Corporate Financial Performance and Corporate Social Responsibility

Factors that Affect the Relationship between Corporate Social Responsibility and Corporate Financial Performance: Customer-Focused

Executive summary

Establishing the link between financial performance and social responsibility is a research topic worth exploring. This paper seeks to examine the factors that influence how corporate social responsibility and corporate financial performance correlate. Such factors include i. the image of the corporate, ii. The satisfaction of customers, iii. how consumers identify with a company, iv. Competitive advantage, and v. the ability of the stakeholder to influence. The activities of CSR/ engagement that hold the potential to influence a corporation's financial performance are the ones that enhance the image of the corporate, satisfaction of customers, improved customer-company identification, and stakeholder capabilities. If such factors are ignored or even misunderstood, they can result in dire financial consequences for the company regarding revenue loss, thus, a poor performance.

Introduction

Even as CSR increasingly becomes imperative, more and more corporate are taking part in social responsibility campaigns. The outcome is different, though. The organizations that adopt CSR enhance relations with the core stakeholders increase trust, and strengthen their competitive advantage (Simionescu, 2015, 246). CSR also causes companies to enhance their credibility of strengthening the stakeholders, hence how the company relates with the stakeholders and vice-versa. This way, companies' transaction cost is significantly cut down, hence a financial advantage to such companies. Furthermore, as indicated by many scholars, a positive relationship exists between financial performance (corporate financial performance) and CSR.

On the other hand, some scholars regard the relationship between the two variables as mixed, negative, and even unpredictable. The negative or positive relationship or lacks of the same is not completely reliable. The latter observation holds water because there are also a couple of variables that influence the relationship between the two events. The discussion here will be conducted via a review of published literature.

Indeed, how financial performance relates to corporate social responsibility is a complex one. Thus developing a sustainable competitive advantage has been overlooked as an important outcome of the customer satisfaction matrix. Reputation is another critical factor that influences corporate performance and has been overlooked, even though it is a useful mediator (Algame&Pirzad, 2017, 1454). An alteration of a company's earnings to such a company's social responsibility activities is the key variance capabilities. Also, the social relationship between the company and the stakeholders is given a lease of life. The stakeholder's ability to influence the performance of a company stands for the power that a firm has to pick out, move into action, and gain from an opportunity that arises to enhance the relationship with the stakeholder via CSR.

CSR relationship with CFP and factors affecting this relationship

CSR was identified as the new idea way back in 1953. It happened when Howard Bowen provided its rough definition in a book titled: ``The Social Responsibility Of Merchants" The commitment of merchants follows the decisions and policies or desired activities based on the goals and values of the local society. Owing to special interests, several definitions of CSR exist. Such a difference has confused the understanding of the concept (Algame&Pirzad, 2017, 1454). Nevertheless, it can be inferred from the various definitions that the concept of business firms taking part in environmental and social issues is constant.

There is no doubt that the consideration for financial performance surpasses all other considerations in the global economy today. Hence, companies are valued based on financial performance and worth. The current trend and focus are trailed on how shareholder profits can be maximized (Algame&Pirzad, 2017, 1455). Indeed, the ideal functioning of the financial and economic system in all organizations is dependent on an effective and powerful financial sector. Meanwhile, despite the manufacturing and industrial entities' role, the service sector has emerged as a critical component because of its turnover, versatility, and interactive design.

To enhance organizational performance, CSR is an important factor. It can influence FP positively as outlined by the stakeholder theory or the negative impact theory (Ali, Danish &Asrar?ul?Haq, 2020, 167-8). The stakeholder theory points out that organizations should strive to keep their stakeholders happy. It further states that if such an end is achieved, there will be optima output from such stakeholders. Also, the theory stipulates the importance of paying attention to all the concerns raised by the stakeholders. It underscores that such action will ensure better stockholders' profits (Ali et al., 2020, 167). Elsewhere, some scholars argue that CSR hurts FP. It derives such a conclusion that maximizing profits is the primary preoccupation of any business venture. Thus, it is pointed out that managers are the shareholder agents, hence their core mandate being to enrich the shareholders. Therefore, the arguments postulate that managers should only accept the only action that produces profits for shareholders (Ali et al., 2020, 168).

Since CSR can affect the relationship between it and CFP, the question of what the factors that affect such a relationship are. Numerous research findings signal that the outlined factors inform the relationship, as mentioned earlier.

i. CI- corporate image(CI) (Ali, et al., 2020, 167)

ii. CS-Customer satisfaction(CS) (Ali, et al., 2020, 167)

iii. CCI-Identification of consumer and the company(Deng & Xu, 2017, 517)

iv. The competitive advantage(Algame&Pirzad, 2017, 1455)

v. SAI-The ability of the stakeholder to influence(Simionescu, 2015, 247)

Corporate Image (CI)

Corporate image is how the public views an organization- its reputation. It is also defined as the total assessment by customers on earlier results and behavior of a firm. Such an assessment defines a company's ability to deliver benefits to its various stakeholders (Algame&Pirzad, 2017, 1456). Furthermore, an organization's corporate image can be defined as the outcome of the perceptions of customers from previous encounters and both direct and indirect data, which is an outcome of the activities of such a company in the past. Reduction in the costs of operation, and a high returning customers' index, which leads to an increase in sales, the increase in the product's price is signals of a positive reputation. While numerous studies have indicated the relationship between an organization's reputation and financial performance, explaining the mechanisms of design and effects of the reputation of a bank is still a significant consideration.

The literature available and exploring the relationship between corporate image and a firm's performance signals that a positive CI leads to both financial and non-financial gains. Organizations with a positive image are not as prone to risks as those with a negative impression. The firms with a positive image appeared to enjoy more sales and greater returns than those reflecting a negative image towards their customers. The performance of a corporate depends on a positive CI. A positive CI leads to improved financial performance and client satisfaction. The rise in demand and hike in product prices, including loyalty by customers, improves its performance (Ali et al., 2020, 168). Customers have the will to pay more for services and goods if businesses have a good name.

Customer satisfaction (CS)

Customer satisfaction refers to how a customer feels towards a product or service. Customer satisfaction is a primary outcome of marketing, which works as a link between the many phases of consumers' behavior concerning buying products. For instance, if customers feel satisfied with a given service, they are likely to purchase again. Indeed, customers who are satisfied commonly talk to other customers regarding the experiences they enjoyed. They are then involved in positive advertisements for the company's service and or product. The converse is also true. Dissatisfied customers with engaging in negative advertising. Such behaviors as repeat purchases, and advertising by word of mouth, directly influence how viable and profitable a company is (Algame&Pirzad, 2017, 1456). Most organizations use satisfaction as a performance indicator. Customer satisfaction affects organizational performance. Its relationship is proportional, i.e., the more clients feel satisfied, the higher the organization's performance.

Consumer-Company identification (CCI)

Theories of organizational and social identity inform the development of CCI. When users compare the identity of the personnel and the company's identity, the company-consumer relationship comes into play. Such a relationship is when it satisfies aspects of self-definition (Deng & Xu, 2017, 517). The construction of identities, such as who one is, leads to the categorization of the self, which results from a comparison of consumers. The process emanates from a single stepwise attribute compared to a more Gestalt-like holistic match of personal defining traits such as values, personality traits, and demographic considerations. These traits define the category under focus. In this scenario, there is a similarity between CC and the idea of brand resource, a final stage in brand equity by customers. It describes the active and intense loyalty relations of customers and a firm by tackling the question: `` what about you and me?`` (Deng & Xu, 2017, 517).

There are several ways of arousing the identification of consumers. It can be done through the corporate entity's employees, customer groupings, and special projects. Of the possibilities, CSR carries great potential in arousing the identification of consumers. CSR has a great potential for such arousal because it captures three aspects of corporate identity fusion, i.e., the conduct of the organization members, communications, and the symbolic significance (Deng & Xu, 2017, 517). Consumers gauge the value of a corporate and its image primarily based on the CSR activities and how they affirm the corporate existence. Approval of the value of a corporate is informed largely by how CSR performs.

Three CSR initiatives, i.e., Cause-related Marketing, sponsorship, and philanthropy based on CCI, have been pointed out to have far-reaching effects on CCI(Deng & Xu, 2017, 517). The social responsibility behavior of a corporate firm can influence customer-company identification positively. When consumers identify with a firm, they generate a mental link to such an entity. They do not distinguish between the corporate and themselves because they share a common interest. Such an emotional bond can lead consumers to focus more on helping the organization achieving its goals. Therefore, CCI can influence consumers more to respond to CSR. Particularly, it could lead to the occurrence of extra-role behavior. The behavior of an extra role corresponds to the in-role conduct. In-role behavior is used to refer to company products (Deng & Xu, 2017, 517). Extra role behavior incorporates several elements such as greater loyalty, recommending and pursuing WOM actions to attract more clients.

Competitive Advantage

Competitive advantage refers to the fact that firms can produce more customized products and services than other companies. Such a move can be regarded as a competitive advantage in strategy (Algame&Pirzad, 2017, 1455). Indeed, competitive advantage cannot be overlooked when examining a company's competitive performance. It offers the company value to the customers so that it is greater than the value offered by competitors and the costs incurred by customers. Competitive advantage is an outcome of creating economic value for the services and products produced by a company.

Stakeholder Ability to Influence

The stakeholder theory talks about several stakeholders being important to the performance of a firm and its development. Stakeholders must be incorporated into the decisions made by a company. The following constitute stakeholders: suppliers, investors, competitors, government regulation, employees, labor unions, the management financial institutions, and educational institutions. Companies adopt CSR voluntarily. It is through such an approach that companies improve their relationship with important stakeholders. As indicated by the stakeholder theory, the more an organization connects with its various stakeholders, the more likely that the company will succeed over time (Simionescu, 2015, 248).

Similarly, the primary stakeholder theory regards organizations being a link to contracts. It highlights that the firm can raise its competitive advantage by decreasing contracting costs. Organizations that build relationships of trust with their stakeholders are capable of minimizing their cost of contracting. In the creation and maintenance of stakeholders' trust, organizations that pursue socially responsible engagements and sustain such activities as core business initiatives promote their relationship with stakeholders and the influence of the stakeholders.

Instrumental stakeholder theory is a critical aspect of stakeholder theory that emphasizes the essence of management of stakeholders, i.e., the major stakeholders of a company that can improve society's financial and economic performance. Organizations that develop positive stakeholder relationships could attract more customers and encourage employees, hence increasing productivity. These developments will lead to higher productivity. Effective stakeholder management enhances CFP by distinguishing its efforts and supporting organs in providing goods and services that can be trusted. The outcome is socially responsible customers or even greater economic resources from investors (Simionescu, 2015, 248). Therefore, it is clear that CSR done with safe and high-quality products and services increases customer satisfaction, hence increasing sales. The converse of an organization operating irresponsibly was found to be the cause of a decrease in CFP and lawsuits, which negatively affect an organization's financial performance.