CSR Strategic Approach, Financial Resources and Corporate Social Performance: The Mediating Effect of Innovation

Abstract

Given the current undefined relational effect between corporate financial performance (CFP) and corporate social performance (CSP) and the potentially myopic behavior of managers, this paper answers the call from some scholars to contribute towards a better understanding of the relationship between CFP and CSR. Different from other papers, it does so by analyzing the role of innovation activities as a mediator between CFP and CSR, applying a regression and mediation analysis between firms’ financial resources, innovation initiatives, and social and environmental performance. The results demonstrate that innovation is a critical factor in the relationship between CFP and corporate social performance (CSP) as it enables organizations to respond to new economic, social and environmental challenges faster and better than organizations that are not able to innovate. Therefore, the investment of financial resources in innovation initiatives is one of the most important levers to pursue and to increase CSP.

Does financial availability sustain financial, innovative, and environmental performance? Relation via opportunity recognition

“…Firms with stable financial position prefer to invest in innovative activities, whereas firms with financially depressed position do not interest in the investment of innovative practices, social activities, and environmental practices (Christmann & Taylor, 2001;Kiron, Kruschwitz, Haanaes, & von Streng Velken, 2012;Ruggiero & Cupertino, 2018).…”

Inclusions in and Exclusions from the S&P 500 Environmental and Socially Responsible Index: A Fuzzy-Set Qualitative Comparative Analysis

“…In their meta-analysis of the CSP-CFP literature, Wang et al [21], conclude that prior CSP is related to CFP but not contrariwise. We highlight the contribution by Ruggiero and Cuppertino [15], as they adopt a similar approach to ours for the measurement of CSP in terms of inclusion in or exclusion from the Global 100 Index (not an SRI index, but an annual ranking of the top 100 worldwide corporate leaders in CSR). Through a logistic regression analysis, they find a significant positive correlation between CFP and CSP, considering the mediating (more than moderating) effect of innovation.…”

“…Besides the inconclusive results of the vast literature devoted to the analysis of the CSP-CFP link, there is also a lack of consensus regarding the direction of the causality between CSP and CFP. Although previous literature has predominantly focused on the impact of CSP on CFP [14], some studies acknowledge that companies with a good CFP could have extra resources for the improvement of their CSP [15,[31][32][33][34][35] and support the existence of a bidirectional relation or virtuous circle between CSP and CFP [14,30,[36][37][38]. However, studies on this issue present inconclusive results.…”

“…Considering CFP dynamically allows us to deal with the debate on CSP and CFP concurrency in time [14]. In contrast to Ruggiero and Cuppertino [15], we do not consider any time lag as we are neither looking for causality between CFP and CSP, nor explicitly advocating the slack resources theory (although it does influence our choice of CFP measures), that is, we do not want to test if the availability of extra resources in one year increases CSP the following year. Instead, we want to test whether a high CSP leading to an inclusion in an SRI index is accompanied by a high CFP (Proposition 1a.)…”

“…Therefore, we argue that a good CSD is a necessary condition to show a good CSP, which leads to the company's inclusion in a SRI index, and that a poor CSD can explain a poor CSP, which leads to an exclusion from a SRI index.CFP is also an essential condition for the inclusion in or exclusion from any stock index, and hence for sustainability-focused ones. Although previous research has mainly focused on the impacts of CSP on CFP [14], the reverse causality has also been explicitly analysed [15]. We also target this less developed strand of research by focusing on the influence of CFP on CSP and arguing that firms with superior CFP can be included in a sustainability index because a superior CFP enables a good CSP, which results in being listed or maintained in the index.…”