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Beyond the business case? Retracing the walk of C orporate social
responsibility and financial performance relationship in the Oil and Gas
sector
Article in Corporate Social Responsibility and Environmental Management · December 2023
DOI: 10.1002/csr.2676
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DOI: 10.1002/csr.2676
RESEARCH ARTICLE
Beyond the business case? Retracing the walk of Corporate
social responsibility and financial performance relationship in
the Oil and Gas sector
Paolo Esposito 1,2
|
Zubair Ahmad 3
1
Department of Law, Economics, Management
and Quantitative Methods, University of
Sannio, Benevento, Italy
2
WSB University, Gdansk, Poland
3
Department of Management, Finance and
Technology, University LUM “Giuseppe
Degennaro”, Casamassima, Italy
|
Vincenzo Riso 4
| Noman Mustafa 3
Abstract
The relationship between corporate social responsibility (CSR) and financial performance (FP) has not been thoroughly investigated in the literature. In particular, the
nature of the relationship between the two constructs has not been investigated in
depth. Therefore, drawing on the resource-based view and Stakeholder theory, this
4
Department of Management, University of
Verona, Verona, Italy
study theoretically and empirically examined the relationship between economic perspective of CSR and FP analyzing the mediating role of competitive advantage under
Correspondence
Vincenzo Riso, Department of Management,
University of Verona, Cantarane street,
24, Verona 37100, Italy.
Email: vincenzo.riso@univr.it
the empirical settings of the downstream Oil and Gas companies of Pakistan. Based on
the 178 responses from the managerial level employees of these firms, the empirical
outcomes stands with the assumption of the study that the implementation of CSR in
the Oil and Gas industry is economically driven and have a positive relationship with
FP, while competitive advantage partially mediates the relationship between economic
CSR and FP. The outcomes of the study carry the important managerial and practical
implications for Oil and Gas firms which are fallen in the business case.
KEYWORDS
competitive advantage, corporate social responsibility, financial performance, Oil and Gas
industry, resource-based view, stakeholders theory
1
|
I N T RO DU CT I O N
Margolis & Walsh, 2003; Roman et al., 1999; Van Beurden &
Gössling, 2008; Wang & Choi, 2013) whereas others find this rela-
Corporate social responsibility (CSR) is widely accepted as a vital
tionship apparently dubious in nature. (Griffin & Mahon, 1997;
approach for firms resulting in greater competitive branding and posi-
McWilliams & Siegel, 2000; Ullmann, 1985; Vishwanathan, 2010;
tive financial performance (FP) (Baughn et al., 2007; Currás-Pérez
Wood & Jones, 1995). In midst of this debate it appears how the
et al., 2018; Lii et al., 2013; Turyakira et al., 2014). Among many defini-
relationship of CSR and FP remains inconclusive which subsequently
tions of CSR, we can define it as “a firm's commitment to maximizing
open the research avenues for further theoretical and empirical examina-
long-term economic, societal and environmental wellbeing through
tion of this relationship. Built on this, the current study attempts to fulfill
business practices, policies, and resources” (Du et al., 2011). In a con-
three important research gaps in the literature of CSR.
temporary proposition of CSR, the “business case” for CSR explains
First, the recent strand of literature focused on the indirect rela-
that firms are poised to achieve sustainable FP given that they are will-
tionship of CSR and FP with intervening mechanism (Ali, Danish, &
ing to adopt sustainable environmental, social, and governance prac-
Asrar-ul-Haq, 2020). The direct theoretical and empirical examination
tices (Mustafa et al., 2022; Yang & Stohl, 2020). Yet existing literature
of the association of these constructs provided the ambiguous out-
on financial implications of CSR for firms takes two contradictory
comes (Galbreath & Shum, 2012; Wagner, 2010). By utilizing the
positions. (Mishra & Modi, 2013). Some scholars supports the evidence
resource-based view (RBV), this study theoretically and empirically
of positive financial implications of CSR (Griffin & Mahon, 1997;
investigated the mediating role of competitive advantage between
Corp Soc Responsib Environ Manag. 2023;1–14.
wileyonlinelibrary.com/journal/csr
© 2023 ERP Environment and John Wiley & Sons Ltd.
1
2
ESPOSITO ET AL.
the relationship of CSR and FP. Second, Kitzmueller and Shimshack
es et al., 2023; Esposito & Ricci, 2021). Indeed, stakeholders
(G o
(2012) worked on the economic aspect of CSR urges more theoretical
have the ability to influence the behavior of company managers,
synthesis and empirical research into the specific economic CSR
directing them toward the satisfaction of their interests, seeking
assumptions. This line of research is further strengthened by McWil-
their legitimacy (Friedman, 1984).
liams and Siegel (2011) which explained how to integrate the RBV
Many
scholars
have
highlighted
how
the
influence
of
theory of competitive advantage. Moving from these recommenda-
stakeholders is often the basis of CSR-oriented policy choices by com-
tions this study provides theoretical and empirical investigation about
panies (Andersson et al., 2023).
firms strategizing CSR with a strong reputation and image, better
Furthermore, according to Iazzolino et al. (2023), some business
R&D structure, and managerial talent hold a competitive advantage
sector like oil and gas, renewable energy, and coal companies are
over their competitors in an industry and this subsequently
more sensitive to implement CSR practices in their strategy, addres-
strengthens their FP. Third, recent literature stream of CSR and FP has
sing these companies policies towards ESG issues.
shifted its focus from Western countries to the Eastern emerging econ-
The pressure to develop CSR strategies in resource management
omies. Because of the overarching research on corporate data from the
also derives from the international policy promoted by the United
western world, firms operating in eastern countries like Pakistan have
Nations with its Sustainable Development Goals (Esposito et al.,
mostly remaining unknown despite the indications of CSR initiatives in
2021; Esposito & Dicorato, 2020): in particular, more objectives such
recent studies (Ali, Asrar-ul-Haq, et al., 2020). Only a handful of recent
as 7 “affordable and clean energy,” 9 “Industry innovation and
studies started give attention to CSR and FP in Pakistani public and pri-
infrastructure,” 12 “Responsible consumption and production,” and
vate sector firms (Ali, Danish, & Asrar-ul-Haq, 2020; Javed, Akhtar,
15 “Life on land” seek to direct companies' policies and strategies
et al., 2020; Khan et al., 2019) Moreover, recent literature emphasizes
towards improving their impact from both an environmental and
the research avenues on CSR in the Oil and Gas industry since the firms
social point of view (Ceglia et al., 2020; Ceglia et al., 2022; Dinçer
within these industries are responsible for the implacable effect on the
et al., 2023; Kurniawan & Arief, 2023). In this context, it becomes rel-
social and the natural environment which makes them rather much
evant to understand the nature of the CSR practices implemented by
answerable to their stakeholder as compared to firms operating in other
companies deemed “sensitive” to sustainable development issues. In
manufacturing industries (Tina Solima-Hunter, 2022). Therefore, cumu-
the case of the Oil and Gas sector, it is useful to analyze, through the
lating the aforementioned gaps in the literature, this study tested the
perspective of stakeholder theory, whether CSR practices can have a
research model under the empirical setting of downstream Oil and Gas
positive effect on FP and can lead to the acquisition of competitive
companies of Pakistan. The outcomes of the study indicated the posi-
advantage. Thus, a positive relationship would suggest a “business
tive association of economic CSR and FP whereas competitive advan-
case” context for companies in this sector, where the economic per-
tage partially mediated this relationship
spective of CSR has great relevance. It would also confirm what has
In doing so, this study answers the two important research questions which are as follows
been stated in the literature by scholars including Nilsson (2023),
Akporiaye (2023), and Kaupke and zu Knyphausen-Aufseß (2023).
RQ1. What is the relationship between economic CSR
and financial Performance in Oil and Gas firms?
3
RQ2. What is the role of competitive advantage in the
3.1
HYPOTHESIS DEVELOPMENT
|
|
Economic CSR
relationship between Economic CSR and financial
performance?
As CSR continues to develop, one of its primary components, economic CSR, has been the subject of intense discussion among aca-
The article is arranged in the following sequence. First, theoretical
demics and researchers for decades. From Smith (1950) theory of free
background and an overview of literature are represented with the
market economy to Friedman (1984) perspective of CSR and later,
analysis of the constructs (economic CSR, FP, and competitive advan-
economic CSR has been connected to a number of economics ideas
tage) and the conceptual model is presented in line hypothesis of the
such capital accumulation and distribution, resource allocation, and
current study. Next, the methodology used for data collection of the
value creation, among others.
current study is represented. Finally,statistical results, discussion and
final reflections is reported in the last part of the paper.
Since its inception, CSR has piqued the keen interest of academics, researchers, industrialists, and legal professionals from all
around the world. While the focus of scholars remain on other aspects
of CSR, such as the environment, law, ethics, and corporate gover-
2 | S T A K E H O L D E R TH E O R Y : A
CONCEPTUAL FRAMEWORK
nance, they have also given the economic aspect of CSR a serious
The influence of stakeholders in decisions and in the definition
conducted in society is to achieve “profitability” and that this notion
of company strategies is increasingly stronger and decisive
supports the Friedman (1984) perspective on CSR through the
consideration (Esposito et al., 2021; Esposito & Ricci, 2016).
Carroll (1991) highlighted that the ultimate goal of firm activities
3
ESPOSITO ET AL.
economic components of CSR. This viewpoint also endorsed by the
customers are prepared to pay higher prices in exchange for value
“Nexus of Contracts” proposed by Jensen and Meckling (1976) which
(McWilliams & Siegel, 2000). The theoretical underpinnings of
contends that businesses are nothing more than a nexus of contracts
these approaches to profit-maximizing CSR involves competitive
where numerous suppliers of production-related inputs are joined
advantage theory of Kramer (2011), stakeholders management
together for financial gain. Yet this view has long been contended by
from Friedman (1984), and RBV of Branco and Rodrigues (2006).
none other than Bowen (1953) who floated the idea of CSR as the
possible mechanism through which businesses can reach the goal of
social justice and economic prosperity by creating welfare for a broad
3.2
|
Financial performance
range of social groups, beyond corporation and their shareholders. In
the Bowen (1953) view of CSR largely reflect in the theory stake-
FP has been extensively used as a variable in many studies by numer-
holders management (Freeman, 1984; Freeman et al., 2010) which
ous academics and researchers. In studies of strategic management, it
also emphasized that firm's obligations are not only with its share-
has primarily been employed as a dependent variable as a construct of
holders but also with multiple groups or individuals (Donaldson &
organizational performance (Rowe & Morrow, 1999).
Preston, 1995).
According to the literature on FP, this variable can be operationa-
However, despite this perspective of CSR or “Nexus of
lized into three distinct performances: accounting-based performance,
Contracts,” Reinhardt et al. (2020) argued that although laws supports
market-based performance, and subjective-based performance, some-
administered of profit maximization for shareholders but still there is
times known as “perceived financial performance” or just “financial
some gap for companies to sacrifice profits for social cause. On
performance.”
the other hand, Esposito and Antonucci (2022) warned about the
Even while most studies employed secondary published data in
repercussions of sacrificing profits. Academicians attempted to
the form of financial reports, annual reports, and other objective met-
resolve the conundrum of generating consistent profitability while
rics of financial success like profitability, return on assets (ROA),
upholding standards for CSR by taking these factors into consider-
return on investment (ROI), and others (Tafuro et al., 2022), other
ation (Carroll, 1991). This piece of puzzle is explained in welfare
studies depending upon their theoretical settings involved subjective
economic approach to CSR (Blomgren, 2011). According to this
measures of FP. These studies are based on human resource and
perspective, CSR is seen as the provision of private goods—that
organizational performance (Delaney & Huselid, 1996; Guthrie, 2001;
can be excluded and whose consumption has an impact on other
Wright et al., 1999; Youndt et al., 1996). Out of many reasons that
people—bundled with public good (Bagnoli & Watts, 2003). The
why research studies will continue to employ subjective measure-
authors offered the example of a multinational that donates a set
ments of firm performance is that these measurements are highly
sum to UNICEF's immunization program for each package of new-
effective in capturing overall perception of performance of a firm from
born diapers purchased as an example of “cause linked marketing.”
its stakeholder. Moreover, subjective measures are quite helpful in a
Even though this is a product-market example, it could be general-
scenario where firms are operated as non-listed entities and their
ize to other markets as well. However, Blomgren (2011) cautioned
financial reports are inaccessible for general public.
that economic approach to CSR is contingent to market structure.
Furthermore, Barboza and Trejos (2011) explained another strategy for profitability under CSR, one that considers the profitability
3.3
|
CSR and FP
with CSR activity by reducing the externalities of global warming.
Thus, according to the authors, businesses must use an innovative
Many scholars have debated the connection between CSR and FP in
entrepreneurship method to reduce the carbon output from their
the past.
business activities in perfect competitive uncontrolled markets
with replacement products. When a market sector has a strong
This association has been examined in literature using two different methods.
desire to consume eco-friendly products, corporations find them-
The first strategy is a meta-analysis carried out by many aca-
selves following methods that promote horizontal differentiation.
demics. Academics have debated the findings of this association that
In order to obtain market control and maximize earnings above
have been investigated by several researchers in previous studies
those found in competitive marketplaces, companies adopting a
using this strategy. The critical analysis by Nunn (2015) looked into
safe technology must also pay certification and labeling fees. The
the gaps in the research on the connection between CSR and a
value creation model of CSR is the third approach which links CSR
firm's FP.
with profitability. Notable studies (Gholami, 2011; Porter &
While analyzing this relationship, the author found six different
Kramer, 2006; Torugsa et al., 2013) provided various approaches
sorts of contradiction that are crucial in for the nature of this relation-
implemented by firms to engage in value creation activities
ship. These inconsistencies include the causal relationship between
(Gholami, 2011). These included such as creating shared value
variables, the validity of variables, various times and periods, the mul-
(Kramer, 2011), strategizing CSR (McWilliams & Siegel, 2000), and
tidimensionality of CSR, and various methods used to analyze CSR
community engagement (Maskrey, 1989). These CSR profit-
and performance (Perrini et al., 2011). Vishwanathan (2010) retrieved
maximizing strategies are ideal for competitive markets where
611 bivariate correlation-based effect sizes from 189 primary studies
4
ESPOSITO ET AL.
looking at the link between corporate social performance and Corpo-
Javed, Akhtar, et al., 2020). Out of these, the instrumental perspective
rate Financial Performance (CFP). The results indicated that further
of CSR argues that there are positive financial implications for the firm
in-depth study is still needed in this field, particularly the need to
if it adheres to strong stakeholder's principle and practices
incorporate institutional level variables to address inconsistencies.
(Donaldson & Preston, 1995). Furthermore, Kotter and Heskett
Although the operationalization of corporate social performance and
(1992) explained that financially successful firms such as Hewlett-
CFP also moderates the positive connection, Orlitzky et al. (2003)
Peckard and Walmart, irrespective of their diverse industries, shares a
meta-analysis of corporate social performance and CFP indicated that
stakeholder's value.
The current research posits that economic CSR carries the instru-
business efforts in the form of social responsibility and, to a lesser
extent, environmental responsibility, are likely to be lucrative.
mental values for the firm which can enhance a productivity of a firm
In the context of competitive strategy, the literature also indicates
by demonstrating strong commitment towards its stakeholders.
the strategic effects of CSR on FP. Numerous studies primarily con-
Recent studies of Javed, Akhtar, et al. (2020) and Javed, Rashid, et al.
centrate on the impact of CSR (taking into account all of its dimen-
(2020) appears to be support this proposition in which CSR positively
sions) on FP (Falkenberg & Brunsæl, 2011; McWilliams & Siegel, 2011;
predicts the FP of the firms. Therefore, based on the above discussion
Saeidi et al., 2015; Torugsa et al., 2013).
this study provides the first hypothesis of the study that:
The second approach on the relationship of CSR and FP are the
independent studies of different authors which are done in multiple
H1. Economic CSR is positively associated with the
context and research frameworks. For instance, the study of Jo et al.
Financial Performance in Oil and Gas firms.
(2015) investigated the connection between corporate environmental
responsibility and the effectiveness of a firm's financial services. The
authors proposed that because green investments take longer to pay
3.4
|
Competitive advantage
off, corporate heads aim to cut their company's environmental costs,
which lower operating costs and higher income for the company. The
Sigalas et al. (2013) reflects the multiple meanings of competitive
authors found that it takes 1 to 2 years before operating costs start to
advantage definition by citing the studies of Rumelt (2003) and
decline and ROA start to rise by looking at the data of MNCs from
Eisenhardt and Martin (2000). Although the authors stated that there
29 different nations.
is no single clear definition of this concept, they classified the defini-
Concerning the indirect relationship of corporate social perfor-
tions into two major literature streams. The first stream of literature
mance and CFP, Hasan et al. (2018) used Firm's Productivity as medi-
treat the concept of competitive advantage as performance outcome
ating variable in this relationship. The authors used the assumption
(Grant, 1998; Schoemaker, 1990) and second stream defined this con-
that a firm's CSR activities connected to stakeholder management can
cept in terms of intangible and tangible resources (Hart, 1995;
provide intangibles that enhance FP over the long term and used total
Wernerfelt, 1984). This study define the construct of competitive
factor production as a mediating variable. By using structural equation
advantage according the second stream of literature as sets of tangi-
modeling (SEM) technique, the relationship between various CSR
ble and intangible resources and capabilities of a firm which cannot be
activities, company reputation, and financial success in US-based firms
substituted and imitated by its competitors in the industry.
was examined in the empirical study by Wang and Berens (2015). The
authors obtained secondary data from FAMA and COMPUSTAT
(archival sources) (Fortunate America Most Admired Corporations).
3.5
|
CSR versus competitive advantage versus FP
The authors examined at whether various CSR strategies could lead
to a positive reputation among financial and public stakeholders. The
Scholars have offered a variety of empirical and exploratory investiga-
study's findings demonstrated that the relationship between CSR and
tions on CSR and competitive advantage based on the RBV theory.
FP is mediated by both types of reputations. Finally, recent study of
For instance, the empirical study by Van Beurden and Gössling (2008),
Bashiru, Hashim, and Ganesan (2022) investigated the impact of cor-
which is based on the Valuable, Rare, Inimitable Resources, and Orga-
porate sustainability performance on firm value of listed Nigerian
nization (VRIO) framework, demonstrated that CSR results in a com-
Petroleum Companies based on the theoretical model on stake-
petitive advantage provided that the firm's resources and capabilities
holder's theory. The authors found positive relationship between firm
meet the requirements of the VRIO framework with the aid of a case
CSR activities and its impact on the FP which was measured with
study on a Dutch firm. For the purpose of gathering data, the author
Tobin's q.
performed a semi-structured interview. The findings of the study
Clarkson (1995) described firm as a network inter-related stake-
demonstrate how CSR and employee engagement are significantly
holders in which its activities are meant to affect not only its internal
impacted by Corporate Governance standards, which also give com-
stakeholders but as well as external stakeholder. In literature of CSR,
panies a competitive edge. The results also showed that the company
there are four distinct approaches to weigh- in the applicability of
needed to explicitly use CSR as a strategic asset across the board. By
stakeholder's theory to the debate of social responsibility of a firm
putting the theoretical underpinnings of the RBV and VRIO frame-
(Russo & Perrini, 2010). These approaches includes descriptive, nor-
work into practice, Cantrell et al. (2015) explained that the incorpora-
mative, instrumental, and managerial (Donaldson & Preston, 1995;
tion of CSR in the form of philanthropic acts might be developed as
5
ESPOSITO ET AL.
dynamic organizational capabilities that give the particular firm in that
Therefore, this study makes the following assumptions based on the
industry a competitive edge. The integration of CSR values into corpo-
intervening role of competitive advantage in relationship of economic
rate strategy is also very vital if a firm wants to maintain its competi-
CSR and FP:
tive edge in an industry. In this context, the study of McWilliams and
Siegel (2011) examined how strategic CSR enable a firm to create
H2. Competitive advantage is positively associated
and uphold social values. Strategic CSR, according to the authors, is
with financial performance.
any responsible practice that results in long-term competitive advantage. The authors combined the RBV theory with the hedonic pricing
H3. Competitive advantage mediates the relationship
and contingent valuation theories from economics, according to which
between Economic CSR and financial performance.
CSR is defined as the public provision of private goods. The authors
demonstrated how RBV built a composite framework to assess the
strategic value of CSR by fusing CSR, RBV, and economic models.
4
RESEARCH METHODOLOGY
|
Contemporary studies on the RBV framework posit that firm
developed specialization skills or unique capabilities through CSR cen-
In line with the hypotheses of this study, a conceptual model for this
tric investment which creates the sustainable competitive advantage
study is presented in Figure 1.
for it in an industry (Frynas & Yamahaki, 2016). For instance, several
This model represents economic CSR as an independent variable;
studies examined the role of corporate reputation or image in CSR
FP is the dependent variable, whereas the mediating variable is com-
and FP relationship under RBV framework (Javed, Rashid, et al., 2020;
petitive advantage between the relationships of economic CSR and
Sánchez-Torné et al., 2020). The outcomes of these studies clearly
FP. This research study is cross sectional, conducted in non- contrived
indicated that corporate reputation can govern the CSR practices of a
environment with minimal researcher interference. A quantitative and
firm with FP. In addition to corporate reputation, firm innovation
survey method was opted for data collection in this study. All the vari-
capabilities can also act as a source of sustainable competitive advan-
ables of the study were self-reported. A hypo-deductive approach has
tage within an industry. McWilliams and Siegel (2000) found that dif-
been adopting for this study. Hypothetic-deductive (H-D) confirma-
ferentiation strategy using CSR resources can boost innovation
tion builds on the idea that confirming evidence consists of successful
capabilities of a firm. Similarly, Khan et al. (2019) investigated the role
predictions that deductively follow from the hypothesis under test
of firm investment in key intangible resources including intellectual
(Sprenger, 2011). The unit of analysis was the Oil and Gas companies
capital and financial capability. The empirical results supported the
and the unit of observation was the middle-level managers working in
assumption that competitive advantage mediates the relationship of
these firms.
CSR and FP.
Several highly cited studies explored the theoretical underpinning
of RBV hypothesis in much depth which further clarified the interven-
4.1
|
Sample and data collection method
ing treatment of competitive advantage. For instance, the study of
Newbert (2008) added conceptual understanding of fundamental ele-
The sample has been drawn from the downstream Oil and Gas indus-
ments of RBV theory (value and rareness) as independent variable
try for this study. The reason for selecting this industry is that firms
rather than taking resources and capabilities themselves, and exam-
operating in this industry are under agreement to conduct CSR activi-
ined its relationship with competitive advantage and firm perfor-
ties with collaboration of Government of Pakistan (2009). There are
mance. The empirical outcomes of the study supported the
more than one hundred Oil and Gas companies currently operating in
assumption that competitive advantage intervene the relationship
Pakistan (Lusha, 2023), so by applying non-probability convenience
between rareness and organizational performance. The outcomes of
sampling technique, a total of 26 Oil and Gas Manufacturing and Mar-
the study also proved that a firm must develop and maintain competi-
keting companies were selected for data collection process in two cit-
tive advantage by identifying valuable and rare resources among its
ies, that is, Rawalpindi and Islamabad. We targeted these 26 firms
sets of resources and capabilities. Finally, the study of Li et al. (2006)
because first, the 26 number represent the sizable sample for the pop-
also examined the intervening role of competitive advantage between
ulation of a firm, and second, most of the administrative units of these
the relationship of supply chain management and organizational
through SEM approach. The outcomes of the study also reported the
direct and indirect relationship between predictor and endogenous
variable through intervening role of competitive advantage.
The preceding discussion indicate that by applying the lens of
RBV, competitive advantage can act as intermediate mechanism for
the firms engaging in economic CSR activities in order to improve
their FP. The theoretical perspective somewhat provides convincing
arguments about the role of competitive in a firm CSR strategy that is
either directed towards internal stakeholder or external stakeholders.
FIGURE 1
Conceptual model of study. Source: our elaboration.
6
ESPOSITO ET AL.
companies were located in these two cities which enable the
measure this variable, the items were adapted from the study of Rego
researcher to gather the data for this study in personal capacity thus
et al. (2010). While these studies are primarily based on corporate citi-
eliminating the chance of biasness and any sort of shirking. The
zenship, it does provide valuable constructs that can be used in mea-
respondents targeted for data collection were middle level managers
suring economic CSR. For example, the operationalization of construct of
due to their involvement in strategy implementation in their organiza-
economic responsibility towards owners and economic responsibility
tion. The sample size selected for this study was 160 based on the rec-
towards customers perfectly reflect the view of Carroll's view of economic
ommendation provided by Fritz and MacKinnon (2007) while studying
CSR. Additionally, the construct of economic citizenship was considered
the effect of mediation. A total of 250 questionnaires were floated in
which bring utilitarian benefits to employees. Each of the construct of eco-
these companies from which only 210 questionnaires came back. Out
nomic CSR has been measured with five items. These items have been val-
of these 210 questionnaires, 32 were incomplete and were discarded.
idated and used by Galbreath (2010), Maignan and Ferrell (2000), Maignan
Finally, a total 178 valid questionnaires were selected for data analysis.
and Ferrell (2001), and Papasolomou-Doukakis et al. (2005).
The demographic composition of respondents is provided in Table 1.
The FP variable was operationalized by measuring it into
three distinctive financial measures on 5-point Likert scale which
include ROA, ROI, and Sales Growth. The items for these con-
4.2
|
Instrument development
structs were adapted from the studies of Carmeli et al. (2007) and
Mitchell et al. (2013). In these items, respondents were asked to
The instrument developed for this study is through adaptive approach
rate their performance as compared to their competitors on
and it is self-administered and close ended in nature. The responses
5-point Likert scale.
Competitive advantage has been operationalized with constructs
were gathered on a 5-point Likert scale values ranging from 1 (strongly
of Research and Development, Managerial Capability, Corporate Rep-
disagree) to 5 (strongly agree).
The operationalization of economic CSR variable comes from the
Carroll (1991) view of economic component of CSR. In order to
utation, and Brand Image. These constructs have been consistently
used in the study of Chang (2011).
TABLE 1
Respondent characteristics.
Variables
Indicators
Frequency
Gender
Male
148
Female
29
Graduate
66
It refers to the concept of testing what is supposed to be assessed on
MBA/BBA
60
the surface. For the sake of face validity the questionnaire was exam-
MA/MSc
43
ined by two people, one of whom works in the relevant industry, that
MPhil/MS
1
is, Oil and Gas industry in Pakistan's Twin Cities and one is academic
PhD
8
Up to 500
44
500–1000
50
1001–2000
7
2001–5000
37
Above 5000
40
0–5 years
49
6–10 years
33
11–15 years
41
16–20 years
24
21–25 years
20
The instrument reliability was checked through Cronbach's Alpha test.
26–30 years
6
Table 2 provides the composite values of cronbach whereas Table 3
31 years and above
5
20–30 years
52
31–40 years
61
Variables
Cronbach alpha
Items
41–50 years
48
Eco CSR
0.871
15
51–60 years
13
Competitive advantage
0.813
5
4
Financial performance
0.908
9
Overall
0.809
29
Education
No of employees
Employees experience
Age group
Above 60 years
Note: N = 17.
4.3
Validity
|
4.3.1
|
Face validity
expert.
4.3.2
|
Content validity
The academic expert on the study was asked to review the questionnaire and validate it content.
4.3.3
|
TABLE 2
Instrument's reliability
Cronbach's alpha test.
7
ESPOSITO ET AL.
TABLE 3
TABLE 4
Cronbach value.
Item
Corrected-item
total correlation
Cronbach alpha
if item deleted
ECSR1
0.267
ECSR2
0.309
ECSR3
ECSR4
Correlation.
Competitive
advantage
Financial
performance
Variables
Eco CSR
0.933
Eco CSR
1
0.932
Competitive advantage
0.552
0.929
Financial performance
0.409
0.931
ECSR5
0.238
0.934
ECSR6
0.609
0.929
ECSR7
0.661
0.928
ECSR8
0.594
0.929
Gössling, 2008; Wang & Choi, 2013) depicting positive association of
ECSR9
0.637
0.928
CSR with FP. As the correlation between independent and mediator is
ECSR10
0.575
0.929
two tailed significant, so before hypothesis testing, the collinearity
ECSR11
0.448
0.931
diagnostic test was conducted with linear regression method. The tol-
ECSR12
0.544
0.929
erance value of 0.634 and Variance Inflation Factor (VIF) value of
ECSR13
0.536
0.930
1.578 both were below threshold values (Alin, 2010) thus indicating
no presence of multicollinearity in the model.
0.591**
0.563**
1
0.527**
1
**Correlation is significant at the 0.01 level (2-tailed).
Walsh, 2003; Orlitzky et al., 2003; Roman et al., 1999; Van Beurden &
ECSR14
0.614
0.928
ECSR15
0.572
0.929
CA1
0.555
0.929
CA2
0.629
0.928
CA3
0.530
0.930
CA4
0.537
0.929
CA5
0.540
0.929
FP1
0.578
0.929
show that economic CSR is a significant predictor of FP
FP2
0.572
0.929
( p = 0.000). The results also demonstrate good fitness of model
FP3
0.689
0.927
with F (1, 176) = 19.50 p 0.000 which rejects the null hypothesis.
FP4
0.605
0.929
The difference of 0.018 between R2 and adjusted R2 indicates the
FP5
0.656
0.928
good generalizability of this study.
FP6
0.686
0.927
FP7
0.581
0.929
FP8
0.573
0.929
FP9
0.538
0.929
5
5.1
DATA ANALYSES
|
|
Hypothesis 1 testing
Table 5 provides the statistical results of hypothesis one which
5.2
|
Hypotheses 2 testing
The hypothesis two stated that competitive advantage significantly
impact the FP. Table 6 shows that 0.302 variation of R2 and p = 0.00
supported this hypothesis thus rejecting null hypothesis.
provides the cronbach values for each item of the study. According to
the thumb rule recommended by Kline (2013) the alpha value of economic CSR is 0.871 which is α > 0.8 hence it is very good. The value
5.3
|
Hypotheses 3 testing
of Competitive Advantage is 0.813 which is also α > 0.8 thus it is also
very good. The α value of FP is 0.908 which is α > 0.9 which is excel-
For testing H3, Baron and Kenny (1986) procedure was applied.
lent according to the thumb rule. The overall alpha value of composite
The Baron and Kenny (1986) method is comprised of four principal
variables and each item clearly indicates that internal consistency
steps which are necessary to perform in order to establish a media-
exists in the scale thus fulfilling the threshold criteria of 0.7 by
tion process. The first involves a significant relationship between
Cronbach (1951).
the independent variable and with mediating variable (Path a). The
second step is the significant relationship between mediating variable and dependent variable (Path b). The third step show signifi-
4.3.4
|
Correlation
cant relationship between independent variable and dependent
variable (Path c). In the last step, in order to establish mediating
Table 4 shows the strong correlation among economic CSR, competi-
relationship, the regression value of path c0 (independent variable
tive advantage, and FP. The result is consistent with the previous
and dependent variable) while controlling the effect of mediator,
studies (Griffin & Mahon, 1997; Hasan et al., 2018; Margolis &
should be less than path c.
8
ESPOSITO ET AL.
Variable
Beta coefficient
Standard error
t-statistics
Significance
Eco CSR
0.775
0.087
8.923
0.000*
Gender
0.163
0.087
1.845
0.067
No of employees in Org
0.009
0.029
0.310
0.757
Standard error
t-statistics
Significance
Multiple R
0.602
R2
0.362
Adjusted R2
0.344
Std. error of estimation
0.53619
F
19.50
Significance F
0.000
SS regression
28.102
SS residual
49.449
TABLE 5
Hypotheses 1.
TABLE 6
Hypotheses 2 testing.
Note: Dependent variable: financial performance.
*Correlation is significant at the 0.05 level (2-tailed).
Variable
Beta coefficient
Competitive advantage
0.541
0.065
8.337
0.000*
Gender
0.007
0.085
0.085
0.932
No of employees in Org
0.018
0.028
0.635
0.526
Multiple R
0.549
R2
0.302
2
Adjusted R
0.290
Std. error of estimation
0.55792
F
25.047
Significance F
0.000
SS Regression
23.389
SS Residual
54.162
Note: Dependent variable: financial performance.
*Correlation is significant at the 0.05 level (2-tailed).
F I G U R E 2 Economic CSR and financial performance relationship.
Source: Our elaboration.
To perform the mediation process, Preacher and Hayes (2008)
F I G U R E 3 Economic CSR, financial performance and competitive
advantage relationship. Source: Our elaboration.
indirect technique was used. Figures 2 and 3 provides the estimated results of four steps of regression employed by this
had become insignificant after introducing mediator that would have
technique.
implied that the full mediation is occurring in the model. So based on
As it is clear from the figures that all three steps showing signifi-
this result it is concluded that H3 is partially accepted.
cant relationship among variables thus full filling first three steps of
Baron and Kenny (1986) mediation process. However, path c0 , which
is the determination path of mediation, has regression value less than
of path c but remain significant ( p = 0.000). According to Baron and
6 | ALTERNATE ESTIMATIONS OF THE
RE SE AR CH MO D EL
Kenny (1986) when direct effect of independent variable on dependent variable remains significant after introducing mediator, there is a
In order to further strengthen the empirical estimations of the
presence of partial mediation in the model. In case if the direct effect
research model of this study, the SEM technique was applied in this
9
ESPOSITO ET AL.
study. The SEM is a powerful statistical tool which is use to estab-
values of each construct. It is evident from the table that correla-
lished the connection between theory and measurement model
tion between constructs is less than their respective square-root
(Hoyle, 1995). Accordingly, the construct validity was established of
of average variance extracted values which established the dis-
the research model through discriminant and convergent validity tests
criminant validity.
in confirmatory factor analysis (CFA) by using PLS-SEM in AMOS software. However, prior to applying CFA, an exploratory factor analysis
(EFA) was applied with varimax rotation method which yielded the
6.1
Path analysis
|
factor loadings of some items below the 0.5 threshold value. Moreover, EFA also detected three factor models for independent vari-
This study tests for mediation through path analysis by using SEM
able relating to its three dimensions. Therefore, after dropping
technique. Table 9 provides the overall path analysis output values
those items CFA was applied. The Table 7 provides the convergent
and Figure 4 provides the schematic output from AMOS. The path a
validity tests for the model in which factor loadings, composite
of the model (ECSR ! CA) and b (CA ! FP) remains significant. How-
reliability, and average variance extracted values are given. As indi-
ever, the path c (ECSR ! FP) turn out to be insignificant (β 0.079,
cated in the table, the factor loading is for each item is above 0.5
p > 0.000). Again, Baron and Kenny (1986) explained that if the direct
threshold value (Hair et al., 2010). Similarly, the composite reliabil-
effect of Independent Variable on Dependent Variable becomes insig-
ity of each construct is also above 0.7 threshold value (Hair
nificant in the presence of indirect effect, this indicate that full media-
et al., 2010). However, it was observed that AVE values for eco-
tion is occurring in the model. Therefore, it is concluded that both
nomic CSR and competitive advantage are below threshold value
estimations technique indicated that mediation is occurring in the
of 0.5 (Hair et al., 2010). Recent studies of Reinartz et al. (2009)
research model of this study.
and Henseler et al. (2015) explained that there are inherent limitations associated with PLS-SEM which allows researchers to rely on
the different validation tests in order to established construct
7
|
DI SCU SSION OF RESULTS
validity. As the composite reliability of all three constructs is
above threshold values so therefore, the convergent validity is
The empirical results support the hypotheses developed with the
established in the model. To further strengthen the model good-
objective of theoretically and empirically investigating the relationship
ness, the other indicators of CFA provided absolute model fit indi-
of economic CSR and financial relationship, confirming the a signifi-
ces include χ = 110.60, Dof = 96, p = 0.146, RMSEA = 0.029,
cant relationship between both. Additionally, the results also support
CFI = 0.989 indicating the overall good model fitness for data
the assumption of mediating role of competitive advantage in the
compare to threshold values (Kline, 2013). The discriminant valid-
aforementioned relationship. The positive relationship between
ity was tested with Fornell & Larcker criterion (Fornell &
economic CSR and FP is in line with prior studies conducted in the
Larcker, 1981). Table 8 provides the cross loading correlation
empirical settings of firms operating in Pakistan (Ali et al., 2010; Ali,
TABLE 7
Rashid, et al., 2020; Naeem & Welford, 2009). In addition to this,
2
Asrar-ul-Haq, et al., 2020; Ali, Danish, & Asrar-ul-Haq, 2020; Javed,
Convergent validity.
Orlitzky et al. (2003) concluded that corporate activities within the
Variables
Items
Standardized
factor loadings
Economic CSR
E_CSR1
0.605
E_CSR2
0.693
E_CSR3
0.774
E_CSR4
0.788
E_CSR5
0.744
of economic CSR and FP. The empirical results supporting H2 does
E_CSR6
0.691
prove that direct relationship exist between competitive advantage
E_CSR7
0.644
CA1
0.613
CA2
0.698
CA3
0.745
CA4
0.682
FP1
0.818
FP2
0.872
Variables
Economic
CSR
FP3
0.807
Economic CSR
0.863
FP4
0.663
Competitive advantage
0.751
0.78
FP5
0.609
Financial performance
0.518
0.667
Competitive
advantage
Financial
performance
Composite
reliability
AVE
0.863
0.4795
shape of social responsibility and to some extent, environmental
responsibility are likely to be profitable. The moderate direct correlation of economic CSR and FP in the outcomes of this study support
this claim. The empirical outcome from regression and SEM analysis
are in accordance with the studies of Saeidi et al. (2015) and Newbert
(2008) which explains that competitive advantage is a necessary link
and FP which is also endorse by findings of Li et al. (2006). The medi0.78
0.4707
ating role of competitive advantage in relationship of economic CSR
and FP not only align with the findings with of studies of McWilliams
TABLE 8
0.871
Discriminant validity.
0.5782
Competitive
advantage
Financial
performance
0.871
10
ESPOSITO ET AL.
TABLE 9
Path
Path analysis (SEM).
Estimate
SE
p
Label
CA
ECSR
1.038
0.214
0.000
a
FP
ECSR
0.079
0.275
0.775
c
FP
CA
0.932
0.236
0.000
b
FIGURE 4
LLC
ULC
0.268
0.320
Overall path diagram from SEM.
and Siegel (2011), Cantrell et al. (2015), Khan et al. (2019), and Ali,
research model. Second, this study attempts to fill the gap in the liter-
Danish, and Asrar-ul-Haq (2020), but it also further strengthen the
ature related to the much needed direct and indirect association of
theoretical arguments of resource based perspective of a firm. In gen-
CSR and FP by theoretically inducing and empirically investigating the
eral, this implies that firms with economic CSR centric approach, spe-
mediating role of competitive advantage.
cialized skills, and unique capabilities and resources (Wernerfelt,
More-in-depth, in midst of understanding the link of CSR and FP,
1984b) in a form of management skills and intangible assets not only
there are two views on this relationship. One brought positive associ-
hold the sustainable competitive advantage over their competitors
ation of this relationship (Wang & Choi, 2013) whereas second found
(Barney, 1996) but they also enable them to enhance their FP.
ambiguities (Vishwanathan, 2010). However, these studies were
largely supported holistic approach of CSR (accumulating many
dimensions). Further, the proposition of monetary measures in these
8
|
C O N CL U S I O N
studies focused on rather accounting based measures and market
based measures. By keeping in view these logical gaps and recommen-
The theoretical significance of this research study is twofold. First, it
dation of Kitzmueller and Shimshack (2012) of theoretical synthesis
integrates the stakeholder's view of a firm with RBV and provides jus-
and empirical investigation of economic CSR, this study empirically
tifications that how these concepts converge in the current study
investigated the connection of economic CSR and FP. Also, the direct
11
ESPOSITO ET AL.
relationship of CSR and FP remains inconclusive. The study of Saeidi
et al. (2015) and Branco and Rodrigues (2006) advocated the utilization of neglected mediators and moderators to analyze the concealed
benefits produced from effect of CSR on FP. Based on this, the current study theoretically and empirically examined the relationship of
economic CSR and FP with mediating role of competitive.
The empirical outcomes further strengthen the empirical estimations of the research model of this study, the SEM technique was also
applied, which shows the same result and is confirmed by the estimated empirical results. These outcomes provide several managerial
and practical implications. First, the positive outcomes of economic
CSR and FP further cemented the instrumental value of engagement
in CSR activities. Managers can conform to the CSR strategies for the
better financial position of their firm within an industry which ensures
the long-term survival of both. According to stakeholder theory,
the results confirm the search for legitimacy in the implementation
of CSR strategies, however focusing their results towards profit
maximization. Thus, the outcomes of this study demonstrate the
business case for CSR in Oil and Gas sector of Pakistan which
reflects the evolution of CSR practices among downstream Oil and
Gas firms, confirming Nilsson (2023), Akporiaye (2023), and
Kaupke and zu Knyphausen-Aufseß (2023).
Second, this study is decisive for the firms to provide their managers with best management skills which can develop into a unique
capability of a firm and thus become a source of sustainable competitive advantage. Third, firms must makes investments CSR-led strategic
initiatives for the development and maintaining the innovation capabilities such as environmental friendly technologies which not only
lower the operational cost of the firm but also strengthen their reputation among their stakeholders. Fourth, the outcomes of this study
shows that firms operating in Oil and Gas sector have the capacity
and capability to further improve their CSR practices which can even
further strengthen their competitive positions in an industry.
In stating the limitations, this study acknowledge the small but
representative sample size of the Oil and Gas firms considering the
population of Oil and Gas Industry of Pakistan. Future studies might
considerate other sectors like utilities or telecommunication to test
the same relationship. Finally, this study only considers three dimensions for economic CSR, that is, economic responsibility towards
owners, economic responsibility towards customers, and economic
citizenship. In the future, other stakeholders could be studied under
economic CSR variables like suppliers, community, or local groups
among others.
ORCID
Paolo Esposito
https://orcid.org/0000-0002-6410-017X
Zubair Ahmad
https://orcid.org/0000-0003-3754-0396
Vincenzo Riso
https://orcid.org/0000-0001-6134-8842
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How to cite this article: Esposito, P., Ahmad, Z., Riso, V., &
Mustafa, N. (2023). Beyond the business case? Retracing the
walk of Corporate social responsibility and financial
performance relationship in the Oil and Gas sector. Corporate
Social Responsibility and Environmental Management, 1–14.
https://doi.org/10.1002/csr.2676