Capabilities, Proactive CSR and Financial Performance in SMEs: Empirical Evidence from an Australian Manufacturing Industry Sector

• Published in: Journal of business ethics Vol. 109; no. 4; pp. 483 - 500
• Main Authors: Torugsa, Nuttaneeya Ann, O'Donohue, Wayne, Hecker, Rob
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.09.2012; Springer Netherlands; Springer Nature B.V
• Subjects: Associations; Australia; Business; Business and Management; Business Ethics; Business structures; Competition; Competitive advantage; Corporate responsibility; Corporate social responsibility; Corporate strategies; Corporations; Ecological sustainability; Economic growth; Education; Environmental management; Ethics; Financial management; Financial performance; Green businesses; Industry; Management; Manufacturing; Philosophy; Prosperity; Quality of Life Research; Regulation; Small & medium sized enterprises-SME; Small and medium sized enterprises; Social responsibility; Social responsibility of business; Strategic management; Studies; Success; Sustainable development; Australia; Small and medium enterprises (SMEs); Resource-based view (RBV); Proactive corporate social responsibility (CSR); Financial performance; Capabilities
• ISSN: 0167-4544; 1573-0697
• DOI: 10.1007/s10551-011-1141-1

Proactive corporate social responsibility (CSR) involves business strategies and practices adopted voluntarily by firms that go beyond regulatory requirements in order to manage their social responsibilities, and thereby contribute broadly and positively to society. Proactive CSR has been less researched in small and medium enterprises (SMEs) compared to large firms; and, whether SMEs are ideally placed to gain competitive advantage through such activity therefore remains a point of debate. This study examines empirically the association between three specified capabilities (shared vision, stakeholder management and strategic proactivity), proactive CSR and financial performance in SMEs. Using quantitative data collected from a sample of 171 SMEs in the machinery and equipment sector of the Australian manufacturing industry, we find that all specified capabilities are positively associated with adoption of proactive CSR by SMEs, and that proactive CSR is, in turn, associated with an improvement in firm financial performance. Evidence of a fully mediating role for proactive CSR on the association between capabilities and financial performance presented in this study aligns with RBV theory that suggests adoption of valuecreating strategies that make the most effective use of a firm's capabilities is essential to financial success. The study contributes to the CSR literature by demonstrating a case for SMEs being able to maximise financial returns whilst proactively making progress towards CSR.