The impact of corporate social responsibility on the relationship between intangible resources and financial performance : a resource based perspective

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Master thesis

The impact of corporate social responsibility on the relationship between intangible resources and financial performance: A resource based

perspective.

Student name: Britte de Boer Student number:10902260

Program: MSc in Business Administration – Strategy Track

Name of Institution: Amsterdam Business School, University of Amsterdam Supervisor: Dr. Sebastian Kortmann

Date: August 31, 2015 Word count: 17998

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Statement of originality

This document is written by Britte de Boer 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

The aim of this paper is to analyze the effect of corporate social responsibility (CSR) on the relationship between a firm’s resources and financial performance. A resource based perspective is used in order to examine this relationship. The resource based view of the firm (RBV) still lacks the integration of social and environmental aspects in its theory. Therefore, this study integrates CSR practices into the RBV. A multiple hierarchical regression analysis was conducted in order to examine the effect of CSR on the relationship between R&D investment, total quality management (TQM), corporate diversification and human resource management (HRM) on financial performance (FP). The results are based both on pooled and panel data with year and industry fixed effects in the time span 2009-2013. The results do not show a significant direct relationship between CSR and FP. However, the interaction effect of CSR is proved to be significant. The results reveal that CSR has a significant effect the relation between R&D investment, corporate diversification and TQM on financial performance. Therefore, it is argued these resources play a key role in developing a CSR strategy and result in superior financial performance.

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The importance of corporate social responsibility (CSR) has grown tremendously in the past decade. People increasingly start to hold companies responsible for the social consequences of their activities. That is, the organization should not only consider their own interests, but should also pay attention to its so-called triple bottom line. Nowadays, organizations are being judged on their social corporate responsible behavior, and despite sometimes

questionable measuring methods, the sustainability measures receive considerable publicity. As a result CSR has developed as an unavoidable concept for business leaders worldwide.

The increasing attention in the literature regarding CSR seems to result in theoretical and managerial discussions that state ‘not only is doing good the right thing to do, but it also leads to doing better’ (Bhattacharya & Sen 2004, p. 9). As a consequence, CSR has made a shift from ideology to practice and it is argued by many that organizations should define their role in society and apply social and ethical standards to their business (Lichtestein,

Drumwright, & Braig, 2004). Despite the fact that many organizations become more

concerned about their influence on the environment and society, organizations often are still struggling with CSR practices. This might be due to the various definitions, practices and implementation methods regarding CSR. The concept of CSR has developed over time and is influenced by several different theories, for example, agency theory, institutional theory, stakeholder theory and the resource-based view of the firm (McWilliams & Siegel, 2001). According to Lee (2008), the level of analysis of CSR has moved through the years to the organization-level of analysis of CSR and the impact of CSR on organizational processes and performance.

Within the fast growing research area of CSR, a major part of the theoretical and empirical literature has focused on studying the relationship between CSR and measures of financial performance (FP) of the organization. For a lot of researchers, managers and investors, the question what the consequences of CSR are is of key importance. Perceptions of a positive relationship between CSR and the bottom line encourages the implementation of CSR practices in corporate strategies. However, in literature there is a lot of ambiguity

regarding the relationship between CSR and financial performance. Because of various definitions, measurement and methodological issues, there is no consensus in the literature either at the firm or portfolio level of analysis, which leads to inconsistent results regarding this relationship (Griffin & Mahon, 1997; Margolis & Walsh, 2003). Some studies argue

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there is a positive relationship between CSR and FP (Hillman & Keim, 2001), others argue there is no relationship (Renneboog, Ter Horst, & Zhang, 2008a), or a negative one

(Brammer, Brooks & Pavelin, 2006).

Although the relationship between CSR and FP is still ambiguous, it seems that CSR has an important impact on FP. In order to analyze this relationship closer, this study will use the resource-based view (RBV) of the firm. The resource-based view is built upon the theory that firm performance is to a large extent determined by the resources it owns and controls (Galbreath, 2005).

The RBV has gained a lot of attention in the strategic management literature and argues that a firm’s success is driven from resources that possess certain criteria (Galbreath, 2005). Research in the field of strategic management has shown that superior firm

performance depends on the match between an organization’s internal resources and

capabilities, and changing external circumstances (Hart, 1995). The RBV was the first theory that acknowledges the importance of the match between internal resources and external circumstances. However, although the RBV is extensively discussed in literature, this theory overlooks the integration of environmental and social aspects in order to create sustained competitive advantage and superior firm performance. Because of the growing pressure on organizations regarding CSR practices, this concept also became an important feature for gaining competitive advantage and superior firm performance. In addition, despite the fact that RBV received extensive attention in the literature, empirical support on the RBV remains limited (Newbert, 2007). Therefore, this study will integrate CSR into the RBV in order to analyze the effect on financial performance. Hence, this study aims to answer the following research question:

What is the effect of corporate social responsibility practices on the relationship between a firm’s intangible resources and financial performance?

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5 1.1 Research objective and contributions

The objective of this research is to answer the research question mentioned in the previous section. In order to this, this study will consider several intangible resources and the

relationship with CSR and financial performance. The contribution of this thesis is twofold. First of all, this thesis contributes to the literature by incorporating CSR into the RBV. Second, this study will provide empirical evidence that will justify findings in prior literature that argues that resources are an important indicator of financial performance. In addition, empirical evidence will be provided to justify findings in the prior literature whether it is worth engaging in CSR practices in order to obtain superior firm performance.

Furthermore, this study will discuss the strategical dilemma of integration-responsiveness (IR), since this study is focused on international operating organizations. As an additional feature in this study the relationship between the IR scores and financial performance will be analyzed to be able to investigate to whether its beneficial to adapt CSR practices on a local level to maximize financial performance.

Beside the contributions to the literature, this study will also provide practical contributions. That is, this study will provide evidence for managers of multinationals whether CSR, in combination with the resources of the firm, will lead to superior firm

performance. In addition managers can find evidence regarding which resources are the most important indicator for firm performance.

Concluding, this thesis will provide empirical evidence in order to fill a gap in the literature regarding this ambiguous topic on the one hand, and provide useful implications for managers of multinationals that want to create superior firm performance in a socially

responsible way on the other. 1.2 Structure of the paper

This paper is structured as follows. First, the literature regarding CSR, its “triple bottom line” and the relation with financial performance will be reviewed. Next, the literature regarding the RBV and its relation to financial performance will be discussed. Then, the resources used in this study will be discussed, along with their relation to financial

performance and corporate social responsibility. In the method section the research design, sample construction and measurement of the variables of this quantitative study will be explained. In the result section the outcomes of the research, based on multiple hierarchical regression analysis, will be presented. In the discussion section the results will be discussed

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and linked back to the literature. This section will also provide limitations of this study, managerial implications and suggestions for further research. Finally, conclusions will be drawn based on the conducted analysis.

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7 2. Literature review and hypothesis development

The literature review discusses the most relevant scholars on the topic of CSR, RBV and the relationship between these concepts and financial performance of internationally operating firms. The first section will discuss the topic of corporate social responsibility, the different viewpoints, its “triple bottom line”, and the integration-responsiveness framework. Next, the relationship between CSR and financial performance will be discussed. Hereafter the

resource-based view will be discussed, followed by the linkage between CSR and RBV. Then, the resources that are relevant for this study, based on the resource-based view, will be

discussed and linked to CSR. Additionally, the literature review contains the hypotheses that were developed for this study.

2.1 Corporate social responsibility

The research field for corporate social responsibility has grown tremendously in the past decade (Tsoutsoura, 2004). There is increasing demand for transparency and growing expectations that corporations measure, report, and continuously improve their social, environmental, and economic performance (Tsoutsoura, 2004). Unfortunately, there is no consensus about the definition of CSR. To be more precise, CSR is defined in various and contradictory descriptions (Garriga & Mele, 2004). According to Business for Social Responsibility (BSR), corporate social responsibility is defined as “achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment”. McWilliams and Siegel (2001:117) describe CSR as “actions that appear to further some social good, beyond the interest of the firm and that which is required by law”. McWilliams and Siegel (2001) note that CSR goes beyond just following the law. They argue that an organization is acting in a corporate social responsible way when they implement strategies and policies that increase the welfare of their key stakeholders, that go beyond the minimum legal requirements. From this point of view, CSR includes the set of policies, practices and programs that are incorporated into business operations, supply-chains and the decision making process in the entire company and are focused on balancing the impact between the economic, social and ecological aspects.

Every company varies in the way they implement a CSR strategy, if they do at all. Some organizations are just focusing on one aspect of CSR, for example the environment, whereas other organizations incorporate their CSR policy into their whole business strategy (Tsoutsoura, 2004). In order to succeed the implementation of a CSR strategy, it is important that the CSR practices are embedded in the company’s strategy and values, and that

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management as well as employees are committed to them. Additionally, the CSR principles should be aligned with the corporate objectives and core competencies (Tsoutsoura, 2004).

Through the years CSR has been analyzed from different theoretical perspectives (Mc Williams, Siegel & Wright, 2006). However, the key to understand the motivation for CSR is the stakeholder perspective, which is discussed in many different scholars. Freeman (1984) was the first who argued that the firm should not only act in benefit of the firm, but the business should be focused on satisfying their stakeholders like customers, employees and communities. Additionally, Ullman (1985) argued that managing stakeholders is so important because they can give the firm entrance to scarce resources. Thus, in order to fulfill

stakeholder demands the firm should incorporate CSR practices.

Building on this, Hart (1995), was the first researcher who analyzed CSR from a resource-based perspective. Hart (1995) showed that environmental corporate responsibility can become a capability that will lead to sustained competitive advantage and superior firm performance. McWilliams and Siegel (2001) extended this view by arguing that adding a social aspect to a product or service can lead to superior firm performance since this will be valued by the firm’s stakeholders. CSR should be used as strategic investment that might lead to sustained competitive advantage (McWilliams, van Vleet & Cory, 2002).

Summarizing the above, it becomes clear that CSR practices are considered in business as a strategy that can create sustained competitive advantage and superior firm performance. Therefore, its important organizations pay attention to embedding CSR practices into their business strategy in order to take care of the “triple bottom line”, which will be elaborated on in the next section.

2.1.1 CSR and it’s three dimensions

As mentioned above, there are many different definitions of CSR in the literature. Central in this debate is the idea that companies are not only accountable for their actions to their owners, but to the natural environment and society as a whole (Jamali, 2006). Despite the many definitions of CSR, there seems to appear a consensus in the literature regarding the different dimensions of CSR, namely the so-called “triple bottom line”. The triple bottom line (TBL), proposed by Elkington (1999) was developed in 1999 as a new tool for measuring CSR. TBL means companies have to find a balance between the economic, environmental and social impact of the firm. The economic dimension contains the reduction of operating costs through systematic management labor productivity, expenditures on research and development and investments in training and other forms of human capital (Jamali, 2006). Environmental performance refers to the amount of resources a firm uses in its operations

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(e.g. energy, land, water) and the by-products its activities create (e.g. waste, air emissions, chemical residues etc.) (Hubbard, 2009). Lastly, social performance is related to the impact a firm (and its suppliers) has on the communities in which it works (Hubbard, 2009). This includes problems such as health and safety, working conditions and human rights issues (Knoepfel, 2001).

2.2 CSR and financial performance

A lot of different scholars examined the relationship between CSR and financial performance. Between 1997 and 2001 122 studies have been published regarding this relationship

(Margolis & Walsh, 2002). However, no consensus has been reached in the literature. The empirical research regarding CSR can with some approximation be divided in three groups.

The first argues there is a positive relationship between CSR and financial

performance (e.g Posnikoff, 1997; Cormier & Magnan,2007; Orlitzky, Schmidt & Reynes, 2003). For example, Soloman and Hansen (1985) found that the costs related to the

implementation of CSR practices will be more than compensated by the benefits of increased employee morale and productivity. Preston and O’Bannon (1997) and Pava and Krausz (1996) also found a positive relationship between CSR and FP. Additionally, positive synergies between good stakeholders relationships and financial performance were found by Verschoor (1998). Ruf, Muralidhar, Brown and Janney (2001) found that a high level of CSR can result in sales growth and that returns on sales have a positive impact on CSR. Simpson and Kohers (2002) found a positive association between CSR and FP in their research on banking firms.

The next group argues there is no significant relationship between CSR and FP. For example, McWilliams and Siegel (2000) did not reach consensus in their research regarding this relationship. They did not find a difference in financial performance between companies with high levels of CSR and companies with low levels of CSR. Other researchers that did not find a significant relationship are for example, Anderson and Frankle (1980), Aupperle, Caroll and Hatfield (1985) and Freedman and Jaggi (1982a).

The third group that can be distinguished in the CSR-FP literature are the scholars that found a negative relationship (Garcia-Castro, Arino & Canela, 2010). Preston and O’ Bannon (1997) argue that managers decrease their investment in CSR practices in order to gain higher short-term profit and personal compensation. In addition, Freedman and Jaggi (1982a), Ingram and Frazier (1980), Waddock and Graves (1997) and Wright and Ferris, (1997) also found a negative relationship between CSR and FP.

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financial performance, and the effect of CSR on the long-term financial performance. The results of the scholars examining the effect on short-term performance have been mixed. He, Tian and Chen (2007), Luo and Bhattacharya (2006) and Cormier and Magnan (2007) found a positive relationship, Wright and Ferris (1997) found a negative relationship and Moore (2001), Lopez, Garcia and Rodriguez (2007) and Bechetti, Di Giacomo, and Pinnacchio (2008) did not find any relationship between CSR and short-term financial performance, which is measured by abnormal returns.

The results of the studies that examined the effect on the long-term financial performance are also inconsistent. Here, accounting or financial measures are used to measure profitability. Cochran and Wood (1984) reported a positive relationship after controlling for the age of assets. Aupperle et. al., (1985) found no relationship, whilst Waddock and Graves (1997) found a positive relationship between CSR and ROA.

However, more recent articles argue CSR might be complementary to FP from a long-term perspective (Peloza, 2006). For example, Porter and Kramer (2009) argue that CSR is not in conflict with FP. First, they argue that social and economic objectives should not be separated. That is, by engaging in CSR practices the firm can also improve the social climate in which it operates (Porter & Kramer, 2009). Second, they found that CSR can serve as a source of competitive advantage in the long-term. For example, engaging in CSR practices can lead to a more efficient allocation of resources, and developed processes of moral

decision making (Porter & Kramer, 2009). Peloza (2006) also points out that reputation might be a way in which CSR can be beneficial to financial performance. McWilliams and Siegel (2001) argued that CSR “creates a reputation that a firm is reliable and honest”. In the same line, Bhattacharya and Sen (2001) pointed out that CSR can develop goodwill which can be used in periods of crisis.

The negative relationship between CSR and financial performance can be explained by the perspective of Friedman (1962), which is in line with the neoclassical economical thinking (Tsoutsoura, 2004). They argue that firms with CSR policies have a competitive disadvantage because they are dealing with higher costs that will reduce profit, while these costs can be transferred to the government or society. Scholars that did not find any

relationship follow the view of Ullman (1985). Ullman (1985) argues that there are so many factors that influence this relationship, that one cannot expect there is an actual relationship between CSR and financial performance. Scholars that published a positive relationship follow the way of thinking that the benefits of CSR are higher than the costs (Tsoutsoura, 2004). Firms that try to reduce costs by, for example ignoring the measures for pollution, will

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face higher costs in the end because of high fines, lawsuits, or damage to their reputation because of socially irresponsible behavior (Tsoutsoura, 2004). Companies with a good CSR policy can avoid these costs. According to McWilliams and Siegel (2001) companies that engage in CSR practices are benefitting their stakeholders, which will result in a reduction of conflicts. In addition, firms can increase their reputation by engaging in CSR practices. Thus, many studies have been investigating the relationship between CSR and FP with very mixed results. This raises the question whether CSR contributes or conflicts with the

economic objectives of the organization. The debate around the effect of CSR on financial performance takes two opposite perspectives.

Opponents of CSR argue that these practices are conflicting with economic objectives of the organization. They follow the reasoning of Friedman (1970) that increasing CSR expenditures will result in reduced shareholders wealth. They argue that the organization should solely focus on maximizing firm profit in order to return dividend to their

shareholders. Margolish and Walsh (2003) argue that the arguments against CSR practices can be of two types: either the organization does not return the investment to the right people, for example shareholders, or the organization is not able to allocate their resources in an efficient manner because decisions regarding CSR do not belong to their core competencies. Following this perspective, it is argued that CSR should not be the concern of the

organization since they often lack the knowledge and focus to engage in such practices. Hence, it might be more effective to let the government provide resources required for CSR practices to specialized agencies, and tax the firm for this in return (Peloza, 2006).

In contrast, supporters of CSR argue that CSR practices can be beneficial for the firm in terms of financial performance. Organizations with this perspective will invest in CSR practices because they believe CSR will result in superior firm performance. For example, Orlitzky et. al., (2003) conducted an analysis of 52 studies regarding CSR and FP. They found that investment in CSR is beneficial for firm performance, especially the social dimension has a positive effect on firm performance. The same conclusion was drawn for environmental responsibility, only to a lesser extent.

In conclusion, no consensus has been reached in the literature regarding the

relationship between CSR and financial performance. As well positive, negative as neutral relationships were found. However, since the pressure for engaging in CSR in order to fulfill stakeholder demands is only increasing (van Beurden & Gössling, 2008), it is expected that organizations are also increasing their response to stakeholder demands and will take their “triple bottom line” into account. Increased fulfillment of stakeholder demand is expected to

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have a positive impact on financial performance. Therefore, this research will examine whether there is a relationship between CSR and FP. This leads to the first hypothesis: Hypothesis 1: International companies that are highly engaged in CSR practices will have a higher financial performance.

2.3 Integration-responsiveness framework

This study is focused on international operating companies, therefore it is important to analyze the way they implement their CSR strategies. In order to do this, the integration-responsiveness (IR) framework will be discussed shortly. Each company differs in the way they implement their corporate social responsibility strategy, if they do at all (Tsoutsoura, 2004). This study analyzes internationally operating firms which have the choice between a global or a local corporate social responsibility strategy.

The integration-responsiveness framework has been extensively discussed in

international business literature. Lin and Hsieh (2010) argue: “The IR framework is the most dominant and robust framework for modeling international strategy at both corporate and subsidiary levels.” In line with the contingency approach in international strategy, the core idea of the IR framework is that companies operating internationally must balance the need to be responsive to local demands from stakeholders such as customers and the government on the one hand, and must exploit market opportunities and make profit on the other (Roth & Morrison, 1990). Hence, the two dimensions of the IR framework work in opposite directions. The essence of the integration is exploiting benefits across national borders, while at the same time being responsive and adaptive to the need of the local stakeholders (Benito, 2005).

The IR framework can also be applied to a firm’s corporate social responsibility practices. In the literature, the IR framework is mostly applied to the economic dimension of CSR, yet the IR framework can also be used for analyzing the social and environmental dimensions of the “triple bottom line”. The IR framework can be used as a tool to both examine the extent to which the international organization adapts its sustainability practices to meet local demands, and the extent to which the firm has a standardized a general CSR strategy that is used in all their subsidiaries. The key difference between a global and a local CSR strategy is the community that demands it (Husted & Allen, 2006). A ‘local’ CSR policy needs to deal with the organization’s obligations based on the standards of the local

community, whereas 'global' CSR deals with the firm's obligations based on those 'standards to which all societies can be held' (Husted & Allen, 2006).

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company should be focused on fulfillment of stakeholder demands, it is expected that firms with a local CSR strategy will perform better than organizations with a global CSR strategy. Since there is increasing pressure on multinational organizations regarding CSR,

organizations need to fulfill their local stakeholders demand in order to achieve superior firm performance. Therefore, a locally responsive CSR strategy will create stakeholder

engagement and in this way might lead to superior firm performance. This leads to the following hypothesis:

Hypothesis 2: The extent to which an internationally operating firm has a locally responsive CSR strategy will be positively related to financial performance.

2.4 The resource-based view and financial performance

Looking at CSR as a component of corporate strategy allows examining CSR practices from a resource-based-view perspective (McWilliams et. al., 2006). The RBV was first introduced by Wernerfelt (1984) and later revised by Barney (1991). The RBV argues that firms are bundles of heterogeneous resources and capabilities that are imperfectly mobile across the firm (Barney, 1991). As a consequence, the imperfect mobility of heterogeneous resources can create a competitive advantage for firms that have superior resources or capabilities (Barney, 1991). This section will first explain the resource-based view and its premises. Next CSR will be studied from a RBV perspective.

The relationship between firm’s resources and firm performance has been an

important area of interest in strategic management literature. The resource-based view (RBV) (Barney, 1991; Peteraf, 1993) has become a prominent theoretical framework in strategic management research. The most empirical research on the resource-based view examined the relation between the possession of a single resource and firm performance (e.g. Deephouse, 2000). Yet, the literature provides a lot of evidence that the possession of a resource, and the impact of this resource on firm performance, can be very complex (Ray, Barney & Muhanna, 2004; Sheehan & Foss, 2007). By looking from a RBV perspective, this means that the

possession of a resource that is valuable, rare, inimitable and non-substitutable (Barney, 1991) is often not sufficient to create superior financial performance (Andersén, 2011). However, not much empirical research has been done to examine this complex relationship between strategic resources and firm performance (Andersén, 2011).

Penrose (1959) was one of the first researchers that recognized the importance of resources to a firm’s competitive position. Penrose (1959) argued that the firm’s growth is

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dependent on the way in which its resources are allocated. Building on the insights of

Penrose, Wernerfelt (1984) pointed out that a firm’s performance is directly dependent on the firm’s products, and indirectly dependent on the firm’s resources that go into their production. Later on, Barney (1991) established the RBV by building on the ideas from Penrose and Wernerfelt.

The resource-based view is built upon the theory that firm performance is to a large extent determined by the resources it owns and controls (Galbreath, 2005). The resource based view is a prescriptive theory, meaning that a firm’s resources can be important determinants of firm performance only if they possess certain criteria (Barney, 1991). The main assumption of the RBV is that only resources that are valuable, rare, inimitable and non-substitutional can create superior firm performance.

However, the possession of a resource does not necessarily mean that the resource is also utilized in an adequate manner. In response to this main critique on the RBV regarding the missing link between resource possession and exploitation, Barney and Wright (1998) recognize that beside possessing valuable, rare, inimitable and non-substitutional resources, the firm also needs to be capable of utilizing the resources in a way its full potential is

exploited. Therefore, implementation skills that make it possible to fully exploit the resources should be included in organizational components as structure, control systems and

compensation policies (Barney & Mackey, 2005). In other words, the organization needs to create a context that makes it possible to fully exploit the firm’s resources.

From a research perspective, although the number of empirical studies is increasing, most studies concentrate on isolating only a few resources, mostly intangible resources, within single industry contexts to examine the relationship between resources and firm performance (Galbreath, 2005). However, examining the interconnectedness between resources will be an empirical contribution to the RBV (Galbreath, 2005).

In the literature there exists ambiguity regarding the boundaries and definitions of resources according to perspectives of different interest groups. According to the RBV resources are “all assets, capabilities, organizational processes, firm attributes, information knowledge etc. controlled by the firm” (Barney, 1991: 101). In a more recent study,

Galbreath (2005) uses the following definition: “a resource is a (firm-level) factor that has the potential to contribute to economic benefit”. Resources can be divided into two categories: 1) tangible resources and (2) intangible resources. Tangible resources are the elements that contain financial or physical value as measured by the firm balance sheet. Contrary,

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assets and capabilities. If the intangible resource is something the firm “has” it can be seen as an asset. If the intangible resource is something the firm “does” it is a capability (Galbreath, 2005). The RBV addresses the importance of intangible resources since these are expected to fulfill the VRIN framework as proposed by Barney (1991). In addition, Galbreath (2005) found that intangible resources have a higher impact on financial performance compared to tangible resources. Therefore, this study will focus on the intangible resources of the firm.

Newbert (2007) conducted an assessment of the RBV’s level of empirical support in the literature. In total there are 55 articles from which he concluded the following: in only 53% of the papers a positive link between resources and firm performance was proved.

Furthermore, Newbert (2007) concluded that the combination of resources and/or

capabilities/competences are more likely to explain performance differences than isolated resources. Newbert (2007) also shows in his research that the ways in which the independent variables in the RBV literature are operationalized are considerably different. There is major variation in resources, capabilities and core competencies that have been examined using the RBV. To be more specific, only two of the 26 resources (human capital and knowledge), one of the 32 capabilities (information technology), and none of the core competencies have been examined in more than five percent of total articles and tests (Newbert, 2007). In other words, from the above can be concluded that the RBV has received a lot of attention in literature, it has only marginal empirical support, and this support varies with the independent variable and theoretical approach that has been used.

In line with Galbreath (2005), Hult and Ketchen’s (2001) also suggest that a valuable contribution to future RBV research would be to study interactions between and among resources and their impact on firm success. In addition, the RBV lacks the integration of social and environmental aspects. Therefore, this study analyzes the interaction effect of CSR in the relationship between several intangible resources and financial performance. In the next section the RBV will be applied to CSR, subsequently, the relationship with financial performance will be explained.

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16 2.5 CSR in the resource-based view

The resource-based view is looking from a supply side perspective and argues that firms must allocate their resources to satisfy the demand for CSR (McWilliams & Siegel, 2001). Over the past decade, organizations are increasingly challenged to adopt new strategies in order to fulfill the demand for CSR. It seems likely that the basis for competitive advantage will be captured in capabilities that take responsibility for the environmental, economic and social environment. For example, waste minimization, green product design, and technology cooperation (McWilliams & Siegel, 2001). In order for the RBV to remain relevant, organizations must understand which CSR related resources and capabilities can create sustained competitive advantage and superior firm performance.

Russo and Fouts (1997) examined the relationship between environmental

performance and financial performance and argued the RBV offers a tool in deepening the analysis how CSR influences the triple bottom line (Russo & Fouts, 1997). First, the RBV has a strong focus on performance as outcome variable. Next, like in the CSR literature, the RBV acknowledges the importance of intangible resources such as knowledge (Teece, 1980), corporate culture (Barney, 1986), and reputation (Hall, 1993). However, only limited

empirical research can be found in the literature regarding incorporating the RBV into the relationship between CSR and financial performance (McWilliams & Siegel, 2001).Therefore, This study will examine the relationship between CSR and financial performance, looking from an RBV perspective.

There has been a lot of discussion in the literature regarding the importance of internal firm capabilities and how they influence environmental factors, social factors, and firm performance (e.g. Hannan & freeman 1977). Looking into the literature, there is evidence that internal as well as external factors play a big role in the creation of competitive advantage and superior firm performance (Hart, 1995). The resource-based view contributed to the literature by combining these perspectives. However, Hart (1995) was the first one who acknowledged the RBV overlooks one important topic: it ignores the constraints created by the biophysical environment (Hart, 1995). Because of the growing pressure on firms

regarding corporate social responsibility, Hart (1995) argued that the most important drivers of new resource and capability development should be the constraints coming from the biophysical environment. Therefore, Hart (1995) inserted the natural environment into the RBV by proposing the natural resource based view of the firm. According to the natural resource based view, strategy and superior firm performance should be rooted in capabilities that enable corporate sustainable practices.

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Applying the RBV to CSR brings up the question if firms can use CSR practices in order to achieve sustained competitive advantage. Reinhardt (1998) examined this question and found that organizations with an implemented CSR strategy will only receive abnormal returns when it can prevent their competition from imitating a CSR strategy. This relates to the VRIN framework of Barney (1991) which states that resources and capabilities will only lead to sustained competitive advantage if they are valuable (V), rare (R), inimitable (I) and non-substitutional (N). However, it is very unlikely to avoid competitors from imitating a CSR strategy. Therefore, a CSR based strategy will only lead to competitive advantage on the short-term (McWilliams et. al., 2006). On the other hand, this also means that in a

competitive market firms will be forced to implement a CSR based strategy because their competitors are doing the same thing (McWilliams et. al., 2006). This leads to the question whether implementing such a strategy is really acting socially responsible, or just acting strategic. However, this goes beyond the scope of this research.

Research in the field of CSR has long tried to examine if and when a firm’s CSR practices actually influence their bottom line (McWilliams & Siegel, 2001). Russo and Fouts (1997) examined CSR from an RBV perspective and argue that CSR can create a source of competitive advantage and superior firm performance, especially in high-growth industries. Barney, Wright and Ketchen (2001) argue that the concern for CSR can become integrated into the firm’s strategy in a way that it is inimitable. For example in companies such as Ben and Jerry’s, Johnson & Johnson, and the Body Shop, the concern for ethics became

embedded in the culture (Barney, 2001). However, this does not always necessary lead to superior firm performance. Therefore, more empirical research is required regarding this relationship.

2.6 RBV-related resources and their relation with CSR

As explained above, the RBV seeks to understand interfirm performance differentials as a reflection of the different underlying resources the firm possesses (Barney, 1991). The RBV suggests that an organization’s possession of specialized resources may lead to sustainable competitive advantage and superior firm performance if they possess certain criteria. The RBV implicitly prescribes that intangible assets are more important to firm performance than tangible resources, as follows from the VRIN framework as defined by Barney (1991). Galbreath (2005) found that resources that are intangible do, in general, have more impact on financial performance than tangible resources. Therefore, the focus of this study is on

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intangible resources of the firm. In this section the resources that will be used in this study will be explained and related to CSR.

The RBV contributes to the analysis of the resources in this research because this theory acknowledges the importance of intangible resources, such as reputation, human resources, R&D investment, and total quality management (Russo & Fouts, 1997). Branco and Rodrigues (2012) also point out that the RBV is useful in order to study CSR because it places emphasis on the importance of intangible resources because they are difficult to imitate and substitute. Thus, the RBV offers a useful insight to analyze the effect of these resources in relation to CSR. The resources examined show characteristics that are in line with the RBV, therefore they are considered as very important resources that will positively impact firm performance, and at the same time consider the ‘triple bottom line’. Looking at the importance of these resources for financial performance, most studies focused on explaining the relationship between the resource and financial performance, or the relation between the resource and CSR. However, in order to understand the relationship between CSR and financial performance from an RBV perspective, the influence of CSR on the relation between the resources and financial performance should be examined (McWilliams & Siegel, 2000). The resources that will be examined in this study are: research and

development investment (R&D), corporate diversification, total quality management (TQM), and human resource management (HRM).

The next section will explain the relationship between these intangible resources, financial performance and the role of CSR.

2.6.1 Research & Development, CSR and financial performance

The literature suggests that R&D investment seems to be an important determinant of financial performance (McWilliams & Siegel, 2000). A lot of scholars found that R&D investment has a positive impact on the long-term financial performance (Aboody & Lev, 2000; Etemad & Lee, 2001; Lee, Lee & Pennings 2001; Schoenecker & Swanson, 2002). Traditional economics research argues that R&D investment is essential for organizations in order to gain competitive advantage (Le, Walters & Kroll, 2006). R&D investment leads to the development of new products, increased process efficiency and competitive advantage (Le et. al., 2006). For example, Aw and Batra (1998) examined the relationship between technical capabilities and firm efficiency, using R&D investment as a proxy in their research. They found a positive relationship between R&D investment and firm efficiency. Similarly, Acha (2000) also found a positive relationship between R&D investment and operational firm

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performance. Research and development investment is perceived here as a form of

investment in 'technical' capital that will lead to knowledge enhancement, which results in product and process innovation. This innovative activity allows firms to enhance their productivity (McWilliams and Siegel, 2000). Empirical evidence can be found that support these arguments. For example Lichtenberg and Siegel (1991) found a positive link between R&D investment and total productivity. Guerard, Bean, and Andrews (1987) and Hall (1999) found similar positive correlations between R&D and long-term financial performance. However, some studies found a negative relationship between R&D investment and financial performance (Han & Manry, 2004), or no relationship at all (Chan, Lakonishok & Sougiannis, 2000).

R&D also seems to play an important role in the firm’s CSR strategy (Mcwilliams & Siegel, 2000; Hull & Rothenberg, 2008). Similarly to R&D investment, conducting CSR practices is a strategy an organization can use in order to create product differentiation at the product and firm level in order to gain competitive advantage (Hull & Rothenberg, 2008; Mackey, Mackey & Barney, 2007; Siegel & Vitaliano, 2007). Firms with an intensive CSR policy produce goods or services with attributes that indicate to the customer the organization takes care of its ‘triple bottom line’ (McWilliams & Siegel, 2000). Hitt, Hoskinsson, Johnson and Moessel (1996) argue that the introduction of new products and processes has a positive relation with R&D investment. This innovative activity will result in enhanced productivity (McWilliams & Siegel, 2000). R&D investment involving innovation related to CSR practices might be attractive to customers, for example recycling of products (Padgett & Galan, 2010). Therefore, McWilliams and Siegel (2000) argue that using CSR resources in order to create superior firm performance may also include R&D investment.

Additionally, a lot of companies try to create a corporate socially responsible image. These kind of strategies will attract customers who want organizations to be engaged in CSR practices. As a result, many products have labels that show the use of ingredients and

production methods that promote CSR (McWilliams & Siegel, 2000). Those labels that indicate CSR attributes also create new product categories in the eyes of the customer. The examples described above require process and product innovation, which will be valued by several stakeholders. McWilliams and Siegel (2000) concluded that some customers want products or services that contain socially responsible attributes (product innovation), whereas some customers want proof that the goods or services are produced in a socially responsible way (process innovation). Therefore, R&D investment can be used in order to establish CSR practices. Quazi and O’Brien (2000) state that the broader the dimension of CSR is in the

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organization, the higher the need for process and product innovation in order to fulfill all stakeholder demands.

Summarizing the above, it can be stated that both R&D and CSR practices can provide assets which result in competitive advantage. By using R&D investment in

developing CSR, new products and more efficient processes can be developed which will be valued in the eyes of the customer. This will result in increased fulfillment of stakeholder demands, which is expected to contribute to financial performance. In addition, recent studies have shown that in order to examine the relationship between CSR and financial performance, R&D should be included since it has an important impact on CSR and financial performance (McWilliams & Siegel, 2000). Hence, R&D plays an essential role in the establishment of the CSR strategy.

This leads to the following hypothesis.

Hypothesis 3a: R&D investment in internationally operating organizations will be positively related to firm performance.

Hypothesis 3b: The relationship between R&D investment and financial performance will be positively moderated by CSR practices.

2.6.2 Corporate diversification, CSR and financial performance

Corporate diversification represents one of the most important research topics in the field of business (Palich, Cardinal & Miller, 2000). The impact of diversification on firm

performance has received extensive attention in the literature and is considered to be of high importance for the leadership position of the organization (Goerzen & Beamish, 2003; Nachum, 2004; Narasimhan & Kim, 2002). Extensive research is done to examine the costs and benefits of the diversification strategy on competitive advantage and financial

performance (Chakrabarti, Singh, & Mahmood, 2007; Palich et. al., 2000; Ramanujam & Varadarajan, 1989). The main reason for diversification are the benefits for the organization as a result of a greater target market, optimal utilization of resources, risk reduction because of a broader portfolio and development of capabilities (Nath, Nachiappan, Ramanathan, 2010). Conceptually, diversification should have a positive relationship with firm

performance because of economies of scale, a bigger market, and leveraging of resources (Rumelt, 1974). However, empirical research regarding diversification show mixed results. According to Montgormery and Wernerfelt (1988) diversification has a negative impact on financial performance. Diversification can increase operational costs and create managerial

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conflicts because of organizational difficulties (Chakrabarti et. al., 2007; Grant, Jammine, & Thomas, 1988).

According to the RBV, a firm will have an incentive to diversify if it possesses the required, excess resources to make diversification beneficial in economic objectives (Teece, 1982; Wernerfelt, 1984). This means that, looking from a RBV perspective, a firm’s level of diversification and its performance are significantly influenced by its resources and

capabilities. Diversification can lead to superior firm performance, compared to a focused strategy, because firms can maximize their resources across several businesses to realize additional return (Barney & Wright 1997; Fang, Wade, Delios, & Beamish, 2007; Lu & Beamish, 2001). In this way, economies of scope can be achieved because the most important resources of the firm can be used and shared between different business units. The RBV literature regarding diversification state that the relationship between diversification and firm performance is curvilinear (Nath, et. al., 2008; Palich, et. al., 2000). This means that

unrelated diversification has a negative impact on firm performance, whereas a related diversification has a positive impact on firm performance. Nevertheless, it should be noted this perspective does not consider advantages that can be created by unrelated diversification, for example coinsurance and financial synergies (Nath et. al., 2008). In this case it concerns related diversification which means the portfolio is expanded within the scope of the resource capabilities of the firm. Hence, the firm can achieve economies of scope and increased firm performance. On the other hand, in the case of unrelated service diversification, the portfolio expansion goes beyond the scope of the resources and capabilities of the firm and will therefore raise costs which will result in decreasing firm performance (Geringer, Tallman & Ollson, 2000). Thus, firms with related diversification will create economies of scope and market power advantage. Therefore, the RBV argues that firms with a lower level of diversification can outperform those with a high level of diversification strategies (Wan, Hoskisson, Short & Yiu, 2011; Hoskinsson & Hitt, 1990; Lubatkind & Chatterjee, 1994; Markides, 1992), whereas a unrelated diversification strategy will increase costs. However, there is also empirical evidence that this is not always the case (Bettis & Hall, 1982; Dubofsky & Varandarajan 1987; Hitt & Ireland, 1985).

Nathet. al., (2008) found a negative relationship of firm performance and the level of diversification. They argue that diversification requires high knowledge of product

development and transfer of resources among business units. This is similar to the RBV literature that point out that the transfer of capabilities among the organization, such as knowledge, is a complex process (Nath et. al., 2008). However, in line with Narashimhan and

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Kim (2002), they found a positive impact of related service diversification on financial performance. Related diversification requires leveraging of the organization’s resources and capabilities across company and the subsidiaries. Markides and Williamson (1996) found that related diversification only improves firm performance when the business has preferential access to strategic assets, and competitive advantage is dependent on organizational

structures that make it possible for the firm to share strategic assets (Markides & Williamson, 1996). However, Farjoun (1998) did not find any relationship between related diversification and financial performance. In more recent studies, Kor and Leblebici (2005) found a negative relationship between related diversification and financial performance. This is line with the findings of Chakrabarti et. al., (2007) and Ramanujam and Varadarajan, (1989) that argue that not all firms increase their financial performance by their diversification strategy.

Tanriverdi and Venkatraman (2005) state that benefits that arise from related

diversification, for example product knowledge relatedness, customer knowledge relatedness or managerial knowhow relatedness, did not lead to superior firm performance separately. However, when synergies are created between those types of knowledge, financial

performance was improved. But simply combining resources and adopting a strategy of related diversification does not necessarily lead to superior financial performance (Wan, 2005). For example, John and Harrison (1999) examined that firms with manufacturing related businesses were not able to gain superior financial benefits.

Understanding corporate diversification is not only useful because it is an important determinant of financial performance, but it can also be applied to CSR. However, when applying diversification to CSR, it seems that a high level of diversification might be beneficial regarding firm performance. Diversified firms have an extensive impact on the welfare of numerous stakeholders in society (Kang, 2012). Because the core of CSR is fulfilling all organizations stakeholder demands (the triple bottom line), CSR can be used to understand diversified firm’s respond to stakeholder demands (Kang, 2012). Kang (2012) proposed the level of diversification increases the level of stakeholder demand and social issues an organization needs to engage in. Therefore he argues that the higher the level of diversification, the more the firm needs to engage in CSR practices in order to be able to fulfill all stakeholder demands. Diversification can create economies of scope and therefore creates a stronger incentive for organizations to engage in CSR practices. Nevertheless, short-term profit focus of diversified firms can discourage investment in social issues. Kang (2012) found that unrelated diversification will result in high engagement in CSR practices, whereas related diversification does not. Reason for this is that firms need to satisfy more stakeholder

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demands in terms of the triple bottom line in case of unrelated diversification than in the case of unrelated diversification.

Summarizing the above, it can be stated that the relationship between resources, diversification, performance and CSR can be complex. Following the literature it is expected that a high level of diversification will have a negative impact on financial performance because in this case the firm’s portfolio will go beyond the scope of the resources. However, CSR seems to positively influence this relationship since CSR practices for highly diversified firms results in increased engagement to diversified stakeholder demands and social issues. Responding to a wide variety of stakeholders is expected to contribute to financial

performance.

This leads to the following hypotheses:

Hypothesis 4a: There is a negative relationship between the level of diversification and financial performance of the internationally operating firm.

Hypothesis 4b: The relationship between the level of diversification and financial performance will be positively moderated by CSR practices.

2.6.3 Total Quality Management, CSR and financial performance

Much research has been done regarding the link between total quality management (TQM) and financial performance (Hendricks & Singhal, 2001; York & Miree, 2004). Oakland (1989) defines TQM as “an approach to improve competitiveness, efficiency and flexibility in the entire organization.”. Most scholars proved there is a positive link between TQM and financial performance (e.g. Christiansen & lee, 1994; Hendricks & Singhal, 1997; Reed, Lemak & Mero, 2000). The theoretical foundation for this positive link has two dimensions (York & Miree, 2004). First, TQM is focused on the firm’s effort to gain and engage

customers, which will lead to increased revenue through gaining market advantage, and lower costs through product design efficiency. Additionally, TQM is focused on the firm’s effort to improve the processes that produce their products and services which leads to increased revenues through product reliability, and reduced costs through process efficiency (George & Weimerskirch, 1998, p. 7). In summary, doing the right thing in a more efficient way is expected to have a positive impact on the financial performance of the firm. A number of empirical studies have found positive outcomes of TQM. For example, TQM is found to be positively related with financial performance (Hendricks & Singhal, 2000; Ghobadian, Gallear, Woo, & Liu, 1998; Rahman, 2001; Allen & Kilmann, 2001), improved operational

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performance (Lagrosen & Lagrosen, 2005; Eriksson & Hansson, 2003; York & Miree, 2004), increased focus on meeting customer needs and stakeholders (Ghobadian, Gallear & Hopkins 2007; Morrow, 1997) and improved perception of customers (Ghobadian et. al.,1998;

Rahman, 2001; Lagrosen & Lagrosen, 2005). However, Berquist and Ramsing (1999) and York & Miree (2004) argue that the relation between TQM and financial performance is not established yet. Empirical evidence can also be found for less positive outcomes of TQM. For example, Eskildson (1994) argues that a lot of organizations do not succeed in conducting TQM practices because of unclear definitions of TQM and the difficulty of implementation of these practices. In addition, Harrari (1993) argues that only one third of the TQM

programs actually succeeds.

TQM also plays an important role in CSR strategy. The literature suggests that these two concepts seem to have a lot of overlap in all facets of the business (McAdam & Leonard, 2003; Ghobadian et. al., 2007). TQM is one of the most used management innovations of the past three decades and has been implemented worldwide in all sorts of organizations

(Ghobadian et. al., 2007). Because of the similarities between these concepts, TQM can be an appropriate tool in order to develop CSR practices within the company. Oppenheim and Przasnyski (1999) stated that the focus of TQM is to enable organizations to deliver high quality durable products and/or services, in the shortest possible time to market, at lowest cost, and in a manner that emphasizes human dignity, work satisfaction and mutual and long-term loyalty between the organization and its stakeholders, especially its employees

(Oppenheim & Przasnyski, 1999). Hence, TQM has a strong ethical dimension and values the importance of considering the interests of stakeholders instead of only the interests of the owners. Likewise, CSR accepts the profit maximization goals of the organization, but it also considers other values, for example people and the environment. Therefore, TQM can be an important tool in embedding CSR strategy into the organization (Ghobadian et. al., 2007). McDam and Leonard (2003) also argue TQM is based on ethical principles, and that CSR is in line with the principles of TQM. They state that the quality practitioners have the

responsibility to look after the ethical dimension of TQM and should therefore take lead in conducting CSR practices. Juran (1993) was the first one who expanded the scope of TQM and argued that TQM is important because of its focus on people by creating employee satisfaction and quality of working life. These principles of TQM can be an important area of influence on CSR practices in the organization. Important to note is that these principles are not in conflict with the economic objectives of the organization, but they address the CSR performance by valuing society and the environment (McDam & Leonard, 2003). In line with

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this, the American Quality Society code of ethics defines quality as: “knowledge and skills for the advancement of human welfare and in promoting the safety and reliability of products for public use” (McDam & Leonard, 2003). Hence, TQM and CSR share these ethical

principles that are essential for the development of CSR practices (Moir, 2001; Wood, 1991). Organizations have become more aware of how their stakeholders view their impact

regarding CSR (McDam & Leonard, 2003). Therefore, using TQM can be a useful tool in order to develop CSR practices within the organization (Kok, van der Wiele, McKenna, & Brown, 2001).

Summarizing the above it is expected TQM will have a positive impact on financial performance. TQM is focused on customer engagement and improvement of products and processes and is therefore expected to contribute to financial performance. In addition, TQM can play an important role in CSR practices. TQM has a strong ethical dimension and puts high emphasis on both considering the interests of their stakeholders and profit maximization. Because some of the TQM elements overlap with CSR, they can be implemented as a part of the TQM process and in this way collectively contribute to financial performance. TQM has a strong ethical dimension and puts high emphasis on both considering the interests of their stakeholders and profit maximization.

Therefore the following hypotheses are developed:

Hypothesis 5:TQM programs in internationally operating organizations are positively related to firm performance.

Hypothesis 5b: The relationship between TQM and firm performance will be positively moderated by CSR practices.

2.6.4 Human resource management, CSR and financial performance

The RBV has made important contributions in the field of human resource management (Wright, Dunford & Snell, 2001). Individual HRM practices might be imitable, but HRM strategies, that develop over time, are mostly specific to the firm and contribute to the

development of employee skills (Barney, Wright & Ketchen, 2001). The emphasis on people as strategically important to a firm’s performance has contributed to the interaction and integration of strategy and HRM issues. Inyang (2001:8) defines HRM as “a set of organization wide and people-oriented functions or activities deliberately designed to

influence the effectiveness of employees in the organization.” The concept of HRM includes all activities that contribute to successfully attracting, developing, motivating and maintaining

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high-performance employees that will create organizational success (Iyang, Awa & Enuoh, 2011). There is growing evidence in the literature regarding a positive relationship between HRM and financial performance (Huselid, 1995; Fey & Bjorkman, 2001; Guest, Michie, Conway, & Sheehan, 2003; Iyang et. al., 2011).

This positive association is based on two arguments. First, it is argued that the way in which an organization’s human resources are organized is an important determinant of

competitive advantage (Fey, Margulis-Yakushev, Park, & Bjorkman, 2009; Barney & Wright, 1998). The reason behind it is that employees provide one of the most important sources of competitive advantage (Barney & Wright, 1998; Guest, 1997; Svensson & Wood, 2005). Second, effective deployment of human resources is dependent on the use of a distinctive combination of practices, in this case HRM (Guest, et. al., 2003). Different definitions of HRM can be found in the literature, however it should be noted that a positive relationship with financial performance was reported irrespective of the HRM definition (Guest et. al., 2003).

However, in recent articles this relationship is criticized since it is argued that it is too simplistic and a lot of different factors might be of high importance regarding the relationship between HRM and financial performance (Farndale & Paauwe, 2007; Schneider & Barsoux, 2003; Fey et. al., 2009). For example Fey et. al., (2009) examined that employee ability and motivation are important mediators in this relationship, and are required in order to

successfully implement HRM practices and increase financial performance. Furthermore, they argue that the influence of HRM on financial performance is different between countries because of cultural and institutional differences. Thus, the effectiveness of HRM practices is to a high extent dependent on its context (Fey et. al., 2009).

Akgeyik (2005) found empirical evidence for the fact that HRM is a key player regarding the implementation of CSR practices. The importance of CSR practices should be stressed during employee orientation in order to attract employees that will engage to the companies’ CSR strategy. In addition, Iyang et. al. (2011) also argue that employees are the most important stakeholders and their engagement to CSR practices impacts the influence of the organization on the ‘triple bottom line’. The reasoning behind it is that actions and decision making of the employees determine whether the CSR strategies will be turned into practice. Human resources are in the position to pursue the CSR strategies and make sure the entire organized will be engaged to the CSR practices.

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Thus, human resources are essential in implementing CSR strategies that will engage and benefit the company and its stakeholders (Glade, 2008; Fenwick & Bierema, 2008). Because the employees should be considered as the key stakeholders of the firm, they are an asset that should be developed and valued. The involvement of the employees show how important HRM is in the CSR strategy of the firm (Zappala 2004; Dniz-Denix & De Saa-Perez, 2003).

Bettridge (2007) states that there is an increasing overlap between CSR and HRM practices and that the focus of the employees should be on planning and implementing CSR practices. In line with this, Iyang et. al. (2011) also argue that HRM should take primary responsibility in implementing CSR practices. Additionally, Sharma and Bhatnagar (2009) argues that the collective impact of HRM and CSR can play a big role in the creation of long-term superior firm performance. Similarly, Galbreath (2005) examined that the investment in internal stakeholders, in this case employees, has a positive relationship with firm

performance.

Based on the above arguments it becomes clear that HRM plays an important role in creating superior firm performance. Employees are the key players that bring strategies into practice and in this way can create organizational success. In addition, HRM also plays an important role in CSR practices. These concepts seem to have increasing overlap because human resources are the ones that take lead in conducting CSR practices and in this way collectively contribute to financial performance. Hence, there appears to be an important connection between HRM and CSR in order to create superior firm performance. This leads to the following hypothesis:

Hypothesis 6a: HRM programs in internationally operating organizations are positively related to firm performance.

Hypothesis 6b: The relationship between HRM and financial performance will be positively moderated by CSR practices.

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The sample of this research entails organizations registered in the Standard & Poor’s 500 (S&P 500). This American stock market index is listed on the NYSE and NASDAQ stock exchanges and contains the 500 largest organizations in terms of market capitalization. The S&P 500 index constituents and their weightings are determined by S&P Dow Jones Indices.

The sample for this study is based on a number of criteria. First of all, a five year time span has been used. It is argued that a timeframe of more than a year should be used in order to be able to analyze the impact on financial performance. Therefore, this sample consists of the largest companies based in the United States, that were continually registered on the S&P 500 during the period 2009-2013. The next criterion that has been used in the sample

construction is industry classification. The Global Industry Classification Standard (GICS), developed by S&P and MSCI Barra, is a tool for categorization of companies along different industries and sectors on a global level. In this research GICS is used to filter companies along industry, because this standard has been adjusted and supported by S&P 500. Since the main topic of this study is sustainability, companies that produce tangible goods were chosen for this sample. Reason for this is that companies with a total value chain might have more contrasting stakeholders demands to fulfill in terms of economic, environmental and social problems. Therefore, companies included in the S&P 500 from 2009-2013 that belong to the following industries were selected: Industrials (28 companies), Consumer Discretionary (13 companies), Consumer Staples (25 companies), Healthcare (37 companies), and Information Technology (21 companies). Applying these criteria results in a final sample of 124

companies that were included in the S&P 500 from 2009-2013. Because the analysis is done over a five-year period, the sample consists of 620 observations.

The reasoning behind the aforementioned criteria for constructing an appropriate sample is twofold. First of all, as is mentioned before, different measures for CSR have been used in the literature. However, the availability for CSR data is the highest for S&P 500 organizations. Second, this study is focused on companies that operate on a global scale, the majority of the organizations in the S&P 500 are internationally operating companies.

The impact of corporate social responsibility on the relationship between intangible resources and financial performance : a resource based perspective

Statement of originality

Table of Contents