have an impact on the performance of a firm. According to OECD (2015), those businesses that devote more resources in corporate governance policies and reports that have reported to have better operational and market results. Hence, the results could be altered when controlling for additional factors in the regression model. Additional variables could be added to the model to generate a better model. The second issue is related to the sample size of this paper, which consists of the 6 leading UK retailers. The results of 6 leading retailers may be good representation of the grocery retailers as the sample companies are the top supermarkets in the UK, but the findings may be less generalised for other type of retailers. This makes it harder to summarise and generalise the results for all the other retailers in the UK. With more than 100,000 independent and chained retailers in active across the UK, the validity of this paper can be limited (Saunders et al, 2016). Despite this, a small sample size was used to ensure efficiency in data collection as well as a better understanding of the relative data and, subsequently, a high-quality analysis can still extract precise results from a smaller sample, a larger sample size could be employed to allow safer generalisation and greater scope for research in the future. Last but not least, another limitation is the method of data collection. The data was entirely sourced from publicly available sources, which provide limited information due to information sensitivity (Meek et al, 1995). Another limitation is the use of annual reports in this paper as sample companies have different fiscal-year ends (some end in January and some end in March). This put companies in different economic conditions at the point when they finalise their accounts and reports, which could possibly add an uncorrected bias to this paper


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