Explaining the complexity relationship of CSR and financial performance using neo-institutional theory

Golrida Karyawati P,Erwin Saraswati,Bambang Subroto,Sutrisno T

doi:10.1108/jabes-10-2019-0106

Golrida Karyawati P, Erwin Saraswati + Show 2 more

Open Access

https://doi.org/10.1108/jabes-10-2019-0106

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Abstract

PurposeThis study aims to prove the complexity of the relationship between CSR and financial performance (FP) and to decompose the complexity of the relationship using neo-institutional theory.Design/methodology/approachThis research employs a meta-analysis that integrates 55 various contexts studied between 1998 and 2017 using correlation coefficient as the effect size.FindingsThis study proves that the nature of the relationship between CSR and FP is complex and suggests that the analysis of the relationship between the two variables includes institutional factors to produce generalizable conclusions. Country characteristics, forms and dimensions of CSR, CSR measurements and FP measurements explain the complexity of the relationship between CSR and FP.Research limitations/implicationsFuture research is expected to include industry characteristics and the corporate governance model in the analysis of the relationship between CSR and FP. Differences in industry characteristics affect the selection of CSR forms and dimensions, bringing it the potential to influence the relationship between CSR and FP. The corporate governance model adopted by developing countries and developed countries also has the potential to be an institutional factor to influence the relationship between CSR and FP.Originality/valueThis research proves that the complexity of the relationship between CSR and FP is nature given. This research explores the factors causing the complexity of the relationship using neo-institutional theory, which, to the author's knowledge, has not been done by other researchers.

Highlights

According to Golrida et al (2018), the relationship between corporate social responsibility (CSR) and financial performance (FP) is very complex, because CSR practices are contextual and inherent in the institutions in which CSR is conducted
Using neo-institutional theory, this study examines the complexity of the relationship between CSR and FP and analyzes the institutional factors that cause the complexity of relations between the two variables
This study proves that the complexity of the relationship between CSR and FP is naturally given and suggests that the analysis of the relationship between CSR and FP includes institutional factors to produce generalizable conclusions

Summary

Introduction

According to Golrida et al (2018), the relationship between corporate social responsibility (CSR) and financial performance (FP) is very complex, because CSR practices are contextual and inherent in the institutions in which CSR is conducted. Individual testing of the relationship between CSR and FP will produce contextual conclusions and lack of generalization. CSR practices depend on the environment (Goll and Rasheed, 2004) through economic, legal, social, cultural and other institutional factors. The diversity of institutional characteristics leads to the complexity of CSR definitions and various CSR measurements. The dynamics of institutional characteristics lead to an increasingly complex relationship between CSR and FP. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

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