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

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....

…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.

Effective management of an organization's stakeholder groupings increases CFP. The relationship between CFP and CSR determines the business's ability to turn CSR into a valuable stakeholder index. The SAI increases in the same ratio as its CSR action (Simionescu, 2015, 248). Therefore, SAI is the capability to draw a distinction, take advantage of opportunities arising, and act fast to enhance the relationship with stakeholders via CSR. The price of socially responsible engagements causes the CSR and CFP "U-shaped" relationship.

Nevertheless, as organizations spend more money on CSR engagements, they also spend the firms' resources more until a neutralization point, and they turn positive. SAI increases proportionally with spending on CSR. Organizations that spend a lot on CSR have demonstrated a satisfactory SAI stock, considering their CSR history. They, therefore, gain from such and report high CFP.

On the other hand, organizations that spend moderately on CSR also register lower CFP since their ability to build SAI stock was insufficient or did not focus on stakeholder relationship enhancement. Therefore, the CSR engagements of the organization were turned into losses and a mismatch between CSR and CFP (Simionescu, 2015, 248). Stakeholder relationship is improved through CSR, which leads to a mutual relationship that yields greater CFP and reduced costs.

Conclusion

Suppose the process through which CSR enhances CFP via CS, CI, and CCI, CA, and incorporating the stakeholder's ability is understood. In that case, there will be a better understanding of the dynamics, hence guiding managers to direct resources in specific CSR projects. Such a strategy will then encourage the company-stakeholder relations to grow as a core element of CSR. Corporate managers must understand the factors and the interplay to pursue CSR related activities…