The effect of different CSR strategies on the Level of R&D investment : a stakeholder perspective

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The Effect of Different CSR Strategies on the Level of R&D

Investment: A Stakeholder Perspective

Master Thesis

Strategy

Student: Fenna Peper / Student No 11363940 MSc. Business Administration, Strategy

University of Amsterdam, Faculty of Business and Economics Supervisor: Panikos Georgallis

University of Amsterdam, Amsterdam Business School

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Statement of Originality

This document is written by Fenna Peper who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

This research investigates the effect of different CSR strategies on R&D investment; it predicts that firms following a strategic CSR strategy invest more in R&D than firms following a responsive CSR strategy. Previous studies showed that firms that engage in a strategic CSR strategy proactively develop and maintain an augmented stakeholder network which provides them with resources and knowledge that they cannot build internally. Firms that follow a responsive CSR strategy, in contrast, are less encouraged to improve their stakeholder relationships, resulting in a lower level of resource exchange. These different approaches of CSR performance affect the level of R&D investment, as the obtained resources require integration with the existing internal resources in order to build distinct capabilities. The sample in this research consists of 185 firms that are retrieved from the S&P 500, which are analyzed from 2007 to 2016. The results show that there is a positive relationship between CSR performance and R&D investment. Moreover, this relationship is significantly amplified when firms engage in a strategic CSR strategy compared to firms that engage in a responsive CSR strategy. This research extends the existing literature by providing empirical evidence that strategic orientation indeed affects the level of R&D investment, contributing to the conversation how the relationship between CSR performance and firm performance is established.

Keywords: CSR performance, strategic CSR, responsive CSR, CSR strategy, R&D investment, stakeholder

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Introduction

Corporate social responsibility (CSR) is a widely investigated topic that has received much attention in recent decades. In the 1970s, Friedman (2007) stated that these responsibilities were left to the responsibility of the government, and firms’ only goal was to make profit; however, many firms embraced the idea that responsible enterprises take employees, suppliers, dealers, local communities and nations into account and try to balance different interests. In the past few decades, firms shifted their attention from recognizing CSR as a concept that ‘should be kept in mind by top managers’ (Carroll, 1999) towards approaching it as a number of voluntary activities involving interaction with society. Current studies focus on the precursors and consequences of CSR practices (Hemingway & Maclagan, 2004; Moon, 2014) or explore the relationship between CSR and firm performance (Wang, Dou & Jia, 2016; Margolish & Walsch, 2003; Stanwick & Stanwick, 1998). Accordingly, studies incorporate stakeholder theory as viewpoint for exploring the link between CSR and firm performance. Rather than prioritizing firm value maximization, firms consider how their business operations impact different stakeholder groups.

Stakeholders, defined as 'groups of people who have a stake, a claim or an interest in the operations and the decisions of the firm’ (Freeman, 1984), continuously apply pressure on firms to engage in CSR activities (McWilliams, Siegel, 2001; Maignan, Ferrel & Ferrel, 2005). These pressures come from investors, customers, employee suppliers, community groups, governments and shareholders. As a firm, it is necessary to respond to these requests by involving CSR practices in order to survive in the market (Peloza & Papania, 2008). Although firms’ main objective might be to increase profitability, they cannot exist with this single objective to maximize profit because their success also depends on stakeholder relationships (Russo & Perrini, 2010; Jensen, 2001). Firms can use interactions with their stakeholders as a competitive advantage over other firms; through engagement in CSR

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6 practices and responding to the demands of different stakeholders, firms can build an extensive network of relationships with different stakeholders and stakeholder groups. In turn, these relationships facilitate the exchange of resources and knowledge, which provides firms with external knowledge that adds to their existing internal knowledge (Li & Geng, 2012). Furthermore, through investment in research and development (R&D) firms can integrate externally obtained resources with internal ones. In this way, by building upon existing knowledge firms can create distinct capabilities which can be used advantageously over their competitors.

The quality of the relationship between a firm and its stakeholders depends upon how firms respond to their stakeholders’ CSR-related requests, and the level of proactivity they involve in CSR practices. According to Porter and Kramer (2006) engagement in CSR activities can be established via different strategies, and a distinction can be made between strategic CSR and responsive CSR. Strategic CSR is defined as 'going beyond the implementation of best practices to achieve a unique and distinct position as compared to competitors' (Bocquet & Mothe, 2013). This type of strategy consists of a proactivity dimension, which explains the ‘degree to which the program is planned in anticipation of social trends and in the absence of crisis conditions’ (Burke & Logsdon, 1996). This type of strategy allows firms to increase stakeholder trust, reputation and satisfaction (Godfrey, 2005) and to improve employee loyalty (Burke & Logsdon, 1996). As a consequence, firms can proactively improve their interrelationships within stakeholder networks, thus facilitating resource exchange.

Responsive CSR, in contrast, is described as 'acting as a good corporate citizen, attuned to evolving social concerns of stakeholders, and mitigating existing adverse effects from business activities’ (Porter & Kramer, 2006; Bocquet & Mothe, 2013). Unlike strategic CSR, which requires planning and careful consideration (Groza, Proschinkse & Walker,

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7 2011) and contributes to an elevated competitive position (Basil, Runte, Easwaramoorthy & Barr, 2008), responsive CSR is related to the implementation of general practices, with limited results (Bocquet & Mothe, 2013).

The differences in approach regarding CSR performance presumably affect the relationship between a firm and its stakeholders. Consequently, these differences also affect the extent to which firms are able to exchange and complement their existing resources with obtained resources that cannot be built within the firm. Even though previous research investigates the relationship between CSR practices and R&D investment (Padgett & Galan, 2009), the literature lacks examination of the different effects of CSR strategies as precursors of the level of R&D investment. Previous literature demonstrates that strategic CSR impacts stakeholder relationships differently to responsive CSR (Buysse & Verbeke, 2003). More specifically, firms that follow a strategic CSR strategy are more proactive in developing and maintaining stakeholder relationships, thus facilitating a more extensive exchange of resources and knowledge. Conversely, firms that follow a responsive CSR strategy are less active in building stakeholder relationships, resulting in a less integrated network of resources. Subsequently, the extent to which firms invest in R&D is also affected, as firms are required to explore opportunities how they can utilise the obtained resources as a competitive advantage by building upon existing internal knowledge and combine these resources into distinct capabilities. Hence, in this research I investigate whether firms that follow a strategic CSR strategy invest more in R&D than firms following a responsive CSR strategy.

Viewed in this context, assessing the relationship between different CSR strategies and R&D investments provides new theoretical insights. The contribution of this research is twofold. First, by using the distinction between different CSR strategies the discussion of how the relationship between CSR and R&D is established is further explored. This has

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8 important implications for managers, as investing time and resources to respond to stakeholders' requests is a managerial activity. Therefore, specifying the effects of different CSR strategies allows managers to define their CSR strategies and the consequences more easily. By distinguishing between strategic and responsive CSR managers are encouraged to carefully reconsider their activities and decisions, as the consequences of different strategies affect firm competitiveness. Second, this study focuses on the effect on innovative input rather than output. Analysing the relationship between CSR performance and R&D investment, which is seen as the driver of performance, therefore provides a deeper understanding how the relationship between CSR and firm performance is established. This extends the existing literature, as previous studies mainly focus on the direct link between CSR and firm performance.

The main findings of this research are consistent with the predictions made, as firms that engage in CSR practices are shown to invest more in R&D. Moreover, the relationship between CSR performance and R&D investment is stronger for firms that follow a strategic CSR strategy than for those following a responsive CSR strategy.

The following sections are structured as follows. First, a theoretical framework is developed to serve as a basis for the hypotheses of this research. In this framework the concept of CSR is defined and its interaction with firms' stakeholders is described. Moreover, the relationship between CSR and R&D investment is explained, before the different CSR strategies used in this research are defined. Subsequently, I describe how the different CSR strategies affect the relationship between CSR performance and R&D investment. In the second section the methodology, data collection, measurements and data analysis are described. The results are presented in the third section, which includes an analysis of robustness to explore the sensitivity of the findings. In section four I elaborate on the

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9 discussion, contributions and recommendations for future research that might be valuable to extent this research, before ending with the conclusion.

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Literature review

CSR

While the concept of CSR is defined frequently, no consensus has yet been achieved. In the early days of CSR, Friedman (2007) argued that firms’ only responsibility was to make profit. He argued that the idea of businesses having responsibilities is irrelevant, since only people can have responsibilities, and that political mechanisms should therefore be used to allocate scarce resources to alternative uses rather than the market mechanism.

Even though this argument of Friedman was widely cited, firms did recognize their responsibilities beyond their economic interests. Furthermore, firms recognized that the execution of CSR practices could improve their sustainable success, which is beneficial for stakeholders as well as stockholders (Carroll, 2008). Rather than leaving this to the responsibility of governance, firms embraced the concept of CSR and identified the relationship between their corporation and society (Carroll, 1999). Firms aimed to achieve their financial goals while simultaneously respecting ethical values, communities, the environment and people. Besides the practices that are required by law, these are voluntary actions that go beyond compliance and the activities prescribed by law which are carried out to further some social good (McWilliams, Siegel & Wright, 2005). Consequently, firm performance should not only be measured based on financial performance but also according to social and environmental performance (Norman & McDonald, 2004). However, these social activities should not conflict with firm profitability, as being profitable is considered the foundation upon which other activities rest (Carroll, 1991). Therefore, the alignment between social and economic responsibilities requires integration of the interests of not only shareholders but also stakeholders, as the existence of a firm considerably relies on its stakeholders. One definition of CSR provided by Crane, Matten and Spence (2013) is based on the stakeholder perspective. This dimension argues that even when firms try to serve their

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11 shareholders as a primary concern, their success in doing so tends to be affected by other stakeholders. Therefore, the alignment of economic and social practices depends on the integration of stakeholder requests.

Understanding how the stakeholder perspective relates to CSR is important in exploring the effect of CSR performance. This means that defining CSR in the scope of this research incorporates a firms’ voluntary actions that go beyond compliance and the effect on the stakeholder network. Therefore, in this research a definition provided by the Commission of European Communities (CEC) is used, which states that CSR is ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’ (Song, Wang & Zhu, 2018).

Stakeholders as drivers of CSR

Prior research distinguishes between different drivers of CSR and explores the reasons ‘why’ firms engage in CSR. For instance, Lozano (2015) developed a framework that divides CSR drivers into external and internal motivations. External motivations, which are seen as more reactive, consist for example of the avoidance of fines or penalties, earning a license to operate or restoring trust within the firm. Internal motivations, which are more proactive, include improving trust within the firm, managers’ personal values and beliefs, ethical principles and altruism. Internal motivation consists of activities that are rewarding for the firm itself, rather than fulfilling the desire for an external reward. According to Lozano (2015) the investigated drivers are not an either/or discussion, but offer a holistic perspective between internal and external motives.

Although this framework offers a fundamental basis that highlights the rationale for CSR from various viewpoints, it mainly focuses on the firms’ interest and thus does not fully incorporate the interests of different stakeholders. And even though shareholders are a firm’s

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12 primary concern, firm performance also depends on other stakeholders. According to Freemans’ stakeholder framework, anyone who ‘might affect the business objective and anyone who might be affected by its realization’ (Freeman, 1984) is considered a stakeholder. Meanwhile, Cai, Jo and Pan (2012) define stakeholders as ‘groups of persons who have a stake, claim or an interest in the operations and decisions of the firm’.

A firm cannot maximize its value if it ignores the interests of its stakeholders (Jensen, 2001) and managers should base their decisions on the interests of all the stakeholders of a firm. A firm’s performance is therefore dependent on a firm’s activities and the consequences for different stakeholders. In this regard, to avoid conflicts with stakeholders and effectively carry out relationship-specific investments, firms increasingly need to take corporate key stakeholders into account. Bodies considered as key stakeholders are formal governmental institutions, the community in which firms operate, non-governmental organizations (NGOs), consumers, shareholders, employees and parent firms (Yang & Rivers, 2009). Based on the relationship with the firm, different clusters of stakeholders can be determined (Falck & Heblich, 2007). As a firm, it is crucial to balance the demands of various stakeholders groups. This is a challenge, as the requests of different stakeholders might be conflicting. For instance, shareholders want to increase profits, NGOs want firms to reduce their environmental footprint and the government forces firms to meet regulations. The decision of whether or not to positively respond to stakeholder demands is made based on the importance of certain stakeholders to firms. This is described as stakeholder salience, which is ‘the degree to which managers give priority to competing stakeholder claims’ (Mitchell, Agle & Wood, 1997). Different frameworks are used to distinguish between the importance of different stakeholders. Mitchell, Agle and Wood (1997), for example, propose a model that divides stakeholders based on their possession of power, legitimacy and urgency. Other

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13 frameworks base the identification of stakeholders on a primary or secondary classification (Clarkson, 1995).

Regardless of which framework is used, acknowledging the level of importance of stakeholders helps firms to understand when they need to address stakeholder demands. This is important, because stakeholders continuously pressurise firms to engage in certain activities. Regarding CSR, customers might demand environmentally responsible products, for example. If a firm decides not to respond to their requests, they might purchase these products from the firm’s competitors.

The urgency in making the right decisions when considering stakeholder requests has grown over the years, as society has now evolved into an open and transparent environment that makes firm behaviour more observable to a firm’s stakeholders (Cruickshank, 2017). What firms do across their operations regarding sustainability is increasingly visible. Subsequently, to be able to survive in the market, firms need to be aware of the consequences of their activities. They can no longer rely on their established reputation and are therefore increasingly at risk in meeting global standards regarding CSR. Therefore, responding to stakeholders’ requests is crucial for building success.

CSR and stakeholder theory

As mentioned above, firms should focus on balancing stakeholder interests through the identification of salient stakeholders, rather than focusing on increasing shareholder value. Responding to stakeholder requests improves the relationship between firms and their various stakeholders, which in turn provides firms with an augmented stakeholder network.

The performance of CSR activities has the potential to strengthen the relationship between a firm and its stakeholders and to create firm value (Peloza & Shang, 2011). These relationships occur within and by way of daily operations (Waddock & Smith, 2000), and can

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14 create benefits and add value to a firm’s wealth. As a consequence, firms should focus on creating benefits for salient stakeholders that go beyond generating value for shareholders.

However, not all CSR activities are perceived as equally positive or negative but instead affect the perception of stakeholders in different ways (Peloza & Shang, 2011). Campbell (2007) states that ‘CSR behaviour may mean different things in different places to different people at different times’. Accordingly, firms need to investigate how their CSR practices are beneficial for their stakeholders, as the benefit that a stakeholder derives determines the quality of the relationship between firm and stakeholder.

The quality of this relationship enhances firm performance through the exchange of resources between a firm and its stakeholders. Generally speaking, firms with an improved stakeholder network have access to more resources and opportunities (Gulati, Nohria & Zaheer, 2000). CSR activities represent an exchange that can consist of knowledge or resources that add value to the firm (Murray & Vogel, 1997). This exchange is important, as stakeholders possess resources that might be critical to a firm’s long-term success (Maignan, Ferrell & Ferrell, 2005; Post, Preston & Sachs, 2002). Rather than building these resources internally, the source of value-creating resources might be beyond the boundaries of the firm, as externally obtained resources are different from the resources that are internally accumulated. Examples of such resources include capital, infrastructure and locations, expertise, leadership, material resources and knowledge. Through the exchange of resources firms can gain resources that they otherwise would not possess. Consider the example of General Motors Company. They distinguish themselves through high skilled employees, which are seen as their key capability as they define the organizational capabilities in all aspects of General Motors’ business. These high skilled workers are usually more attracted to employers that offer concrete career development plans. General Motors responds to these demands via their CSR strategy that offers programs aimed at developing human resources.

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15 For example, through the GM Technical Education Program the firm pays for employees’ education expenses at partner universities globally. In addition, the firms encourages employees to get involved in programs beyond the organization, such as sustainability projects in collaboration with other businesses and with governments. These corporate responsibility programs support the development of high-level knowledge and career advancement of GMs employees, and provides General Motors’ with skilled employees and distinct human resources that cannot be built solely internally (Meyer, 2017).

It seems evident that the extent of this exchange is dependent on the relationship between firms and stakeholders. If the relationship involves more trust, commitment, satisfaction and a higher degree of identification, both firms and stakeholders will see the added value of the exchange of resources, as benefits both parties. Furthermore, the actual exchange will be simplified by an improvement in the relationship, thus providing firms with knowledge that they otherwise would not have access to.

CSR and R&D investment

As explained by the literature and discussed in the previous paragraphs, the interdependence between firms and stakeholders affects the quality of their relationship. This improved relationship with their stakeholder networks in turn provides firms with external resources that add to their internal resources. In order to obtain a sustained competitive advantage, firms need to develop resources that are valuable, rare, inimitable and non-substitutable (Mishra & Modi, 2013). As a result, they can improve their performance when implementing strategies that exploit their internal strengths and avoid their internal weaknesses (Barney, 1991). This can be achieved by possessing resources that enable firms to implement strategies which improve their efficiency and effectiveness, and which are not simultaneously implemented by a large number of competitors. Furthermore, it is important that the

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16 resources providing firms with a competitive advantage (Barney, 1991) cannot be obtained by other firms and that there is no substitute to replace them.

Although this perspective embraces the idea that firms can create distinct resources internally, this approach undermines the dynamics of creating firm resources (Black & Boal, 1994). More specifically, even though Barney (1991) acknowledged the importance of a dynamic view, the proposed framework ignores how externally obtained resources need to be configured with other resources in order to create distinct capabilities. This suggests that a single, distinct resource is not valuable, but rather that the value of a resource is dependent on the firm’s combination and configuration of resources.

A firm’s unique set of capabilities therefore results from the combination of a set of resources. In order to realize value creation by building distinct capabilities, firms need to accumulate, combine and exploit their resources (Sirmon, Hitt & Ireland, 2007; ). Consequently, external resources obtained via the stakeholder network can be used in the process of bundling resources and structuring the resource portfolio.

Integrating a unique set of resources to form capabilities that provide firms with a competitive advantage over other firms requires investment in R&D. Through enhancing R&D intensity, firms can develop their resources and capabilities to assimilate and exploit external resources. This increase in the level of R&D investment along with opportunities to evolve and develop resources into value-creating assets can be explored further, as they offer distinct capabilities that other firms cannot obtain or substitute and therefore serve as a sustained competitive advantage.

Investment in R&D can be used to explore new resources and build upon existing resources. A local rather than diverse focus of R&D investments enables firms to build upon prior research. This leads to an increase in the probability of successful results, because firms can use their prior experience (Stuart & Podolny, 1996). Moreover, by building upon existing

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17 knowledge, firms can create capabilities that are idiosyncratic and established through a path dependent process, which makes it difficult for other firms to substitute or imitate (Gulati et al., 2000). Consequently, investment in R&D likely provides improved results as it is based upon areas of a firm’s expertise and established competencies.By integrating new knowledge and building upon established knowledge, firms can strengthen their capabilities regarding CSR and thus improve their CSR position. On this basis, the following hypothesis will be tested:

H1: CSR performance is positively related to R&D investment.

CSR strategies and R&D investment

Carrying out CSR activities requires engagement in a CSR strategy. Porter and Kramer (2006) describe two types of CSR strategies: strategic and responsive CSR. Strategic CSR can be described as ‘going beyond the implementation of best practices’ (Bocquet & Mothe, 2013), as firms exploit complementarities to achieve an advantageous position compared to other firms. This achievement of a competitive position in the market demands secure planning and thoughtful decisions focused on a long-term perspective. To this end firms intentionally engage in CSR activities. Strategic CSR is therefore viewed more positively than responsive CSR because it is more altruistic in nature (Groza, Pronschinske & Walker, 2011). Based on the existing literature, I define strategic CSR as ‘proactive engagement in positive CSR practices to intentionally achieve a unique and distinct position as compared to competitors’ (Bocquet & Mothe, 2013). In contrast, responsive CSR can be defined as ‘acting as a good corporate citizen, attuned to evolving social concerns of stakeholders, and mitigating existing adverse effects from business activities (Porter & Kramer, 2006; Bocquet & Mothe, 2013). This definition indicates that firms do not intentionally engage in CSR activities, but use them to rectify negative consequences; for instance, a firm may increase its

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18 CSR practices when under scrutiny. A concrete example is the case of Apple Inc., who in 2010 came under scrutiny for the employment of children aged 15 in a number of factories. Since then they have launched an internal campaign, as underage labour is not a subject that firms want to be associated with.

The different types of strategies that firms can adopt explain ‘why’ firms engage in CSR practices. More specifically, the different types of strategies explain the nature of why firms incorporate CSR activities into their daily strategies. For instance, firms that adopt a strategic CSR strategy are more intrinsically motivated, and intentionally execute CSR initiatives as part of their strategy. On the other hand, firms that engage in a responsive CSR strategy are more extrinsically motivated. These latter firms are more focused on reputation and execute disparate CSR initiatives because it is expected of them, rather than integrating initiatives into their core strategies.

The differences between the two types of CSR strategy are further translated into differences in the stakeholder networks that firms develop by responding to stakeholder demands. Because firms that adopt a strategic CSR strategy aim to inhabit a unique position in the market through integrating CSR practices into their core strategy, they proactively seek opportunities to distinguish themselves from other firms. Because long-term competitiveness is dependent on the integration of idiosyncratic resources serving as capabilities that provide firms with a competitive position, firms actively seek to incorporate resources that complement and are able to build upon their own internal resources. Accordingly, firms invest in their network in order to gain resources that they cannot create within the firm. To build distinct capabilities by the integration of external and internal resources, a firm must invest in R&D.

In contrast, firms with a responsive CSR strategy are less impelled to improve their stakeholder relationships, as they are less concerned with seeking resources in their network

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19 that increase their competitive advantage over other firms. Moreover, since they less actively respond to the demands of their stakeholders, the firmstakeholder relationship is negatively impacted. This results in a less extensive exchange of resources, in turn impacting the intensity of R&D investments as obtaining fewer resources requires less R&D. Therefore:

H2: The effect of CSR on R&D investment is stronger for firms following a strategic CSR strategy compared to firms following a responsive CSR strategy.

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Methodology

In order to assess the relationship between CSR and R&D investment, the moderating effect of different CSR strategies on the relationship between CSR performance and the level of R&D investment is explored. This chapter describes the methods that are used in this thesis. The first section focuses on how the data is selected, followed by the measurement of the different variables. Finally, the statistical models are described.

Data selection

For this research secondary, quantitative data is collected from the Datastream database; Thomson Reuters Asset4 ESG and Worldscope databases. The sample consists of firms obtained from the S&P 500, an American stock index that shows the largest 500 firms in the U.S., by tracking the market capitalization for each firm in its index. The sample is restricted from 2007 to 2016, representing the most recent available data.

First, the data regarding CSR performance is obtained. This data is retrieved from the Asset4 database, which consists of transparent and objective information of CSR performance. The database collected and analyzed data that is retrieved from firm reports, firm websites, NGO websites, newspapers, journals and trade publications. This database includes more than 6,500 public world companies from 2002 onwards and covers the major indices: S&P 500, MSCI World Index, MSCI Europe Index, Nasdaq 100, FTSE350, STOXX 600, Russell 1000, ASX 300 and MSCI Emerging Market. It rates and compares firms among approximately 700 individual data points. The points are combined over 250 key performance indicators (KPI), which are aggregated into a framework of 18 categories grouped within four pillars: economic, environmental, corporate governance and social.

The data gathered from the Asset4 database is then matched to the R&D investment data which is obtained from Worldscope. This database provides annual and quarterly data, detailed historical financial statement content, per share data, calculated ratios, pricing and

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21 textual information. After this, the data that is used to measure firm age, firm size, industry, firm performance and slack resources is retrieved from Worldscope, whereas the data used for controversies and board diversity was gathered from the Asset4 database.

In total 505 firms are retrieved, of which 320 firms are eliminated due to missing essential data in the dependent variable, R&D investment. The total number of firms analyzed is 185. As each firm is analyzed for 10 years, the total number of cases that is investigated is 1,788.

Variables

Dependent variable: R&D investment. The data that is used to measure R&D investment is

directly retrieved from the Worldscope database. The variable Research and Development is downloaded, which represents all expenses that are incurred during the year that relate to the development of new products or services. In order to correct for the skewed distribution in this data a logarithm transformation was used.

Independent variable: CSR performance. In this research, CSR performance is scored

based upon three categories: social, environmental and corporate governance (ESG). The environmental pillar measures a firm’s impact on living and non-living natural systems, including the air, land and water, as well as complete ecosystems. It reflects how well a firm uses best management practices to avoid environmental risks and capitalize on environmental opportunities in order to generate long-term shareholder value. The social pillar measures a firm’s capacity to generate trust and loyalty with its workforce, customers and society, through its use of best management practices. It is a reflection of the firm’s reputation and the health of its license to operate, which are key factors in determining its ability to generate long-term shareholder value. The corporate governance pillar measures a firm’s systems and processes, which ensure that its board members and executives act in the best interests of its

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22 shareholders. It reflects a firm’s capacity, through its use of best management practices, to direct and control its rights and responsibilities through the creation of incentives, as well as checks and balances in order to generate shareholder value (Asset4 ESG data glossary, 2018). Economic performance is eliminated, as it does not indicate CSR practices.

The data retrieved from the three pillars consists of 226 KPIs. The firms are then scored between 0 and 100, which gives an indication of their performance. A higher score represents an enhanced E/S/G performance (Velte, 2016). To create an overall CSR performance score, the scores from the environmental, social and governance pillars are averaged to one score.

Moderating variable: CSR strategy. There is one moderating variable used in this analysis,

CSR strategy, that consists of responsive versus strategic CSR. To measure whether firms adopt a strategic or responsive CSR strategy, I explored the extent to which firms are under scrutiny. Zyglidopoulos, Georgiadis, Carroll and Siegel (2011) investigated the impact that scrutiny has on CSR performance. Their results show that firms that are under scrutiny, increase their CSR initiatives. This means that firms that adopt a responsive CSR strategy, respond to controversies in order to rectify their negative performance. Firms that adopt a strategic CSR strategy, on the other hand, are less sensitive to controversies, as they incorporate their CSR practices strategically.

To indicate the different CSR strategies, the variable controversies is downloaded. This variable is based on 23 ESG controversy topics and measures a firm’s exposure to environmental, social and governance controversies and negative events that are reflected in the global media. Firms are scored between 0 and 100, which represents their performance compared to peers. A higher score represents more negative events in the global media.

To analyze whether firms engage in strategic versus responsive CSR, a regression model is used to measure how much of the CSR practices are predicted by controversies. For

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23 this analysis, I am interested in whether controversies predict CSR performance well across different firms. This indicates that if controversies do not predict CSR performance well, it could mean that firms engage in CSR not merely as a response to public scrutiny. In contrast, if controversies do explain CSR performance, it could mean that firms use their CSR activities to respond to public scrutiny.

The regression analysis is performed without employing the fixed effects estimator, as I do want to see differences across firms. Based on the model, for each case a CSR performance score is predicted. A new variable is then created, representing the residuals. This are differences between the values of the outcome predicted by the model and the values of the outcome observed in the sample. These residuals represent the error. If CSR is predicted well by controversies, which is shown by small residuals, then I assume that the firm follows a responsive CSR strategy. If CSR is well-predicted by controversies, shown by large residuals, I assume that the firm follows a strategic CSR strategy.

To define the cutoff point between firms that are labeled as strategic CSR and firms that are labeled as responsive CSR, the boundaries were established at one standard deviation above and below the mean. The lower boundary is set at on the value of -19.770 and the upper boundary is set at 20.830. Firms that fall within these boundaries are labeled as responsive, indicated with a “0”. Firms that score either lower than -19.77 or higher than 20.83 are labeled as strategic, indicated with a “1”. This indicates 491 cases as strategic and 1,317 as responsive. This cutoff point is used in the initial models.

Control variables. In this research I control for five variables. The first variable is firm size.

Previous literature showed that large firms are more likely to have a higher CSR performance, because they are more sensitive to become a target for government regulations or NGO campaigns (Tang, Hull & Rothenberg, 2012), and they are more sensitive to negative attention. Large firms are therefore more inclined to prioritize environmental challenges and

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24 to make sure they manage it effectively. Furthermore, larger firms have more capacity to invest in R&D (Sun, Lee & Phan, 2018) as they have more resources (McWilliams and Siegel, 2001). Following previous research (Jiraporn & Chintrakarn, 2013), firm size is measured by the variable total assets. This represents the sum of total current assets, long term receivables, investment in unconsolidated subsidiaries, other investments, net property plant and equipment and other assets.

The second variable I control for is industry. Previous studies showed that firms in different industries show different levels of performance and R&D investment (Waddock & Graves, 1994. In the current research, nine different studies were identified, which are: basic materials, industrials, consumers goods, health care, consumer services, telecommunications, utilities, financials and technology. A dummy variable is created to identify each industry separately.

The third variable that is controlled for is firm performance, because prior research showed that CSR is related to firm performance (Margolis, Elfenbein & Walsch, 2007). Following previous research (Anderson& Reeb, 2003; Hart & Ahuja, 1996) return on assets (ROA) is used as a proxy for firm performance. This indicates the profitability of a firm in relation to its total assets.

The fourth variable that is controlled for is board diversity. According to Harjoto, Laksmana and Lee (2015) there is a significant positive relationship between board diversity and CSR performance. More concrete, gender, tenure and expertise diversities are determining for CSR activities. Moreover, Midavaine, Dolfsma & Aalbers (2016) showed that board diversity also affects the level of R&D investment; gender diversity is positively related to R&D intensity. This variable is measured by the board structure/board diversity score in the Asset4 database, which indicates the percentage of females on the board.

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25 The last variable I control for is slack resources. Slack resources ‘represent the potentially utilizable resources in an organization that are in excess of the minimum necessary for achieving organizational goals’ (Lee & Wu, 2015). Firms are encouraged to engage in risky behavior when they have slack resources. More concrete, firms probably invest more in R&D, as R&D investment is perceived as risky because of the uncertain outcomes. Following prior research (Chen & Miller, 2007; Lim & McCann, 2013; Singh, 1986), slack resources is measured by the current ratio (currents assets divided by current liabilities).

Statistical model and analysis

The second hypothesis measures whether the magnitude of the relationship between the independent variable CSR performance and the dependent variable R&D investment, depends on a third variable: CSR strategy. Depicted in a statistical model, it looks as following:

R&Dinvestment = β0 + β1CSRperf1 + β2CSRstrat2 + β3Size3 + β4Perf4 + β5D5Industry5 +

β6Slack6 + β7Boarddiv7 + β8CSRperf8CSRstrat8 + ε

in which the effect of CSR performance on R&D investment is a function of CSR strategy. In this case, CSR strategy is a dichotomous variable, and the conditional effect is derived from two values of CSR strategy: strategic and responsive.

The panel nature of the data was taken into consideration when choosing the analyses. To check for individual specific effects in panel data the Breusch-Pragan test was used. The test rejected the null hypothesis stating that there are consistent variances (X2 (1) – 14.58, p < 0.01) This shows that there are significant differences across firms in the data. The Hausman

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26 test was employed to decide whether to use the fixed effects model or the random effects model. Based on this result, I decided to run a random effects model (X2 (3) = 2.53, p > 0.05).

I mean-centered all the variables before the interaction item was created to mitigate any potential multicollinearity problems. Because CSR strategy is a categorical variable (0, 1), and industry a dummy variable, these variables were not mean-centered.

To test if CSR performance is explanatory for R&D investment, a regression model employing the random effects estimator is used. Subsequently, I added the moderating variable to see how it affects the variable R&D investment. Finally, the interaction item is added to test the moderating effect of CSR strategies.

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27

Results

In the following section the main findings of the analyses are presented. First, the correlation matrix is presented and the outstanding correlations are discussed. Subsequently, the results of the regression analyses are discussed. Finally, a robustness section is added to explore the results.

Descriptive statistics and correlation analysis

Table I shows the descriptive statistics and the correlations of the variables that are used in this research. The relationship between the variables is examined by using the Pairwise correlation coefficient. The sample consists of 1,788 cases which are analyzed from 2007 to 2016. The major industries are technology (25.1%), basic materials (25.1%), consumer goods (20.1%) and health care (18.4%), presented in table II. Regarding the correlations, CSR performance is positively correlated with R&D investment (r = 0.28 p < 0.01). There is a high negative correlation between CSR performance and CSR strategy (r = -0.68, p < 0.01). Slack resources is negatively correlated to CSR performance (r = -0.20, p < 0.01). All other correlations were low to moderate and not outstanding. For a detailed overview of the correlations, please refer to table I and II.

Regression analysis

Table III presents the regression analyses results. Model 1 includes the dependent variable R&D investment, the independent variable CSR performance and the control variables industry, firm size, firm performance, slack resources and board diversity.

In this model, total assets is positively related to R&D investment (B = 6.16e-09, p < 0.01) indicating a small, but positive relationship between firm size and R&D investment. Return on assets is negatively related to R&D investments (B = -0.004, p < 0.01). This indicates that firms that have a higher firm performance spend less on research and

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28

Table I. Mean, standard deviations and correlations

***. Correlation is significant at the 0.10 level **. Correlation is significant at the 0.05 level *. Correlation is significant at the 0.01 level

Table II. Mean, standard deviations and correlations for industries

N R&D investment 1 2 3 4 5 6 7 8 1.Industrials 110 -0.11* 2.Basic materials 450 -0.15* -0.14* 3.Consumergoods 360 -0.20* -0.28* -0.12* 4.Healthcare 330 0.13* -0.26* -0.12* -0.23* 5.Consumer service 50 0.02 -0.09* -0.04 -0.08* -0.07* 6.Telecommunications 10 0.06* -0.04 -0.02 -0.04 -0.03 -0.01 7.Utilities 20 -0.15* -0.06** -0.03 -0.05** -0.05** -0.02 -0.00 8.Financials 10 -0.11* -0.04 -0.02 -0.04 -0.03 -0.01 -0.01 -0.01 9.Technology 450 0.30* -0.32* -0.14* -0.28* -0.26* -0.10* -0.04 -0.06** -0.04

***. Correlation is significant at the 0.10 level **. Correlation is significant at the 0.05 level *. Correlation is significant at the 0.01 level

N Mean S.D. 1 2 3 4 5 6 1.R&D investment 1,849 12.78 1.51 2.CSR performance 1,809 73.45 20.42 0.28* 3.Firm size 1,858 0.00 0.00 0.44* 0.24* 4.Firm performance 1,850 8.90 8.31 -0.01 0.06* -0.05** 5.Board diversity 1,807 66.50 22.66 0.15* 0.28* 0.18* -0.02 6.Slack resources 1,848 2.15 1.34 0.02 -0.20* -0.15* 0.14* -0.20* 7.CSR strategy 1,860 0.26 0.44 -0.19* -0.68* -0.16* -0.05** -0.15* 0.14*

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29 development. Firms that score higher on board diversity, calculated as the percentage of females on the board, invest less in R&D (B = -0.001, p < 0.05). The effect of slack

resources on R&D investment is negative, but small (B = -0.05, p < 0.01). This suggests that firms that have more slack resources invest less in R&D. Three industries are significantly positive related to R&D investments. These are health care (B = 1.36, p < 0.01), consumer services (B = 1.17, p < 0.10) and technology (B = 1.56, p < 0.01). The industry utilities is negatively related to R&D investments (B = -1.66, p < 0.10).

As expected, CSR performance is positively related to R&D investments (B = 0.014, p < 0.01). This suggests that firms that score higher on CSR performance, indicated by social, environmental and governance pillars, invest more in R&D. Therefore, hypothesis I is supported.

Model 2 adds CSR strategy into the model. As “0” represents the responsive CSR strategy, and “1” the strategic CSR strategy, responsive CSR is the baseline in the analysis. The model therefore measures whether strategic CSR has an effect on R&D investment. The variable CSR strategy is negatively related to R&D investments (B = -0.04, p = 0.103). However, this relationship is not significant, hence no conclusions can be made.

Model 3 adds the interaction item CSRstrategy*CSRperformance into the model. In this model hypothesis 2 is examined, which states that the effect of CSR performance on R&D investments is stronger for firms following a strategic CSR strategy compared to firms following a responsive CSR strategy. In this model the interaction item has a significant, positive coefficient (B = 0.005, p < 0.01). This suggests that the effect of CSR performance on R&D investments is significantly higher for firms that engage in a strategic CSR strategy compared to firms that engage in a responsive CSR strategy. Therefore, hypothesis 2 is supported.

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30 Table III. Regression analyses

***.Correlation is significant at the 0.10 level **. Correlation is significant at the 0.05 level *. Correlation is significant at the 0.01 level

Model 1 Model 2 Model 3 B SE B SE B SE CSR performance 0.014* 0.00 0.013* 0.00 0.01* 0.00 Firm size 0.00* 0.00 0.00* 0.00 0.00* 0.00 Firm performance -0.004* 0.001 -0.004* 0.001 -0.004* 0.001 Board diversity -0.001** 0.001 -0.001** 0.00 -0.001** 0.00 Industry Industrials 0.36 0.44 0.37 0.44 0.36 0.44 Basic materials -0.33 0.52 -0.32 0.52 -0.32 0.52 Consumer goods -0.06 0.44 -0.06 0.44 -0.06 0.45 Health care 1.36* 0.45 1.37* 0.45 1.37* 0.45 Consumer service 1.17*** 0.63 1.17*** 0.63 1.16*** 0.63 Telecommunications 0.05 1.15 0.05 1.15 0.05 1.15 Utilities -1.66*** 0.86 -1.66*** 0.86 -1.67*** 0.86 Financials -1.73 1.15 -1.73 1.15 -1.71 1.15 Technology 1.56* 0.44 1.56* 0.44 1.55* 0.44 Slack resources -0.05* 0.01 -0.05* 0.01 -0.05* 0.01 CSR strategy -0.04 0.03 -0.04 0.03 CSR strategy * CSR performance 0.005* 0.001 Model F 848.28 851.69 878.14 R2 0.47 0.47 0.47 p 0.00 0.00 0.00 Number of observations 1,788 1,788 1,788

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Additional robustness tests

To explore the sensitivity of my findings, I employed two additional analyses. First, I added firm age as an extra control variable to check how it affects the models. This variable was added because firm age impacts the extent to which firms engage in CSR practices. Older firms have enhanced reputation and history regarding social responsibility, thus more social commitments over time (Godos-Diez, Fernandez-Gago, Martinez-Campillo, 2010) and therefore invest more in CSR (Withisuphakorn & Jiraporn, 2016). Moreover, older firms can more easily afford, economically, CSR engagement (Jo & Harjoto, 2012) compared to younger firms.

Firm age was identified as the ‘date company founded’. From this variable I calculated the age of each firm in years. This variable was initially eliminated from the major models because it reduced the number of observations to 771, therefore affecting the precision of estimations that can be made based on the model.

In model 1, 2 and 3 there is a small, negative effect of firm age on R&D investment (B = -0.006, p < 0.05), indicating that younger firms invest more in R&D than older firms.

Second, I used two other cutoff points to define strategic versus responsive CSR, in order to explore the sensitivity of my findings. The output is reported in table IV, which can be found in the appendix. The first cutoff point was created by setting boundaries at 10 percent and 90 percent. In this case, the lower boundary is set on the value of -34.93 and the upper boundary is set on 19.74. This indicates 411 cases as strategic, and 1,449 as responsive. Using this as the moderating variable, the negative effect of CSR strategy on R&D investments is significant in model 2 (B = -0.05, p < 0.05). The interaction effect in model 3 is also significant (B = 0.002, p < 0.05), indicating that also with this cutoff point hypothesis 2 is supported.

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32 The last cutoff point is established by taking the first and third centiles as lower and upper boundary (value of residuals is -12.704 and 16.539 respectively). This cutoff point divided all cases reasonably equal into strategic and responsive CSR strategies (N=955 and N=905 respectively). In model 2, CSR strategy is not significantly related to R&D investment (B = -0.02, p = 0.45) . Also in model 3 the interaction effect is not significant (B = 0.002, p = 0.21). Therefore, the 0 hypothesis, which states that the effect of CSR performance on R&D investment does not significantly differ for firms following a strategic CSR strategy compared to firms following a responsive CSR strategy, cannot be rejected

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Discussion

The aim of this research was to investigate whether different CSR strategies moderate the effect of CSR performance on R&D investment. The primary hypothesis argued that firms which follow a strategic CSR strategy deploy a higher level of R&D investment compared to firms which follow a responsive CSR strategy. Overall, the results of the analyses are in line with these predictions. In the following section the major findings are discussed, before outlining the contributions of this study to the existing literature. I then describe the limitations of the study and provide some recommendations regarding future research. Finally, the thesis ends with a conclusion.

Major findings

A significant amount of research has taken place on the concept of CSR and the exploration of the direct consequences and precursors of CSR practices. While some studies elaborate on different drivers of CSR activities, others explore the relationship between CSR and firm performance. As no consensus probably will be achieved about the direct relationship between CSR and firm performance, more interesting is to investigate how this relationship is established. In this context, analysing the effects of CSR requires the application of moderators and mediators in order to further understand the theoretical field and improve the discussion that this research joins with empirical results. Therefore, based on the existing studies and the identified literature gap this research examines the effect of different CSR strategies on R&D investment.

The results of this research suggest that a strategic CSR strategy does indeed accelerate the effect of CSR performance on R&D investment. Thus, firms that are engaged in a strategic CSR strategy invest more in R&D than firms that are engaged in a responsive CSR strategy. This could be explained by the intensity of a firm’s stakeholder network; firms with enhanced CSR performance improve their stakeholder relationships as they respond to

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34 requests regarding CSR practices. In turn, this provides firms with resources and external knowledge that they cannot build internally. To successfully utilise these resources as a competitive advantage, integration and configuration with the existing resources is required. Firms therefore invest in R&D to explore the obtained resources and create capabilities that lead to success. Through the proactive approach of firms following a strategic CSR strategy, stakeholder relationships are further improved, permitting an increase in resource exchange. Consequently, in order to achieve a unique and distinct position within the market through utilising their obtained resources, firms increase their R&D expenditures. Responsive firms, in contrast, are more led by their responses to scrutiny and increase their CSR activities in order to rectify negative practices. Thus, their internal motivation is focused on re-establishing reputation rather than taking advantage of their CSR activities within the market. This affects the firm-stakeholder relationship, as firms less proactively search for opportunities within their stakeholder network, affecting resource exchanges.

However, these results should be interpreted with caution. Since there is no established way to measure CSR strategy, different cutoff points were used to explore the boundary between strategic and responsive CSR. Firms following a strategic CSR strategy only amplify the effects of CSR performance on R&D investment when the group following a strategic CSR strategy is selective. Hence, the extent to which firms follow a strategic or responsive strategy is an important determinant for the consequences regarding R&D investment.

Given that CSR performance leads to an increase in R&D investment, the relationship is stronger for firms following a strategic CSR strategy compared to firms following a responsive CSR strategy. Nonetheless, CSR strategy and stakeholder relationships are complex and comprehensive concepts, both defined by and dependent on managerial decisions. Moreover, it extends the purpose of a firm beyond its own boundaries and

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35 acknowledges integration and harmonization with the environment. As a result, the consequences of different CSR strategies should be considered carefully and placed in context.

Contributions and practical implications

The theoretical aim of this study was to empirically investigate whether firms with a strategic CSR strategy would amplify the effect of CSR performance on R&D investment compared to firms following a responsive CSR strategy. This research makes several contributions to the existing literature. First, the theoretical contributions are described, followed by the practical implications.

Previous literature regarding the concept of CSR is extensive. Some studies explored how engagement in CSR directly leads to enhanced performance, but the results are diversified (Orlitzky, Schmidt & Rynes, 2003; Margolish & Walsh, 2003). Other studies incorporated stakeholder theory as major theoretical viewpoint for exploring the effect of CSR on firm performance (Marom, 2006). Based on this perspective, addressing the needs and expectations of stakeholders can be used as rationale for CSR and further explains how improved relationships result in enhanced outcomes for firms. Stakeholder pressures force firms to engage in stakeholder practices and in turn affect the quality of the relationship between firms and stakeholders.

This study further analyses stakeholder pressures as motivation for CSR activities and provides a deeper understanding how responding to requests impacts firm-stakeholder relationships; it utilizes different CSR strategies that firms can employ which in turn affect the quality of the relationship between firms and its stakeholders. It specifies that engaging in different CSR strategies as a response to stakeholder demands has different consequences regarding resource exchange, and thus the level of R&D investment. Hence, contrasting to existing literature which mainly focuses on CSR performance and the stakeholder theory, this

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36 study further examines how different approaches of CSR activities affect stakeholder relationships. Through this perspective, this study magnifies the discussion of how the relationship between CSR and R&D is established; it suggests that firms that are more proactively engaged in their CSR strategy invest more in R&D than firms that are more reactive in their strategy.

Moreover, the majority of existing studies focus on firm performance as output, whereas some studies focus on innovation as output. By exploring the effect on R&D investment, this study examines how CSR performance affects innovative input. This is interesting because R&D investment is an important driver of innovation, which in turn leads to enhanced firm performance. Thus, investigating the effect of different CSR strategies on the input of performance rather than output further specifies how the relationship between CSR performance and firm performance is established.

In addition to theoretical contribution, the practical implications of this research are also worth discussing as CSR strategy is a managerial activity and therefore depends on decisions made by the board and managers. By developing a theoretical framework that extends the literature on how CSR might lead to enhanced firm performance, this research provides knowledge that reveals some of the uncertainty concerning the effect of CSR on R&D investment. Furthermore, by specifying the effects of different CSR strategies this research enlightens the practical viewpoint on the impact of different approaches concerning CSR performance. Through this, managers are able to define their CSR strategy and the consequences more specifically. Even though R&D investment itself is not an indicator of performance, it is an important driver of performance. Therefore, the decisions that managers make regarding CSR on a daily basis indirectly affect firms’ performance. Accordingly, a strategic versus responsive approach has important consequences for both high- and low-level practices within the firm and its daily operations. By indirectly promoting a strategic

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37 CSR strategy, the results of this study encourage managers and boards to carefully reconsider their activities and decisions, and to think accordingly of the potential consequences for long-term firm performance.

Limitations and future research

To point out future opportunities for research, it is important to touch upon the various limitations of this study. In the next paragraph these limitations are discussed, followed by suggestions for further studies.

One limitation of this study concerns the measurement of CSR strategy; this is a qualitative concept and is therefore difficult to measure. Accordingly, in comparison to the actual CSR activities that firms are engaged in, the underlying reason why firms engage in CSR practices is more important to consider. More specifically, to understand a firm’s chosen strategy the focus should lie upon their intention, rather than whether or not they engage in CSR. The difference between the two strategies can be equated to being intrinsically versus extrinsically motivated. Although the concept is clear, it is difficult to quantitatively define when firms are strategically or reactively motivated to operate responsively. In order to know whether firms are strategic or responsive in their CSR practices more qualitative research is required to explore the differences between these strategies. Hence future research should focus on a more in-depth and extensive investigation of the different CSR strategies, for example with the use of case studies. In this way, they can focus on the underlying reasons for why firms perform CSR practices in the way they do.

Second, in this research CSR strategy is based on whether or not firms are under scrutiny and if their CSR operations can be explained by this. This measurement was used as research has indicated that firms under scrutiny increase their CSR practices in order to rectify their negative performance (Zyglidopoulos et al., 2011). Therefore, CSR performance that is less explained by controversies implies a more strategic CSR strategy, and vice versa.

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38 Although for the scope of this research the measurement was sufficient, it does not exclusively explain the concept of strategic versus responsive CSR. Future research should therefore focus on other ways to define and measure CSR strategies on a quantitative basis.

Another limitation of this study concerns the sample. First, this study used firms obtained from the S&P 500, which lists the 500 largest publicly traded U.S. companies by market value. Even though firm size was included as a control variable, it would be interesting to study the effect of different CSR strategies for a different sample, for example start-ups. As start-ups are less sensitive to controversies reported in the media, the distinction between a strategic and a responsive CSR strategy might mean that stakeholder relationships are affected in different ways. Moreover, the level of R&D investment is related to firm size (Shefer & Frenkel, 2005). Smaller firms have a less extensive stakeholder network, and therefore a less comprehensive exchange of resources. This might negatively impact the extent to which firms invest in R&D. Therefore, it would be interesting to determine whether CSR practices are a precursor for R&D investment, even though smaller firms invest less in R&D. Moreover, as smaller firms are less sensitive to controversies it would also be interesting to explore whether a difference in strategies can be observed.

Finally, the sample used in this research had a lot of missing data regarding R&D investment. This reduced the sample size from 505 to 185 firms. Therefore, future research could focus on finding a more complete database regarding R&D data, in order to increase the precision of estimations that can be made based on the model.

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Conclusion

This study investigated whether CSR performance leads to a higher level of R&D investment, and whether different CSR strategies have different effects on R&D investment. More specifically, it examines whether firms that follow a strategic CSR strategy invest more in R&D than firms that follow a responsive CSR strategy.

This research provides evidence of a difference existing between CSR strategies regarding the level of R&D investment. In more concrete terms, empirical evidence is found that firms engaged in a strategic CSR strategy invest more in R&D than firms engaged in a responsive CSR strategy. These findings indicate that strategic orientation should be taken into account and emphasize the importance of establishing a CSR strategy, because this has important implications for the stakeholder network and therefore the level of R&D expenditure.

Overall, this research focuses on how stakeholder relationships influence the extent to which firms invest in R&D. Even though R&D is not measured with firm performance as an outcome, it is an important driver of firm performance. Therefore, this study contributes to the discussion regarding the relationship between CSR and R&D investment, suggesting how following a strategic CSR strategy appears to positively affect firm performance.

The effect of different CSR strategies on the Level of R&D investment : a stakeholder perspective