1. Introduction
During recent years, corporate social responsibility (CSR) has become a widely and frequently debated topic in the academic community given the effects that business-environment activities have on employees, clients, authorities, society, business partners, investors, environment, and local communities [
1]. In this sense, an ever-heftier number of companies aim at including CSR practices in their business strategies through sustained efforts. Companies adopt these practices voluntarily [
2]. Companies are more and more aware of the fact that they must accept the responsibility regarding the impact of their business activity on all the stakeholders and support, through voluntary actions, the communities where they perform their economic activity [
3]. CSR has existed in business practices for a long time. However, only a handful of companies have chosen to play a more active role in promoting the CSR policies. Such social responsibility practices are adopted because of either the pressure exercised by the government and society, or the benefits such practices have on the companies. Thus, social responsibility encourages companies to balance social responsibilities and environmental responsibilities with profit. Consequently, profit maximization or a continuous market-share increase should be the main objective for companies [
4]. As businesses evolve, others objectives keep on adding as well, to an ever-bigger extent, so as to lead to synergic effects. These objectives must also consider the effects of business decisions on stakeholders. The development of the relationship between companies, the state, and society, over the past two decades, has led to an increase in the pressure on the business environment to make serious efforts to adopt and/or implement a wide range of CSR activities [
5].
The ever-growing interest in CSR has drawn the attention of researchers and of the business environment on its legitimacy and its effects on company performance. Stakeholders play an important role in the financial performance of a company [
6]. Thus, companies have adopted CSR practices in nontax fields such as human rights, environmental protection, corporate contributions (sponsorships and philanthropic actions), local-community development, and workplace-related matters. Companies implementing CSR activities in their business strategy can strengthen clients’ loyalty [
7], boost the company image and reputation [
8,
9], offer a competitive advantage [
10], and attract and maintain the best employees [
11]. Thus, companies adopting CSR practices can increase their financial performance. Companies implementing CSR in their business strategy adopt different social-responsibility practices. Several factors influencing the decision-making of the companies in adopting CSR activities are as follows: company size, organizational culture, the stakeholders’ requirements, the labor market conditions, the industry in which the company operates, and the geographical area in which the company performs its economic activity [
12,
13,
14,
15]. The specialized literature also highlights the fact that CSR practices create additional costs for companies [
16]. Unless such costs produce positive elements reflected in added company performance, such costs can affect the company results, which, in turn, may lead to a competitive disadvantage [
17]. Friedman [
4] underlined that the only responsibility a company has is to increase shareholder wealth. Friedman followers argued that CSR only brings additional costs to the company, thus reducing shareholder wealth [
18]. Moreover, Winchester, et al. [
19] found not only a negative relation between CSR and company financial performance (CFP) but also showed that companies adopt CSR practices whenever their brand or image is affected. Researchers found a negative relation between CSR and CFP when market base measures were included in their analyses [
20], different control variables, as well as multiple-industries inclusion in the regression models [
21]. Hence, CSR activities continue to elicit doubts as to whether such initiatives may lead to an improved company performance and whether they are a source of sustainable competitive advantage.
Most studies analyzing the relationship between CSR and company performance are performed in the case of developed countries and very few studies were performed in the case of developing or emerging countries. CSR in developing countries or emerging countries is understood as a philanthropic, public-relation, or marketing activity [
22]. Corporative responsibility should be explicitly understood as a responsibility toward stakeholders. The problem of understanding CSR was identified by Freeman et al. [
23] as being nothing else than efficient stakeholder management. In another conception, CSR regards those practices meant to alleviate stakeholder suffering caused by capitalism and left unresolved by governments [
24].
Pan et al. [
25] analyzed the relation between CSR and CFP on listed Chinese mineral companies from 2010 to 2013. Their results showed a positive and significant relation between CSR and CFP. Moreover, the authors’ empirical study demonstrates that CSR practices toward shareholders, employees, the environment, suppliers, customers, and consumers increase CFP. Similarly, Chou et al. [
26] found that listed companies from Taiwan adopting CSR practices enhanced their financial performance. The study of Senyigit and Shuaibu [
27] on emerging countries showed mixed results. The authors examined listed banks from Turkey and Nigeria over the period from 2009 until 2014. Their results showed that CSR activities positively influenced listed banks in Nigeria, whereas in the case of Turkey the results did not hold.
Romania is a developing country [
28] and it is included in the Secondary Emerging Market category [
29]. Therefore, the current paper aims at identifying existing CSR practices and at empirically investigating the relation between CSR and CFP for firms listed on the Bucharest Stock Exchange (BSE) implementing such activities. CSR practices are already being implemented by a vast number of companies listed on the BSE, in various fields of economic activity. A part of these companies reports their CSR activities. We notice the existence of various CSR indices worldwide, such as the Dow Jones Sustainability Index series (DJSI), Calvert Social Index (CSI), FTSE4GOOD series, FTSE Johannesburg Stock Exchange Socially Responsible Index (JSE SRI), Sao Paolo Stock Exchange Corporate Sustainability Index (ISE), and KLD Global Sustainability Index Series (GSI). Nevertheless, as the companies listed in Romania are not bound to report CSR practices, and a CSR index is not reported at BSE, few papers have been able, so far, to precisely identify what this concept represents in the Romanian context and whether companies truly increase their financial performance by implementing these activities. Thus, the present paper in this respect is found to be insufficient research for the companies listed on the BSE regarding the relationship between CSR and company performance. Unlike other studies that analyzed this relationship on the case of Romania, where CSR was considered a dummy variable or a financial indicator as proxy variable, this study aims to develop a CSR index in order to examine whether these practices influence CFP. Moreover, for a comprehensive understanding, we developed not only a CSR index for companies listed on BSE, but we also developed specific indices for CSR policies based on practices adopted by the companies in relation to the company stakeholders. The study of the CSR-CFP relation has shifted toward analyzing the aspects that link these two concepts [
30]. Our study shows that CSR practices with employees, environmental protection, and ethics enhance CFP.
The rest of the paper is organized as follows:
Section 2 approaches the literature review,
Section 3 describes the paper methodology,
Section 4 discusses the empirical results, and the final section presents the paper conclusions.
2. Literature Review and Hypotheses Development
Corporate social responsibility is defined as the actions carried out by companies positively influencing society where they perform their economic activity [
31]. CSR is a concept encouraging certain volunteering-based social activities or responsibilities towards the stakeholders of a company [
8]. Such social activities undertaken by the companies are not directly linked to the business, but their effects have an indirect positive impact on company activity [
32,
33,
34]. For instance, as a result of these social activities, the stakeholders can have a positive image of the company practicing such social activities, the morale of the employees working in such a company can be amplified, and all these can generate a positive effect on company productivity [
32,
35]. Moreover, companies implementing CSR activities increase not just their performance but the firm value as well [
36,
37]. Although various definitions have been put forward for the CSR concept, there is still no unanimously accepted definition [
38]. Consequently, some researchers question the applicability, standards, and principles of the CSR, as well as its legitimacy, since no clear CSR limits exist [
39,
40]. The numberless attempts at precisely defining the CSR field has led to increased confusion in the field [
41]. CSR study is difficult in the absence of a well-defined analytical framework [
42]. The lack of an unanimously accepted definition of the concept of CSR and of its norms, regulations, and study methodologies has led to different results as regards to the analysis of the relationship between CSR and CFP.
We say that CSR is a commitment undertaken voluntarily by companies in order to respond to the expectations coming from the employees, clients, environment, local communities, as well as to the commitment to support education and healthcare performance, aiming at increasing the financial performance in the long run, but also sustainable business development. Thus, the effects of CSR activities determine the investment strategy accruing to projects such as the CSR.
As mentioned previously, the paper objective is to analyze the relation between CSR and CFP. Furthermore, the study aims at thoroughly researching the relation between policies adopted by companies in the form of CSR practices and CFP. In this paper, we will refer to a policy as a set of practices adopted by the companies toward stakeholders in order to reach their long-term goals. Thus, this paper aims at investigating the effects of the CSR policies adopted by the companies as practices from a multidimensional perspective, namely focusing on the six types of stakeholders (four direct stakeholders and two indirect stakeholders). The direct stakeholders are employees, clients, the environment, and local communities. The CSR practices of companies completing government activity in activity areas related to education (hereinafter referred to as education-related CSR practices) and to healthcare (hereinafter referred to as healthcare-related CSR practices) are in this paper identified and considered to be indirect stakeholders, being important in a wider concept to CSR activity, alongside the four previously mentioned stakeholders. Healthcare- and education-related CSR practices strengthen the commitment of employees and local communities as they start to identify themselves with the company [
43]. Therefore, according to Dumitrescu and Simionescu [
43] this leads to a higher performance of the companies. The understanding and development of these six types of stakeholders make up a complete CSR matrix, resulting in increased competiveness [
44] and sustainable company development in the society where it performs its activity [
45]. A comparison is therefore required of the effects various CSR policies have in relation to the six types of stakeholders on company performance by establishing some connections between the CSR and the CFP for the companies making up the basis of this scientific paper.
Previous studies have shown the existence of a positive relation between CSR and CFP [
15,
46,
47,
48,
49,
50,
51,
52], as well as a negative relation or the lack of a statistically significant relation [
53,
54]. Thus, the following hypothesis is developed:
Hypothesis 1 (H1). There is a positive relation between CSR and CFP in the case of companies listed on the BSE, ceteris paribus.
Numerous researchers have considered, along the years, many elements of the CSR concept [
55,
56,
57,
58,
59,
60,
61]. In their studies, these authors examine CSR activities regarding their impact on company employees. These study results have shown that the companies performing CSR activities relate better to the employees, clients, shareholders, environment, suppliers, and the local communities. According to the same authors, companies create added value through an appropriate communication and understanding of the company stakeholders’ requests. From country to country, the pattern of communication and performance of the CSR-type activities is certainly different in terms of economic development, culture, religion, traditions, government actions, and the severity of the social and environmental problems the country faces [
62,
63].
The employees, the human element of a company, are an important resource in implementing the company strategy [
64]. Volunteering Australia [
65] emphasized that almost half of the world’s largest companies believe that motivating employees is key to the CSR actions and their involvement [
65]. Each employee in a company is not only an important resource to it, but is also considered a valuable player in the company. The employee value resides in their competence, in the absence of which the company would lack both the performance and the competitive advantage [
66]. Davenport [
67], Graves and Waddock [
68], and Wood [
69] consider the following to be CSR initiatives for and related to the employees or practices ensuring an agreeable working environment: responsible human-resources management (nondiscrimination at the workplace, promotion at the workplace), granting fair rewards and a correct employee waging system, open and flexible communication with the employees, and investment by the company in the employees’ personal development.
Companies can attain a competitive advantage through strategies such as cost leadership, marketing differentiation, and innovative differentiation [
13]. These are strategies used by corporations in order to improve their employees’ commitment, and to include factors such as closer community, better collaboration, employee loyalty and dedication to the company, and more active involvement initiatives at the workplace. Furthermore, the costs the companies bear with CSR practices are overcompensated by the benefits they gain as an effect of boosted morale and increased productivity of the company employees [
70,
71,
72]. Post et al. [
73] recommend that companies should develop the employees’ human capital, this being a specific action related to the competitive advantage. Thereafter, the same authors show that dedicated employees can help reach the company objectives. Managers and employees determine the quality of the work reflected in the company product and services, which further expresses the company competitive advantage [
74]. Thus, this paper develops the following hypothesis:
Hypothesis 2 (H2). Employee-related CSR practices have a positive influence on the CFP.
Clients are the most important stakeholder for the company, and they are perceived as a main driver for corporations to adopt CSR practices. Client satisfaction can be defined as a general evaluation regarding the purchase experience and the consumer’s total consumption, over time, of a certain product or service [
9,
75]. Fornell et al. [
76] stated that client satisfaction is a determining factor of company profitability in the long run, and of its market value [
77]. These reasons are considered to be driving factors for companies implementing and applying CSR practices. Davenport [
67] and Wood [
69] developed theoretical frameworks regarding the CSR activities oriented towards the concerns of the client, such as: respecting consumers’ rights, providing quality products and services, and providing correct information regarding the products and services offered by companies. The specialized literature shows that the CSR actions carried out by companies manipulate market value insofar as client satisfaction is concerned [
78,
79,
80]. The same authors mentioned, however, that some aspects of CSR practices have an innovative character, and contribute to enhancing the quality of the products and/or services offered by the companies through CSR activities, which increase client satisfaction. The studies carried out by Lee and Heo [
81] showed that client satisfaction is influenced by CSR practices, thus positively influencing CFP. Therefore, based on the specialized literature, the following hypothesis is developed for companies listed on the BSE:
Hypothesis 3 (H3). Client-related CSR practices have a positive influence on the CFP.
Environmental protection is considered to be of public interest [
82]. Mishra and Suar [
83] highlighted that performance in the field of environmental responsibility activities is boosted by the improvement of three aspects. These aspects regard the use of recycled materials and other resource-saving programs in product technology; technological processes such as efficient-production systems; and management systems such as continuous employee-training programs and environment auditors. The researchers’ evidence suggested that proactive environmental management increases the market value of a company, as well as its reputation and financial performance [
84,
85].
The organization is responsible for protecting the environment. Many organizations do this voluntarily. Therefore, through environment-protection practices, companies must minimize the actions that might harm natural resources. Moreover, the efficient management of pollutant emission and waste disposal needs to be correlated to a maximization of company resource productivity and efficiency [
67,
69].
Previous research that focused on studying the relation between environment performance and the CFP highlights important arguments regarding the result of such a relation. Elsayed and Paton [
86] emphasized that the “faith of the win–win strategy followers” [
87,
88] is that the improvement or protection of the environment can benefit not only the company interest, but also the company mutual aid at a wider level” [
86]. Nevertheless, Palme, et al. [
89], and Walley and Whitehead [
90] argued that companies must make a compromise (at least, in the short term) between environmental performance and the CFP. McWilliams and Siegel [
3] support the argument of Elsayed and Paton [
86], according to which the “optimal level of the CSR investments for a company can be evaluated in the same way the other investments are evaluated, by taking into account the marginal costs and benefits” [
86]. Studies, however, showed that a positive relation exists between environmental CSR practices and CFP [
3,
86]. Consequently, the following hypothesis is developed:
Hypothesis 4 (H4). Environment-related CSR practices positively influence the CFP.
The companies take the opinion of the public at large into consideration when evaluating their social activities. The community is one of the most important CSR activities [
2]. The stakeholders’ education, healthcare, housing, and security are CSR activities related to the local community. Unlike the categories of stakeholders consisting of employees, clients, and the environment, local communities are a more important category for the companies’ stakeholders, since they consist of members of the public at large, of the society where the company performs its economic activity. Lesser [
91] showed that, once a company grows in size, geographical expansion, and complexity, increased attention is granted to the practices supporting the communities, which could improve the company performances. Husted [
92] proved that, when companies take social-responsibility actions directed at local communities, they benefit of advantages such as image improvement. Unlike this opinion, Berman et al. [
93] underlined that the empirical evidence shows a negative relation between CSR practices addressed to the local communities and CFP. Considering these insights, the following hypothesis is elaborated:
Hypothesis 5 (H5). There is a positive relation between CSR practices related to local communities and CFP.
Many companies in Romania perform CSR activities in the field of education and healthcare. This study identified these two activities as separate CSR elements, CSR activities related to education and to healthcare, respectively. The companies develop social practices in activity sectors supporting or/strengthening business strategies in fields such as education and healthcare. Thus, the following hypotheses are developed:
Hypothesis 6 (H6). There is a positive relation between education-related CSR practices and CFP.
Hypothesis 7 (H7). There is a positive relation between healthcare-related CSR practices and CFP.
5. Conclusions
The present paper studied the relation between CSR and CFP for companies listed on BSE over the financial year of 2014. In order to examine in detail this relation, we investigate CSR policies adopted by the companies as CSR practices on CFP. In this sense, we developed seven hypotheses in order to analyze CSR-CFP (first hypothesis) and CSR practices-CFP (six hypotheses). The policies were focused on six types of stakeholders (from where the hypotheses were developed) considered to have influence through CSR practices on CFP. In order to validate our hypotheses, a questionnaire was developed and implemented. The sample consists of 62 companies listed on BSE, respectively those that answered to our questionnaire. The questionnaire data were processed by using PCA, the tetrachoric correlation matrix from which seven PC, seven specific CSR indices, respectively, and a CSRGI, resulted. The novelty of this paper resides in the use of incorporating qualitative with quantitative methods in analyzing the relation between CSR and CFP, as well as CSR practices that influence CFP.
We validated our hypothesis using OLS regression models where integrated CSRGI and CSR specific indices were integrated. In order to detect if there were specification errors, we used in all the models a robust standard error to control for heteroskedasticity. Thus, our results were robust.
The empirical evidence shows the existence of a positive and statistically significant relationship between CSR practices and CFP. The companies listed on the Bucharest Stock Exchange should develop or continue developing their understanding of and capacity to integrate CSR practices in their business strategies, since these activities can increase performance, competitive advantage, strengthening the company position on the addressed product and/or service market. The CSR policies implemented as CSR practices regarding the employees and environment protection are the most important activities adopted by the companies. These practices positively influence CFP. Moreover, CSR practices toward employees’ healthcare, security, and safety at their workplace, as well as personal development and social inclusion, led to added development in terms of CSR practices. The specific indices IEmployees and IEnvironment showed a positive influence on CFP, i.e., ROA and ROE.
Companies that consider implementing quality of various products and services based on international standards and regulations (
IStandards), as well as taking into consideration the environment in their business strategy, improve their CFP. By developing a CSRGI and specific indicators regarding CSR practices, the benefits of implementing CSR in the company business strategy were validated using empirical methods. According to the specialized literature, business decisions should be governed by or should include moral principles and codes of conduct, namely, company ethics policies (
IEthics). In this sense, the specific index from our study regarding the companies’ policies ethics proved to have a significant positive influence on CFP. The way the company is perceived by the stakeholders is very important. The companies that became aware of CSR benefits and understood the CSR concept created a socially responsible business model. Such companies communicate with the stakeholders, thus consolidating the company image, competitive advantage and, implicitly, CFP [
120]. Thus, the specific index
IAwarenessCSR positively influences CFP.
The field of CSR is still unchartered territory, open to exploration, at an early stage of development in Romania; consequently, the study results bring a significant contribution to the specialized literature as regards to this topic in the context of the companies listed on the Bucharest Stock Exchange. Thus, this paper proposed a CSR definition for emerging and developing countries, identified six stakeholders able to influence company performance (company employees, clients, environment, local communities, education, and healthcare), and designed a CSR index validated through empirical methods. Moreover, our study shows the importance of the CSR practice on the company performance, and the role the stakeholders can play in the sustainable development of a company.
According to Directive 95/2014 of the European Union [
121], companies need to report their CSR practices as well as their strategies regarding these social actives since 2017 or during 2017. Thus, in 2018 the number of companies that report CSR activities should increase or have their social responsible practices enhanced. The current study is limited to a single year of analysis, i.e., 2014. Therefore, as a future research direction, this approach may be extended with a longer period of investigation given the European Union Directive [
121]. In this manner, the results can be compared, whether or not the results hold in time. Another important comparison in future direction of research might regard the sustainability of CSR policies, particularly the social activities adopted by the companies.