A Study of Current Practice of Corporate Social Responsibility (CSR) and an Examination of the Relationship Between CSR and Financial Performance Using Structural Equation Modelling (SEM)

There has been a significant increase in interest in CSR in recent years (Gulyas, 2009; McGehee et al, 2009) and it is regarded as an important topic for research (Burton and Goldsby, 2009). Not only has this topic received academic attention but it is becoming a mainstream issue for many organisations (Renneboog et al, 2008; Nijof and Brujin, 2008). However, it has been noted that research on CSR in SMEs is quite scant (Burton and Goldsby, 2008; Cilberti et al, 2008). A second area of literature that remains unresolved is the relationship between CSR and financial performance (Park and Lee, 2009). Lastly, there also remains a lack understanding concerning CSR in Ireland (O‟Dwyer et al, 2005). After a thorough analysis of the literature in the area, semi structured interviews were carried out with a small sample of large firms and SMEs operating in Ireland, spanning a variety of industries. A survey was then developed and administered via internet and post; the analysis of which contributes toward filling these research gaps. In determining an operational meaning of CSR and uncovering the nature, type and extent of CSR of firms operating in Ireland, the research differentiates between large firms and SMEs. Thus this research contributes to the much needed insight into CSR in SMEs (Perrini and Minoja, 2008). While the majority of small firms believe they should pay attention to their social and environmental responsibilities, the main barrier to undertaking CSR experienced by SMEs is time, followed by cost and lack of human resources. This is in line with literature (Jenkins, 2006; Roberts et al, 2006). The perception that CSR is not related to the firms activities or that it is not a concern to SMEs are not considered major barriers by SME respondents. Described as the holy grail of CSR (Jorgensen and Knudsen, 2005) the relationship between CSR and financial performance represents the most questioned area of CSR (Angelidis et al, 2008). While a lot of research points in favor of a mild positive relationship (Orlizky et al, 2003), this connection has not been fully established (Neville et al, 2005; Prado-Lorenzo et al, 2008; Park and Lee, 2009) and the mechanisms through which financial performance is enhanced by CSR is not well understood ( Doh et al, 2009). This research uses a more detailed method of analysis than that which has been previously used to assess the relationship between CSR and financial performance, thus goes some way toward answering the call for a more fine grained approach to measuring this relationship (Hillman and Keim, 2001). In line with previous studies (Hitchens et al, 2003) a moderate positive relationship was noted between CSR and financial performance when analyzed directly. However, it is through an analysis of the indirect relationships that insight is developed. CSR was found to have a strong positive relationship with social reputation, employee attraction, motivation and retention and consumer attraction and loyalty but a weaker relationship with other business benefits proposed to result from CSR, namely; access to capital and business reputation. This dissertation concludes with a discussion of the implications of these findings as well as recommendations for further research in the area.