R and D intensity and CSP : the moderating effect of internal sustainability standards

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R&D Intensity and CSP: the Moderating Effect

of Internal Sustainability Standards

Master Thesis

Student: Mèlanie Snieder

Student number: 10673199

University of Amsterdam, Business Administration - Strategy Supervisor: Dhr. Dr. Sebastian Kortmann

University of Amsterdam, Amsterdam Business School

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Abstract

This study addresses internal factors that promote the corporate sustainable performance (CSP) of companies. The notion of corporate sustainability has been widely discussed during the last decades. It has proliferated from a social debate towards a concept of business and strategy. Sustainability relates to the triple bottom line of social, environmental and economic considerations as well as stakeholder relations and voluntariness. In order to achieve a high CSP, companies need to innovate for efficiency enhancing and social value creating products and services. Several studies have addressed the importance of Research and Development (R&D) in this matter. This study therefore aims to investigate whether the level of R&D investment promotes CSP. It further takes into account the moderating effect of internal sustainability standards. Internal standards may increase the likeliness that firms use R&D investment for sustainability purposes. The assumptions were tested on a sample of 177 US firms through a quantitative database analysis. The results showed a positive significant relationship between the level of R&D intensity and CSP, albeit the effect was smaller then expected. The results imply that, to a certain extent, the investment in knowledge indeed increases the likeliness that companies innovate for sustainability. No moderating effect is found on the distinction between high internal sustainability standards (HISS) and low internal sustainability standards (LISS). Future research could investigate this internal firm feature more extensively.

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1. Introduction

Poverty, the accelerating depletion of natural resources, global climate change and health issues are just some of the several phenomena emphasizing the world is not yet aligned with the concept of sustainability. Referring to the latter, the recently outbreak of Ebola in West Africa brings enormous social and economic consequences. Consequences that may reverse the gains these developing countries have made in the past years. When looking at poverty, more than 4 billion people (about two third of the world population) live on the bottom of the economic pyramid. In the year 2000, the richest 20 percent of the world accounted for 85 percent of total income. Around one billion people have to live of less than 1$ a day (based on purchasing power parity in U.S dollars) (Prahalad & Hammond, 2002).

The most commonly used definition of the Brundtland (1987) report explains sustainability as; “Development that meets the needs of the present without compromise the

ability of future generations to meet their own needs”. This general statement is narrowed

down in the triple bottom line of (Elkington, 1994). Companies must meet the need of people, profit and planet simultaneously. Companies, and especially MNEs, are playing a specific role with regard to sustainability concerns. They are increasingly expanding to overseas markets for growth opportunities as market- and resource seeking (Isenberg, 2009). Their global influence is also seen as part of the solution instead of only being the problem (Kolk & Van Tulder, 2010). Hence, as sustainability originally started as a social debate, the concept of sustainability has proliferated towards a concept of business and strategy. Sustainable-oriented companies must equally consider ecological, social and economic goals. Companies do progressively meet the needs of multiple stakeholders (Closs, Speier, & Meacham, 2011; Delgado-Ceballos, Aragón-Correa, Ortiz-de-Mandojana, & Rueda-Manzanares, 2012). It has been widely acknowledged that being sustainable may foster company performance. Especially when sustainability activities are highly correlated with firm’s mission, vision and strategy (Porter & Kramer, 2006). But what promotes the corporate sustainable performance (CSP) of companies and what causes some companies perform substantially higher than others? Some authors argue that external contextual features, as the exposure to different legal environments, cause differences between companies (Child & Tsai, 2005). While this may be part of the explanation, performance outcomes still differ tremendous among companies originating from the same country. Hence, researchers have been looking at internal differences that cause idiosyncratic performance outcomes (e.g.

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6 Chakrabarty & Wang, 2012; Padgett & Galan, 2010).

Relying on the resource based view and the notion of dynamic capabilities; companies differ internally because of their idiosyncratic paths chosen, their different internal resources, and their ability to leverage and recombine those resources (J. Barney, 1991; Nelson, 1991; Teece, 2007). Leveraging and recombining resources enables companies to find innovative solutions to outperform competitors and increase performance. Innovation capabilities of companies depend heavily on the long-term investment in research and development (R&D). Hence, the investment of R&D by companies could promote its CSP when used for sustainability purposes (Pinkse & Kolk, 2010). For example, technological environmental friendly products that reduce the amount of emissions produced (green airplane engines of Scandinavian Airlines). Another example is the improvement of infrastructural access for communities living in rural areas (Starbucks Corporations that sources coffee directly from farmers in Mexico).

1.1 OBJECTIVES

Relying on the resource based view and the notion of resource accumulation; this thesis aims to explain an in-depth understanding of the concept of R&D and whether it has a positive influence on CSP. It will touch the triple bottom line of people, profit and planet, stakeholders and voluntariness (Dahlsrud, 2008; Elkington, 1994). Literature has suggested that investing in R&D could foster CSP. However what makes that companies use their R&D expenses for sustainability purposes? Internal sustainability standards, as environmental management systems, may increase the likeliness that companies are doing good or doing better (Rondinelli & Vastag, 2000). On average, companies with an active environmental policy perform 20 percent better than companies without such policies (Volkskrant, 2015). In other words, one could assume that those standards guide firms to use R&D for the proper purpose; in this case increasing sustainable performance. Hence, this thesis will take into account this internal firm level feature. It will test what the influence of internal sustainability standards is on the relationship between R&D and CSP. Accordingly, the main and leading objective for this thesis is to test the following research question:

“Does the distinction between High Internal and Low Internal Sustainability Standards within companies moderate the relation between R&D intensity and Corporate Sustainable Performance?”

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7 1.2 CONTRIBUTION

There is a wide variety of academic literature available on sustainability. Several studies have investigated the difference in sustainability performance by taking a firm level perspective (Chakrabarty & Wang, 2012; Padgett & Galan, 2010; Pinkse & Kolk, 2010). CSP is quite a distinctive topic. It requires an enormous amount of innovation ability to make structural changes in current business practices (Hall & Vredenburg, 2012). As mentioned previously, innovation depends heavily on long-term investment in R&D. This study is an extension of previous research conducted by (McWilliams & Siegel, 2000). They researched the relation between CSP and corporate financial performance (CFP) and found the need to incorporate R&D intensity in the model. This finding inspired various other researchers to pursue research on the subject (Hull & Rothenberg, 2008; Padgett & Galan, 2010; Prior, Surroca, & Tribó, 2008). This thesis especially extends the study conducted by Padgett & Galan (2010); who empirically investigated the effect of R&D intensity on CSP. Several constructs of the R&D and CSP relationship have been investigated, albeit none of them incorporated the internal sustainability standards feature. While R&D expenses could foster CSP, the effect may be minimal when not used for efficiency enhancing or value creating sustainability purposes. This study will contribute to the literature by investigating whether the effect of R&D intensity on CSP would increase or diminish by this underlying factor.

1.3 RESEARCH DESIGN

A quantitative analysis is conducted using secondary data retrieved from databases. After combining the Kinder, Lynder, Domini (KLD) database and the COMPUSTAT database, a sample of 177 U.S publicly held companies was left. Their R&D figures over the year 2009 were related to the CSP one year later.

1.4 THESIS STRUCTURE

A firm level perspective is adopted to explore the role of R&D and innovation in CSP. First an explanation of the three distinct concepts of R&D, CSP and Internal Sustainability Standards will be presented. Afterwards the concepts will be brought together in a conceptual model. The methodology section will give an extensive explanation about the construct of this empirical study. Subsequently, the result section will present the empirical results. Lastly, in the discussion section the outcomes of the statistics will be discussed and suggestions for future research are given.

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2. Theoretical Framework

The following section provides a theoretical insight in the existing literature on the topics. It will first explain the CSP, R&D intensity and the factors that define the distinction between high and low internal sustainability standards. It will further elaborate on the influence of those standards on corporate sustainability. Subsequently, it will bring these three concepts together and will present the research gap, research question and the accompanying conceptual model.

2.1 CORPORATE SUSTAINABLE PERFORMANCE

2.1.1 SCOPE OF SUSTAINABILITY

Corporate sustainability is still an ambiguous concept and several definitions exist. The most cited definition of the Brundtland (1987) report states: “Sustainable development is

development that meets the needs of the present without compromise the ability of future generations to meet their own needs”. The needs referred to are based on the bottom triple

line of people, planet and profit (Elkington, 1994). This implies the need for creating social and economic welfare while preserving the natural reserves for future generations. Sustainable-oriented corporations aiming for corporate sustainable development need to include the three principles in their corporate strategy. They foster sustainability by obtaining: social equity through corporate social responsibility, environmental integrity through corporate environmental engagement, and economic prosperity through value creation (Bansal, 2005; Closs et al., 2011). Figure 1 depicts the overarching role of corporate sustainability in relation with corporate responsibility and its focus on the triple bottom line (Elkington, 1994; Van Marrewijk, 2003).

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Figure 1: Triple bottom line

Source: van Marrewijk (2003)

As noted previously, business has responsibility towards people, profit and planet, and should optimize value in all three pillars. More recently, Dahlsrud (2008) extended this framework in his study. Through a content analysis on existing definitions of CSR, he identified the 5 dimensions; social, economic and environmental value creations, stakeholder relations and voluntariness.

Firstly, The economic dimension of sustainability can be broadly interpreted. It refers to financial measures at the company level in terms of shareholder value, profitability or any other measure of economic performance. Furthermore, it also contains of a broader concept. Companies account for the benefits to society as a whole and welfare creation of the country where it operates in (Porter & Kramer, 2006; Prahalad & Hammond, 2002). Secondly, the environmental dimension of CSP involves matters of pollution and the (efficient) use of resources. This dimensions focuses on the protection of the natural environment and the reduction of the environmental footprint of companies. Thirdly, business has its responsibility towards the impact on the society. Often this part of CSP is referred to as corporate social responsibility (CSR) (Bansal, 2005). This dimension of CSP includes the impact of business on people and society; incorporating all stakeholders that might affect or might be affected by the business of the company (Freemann, 1984). Employees, communities and customers are some examples of stakeholders within this scope. The fourth element of CSP, stakeholder relations, invokes the way of interacting between organizations and their stakeholders. Lastly, voluntariness indicates the organizations sustainability practices beyond legal obligations, often referred to as corporate philanthropy. Global warming, which entails the enormous rise

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10 in CO² and NOx emissions, is one of the main global issues discussed. While regulations of governments were the main reason for companies to reduce their environmental footprint, many companies now voluntarily preempt on these regulations. They recognize the importance of the issue and the need to be a ‘good citizen’ (Margolis, Elfenbein, & Walsh, 2009). For instance SAS (Scandinavian Airlines) is a company that has been identified as a leader in environmental commitment. The company has preempted on sustainability issues. It made a contribution to a sustainable society and sustainable environment at large. Before regulation demanded airlines to reduce their CO² emissions to a certain amount, SAS invested in expensive green engines that reduced emissions significantly (Lynes & Andrachuk, 2008). Different terms regarding CSP are used interchangeably: e.g. corporate sustainability, corporate social responsibility, corporate citizenship and corporate philanthropy. After studying the overview of definitions and dimensions of Dahlsrud (2008), this study will use CSP as an overarching term. It includes the three pillars, social, environmental and economic, as well as the focus on stakeholder relations and voluntariness. Relying therefore on the European Commission CSR definition (2001), stating that: “CSR is a concept whereby

companies integrate social and environmental concern in their business operations and in their interaction with stakeholders on a voluntary basis” (in Dahlsrud, 2008).

2.1.2 BUSINESS RESPONS TO SUSTAINABILITY

The concept of sustainable development has its origin as a social debate. Political attention was raised to critical environmental and social problems as poverty in developing countries and global climate change. The latter causing the reduction of snow cover, the increase in temperature, and the increase in sea level (Metz, 2011). The social debate has proliferated towards corporate theories of strategy and organizational management (Aguinis & Glavas, 2012; Porter & Kramer, 2006). The pressure on corporations to act responsible towards society and the environment has increased substantially. The notion that corporations only exist to create value for its shareholders has passed. Instead, the development of sustainability practices to meet ‘stakeholders’ expectations has become vial (Delgado-Ceballos et al., 2012).

The initially prevailing view of shareholder theory presumes that environmental and social concerns divert companies from their main responsibility; increasing shareholder value or profit. According to this theory, sustainability activities only add to the cost and will reduce

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11 overall profit (Friedman, 1970). Managers have associated environmental protection with additional cost and decreasing competitiveness for a long time. During the last decade, many scholars have challenged this statement. They have emphasized that companies have social, environmental and economic responsibilities. In contradiction to shareholder theory, stakeholder theory broadly states that corporations have responsibilities towards all stakeholders. Stakeholders are seen as all parties that are affected by or affect the activities of the company in some way (Freemann, 1984). While many firms previously focused on environmentalism and ethics, Closs et al., (2011) emphasize the importance of a broader sustainability perspective. In this perspective the consumer, business, the supply chain, community, environmental relationships and the actions among them are included. Corporate sustainability ought to find a balance between all the stakeholders in the multidimensional frame of people, planet and profit (Closs et al., 2011; Dahlsrud, 2008; Van Marrewijk, 2003). Besides the debate whether companies should or should not engage in sustainability activities, companies increasingly became aware that corporate sustainability could be beneficial. The pillars of sustainability are interrelated and being successful in one pillar does not necessarily causes a reduction in another. Scholars have found that sustainability practices can increase the competitive advantage of the firm. Especially when those are incorporated and aligned with the goals and strategies of the firm (Porter and Kramer, 2006). In other words, proper aligned sustainability strategies may not only increase social and environmental performance but economic value as well (Closs et al., 2011; Porter & Kramer, 2006; Siegel, 2009). Hence, being green and being competitive do not necessarily have to be a trade-off. Companies can be green and competitive simultaneously. For instance by implementing specific innovation strategies that reduce the environmental impact of companies without hurting their economic performance (Stefan & Paul, 2008). Modern competition is not about companies possessing or acquiring the lowest-cost inputs, but about the advanced technology of using their inputs most efficiently (Porter & Van der Linde, 1995). The cost of reducing environmental pollution can be partly or completely offset by gains elsewhere (Stefan & Paul, 2008). Enhancing greater environmental performance can lead to increased revenues through; better access to markets, selling pollution control technology and differentiating products. For instance, firms selling to the public sector or other businesses may increase their access to markets by improving their image. This could result in customer loyalty. Furthermore, purchasing policies of public and private organizations may reward green suppliers (Stefan & Paul, 2008). At the same time could greater environment performance lead to cost reductions

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12 through; risk management and relations with external stakeholders, cost of capital, cost of material, and cost of labor. The latter refers to the decrease in turnover, illness and absenteeism of employees. Workers feel proud of the company and perform a better job (Stefan & Paul, 2008).

In sum, skepticisms have the assumption that social equity and environmental integrity are at odds with economic prosperity. Recent research found a more widespread acceptance of the internally consistency of the three principles (Bansal, 2005; Porter & Kramer, 2006; Rondinelli & Vastag, 2000). Companies enhance economic prosperity by incorporating social and environmental goals in the root of their strategy (Porter & Kramer, 2006). This so called sustainable development is involved with new opportunities and risks (Hockerts & Wüstenhagen, 2010). Seizing opportunities asks for the need to come up with innovative solutions (Hart & Milstein, 2003). The concept of innovative solutions for sustainability purposes will be further explained in the next section. The focus will be particularly on the role of R&D in this innovation process.

2.2 R&D INTENSITY

2.2.1 DEFINING R&D

As many other concepts in business literature, there are still various definitions and interpretations of R&D. Efforts are still being undertaken to standardize the way R&D is proxied and used for a variety of research. The definition adopted in this research is the one issued by de organization for economic cooperation and development (OECD, 2002). It defines R&D as; “creative work undertaken on a systematic basis in order to increase the

stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new application”. R&D is considered a form of investment that

strengthens the knowledge creation within a firm. It further stimulates process and product innovation and efficiency. It is the bases for strong innovation capabilities and improvements in product and processes. These improvements do not automatically have to result in CSP related improvements, but they could lead to innovation benefiting society and environment simultaneously (Padgett & Galan, 2010).

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2.2.2 R&D AND INNOVATION

The fundamental framework used is the resource based view theory (RBV). The RBV takes the perspective that valuable, rare, inimitable and non-substitutable resources and capabilities are the key source to sustained competitive advantage (J. Barney, 1991; Hart, 1995). In combination with an evolutionary context that incorporates uncertainty, firms will naturally differ from each other due to their different resources and idiosyncratic paths chosen (Nelson, 1991). These resources and paths chosen derive from the need to survive and innovate continuously. Firms also differ due to their ability to gain from this innovation.

Technological innovation depends strongly on long-term investments in R&D (Pinkse & Kolk, 2010). Schumpeter (1934) describes innovation as: “The introduction of new goods

(…), new methods of production (…), the opening of new markets (…), the conquest of new sources of supply (…) and the carrying out of a new organization of any industry”. According

to Drucker (1998) innovation is: “ The means by which the entrepreneur either creates new

wealth-producing resources or endows existing resources with enhanced potential for creating wealth”. This thesis uses a combination of different definitions of the concept.

Innovation is referred to as: “The result of the acquisition, reconfiguration and recombination

of resources and capabilities to create new products or services that contribute to the performance outcome of the company”. This dynamic dimension on the RBV could contribute

to the analysis of R&D intensity on CSP. It recognizes the importance of intangible resources as R&D (Padgett & Galan, 2010). Assets can be divided into tangible- (e.g. plants, materials) and intangible- (e.g. brand value, reputation, know-how). An important part of all innovations and development (technical, strategic and organizational) within companies is the creation and obtainment of the intangible asset knowledge. Intangible assets as know-how depend heavily on the ratio of R&D intensity; which can be measured by R&D expenditures to total sales (McWilliams & Siegel, 2000).

The general intention of pursuing and investing in R&D activities is to create additional assets by improving product and process innovation (McWilliams & Siegel, 2000). The creation of additional assets is referred to as asset stock accumulation. Critical resources are accumulated rather than acquired on the factor market (J. B. Barney, 1986). Dierickx & Cool (1989a) explain this phenomenon by making use of a bad tub metaphor. When focusing on R&D, the water flowing into the tub is the amount of R&D spending and investment by the company. The water leaking out of it is the asset stock depreciation over time. The water remaining in the tub is the result of both the input and depreciation. Meaning that a

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14 continuously flow of R&D expenditure could foster a high amount of know-how stock for a company (Dierickx & Cool, 1989a). As this example shows, companies starting with exactly the same resources could differ extremely over time. Over time the bundle of resources that a company possess look different due to the continuously accumulation and revitalization (Ahuja & Katila, 2004). This constant revitalization of knowledge and expertise may result in organizational development. It is furthermore is expected to benefit companies in terms of: improved product and process innovation, cost reductions through efficiency, meeting environmental and social standards and, meeting the needs of customers (Hull & Rothenberg, 2008; McWilliams & Siegel, 2000).

R&D activity and the acquisition of know-how and innovative assets, when being fruitful, could give a company a competitive advantage over its competitors. Competitive advantage refers here to the definition of (J. Barney, 1986): “When a firm creates economic

value and when few competing firms are engaging in similar actions”. Additionally, one

could state that R&D activity could benefit a company financially by increasing economic performance. Hence, in line with this statement, Hull & Rothenberg (2008) found that highly intensive R&D companies enjoy a greater financial performance then its low intensive R&D counterparts. Companies that are able to introduce innovative ideas to the market could benefit from improved brand recognition and financial profits. Firms investing small amounts in R&D and outsourcing activities to other companies do that mostly for cost benefit reasons. They choose for the lowest transaction cost option (Williamson, 1979). However, those companies will not accumulate internal knowledge flows and obtain innovative capabilities. They might therefore be outcompeted by more innovative companies, or at least have hard times to catch up later on (Diericks & Cool, Christensen, 2001).

Altogether, buying or outsourcing activities could be cost beneficial. However, over time knowledge has flown out of the company and will be hard to reacquire. Christensen (2001) points out the central role of R&D efforts when it comes to disruptive innovation: which is innovation related to groundbreaking technologies. R&D efforts can contribute in this way to the sustainable competitive advantage of a company by building specific competences. These competences help to create efficient products and processes that are not easily imitable by competitors (J. B. Barney, 1986; Teece, 2007).

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15 2.3 INTERNAL SUSTAINABILITY STANDARDS

A strong formal institutional environment, with strict regulation and sanctions, could encourage companies to become more sustainable. For instance, governments can encourage companies to be sustainable by imposing incentives (e.g. resource allocation and tax benefits) (Hull & Rothenberg, 2008; Porter & Van der Linde, 1995; Wagner, 2010). Companies from emerging economies, with respectively weaker enforcement of sustainability laws, perform worse with regard to CSP (Child & Tsai, 2005). Accordingly, regulations and standards seem to have an effect on the CSP of companies. Nevertheless, companies have adopted internal sustainability practices, policies and standards that move beyond governmental and non-governmental (NGO) regulations. The corporate sustainability agenda has shifted from compliance to regulation towards voluntary preemption on tackling sustainability issues. This has been the result of the acknowledgment of opportunities that companies have when being sustainable (Margolis et al., 2009; Porter & Kramer, 2006; Stefan & Paul, 2008). To promote corporate sustainability, voluntary rule setting has been embraced and deemed important (Arrow, 1973). As the word voluntary already explains itself, internal sustainability standards might vary per company. Despite companies are being exposed to the same legal system and environment, variance in their sustainability approach endures. The following section will elaborate on different internal sustainability standards that companies may adopt.

2.3.1 ENVIRONMENTAL MANAGEMENT SYSTEMS

Environmental management systems are systems that address the way that an organization will tackle the impact on the natural environment (Darnall, Jolley, & Handfield, 2008). They consist of a several internal policies, assessments, plans and implementation actions. The systems alter the way an organization deals with the natural environment and the impact that their activities have on the environment (Coglianese & Nash, 2001). There have been criticisms towards EMS systems. It has been questioned whether the systems really improve environmental performance (e.g. Krut & Gleckman, 1998). The authors mention that EMS systems are mostly focused on the creation and documentation of internal policies and procedures regarding sustainable management. Focus lacks on the actual performance.

However, other scholars found contradictory results. They argue that EMS systems do guide companies in reducing negative environmental impacts. They further contribute to the quality of the environments operating in, and help to save money from waste reduction and pollution prevention (Rondinelli & Vastag, 2000). EMS systems can influence environmental

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16 practices and performance of companies to a certain extent. Scandinavian Airlines (SAS) is an example of a company that has adapted high internal environmental standards. In 1995, the CEO Jan Stenberg established an environmental management system at the very top level of the company. One year later environmental matters became a strategic issue for SAS. The system resulted in several strategic environmental management choices. One of them was the purchase of the green engine fleet (Lynes & Andrachuk, 2008). In extension, Darnall et al., (2008) have found that organizations adopting EMS systems are more likely to implement green supply chain management (GSCM) practices afterwards. These results suggest that companies implementing environmental standards within the firm finally have more probability to improve environmental performance outside their organizational boundaries. In other words, EMS systems are not peculiarly able to improve environmental performance of companies. They may result in increased sustainability performance of the whole (international) supply chain. Long-term enterprise sustainability requires an integrated perspective that incorporates supply chain considerations. Sustainability goals should influence the choice of materials, production, component selection and other comparable supply chain activities (Closs et al., 2011).

Once a company has implemented and EMS system, it may qualify for a certification of the ISO standard 14000. The ISO 14000 family is a standard companies could purchase that addresses several aspects of environmental management. The standard has become the international benchmark upon which corporations could base their voluntary environmental practices and performance assessments (Rondinelli & Vastag, 2000). It describes characteristics of an effective environmental system. It further aims to help companies identifying and control their environmental impact and guides them to constantly improve their environmental performance (ISO, 2014). The standard does not provide criteria for the performance outcome. It provides a framework that guide managers to facilitate an effective environmental management system within the company. Once having obtained an ISO 14000 label, a company can be assumed to identify and document organizational pollution and continuously improve pollution prevention processes (Bansal & Hunter, 2003; Darnall, 2006).

2.3.2 WORKING CONDITIONS

External stakeholders of the firm (e.g. NGOs, governments, and customers) expect firms to assure sustainable production both within the firm as within its supply chain (Carter & Jennings, 2004; Closs et al., 2011). Voluntary self-regulation of labor conditions

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17 throughout the whole company is an important factor in achieving CSP (Arrow, 1973; Kolk & Van Tulder, 2002). The issue of child labor administers one of the clearest tests for self-regulation. The implementation of child labor codes, along with other standards, has considered being an important step for addressing this issue (Kolk & Van Tulder, 2002). Throughout the last decade there have been several cases where working conditions concerns within a company or within its value chain have been widely critiqued by the media. This has resulted in the improvement of internal sustainability standards of companies involved. Nike, inc. is an example of a big multinational that was accused of employing child labor in its overseas factories. When labor prices rose in Korea and Taiwan, Nike, inc. moved its production factories to Indonesia, China and Vietnam. In 1991, the company was accused of low wages and poor working conditions in Indonesia. Nike, inc. responded with implementation of internal standards as; formally factor Codes of Conducts, OSHA clean air standards in all its factories, internal monitoring and external reporting. The company recovered its reputation and sustainable performance (Van Tulder & Kolk, 2001). More recently, the factory collapse in Bangladesh was another indicator that the industry is not yet on the level where it should be. The collapse killed about 96 people and more than a 1,000 people got injured. The unsafe factory conditions were said to be a result of an institutional failure of factory standards implemented by the government. However, the spotlights on this disaster have been on the large corporations. British label Primark and Canada’s label Lowblaw were examples of multinationals that had outsourced their production facilities to this factory (Economist, 2013). Problems as child labor and the factory collapse cross country boundaries. Regulative bodies in these economies lack the implementation and enforcement of standards regarding working conditions, health and safety. The examples show that it can be expected, at least, that companies aiming for high CSP need to enhance impose standards that move beyond local regulation. They are crucial for improving health and safety conditions within the firm and throughout the supply chain. CSP could be improved and bad publicity, with reputational damage as result, avoided.

One of the standards focusing on health and safety is the OHSAS 18000 family, which will be replaced by ISO 45001 shortly. This health and safety management standard includes strong policies and procedures. It aims, similar to the previously described ISO standard of EMS systems, to help and guide companies improving social performance (ISO, 2014).

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2.3.3 PRODUCT QUALITY

The ability to improve the quality of existing products or generate new innovative products could be seen as a company competence. It may enhance a positive customer perception of the firm (Brown & Dacin, 1997; Luo & Bhattacharya, 2006). Handelman & Arnold (1999) have emphasized the relation between corporate sustainability and the provision of good quality products. Consumers may obtain negative perceptions of firm’s motives when the firm is low innovative and produces low quality products, while simultaneously claiming to engage in corporate sustainability (Luo & Bhattacharya, 2006). Higher quality and innovative products could enhance environmental performance by finding innovative solutions to social market failures. Furthermore, companies managing for quality could obtain credibility and legitimacy by its customers and increase economic performance (Luo & Bhattacharya, 2006). As being argued before, companies need to be economically healthy in order to create above normal performance in the other two pillars (Elkington, 1994).

An example of a product quality standard is the ISO 9000 family for quality management. This ISO 9000 family addresses several aspects of quality management and provides guidance regarding consistent improvement. The focus of this standard is to ensure that customers receive consistent high quality products and services (Luo & Bhattacharya, 2006). Over one million companies throughout 170 countries have implemented the standard.

2.4 HYPOTHESES BUILDING

2.4.1 FROM R&D INTENSITY TO INNOVATION AND CSP

In the past, companies have been responding to the climate change debate by focusing on political, non-market strategies, often to oppose rules and regulations. More recently, companies have moved towards the approach of reducing emissions by product and process innovation (Kolk & Pinkse, 2005). Being green and being competitive do not necessarily have to be a trade-off. Companies can be green and be competitive simultaneously by reducing costs through efficiency and create win-win situations (Stefan & Paul, 2008). Creating bias in favor of innovation-based solutions is an important element for companies to move to a competitive environmental approach. For instance, a variety of companies have traced the footprint of their activities back into the company. They used this knowledge to improve the efficiency of products and processes (Porter & Van der Linde, 1995).

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19 The results of a variety of research on the CSP and CFP relationship differ in terms of strength. However, most findings point towards a positive relationship. (McWilliams & Siegel, 2000) have argued that omitted variable bias occurs when not incorporating R&D as a moderating variable on this relationship. Hull and Rothenberg (2008) extend this assumption in their research. They emphasize the need to analyze R&D intensity directly on sustainability performance. The important question they raise focuses on the influence that R&D intensity has on the sustainability performance of a company. When focusing on sustainability, companies need to enhance capabilities that foster environmental and socially sustainable activity (Hart, 1995). Recent research acknowledged the link between the sustainable performance of a company through internal product and process improvements (Kolk & Pinkse, 2005; Padgett & Galan, 2010; Stefan & Paul, 2008). These improvements result from investment in R&D. R&D fosters the attainment of know-how and the creation of specific capabilities.

Companies can alter environmental challenges in different ways. Kolk & Pinkse (2005) make a distinction between compensation and innovation. Through compensation companies make use of emission reduction technologies developed by others. The latter, innovation, are improvements or groundbreaking technologies produced by companies themselves. Innovation could both tender the reduction of emissions and the accumulation of firm’s assets and competencies. Hence, compensation is an arm length passive approach. On the other hand, innovative and R&D intensive companies use their own capabilities to strengthen their environmental and economic pillar. They obtain and keep knowledge inside. Shell for example used and developed solar energy by investing in new technology development companies. The green use of energy reduced their emission substantially, while they obtained at the same time certain competences related to the production of solar energy. Those competences are useful and fruitful for the future. As we have seen previously, investing in R&D can be linked to asset stock accumulation. It provides companies with the sustainment and improvement of know-how. It further gives an advantage over companies that lack technologically behind (Dierickx & Cool, 1989b). While this might seem straightforward, many companies do not yet acknowledge the role of knowledge through R&D.

Technological innovation depends heavily on the long-term investment in R&D (Pinkse & Kolk, 2010). R&D and technological capabilities are the building stones to invent technologies that help reducing emissions and decreasing the environmental footprint of

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20 companies (Chakrabarty & Wang, 2012). The results of the empirical analysis of Padgett & Galan (2010) show the importance of R&D on the sustainability performance of a company. They state that R&D is a form of investment that results in knowledge enhancement and leads to product and process innovation which finally results in sustainable processes and products. Processes, for instance, could be more sustainable by making them more effective. This may lead to reduction in energy used by the firm during the process, with a cutback of CO² emissions and other pollution as result (Padgett & Galan, 2010). Building upon these papers, the assumption can be made that the higher the ratio of R&D intensity within a firm, the higher its sustainable performance. The following hypothesis is therefore proposed:

H1: The level of R&D intensity positively affects the corporate Sustainable Performance of a company

2.4.2 FROM INTERNAL SUSTAINABIILTY STANDARDS TO R&D AND CSP

(Porter, 1980) argues that firms differ naturally because of their different external environment. Contradictory to this theory, J. Barney, (1991) argues that firms differ naturally because of different internal resources, knowledge and capabilities. While some companies do recognize the opportunity of being sustainable, others may not evaluate this opportunity equivalently. Moreover, they may lack the absorptive capacity to translate the knowledge into value enhancing activities (Cohen & Levinthal, 1990). Companies do differ in their adoption of internal sustainability standards. The question therefore is whether the difference between internal sustainability standards enhances a difference in sustainable performance. In other words, do firms operating in the same environment differ in CSP due to the different standards and policies adopted internally? As literature has shown, the adoption of standards by companies could foster innovative solutions to tackle environmental and social market failures. There is consensus among these standards and their positive influence on CSP. Companies that are associated with high internal sustainability standards (HISS) are assumed to have environmental management strengths. Scholars have found that the implementation of internal standards regarding the environment increases environmental performance. It shows, at least, a positive and proactive attitude towards sustainability. It further enables companies to improve environmental performance throughout the whole supply chain. Secondly, working conditions in firms with HISS are continually improved (Arrow, 1973; Kolk & Van Tulder, 2002). As the example of Nike showed, stricter internal

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21 regulation could solve problems of bad reputation and malpractices faced in the past. Therefore companies with HISS are assumed to have health and safety strengths. Thirdly, stakeholders are increasingly asking for openness regarding sustainability considerations and results (Dawkins & Lewis, 2003; Quaak, Aalbers, & Goedee, 2007). Companies respond to these demands from society in different ways. Examples are: sustainability reporting, annual reports or meetings, internal sites, discussions and lectures. The tool used depends often on the respective stakeholder involved (Quaak et al., 2007). With respect to sustainable reporting, there are different guidelines and systems available to investigate the relevant aspects. An example is the global reporting initiative guidelines (GRI guidelines) that aims to provide tools for effective and proper sustainable reporting (Labuschagne, Brent, & Van Erck, 2005). There has been a significant increase in sustainability reporting by corporations (Kolk, 2003). Half of the Fortune Global 250 firms report about their sustainability activities and results. Furthermore, Kolk (2003) has found that internal standards as the environmental management standard appears to be a strong incentive for transparency and reporting. Meaning that companies that proactively try to be sustainable are willing to show stakeholders about their activities, and are more thorough in doing so. Accordingly, companies implementing high internal standards regarding sustainability are likely to be more open to report their sustainability activities. They are assumed to have transparency strengths.

In contradiction, companies with lower internal standards are presumed to score lower on CSP. They often do not establish internal standards beside those imposed by the government and even might face problems complying with them. Low Internal Sustainability Standards (LISS) are therefore associated with companies having regulatory problems concerns. Furthermore, the example of Bangladesh showed that many companies still lack internal standards that move beyond rules and regulations from the difference countries they are operating in. Those regulations are often very low or poorly enforced in developing countries (Child & Tsai, 2005). Companies lacking internal standards concerning working conditions could therefore be related to have health and safety concerns. Thirdly, in contradiction to companies with HISS, companies with LISS are assumed to have low environmental and product management standards and may therefore face product quality concerns.

Since internal standards stimulate sustainable production and the CSP of companies, it can be assumed that these standards promote the creation of innovative solutions to sustainability practices. Put differently; in all probability companies having adopted strict

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22 internal standards have more incentives to use their R&D spending on finding sustainable solutions. In line with this statement, companies that do not impose HISS, and have concerns regarding its working conditions, product quality and regulatory compliance, are assumed to perform worse on CSP. They have fewer incentives to spend their R&D on finding sustainable solutions over other purposes and goals (e.g. cost reduction). The hypotheses therefore proposed are:

H2: The level of R&D intensity has a positive effect on CSP and High internal sustainability standards (HISS) positively moderate this effect

and,

H3: The level of R&D intensity has a positive effect on CSP and Low Internal Sustainability Standards (LISS) diminish this effect

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23 2.5 CONCEPTUAL MODEL

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3. Research design

3.1 RESEARCH DESIGN

The dependent variable in this research is Corporate Sustainable Performance (CSP). The independent variable is research and development (R&D) intensity. The moderating variable is the distinction between high internal sustainability standards (HISS) and low internal sustainability standards (LISS). A quantitative research method is used to test the hypothesis posed concerning the relationship between R&D intensity and CSP. Subsequently the effect on the direction or strength of the distinction between the different standards on this relationship will be explored. The data in this thesis is obtained through different databases that were combined to one dataset. The model was tested through a regression analysis that investigates the effect of the relationship between the different variables.

3.2 SAMPLE

In order to link R&D intensity to CSP, there was a need to combine single databases of sustainable performance and corporate financial data. First the CSP data for the dependent variable was retrieved from the Kinder, Lyndenberg, Domini (KLD) index. Data was retrieved for the year 2010. After excluding companies that did not receive a score on the different dimensions, a sample of 2138 U.S companies was left. Since this research does not exclude specific industries all companies were included. Those company ticker codes were used in the COMPUSTAT database to retrieve information about their net sales and R&D investment. Despite almost all figures of net sales were available, many companies did not disclose information about their R&D investment. Non-disclosure of R&D figures is in all probability due to reasons as; information asymmetry and investor decisions (Aboody & Lev, 2000). Hence, a sample 177 companies was left after combining both databases and excluding companies with missing data on net sales or R&D spending.

3.3 DEPENDENT VARIABLE

As mentioned previously, the dependent variable is CSP. Both external pressures and the realization that sustainability can benefit the firm and society simultaneously, has made that many corporations integrate sustainability strategies into their core strategy (Porter &

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25 Kramer, 2006). Corporate sustainability, corporate citizenship, corporate social responsibility and corporate philanthropy are terms that are often used interchangeably. CSP in this thesis will touch upon all three pillars, economic prosperity, social equity and environmental engagement (Bansal, 2005; Elkington, 1994). To measure the CSP performance at the company level, an overarching indicator covering all three aspects will be used as well as stakeholder relations and voluntariness (Dahlsrud, 2008).

The dependent variable CSP is measured by using secondary data. Several indices for measuring the sustainability performance of companies have emerged during the last decades. Especially since the notion of sustainability was raised as a critical point on the political and corporate agenda. Following the lead of several studies (Hillman & Keim, 2001; Hull & Rothenberg, 2008; Padgett & Galan, 2010), this study uses data retrieved from the Kinder, Lyndenberg, Domini (KLD) index. This index measures the sustainable performance of companies annually. It is based on proprietary research profiles of corporate environmental, social and governance (ESG) indicators. It measures company data since 2003 and KLD expanded its coverage over the years towards the largest 3000 publicly traded US companies. The KLD database separates each issue area in strengths and concerns. It makes use of a binary summary of positive (1) and negative (0) ESG ratings. For instance, when a company scores 0 on a particular issue, it indicates that it does not have a strength or concern regarding that affair. The KLD statistics covers approximately 80 indicators at seven major qualitative issue areas: community, corporate governance, diversity, employee Relations, environment, human rights and product. Furthermore, it accommodates information about the involvement in controversial business issues as: alcohol, gambling, firearms, military, nuclear power, and Tabaco. For the aim of this research, the 7 qualitative issue areas were used to provide information about the CSP performance of companies.

Data was retrieved for the year 2010, since that year had the most complete information for the largest sample of companies. In line with the approach of Hillman & K eim (2001) all indicators, both concerns and strengths, were summed up. An average was calculated to classify the companies. The same approach has been used by a variety of other scholars (Hull & Rothenberg, 2008; Padgett & Galan, 2010). An overall scale emerged from -7 to 16, which was operationalized by shifting it towards a ranking from 0 to 23. The ranking indicates the sustainable performance level of companies, from extremely low performance towards an outstanding high performance.

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26 3.4 INDEPENDENT VARIABLE

R&D intensity can be measured in several ways. For example by measuring the ratio of R&D spending to the number of employees (Chakrabarty & Wang, 2012), or the ratio of R&D spending to total assets (Berrone, Surroca, & Tribó, 2007). The data for R&D intensity in this thesis is proxied by the ratio of R&D expenses divided by the sales of a firm. Other scholars have used the same measurement (Cohen & Levinthal, 1990; Padgett & Galan, 2010). The data was obtained by the database COMPUSTAT. This database contains a numerous amount of fundamental and market information on publicly held U.S and Canadian companies. Both data for R&D expenses and the net sales of the firm are based on the year 2009, since R&D investment is not likely to have immediate impact on CSP.

3.5 MODERATING VARIABLES

Several resource-based (e.g. R&D) and company-based (e.g. internationalization) factors promote the sustainable development and performance of a company (Bansal, 2005). This research aims to test if the relationship between the resource-based factor R&D and CSP is moderated by internal sustainability standards. “A moderator is a qualitative (e.g. sex, race,

class) or quantitative variable (e.g. level of reward) that affects the direction and/or strengths of the relation between an independent or predictor variable and a dependent or criterion variable” (Baron & Kenny, 1986). It has been stated that the level of R&D intensity has a

positive effect on the CSP. In addition, standards within a company could stimulate to use the R&D expenses for sustainability purposes. When having weak internal sustainability standards, R&D investment might be used for other objectives. In other words, the effect that R&D spending has on CSP is then assumed to diminish. Does the distinction between high or low standards within a company influence the strength of the effect that R&D intensity has on CSP?

Both moderators HISS and LISS are composed of several indicators that were explained previously. The indicators for HISS (transparency strengths, health and safety strengths and management systems strengths) and the indicators for LISS (regulatory problems concerns, health and safety concerns and product safety concerns) were retrieved from the KLD index. Per indicator, the presence is reported with a 1 and the absence with a 0. The measurement for HISS is constructed by first summing up all the strengths. The sum of the strengths is divided by the amount of indicators. The same approach is used to construct the LISS moderator. Hence, both moderators ended up having a value between 0 and 1,

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27 indicating the presence and the level of HISS an LISS. Since the data for the R&D intensity

was retrieved over the year 2010, the data for the HISS and LISS covers the same year.

3.6 CONTROL VARIABLES

3.6.1 INDUSTRY

Industry has been suggested in previous literature as a factor that influences CSP (Chakrabarty & Wang, 2012; Padgett & Galan, 2010; Waddock & Graves, 1997). Accordingly, industry is used as a control variable in this study. Data for the industry segments are also obtained from COMPUSTAT using the 4-digit SIC code. Following the lead of Padgett & Galan (2010), this thesis also makes a distinction between manufacturing firms and non-manufacturing firms. The results of their research showed that manufacturing firms positively affect the R&D CSP relationship. This distinction was operationalized in the same way as Drogendijk & Slangen (2006) did in their research. One dichotomous variable was created indicating 1 (manufacturing firm) versus 0 (non-manufacturing firm).

3.6.2 SIZE

Literature also has emphasized the need for using company size as a control variable. The influence of large multinational enterprises (MNEs) on the environment and community is far greater than the influence of smaller companies (Chakrabarty & Wang, 2012). Furthermore, large companies have greater means to invest in R&D. For example investing in the development of efficiency enhancing technology. For this reason there will be controlled for size, using net sales as a proxy (Hillman & Keim, 2001).

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4. Results

This chapter presents the results of the different analyses performed. First, the relationship between all the different variables and the dependent variable is examined by a correlation analysis. Subsequently, the main relationship of R&D intensity on CSP is tested by a multivariate regression analysis. Finally, the moderating effect of high and low internal sustainability standards on the main relationship is examined.

4.1 CORRELATION ANALYSIS AND DESCRIPTIVE STATISTICS

To measure the reliability of a variable that is constructed through multiple items, one could use the Cronbach Alpha. This statistical figure measures whether the degree that makes up the scale is internally consistent. The only multi item scale used in this study is CSP, which data is retrieved from the KLD database. The construct to measure CSP through data from the KDL database is used by many researchers. There is therefore no need to measure Cronbach’s Alpha.

Table 1: Means, Standard Deviations and Correlations

*. Correlation is significant at the .05 level (2-tailed) **. Correlation is significant at the .01 level (2-tailed) CSP = Corporate sustainable performance

R&D Intensity = R&D expense/total net sales

HISS = Sum of high standards indicators/total indicators LISS = Sum of low standards indicators/total indicators Industry = Manufacturing- versus non-manufacturing industries Size = Total net sales (proxy for size)

Before the different hypotheses could be tested, a correlation analysis was performed to see whether the variables in the model are related. First, the Bivariate Pearson Correlation analysis was used to quantify the intensity of the relationship between the independent and the dependent variable. It further examined the correlation of the control variables and

Variables M SD 1 2 3 4 5 6 1. CSP 8.58 4.710 1.000 2. R&D Intensity .042 .058 .365** 1.000 3. HISS .249 .331 .756** .350** 1.000 4. LISS .343 .250 -.196** -.234** -.105 1.000 5. Industry .810 .395 .149* .268** .193** .038 1.000 6. Size 9,510.922 15,737.745 .216** .061 .371** .422** -.009 1.000

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29 moderating variables with the dependent variable. The bivariate Person Correlation depicts the relationship between two variables, however it does not indicate the direction of the relationship. In table 1 the results are shown for the dependent- (CSP), independent- (R&D Intensity), Moderating- (HISS and LISS), and control variables (Industry and Size).

Table 1 shows as presumed a statistically significant positive correlation between the main relationship of R&D intensity and CSP (r.365, P < .01). Table 1 further shows that both of the moderators are statistically significant with a strong positive correlation for HISS and CSP (r.756, P < .01). The second moderator, LISS, has a small and negative correlation with CSP (r -.196, P < .01). The correlations of both moderators and CSP are in line with the prediction that HISS will positively influence the relationship and LISS will negatively influence the relationship. The verity and nature of this assumption will be tested in the following section.

Subsequently, the correlation of the control variables is also shown in table 1. The first control variable industry is based on the distinction between manufacturing and non-manufacturing firms. The correlation with CSP is significant, albeit the effect is small (r = .149, p < .05). The second control variable, company size is statistically significant and correlated with CSP, likewise with a small effect. This indicates that larger companies score better on CSP (r = .216, p < .01) and implies the appropriateness of the choice of control variables; industry and size.

4.2 REGRESSION ANALYSIS

After the correlation analysis showed that all variables were significantly correlated, the hypotheses were tested through a multivariate regression analysis.

4.2.1 MAIN EFFECT

Firstly, the analysis was used to predict the behavior of CSP (Y) based on its relationship with the independent variable R&D intensity (X). With a regression analysis the exact effect of R&D intensity on CSP could be tested. The control variables industry and size were included in the analysis, to investigate whether the proposed relationship still hold true given the alternative and more general explanations of size and industry.

Model 1 and 2 in table 2 report the results of the linear regression used to test Hypothesis 1. Firstly the two control predictors were entered in the regression. Model 1 shows the result of the control variables. The model was statistically significant F (2, 174) = 6.51; p

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30 < .01 and explained 7.0% of variance in CSP. This figure explains that the control variables industry and size were able to explain some of the variance of CSP but not an extremely large part. The positive coefficient of industry indicates that manufacturing firms perform better on CSP in comparison to non-manufacturing firms. Also company size is positively significant related to CSP.

Subsequently, the following step of the regression analysis was to test the main effect of the independent variable R&D intensity on CSP. Model 2 reports that R&D intensity has a significant positive effect on CSP F (1, 173) = 22.04; p < 0.001. It further explained 17.5% of the variance. Adding R&D intensity to the model significantly increased the explained variance, which is shown by the increment in F. Hence, the figures are in line with the expectations and show support for Hypotheses 1; R&D intensity has a positive effect on CSP. The size of the expected effect is of medium strength (β = .337, p < .001).

Table 2: Regression analysis of R&D intensity on CSP

Variables Model 1 Model 2 Model 3 Model 4

Control variables Industry .151* .060 -.014 .004 Size .218** .196** -.020 -.018 Main effects R&D intensity .337*** .097 -.020 HISS .723*** .656*** LISS -.089 -.096 Interaction effects

R&D intensity x HISS .171

R&D intensity x LISS -.012

F 6.505** 12.198*** 49.744*** 35.966

R2 .070 .175 .593 .598

Delta R2 .105 .418 .006

Delta F 22.013*** 87.719*** 1.212

N = 177. The coefficients in the table are standardized. *p < .05; **p < .01; *** p < .001

4.2.2 MODERATING EFFECT

Model 3 in table 2 shows the result of the individual moderating variables on CSP without interacting them with R&D intensity. The model was statistically significant F (2, 171) = 87.72; p < .001. It further explained 59.3% of variance in CSP. Looking at the individual predictors, the coefficient of R&D intensity decreased by entering additional predictors in the model. However this result was non-significant, meaning that no conclusions

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31 can be derived from this observation. Furthermore, the model shows that only HISS has a significant effect on CSP (β = .723, p < .001). Meaning that the higher the internal

sustainability standards within a company, the higher its CSP. The effect of this moderator on CSP is strong. The low internal standards moderator has, as predicted, a negative coefficient, albeit non-significant.

Model 4 in table 2 reports the interacting effect of R&D intensity and the moderators on the dependent variable (CSP). However the model is non-significant. The positive

coefficient of HISS and the negative coefficient of LISS would have been in line with expectations. Predicted was that HISS positively moderate the main relationship and LISS negatively moderates this relation. However, due to the insignificance of the model these figures cannot be interpreted in a proper manner. Hypotheses 2, that HISS within a company positively moderates the relationship between R&D intensity and CSP, is therefore not supported. Simultaneously as hypotheses 2, there was no statistical support for hypotheses 3 that states that LISS diminishes the effect that R&D intensity has on CSP. Due to the

insignificance of the moderating models, alternative models were presented. These models test whether significant moderating results could be found when entering the moderators in different sequences.

Table 3: Moderating effect of HISS and LISS

N = 177. The coefficients in the table are standardized. *p < .05; **p < .01; *** p < .001

Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Control variables Industry .151* .060 .093 -.014 -.013 .004 Size .218** .196** .317*** -.020 -.019 -.018 Main effects R&D intensity .337*** .257** .097 .100 -.020 Low standards -.273** -.089 -.085 -.096 High standards .723*** .724*** .656*** Interaction effects

R&D intensity x low standards -.007 -.012

R&D intensity x high standards .171

F 6.505** 12.198*** 12.832*** 49.744*** 41.214*** 35.966***

R2 .070 .175 .230 .593 .593 .598

Delta R2 .105 .055 .363 .000 .006

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4.2.3 ALTERNATIVE MODELS

Due to the fact that HISS on its own had a large significant effect on CSP, but LISS was not significant at all, both moderators were entered into the equation separately. First, the LISS moderator was entered to see if its coefficient would be significant when leaving out the HISS. Subsequently, the second moderator and the interaction effects were entered in the following models. Table 3 presents the outcomes of the alternative models.

As table 3 shows, the most striking figure is the coefficient of the LISS moderator and its effect on CSP without entering HISS (β = -.273, p < .001). This indicates that there is a negative effect of LISS on the sustainability performance of a company and that this effect is statistically significant. Nevertheless, the interaction effects are still insignificant. Both moderators have been analyzed individually as well to see if there would be significant effects. First the LISS moderator was added to the model and secondly its interaction effect without adding HISS was entered. This same approach was used the other way around. Notwithstanding none of the effects in the different approaches were significant. Table 5-1 and table 5-2 in appendix IV show the results of these models.

Accordingly, the results of this thesis show that there is support for Hypotheses 1: The higher the level of R&D intensity within a company, the higher its CSP will be. Nonetheless, there is no statistical evidence for the assumptions that HISS moderate this effect positively and LISS will diminish this effect.