1
Master Thesis
A FIRM PERSPECTIVE ON THE RELATION BETWEEN CORPORATE
SOCIAL RESPONSIBILITY AND CUSTOMER LOYALTY:
investigating the moderating effect of diversity in board composition.
MSc International Business and Management 2016 – 2017
University of Groningen, Faculty of Economics and Business
2 Abstract
In the face of growing worldwide interest in corporate social responsibility (CSR), this paper explores how CSR practices implemented by companies, influence customer loyalty and whether the moderating effect of diversity in board composition strengthens such relationship.
The study approaches a company level method of analysis to investigate the hypothesis, making use of customer loyalty metrics which have been not commonly used in research before. Moreover, a fixed effects model is employed to test hypothesis based on data which span the years from 2008 to 2014. Findings show evidence that CSR might positively affect customer loyalty. No evidence has been found for the moderating role of board diversity. These findings have implications for both future research and managers which are concerned with corporate social responsibility.
3
TABLE OF CONTENTS
ABSTRACT ... 2
1. INTRODUCTION ... 5
2. LITERATURE REVIEW ... 9
2.1 CORPORATE SOCIAL RESPONSIBILITY: DEFINITIONAL ISSUES ... 9
2.2 THE RELATION BETWEEN CSR AND CUSTOMER LOYALTY ... 13
2.3 THE MODERATING ROLE OF BOARD DIVERSITY ... 19
3. RESEARCH METHODOLOGY ... 25
3.1 DATA SOURCE AND SAMPLE ... 25
3.2 MEASUREMENT OF VARIABLES ... 27
3.2.1 Dependent Variable ... 27
3.2.2 Independent Variable... 28
3.2.3 Interaction effect of Board Diversity ... 29
3.2.4 Control variables ... 29 3.3 EMPIRICAL APPROACH ... 31 3.4 PRELIMINARY ANALYSIS ... 32 4. RESULTS ... 33 4.1 ROBUSTNESS TEST ... 36 5. DISCUSSION ... 39
5.1 THEORETICAL IMPLICATIONS AND RECOMMENDATIONS ... 42
5.2 LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH ... 44
6. CONCLUSION ... 46
4
5
1. INTRODUCTION
In recent years, issues related to Corporate Social Responsibility (CSR) have received always more attention. CSR has been a widely discussed topic since the 19thcentury and has turned into one of the major and important global issue (Hopkins, 2003). This happened because the interest for the concept became common to governmental authorities, sensitizing the subsequent implementation of codes of conduct in corporate governance. Beside this, also stakeholders’ awareness in regard social, ethical, and environmental issues has strongly increased during the few last years. For these reasons, the concept of corporate social responsibility is supposed to be always more embedded within the culture and the company’s organizational profile (Hopkins, 2006).
Anyway, a question that draws particularly attention is about understanding the reasons that push companies to engage social responsibilities for noneconomic stakeholders, such as customers, and communities (Lee, Lee, & Li, 2012). The theoretical answer given to this interest, lies in the fact that researchers continue to confirm the impact that corporate social responsibility has on the performance of the firms (Zhu, Sun, & Leung, 2014). In this field of study, many scholars have conducted research on the relationship which links CSR and firm profitability, with subsequent findings that a consistent number of firms nowadays are aware that the engagement of CSR in their portfolio of activities, can ensure them sustainability as well as boosting their accountability (Cockburn, Henderson, & Stern, 2000).
6
2014), the investigation of intermediate roles which link CSR to these lasts remains underemphasized in research. Given that, I argue the possibility to investigate the relationship that associates CSR to customer loyalty, assumed that customers are seen as one of the most important resources for the company. Moreover, loyal behavior is one of the main way through which customers express their satisfaction for companies (del Mar Garcia de los Salmones, Maria, Perez, & Rodriguez del Bosque, 2009), as well as an important basis for developing a sustainable competitive advantage that then affects firm’s profitability (Edvardsson, Johnson, Gustafsson, & Strandvik, 2000a).
Instead, even if CSR is commonly thought as multiple actions used to convey company’s commitment to stakeholders, controversial evidences emerge regarding the role of social responsibility in generating benefit for society members as well as in the formation of a loyal behavior (del Mar Garcia de los Salmones, Maria et al., 2009). In fact, corporate social responsibility has been criticized for being a self-serving instrument that firms might use to conceal irresponsible behavior in business (Luo & Bhattacharya, 2009a). The reason of this lies in the positive effect on firm performance and profitability, which may push companies to undertake CSR actions simply as a marketing tool to gain advantages (Waller & Lanis, 2009). Therefore, purpose of this paper is to attempt to shed light on the topic, examining if the willingness of firms to engage trusted and sincere CSR practices, can effectively impact customer loyalty.
7
to a sustainable long-term firm performance (Chuang & Huang, 2015). I argue that such consequence may be partially enhanced by the beneficial effects that loyal behavior reflects on the company. Indeed, involvement of sustainable practices and programs might establish customer loyalty by improving company’s reputation and attracting new customers and stakeholders caring about CSR issues, thus increasing sales (Flammer, 2013). Moreover, prior investigators have already argued that management of customer relationships, like the creation of customer loyalty, are essential in obtaining competitive advantages in the market (Mithas, Krishnan, & Fornell, 2005), hence enhancing long-term firm profitability.
Furthermore, the paper takes into account the moderating role of companies’ board of directors and specifically, its diversity in the composition. This framework makes sense since boards are recognized as responsible for ensuring the achievement of stakeholders’ objectives as well as the
ones which have the legal power to decide about firm’ future strategies (Larkin, Bernardi, & Bosco, 2012). In addition, heterogeneity in diversity enhances the board’s ability to identify different interests and needs of stakeholders’ groups and this capacity is also reflected in the willingness of the firm in regard the implementation of corporate socially responsible practices (Harjoto, Laksmana, & Lee, 2015). Because this paper examines customer loyalty as observable metric measured at the firm-level, investigating the role of diversity in board might be seen as a corporate ability to attempt to be concerned with a broader range of customers’ needs.
Therefore, the related research question behind this study is ‘Does firm’s CSR practices enhance customer loyalty? And, is this relationship positively moderated by diversity in board composition of such firms?’
8
proves to be a real prominent dimension for understanding the impact of CSR. Furthermore, since today’s firms operate in an always more increasing global business environment, it is useful to discuss CSR in the context of stakeholder theory, since each actor has a moral, strategical, and legitimated interest in the company (Bass & Steidlmeier, 1999).
In my work, I try to gain insight on the relationship between CSR and customer loyalty, basing my data on a unique dataset from ASSET4 (Thompson Router). The database covers more than 250 key performance indicators of more than 2500 companies around the world, ranking firms under social, environmental, and corporate governance performance dimensions.
9
2. LITERATURE REVIEW
2.1 Corporate Social Responsibility: definitional issues
Although Corporate Social Responsibility is a concept which has been discussed since many years, after decades of research on this issue, authors still conclude that there is not a strong consensus on the definition of CSR (McWilliams, Siegel, & Wright, 2006a).
The field of research has grown significantly in the past years and involves a great amount of approaches and terminologies (Garriga & Melé, 2004).Additionally, the ambiguity of the concept is caused by the several theories existing in business environment and research debates, which propose a variety of definitions of Corporate Social Responsibility. Further, complexity is found in the fact that some authors lean towards two opposite visions of CSR, while few others tend to overlap different perspectives using the same terms for explaining different meanings. Following Friedman (1970), researchers argue that the only interest of corporations are their shareholders; on the other hand, Freeman (1994), emphasizes the idea that companies should be managed in order to take into account not only the shareholders’ interests, but rather the interests of stakeholders as a whole, including financers, customers, employees and communities.
Therefore, it is useful to consider each perspective paying attention to the focus on which is based the relation between business and society (Garriga & Melé, 2004). Because I focus my research on CSR in the context of stakeholder perceptions and behavior, this study adopts the broadly cited definition of Wood (1991), which defines organizations the sum of principles of social responsibilities, processes of social responsiveness, programs, policies, and observable outcomes, as they related to the firms’ social relationships.
10
of several important principles which must guide business in the future (Carroll, 1999). Most of the following researches complied with the idea that a company’s final scope should encompass and pursue goals which go beyond the economic value. For instance, McGuire (1963) claimed:
“[…] the idea of social responsibility supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations.”
Still, in his research Mohr (1996) divided CSR into two general classifications. The first one discusses CSR in relation to the various stakeholders of the organizations like owners, customers, employees, and the community, and it is aimed to improve consumers’ and society's wellbeing; the second classification is related to the delineations of the major responsibilities of companies and encompasses the societal marketing concept. These two views emphasize that socially responsible companies should have concerns beyond short-term profitability. In fact, some companies see the concept of CSR in terms of legal responsibility or a liability which limits the business men’s behavior imposing higher standards, duties, and costs to which comply with. This vision is opposite to the one supported by the authors cited above, who think to CSR as a sustainable, social, and responsible way of doing business, in the sense of acting in more human, transparent, and valid ethical ways aimed to the satisfaction of community’s needs (Okoye, 2009).
11
the positive value which CSR might have in the long-term (Clarkson, 1995). Because of the conflicting visions, although the progresses in research, nowadays the concept of corporate social responsibility remains difficult to define universally.
In mapping out the territory of CSR theories, one of the most comprehensive classification as well as one of the most widely supported and accepted multidimensional approach, is the one proposed by Carroll (1979). In his research, he describes an exhaustive and organized definition of Corporate Social Responsibilities, grouping issues under a layered pyramid model. In order to embrace the entire range of business responsibilities, the author sorts them respectively in: economic, legal, ethical and philanthropic CSR responsibilities. Thus, he defines CSR as all the economic, legal, ethical, and discretionary expectations that society has of a company at a given period of time (Carroll, 1979). Economic responsibility refers to be profitable as a company, be efficient and it concerns the satisfaction of society’s necessities by the corporations, providing goods and services at a reasonable price (Rahim, Jalaludin, & Tajuddin, 2011). Legal responsibility involves a ‘social contract’ between business and society (Carroll, 1991). Ethical responsibility instead, are those activities which are expected or recognized as forbidden by societal members (Carroll, 1991). These kinds of responsibilities encompass standards that reflect what stakeholders like consumers, the community and the shareholders see as fair and they concern with doing what is right and just (Rahim et al., 2011). Finally, philanthropic responsibilities involve those activities that are expected to improve the quality of life by responding to society’s expectations through good businesses and corporate citizen, like for instance contributions and donations.
12
strategical instrument which aims to achieve only economic interests. On the other hand, political theories are opposite to the instrumental ones and they emphasize the relationship between the society, the corporations, and their responsibility to act accepting social duties and rights (Garriga & Melé, 2004). This stream of theories suppose that companies should act in a sociable responsible manner (Moir, 2001), because in the long run, firms which don’t comply with a responsible use of power, will tend to lose their power itself (Wood, 1991b). Further, the last two streams, support the idea of doing business considering the well-being of the society and they are respectively divided in: integrative theories, aimed to the integration of social demand to permit the society and business itself continuity and growth; and ethical theories, which suggest the embeddedness of ethical values in business activities.
Further, also Panwar, Rinne, Hansen and Juslin (2006) supported the vision of a CSR projected towards the mutual benefit of companies and community. In their sustainable development approach, economic, environmental and social issues should have employed in businesses in a well-balanced way (Panwar, Rinne, Hansen, & Juslin, 2006).
13
2.2 The relation between CSR and Customer Loyalty
Customer loyalty has gained the credit to be recognized as one of the most important factors which exerts a role in the creation of a successful business.
The effect of CSR has been examined on different company’s outcomes relatively to stakeholders’ perception, investigating for instance its impact on corporate imagine, reputation, or customer satisfaction (C. B. Bhattacharya & Sen, 2004; Chung, Yu, Choi, & Shin, 2015; Lii & Lee, 2012). Measurements of such outcomes have been computed using two different approaches: observable behavioral metrics or unobservable or attitudinal/perceptual metrics (Gupta & Zeithaml, 2006). The latter is mainly used in marketing research and it is defined as a positive company evaluation as well as the realization of an emotional linkage between the customers and the organization (Martínez & del Bosque, 2013). The former approach instead, permits to measure the actual effect of CSR on consumer behavior, assessing it by a company perspective. This kind of measurement includes the number of purchases made that result from CSR, the amount of money spent on products by consumers or their predisposition to repurchase from the same firm again (Edvardsson, Johnson, Gustafsson, & Strandvik, 2000b).
14
may build strong and positive relationships with customers, thus establishing customer loyalty, and, in a second time, they may foster future profits.
However, although many studies investigated CSR impact on customer outcomes, such as firm reputation or image, less studies focused their attention on the role of customer loyalty in the context of CSR; this is even more evident for analyses due at the company level and, thus far, many are the discrepancies in the results. Furthermore, many of the previous studies use the more subjective approach to measure loyalty; in doing so they base their analysis on attitudinal data gathered from questionnaires, or from surveys sent to the costumers, rather than collecting information from firms’ secondary data. This might be source of bias, which may generate controversies in the findings. Hence, although some scholars identified a positive relationship between firm CSR practices and customer loyalty (Pérez & Del Bosque, 2013), others reject this result (Carrigan & Attalla, 2001).
Therefore, to clarify previous incongruities, aim of this study is to shed light on the impact of CSR practices on customer loyalty, approaching the relation from the firm’s point of view, instead of basing results on customers’ perception.
Moreover, a deeper investigation on this relationship might also clarify inconsistency due to the fact that the impact of CSR has been identified as related to two different views; the one which sees corporate social responsibility as a sustainable development oriented towards the benefit of both enterprises and the society, or, on the contrary, the other that sees it as an unethical cause-related marketing tool (Varadarajan & Menon, 1988).
15
theory, which emphasizes only the company’s and its shareholders’ interests, stakeholder theory asserts that the interests of these other groups must be equally involved in manger’s decisions (Castelo Branco & Lima Rodriques, 2007). In this sense, it is implicit that a successful CSR is basically a relationship-building which firms establish with various publics (Murray & Montanari, 1986). However, this win-win situation within the firm and the different stakeholder groups, can be real only if both parties perceive value and benefit (Peloza & Shang, 2011). It means that companies cannot be considered acting in a social responsible way if they don’t meet stakeholders’ expectations. As reported in the previous paragraph, this is recalled in the instrumental stakeholder theory (Jones, 1995), which sees CSR as a strategic tool used to obtain economic objectives (Garriga & Melé, 2004). Since organizations aligned with this theory prioritize the maximization of financial gains (Wan-Jan, 2006), Corporate Social Responsibility is purely considered a business strategy that managers use for making their businesses result more prosperous. Therefore, while an effective engagement of social responsible activities may lead to develop customer loyalty, the fake implementation of firm’s CSR practices may damage the positive impact on its customers.
16
associations reflect the organization’s status and activities related to perceived societal obligations
and, in light of this fact, consumers do consider whether or not businesses fulfill sustainable causes. Moreover, moderating on firms’ behavior, they reward or punish enterprises through their actual purchase behavior (Damiano‐Teixeira & Pompermayer, 2007). Therefore, in cases where such
harmful comportment has been disclosed, the relation which suggests that consumer awareness of firm CSR practices positively influence attitudes toward the firm, thus enhancing their loyalty and indirectly firm profitability, is no longer reliable.
A famous case is the one of Coca-Cola in India. The multinational associated its image to the sustainability framework Live Positively and it adopted a Code of Business Conduct which provides guidelines on competition and anti-corruption issues (The Coca-Cola Sustainability Review, 2009-2010). Moreover, Coca-Cola embedded international CSR criteria such as Global Compact17 and Ruggie’s Protect, Respect and Remedy and since 2001 it publishes a separate annually report devoted to develop Corporate Social Responsibility, in accordance with the GRI G3 guidelines adopted by the company (Cedillo Torres, Garcia-French, Hordijk, Nguyen, & Olup, 2012). Nevertheless, all these principles of CSR didn’t seem to be integrated into the code of business of the company. In fact, in 2003, Coca-Cola were cited by the Indian NGO Centre for Science and Environment (CSE), because of the presence of pesticides in a sample of dozen beverages, which clamorously exceeded the allowed level of European standards (Cedillo Torres et al., 2012). The controversy repeated in 2006 and gained always more public attention. The accuses had an unimaginable impact for the company which suffered from a great loss of consumer trust in India as well as abroad (Vedwan, 2012). The overall Indian sales dropped of 40% in two weeks and had been registered a decline of 15% on the annual sales. Moreover, consequences have been observed also in US, where ten important American Universities temporarily refused to sell Coca-Cola at their campus facilities (Cedillo Torres et al., 2012).
17
agreements for relationships and working conditions of suppliers and employees, product quality and ethical codes of conduct supporter, it has been accused of gender discrimination and of using child labor (Wallmart Sustainability Report, 2011). Whilst the company developed its first Code of Conduct (COC) ‘Standard for Suppliers’ in 1992 and, immediately afterwards, it included costumers and associates in its general report (‘Report on Ethical Sourcing’), campaigns and press publications accused Walmart of gender discrimination in 2001 and usage of child labor in Bangladesh in 2005 (Cedillo Torres et al., 2012). Again in this case, such conflict had an adverse impact on the company. According to the McKinsey & Company report, 2 to 8% of Walmart’s consumers have stopped shopping at Walmart because of the negative publicity and consequently the abuses, the company's shares decreased by $2.375 in just two days.
In accordance with what explained above, these two real-world cases bear witness of the negative impact on customer loyalty, when engaging CSR practices without effectively comply with the codes of standards. Thus, if consumers realize that the company is no more trustworthy, perceiving it as unethical and deceptive because of the misleading use of CSR employed as marketing tool to gain advantage, instead of creating social impact, it may lose its customers’ loyalty (Luo & Bhattacharya, 2009b).
Instead, in contradiction to the former examples, there are also substantial amount of companies that show a real integration of corporate socially responsible practice in their policy, and continuously have been committed to sustainable behaviors; in this case, they suggest a strengthening of the relationship built with their customers.
18
companies are evaluated, its corporate social responsibility is assessed as the highest. In fact, it underpins the real aim of CSR, ranging its activities in accordance with each sustainabile issue, respectively, social, environmental, legal and philanthropical as well as covering a wide variety of concerns among stakeholders. Through its commitment with CSR activities, the company has therefore empowered its relation with customers. Many are the clients who believe that by purchasing from this company can demonstrate their support for ethical practices and it is also confirmed by the fact that in 2015 Toyota depicts eighth among the Fortune Global 500, with a revenue of $236,592 billion, suggesting therefore a positive relationship with its customers, due to CSR practices engagement.
However, as previously pointed, not all the companies are willing to make a real investment in responsible practices. A reason which misleads the effective engagement of CSR, might be the cost of the initial investment. Indeed, due to CSR costs firms’ short-term performance may be harmed; nevertheless, the initial commitment tends to be turned in a surplus of revenues in the future, enhancing loyalty and profitability in the long-run. These results have been explored in the study of Flammer (2013), who claims that CSR is seen as a consistent cost of doing business for the company and, with immediate impact, it would decrease profits. For instance, by introducing a new recycling program, the firm would require employees training, new physical capitals and other conspicuous costs. However, a new social impact activity, might improve company’s appeal to new consumers and stakeholders sensitive to environmental issues; thus, improving the loyalty with its customers, firm will also enhance its long-term performance. Along this line, scholars found that in the long run the positive impact of CSR positively affects firm long-term performance, which will benefit from social responsible behavior (Wood & Jones, 1995); due to the fact that firms are recognized as responsible and caring by stakeholder community, this will lead to greater loyalty and subsequent to a sustainable performance.
19
to create value such as customer loyalty (Lii & Lee, 2012). CSR activities are one of the main means used to this purpose and today 80% among the most well-known companies (e.g. the Fortune 500), address CSR issues on their Websites (C. B. Bhattacharya & Sen, 2004). The explanation lies in the influence exerts by CSR initiatives, which allow customers to identify themselves with a particular company. Therefore, when customers perceive a great identification, they are more likely to support it, thus enhancing loyalty with regard to the firm (C. B. Bhattacharya, Rao, & Glynn, 1995).
Overall, based on these examples and argumentations on the relation between firm CSR activities and customer loyalty, I expect:
Hypothesis 1: CSR practices engaged by a company are positively related to the creation of customer loyalty.
2.3 The moderating role of Board Diversity
Due to globalization and enhancements in technology, the nature of companies and their relation with stakeholders has been intensified. Nowadays, board’s roles and responsibilities concern a broader setting, which goes beyond the traditional shareholder- central perspective, thus encompassing also the various stakeholders’ interests. Furthermore, within this broader view, board, and specifically its composition, seems to be one of the main factor exerting some influence in the context of CSR (Rao & Tilt, 2015). According to previous research, boards are always more often seen as responsible for issues related to CSR and sustainability (Ingley, 2008). This is because CSR is a critical item in board’s agendas and the board itself has considerable impact and responsibility (Elkington, 2006) on complying with such practices, both concerning the welfare of the firm as well as the one of the actors who play a role in its business environment.
20
manage the creation and execution of management’s initiatives by balancing the interests of several
stakeholders (Harjoto et al., 2015).
Moreover, beside the stakeholder theory, the Resources dependence theory (Salancik & Pfeffer, 1978) argues that board is seen as the provider of resources, both human (experience, expertize, reputation) and relational (networks with external environment). Resource dependent theorists argument that a firm which aim to improve the relationship with its stakeholders, may increase its economic benefits; this is probably the principle in managers’ actualization of socially responsible activities (Pfeffer, 1973). Therefore, in such context, board might exert an influence on the previous explained relation between firms’ CSR practices and customer loyalty, to the extent to which board of directors may decide to engage sustainable practices to strengthen firm’s relation with its customers.
21
comply with social responsible standards is mainly considered. Hence, CSR might be chosen as investment to enhance firm’s relationship with its customers, to aim at an increase in future profits.
Critics in previous studies recognize heterogeneity in the board as a double-edge sword because of the potential negative or null effect in the group process and decision-making processes (Rao & Tilt, 2015). Nonetheless, diversity in board is usually evaluated as a positive feature in the company. This is because diversity in board members’ attributes, even if negative in the short time, is moderated
in the long run, after that directors serve on the board working together and discrepancies in achieving board consensus are likely to weaken (Harrison, Price, & Bell, 1998).
Moreover, Bernardi, Bean and Weippert (2002, 2005), demonstrate in their studies that organizations with diversities in their boards, tend to be listed in worldwide rankings concerning quality of the work, ethics, and reputational issues and the same companies, are more willing to include pictures of the board in their annual reports. This happens because customers tend to support organizations in which boards show higher proportion of diversities (Larkin et al., 2012). In the past happened that boards dominated by homogeneity, such as old white male directors, have been implicated in continue corporate scandals; this is the case which may push customers to distrust such boards (Farrell & Hersch, 2005). On the contrary, it is assumed that diversity leads to differentiated sensitivity to social issues and, more likely, board with such characteristic tend to consider responsible issues when taking decisions, thus enhancing firm’s relationship with its customers (Hafsi
& Turgut, 2013).
Therefore, according to the stated context, it is expected that diversity in the board composition, moderates the relationship between firms’ CSR practices and customer loyalty. Specifically:
Hypothesis 2: The relationship between firms’ CSR practices and Customer Loyalty is positively moderated by diversity in board composition.
22
indices of diversity in board, to examine the relationship between CSR practices and customer loyalty. Previous research already identified some of the most significant variables attributed to diversity among board of directors (Carter, D'Souza, Simkins, & Simpson, 2010; Harjoto et al., 2015); this research integrates those attributes which are recognized as the most relevant to the relation investigated. Specifically, are addressed diversity in gender, in ethnicity, in proportion of outside directors and size of the board.
Gender diversity, meant as the percentage of women present in the board, is one of the most significant issues faced by modern corporations and it is particularly influential in CSR context (Rao & Tilt, 2015). According to a study by Bear (2010), the presence of female directors on board increases sensitivity and women are found to have higher incidence of positive ratings concerning corporate social responsibility. Furthermore, when women contribute to CSR, they play a central role in enhancing corporate reputation. Other studies indicate also that companies with higher percentages of women in the board tend to be more generous towards communities, since they pay more attention to the welfare of firm’s stakeholders (e.g. customers). Thus, presence of female board members with altruistic behavior is translated into more pro-social corporate behavior which aims to establish a solid and positive relationship with stakeholders (Krüger, 2009). Therefore, I assume:
Hypothesis 2a: The presence of female members in board of directors positively moderates the relationship between firms’ CSR practices and customer loyalty.
23
servicing community’s needs, that would be overlooked normally. In turn, this might improve firm
imagine and relationships with its customers (Hafsi & Turgut, 2013). Therefore, I suggest:
Hypothesis 2b: The presence of directors ethnically diverse positively moderates the relationship between firms’ CSR practices and customer loyalty.
As mentioned early, boards help to connect the organization to its external environment, hence creating useful networks with stakeholders. The need for effective external linkages is associated with larger boards (Salancik & Pfeffer, 1978). Furthermore, the community itself exerts pressure for a wider representation, thus forcing firms to acquire relatively larger boards to gain broader attention (Hillman & Keim, 2001). Hence, for many researchers, board size has been recognized to matter in the implementation of networks with various stakeholders and in the better satisfaction of community’s needs (Hafsi & Turgut, 2013):
Hypothesis 2c: A larger relative size of the board positively moderates the relationship between firms’ CSR practices and customer loyalty.
24
Hypothesis 2d: The presence of a percentage of outside directors in the company’s board positively moderates the relationship between firms’ CSR practices and customer loyalty.
Figure 1. Conceptual model
25
3. RESEARCH METHODOLOGY
This section is going to propose a quantitative method to test the hypothesis. The data source employed is the Thompson Router ASSET4, comprehensive of the years 2008-2014. The database is oriented on the ESG (Economics, Environmental, Social, Governmental) CSR activities and it is organized at the company level: data have been collected directly asking to the companies. Further, it has been employed in many previous studies (Aouadi & Marsat, 2016; Ioannou & Serafeim, 2012; Sassen, Hinze, & Hardeck, 2016) in the context of CSR as valid substitute of the Kinder, Lydenberg, Domini (KLD) database.
3.1 Data source and Sample
The sample consists in the intersection of the ASSET4 and Fortune 500 universe of U.S. companies, covering the period 2008-2014.
26
previous CSR literature, provides a more comprehensive and less biased calculation of the rating scores.
The time lag 2008-2014 is useful in research, since after the economic collapse occurred after the 2008 financial crisis, certain social problems emerged. Therefore, if before the recession companies were still learning about CSR, the issue was strongly reviewed after 2008, claiming the importance of a deeper implementation of socially responsible practices as well as placing great emphasis on building relationships with stakeholders (Placier, 2011). Hence, the considered time lag which starts from post financial collapse of 2008 is used to avoid external influence of a context and an environment in which CSR was differently perceived.
27 3.2 Measurement of variables
3.2.1 Dependent Variable
Customer Loyalty (CL) has been recognized since a long time to exert a central role in the creation of successful business (Frederick & Thomas, 1996; Lewis & Soureli, 2006). However, although customer loyalty is a commonly acknowledged concept, many researchers have debated about the measurement of this variable, since it doesn’t show a unique way of operationalization (Mandhachitara & Poolthong, 2011a). Two main approaches are broadly accepted as measures of CL; the attitudinal one, referred to a more ‘subjective’ or unobservable measure of loyalty, realize through
surveys directly sent to the customers; and the behavioral, or observable measure, calculated as the repeated company’s sells, thus assuming that cultivation of loyalty is a key element in delivering long-term profitability (Gupta & Zeithaml, 2006). Therefore, while marketing researchers tend to prefer an attitudinal approach, research oriented towards a company perspective, recognizes that firms are aware of the importance of customers and they heavily rely on financial measurements to clarify relationships established with them (Ittner & Larcker, 1996).
In line with what explained, this paper makes use of the ASSET4 overall category ‘Client Loyalty’ which aims to measure companies’ commitment and effectiveness in generating sustainable and long-term revenue growth, while maintaining a loyal client base through satisfaction programs and avoiding anti-competitive behaviors. Main measures indicate companies’ report of customer satisfaction, financial impact in expenditures and variability of sales.
28 3.2.2 Independent Variable
The measurement of corporate social responsibility is, since a long time, source of debate among scholars. A variety of different approaches have been employed (Wood, 2010), but since there is no one commonly accepted definition of what CSR entails exactly (Gond & Crane, 2008), the tendency tends towards disaggregated indicators rather than one composite measure (GRI, 2006). The challenge is capturing how much effort companies actually commit into CSR initiatives. In doing so some scholars opted for an expenditure-related measure (Julian & Ofori‐dankwa, 2013), identifying
a monetary quantitative provision on CSR engagement (Wood, 2010), which appears more reliable than a symbolic commitment. However, CSR has many facets and the concept involves multiple dimensions which are linked together and, as Waddock and Graves (1997) highlighted, there is the “need for a multidimensional measure applied across a wide range of industries and larger samples of companies” (p.304). Therefore, according with this stream of research, in this paper are used data from ASSET4 in order to measure firms’ engagement in CSR activities. In line with previous studies (Cheng et al., 2014; Mackenzie, Rees, & Rodionova, 2013), ASSET4 is used for identifying sustainable vision and strategies integrated in companies’ operational framework. The Database shows companies’ willingness to undertake CSR initiatives through indicators such as company websites, CSR annual reports, non-governmental organizations, sustainable committees, adherence to sustainable Index and elsewhere. Measurement of CSR is due by the sum of such indicators, already grouped in ASSET4 under the overall category ‘Integration/Vision and Strategies’ score (Shaukat et
29 3.2.3 Interaction effect of Board Diversity
The first operationalization of the moderating variable included in this study is the totality of the variables referred to the diversity of board. To measure the overall diversity of the board, the mean of the four variables has been performed in order to create the new variable (Harjoto et al., 2015).
Afterwards, in order to analyze every single index of diversity, I considered each variable of the overall diversity individually (Hafsi & Turgut, 2013; Harjoto et al., 2015). ASSET4 provides a category named ‘Board of Directors/Board Structure’, which comprises more than 50 indices of diversity in the board; within those I selected the four variables that were necessary for my analysis, respectively, gender, ethnicity, size of the board and presence of outside directors.
The Database includes information for every data collected, providing it in different formats. Specifically, gender and outsiders are given as continuous variables (1-100). Gender is referred to the percentage of women in the board of directors; while data of board independence is due by the percentage of independent board members, considered as those who don’t serve the board for more than ten years as reported by a company (Shaukat et al., 2015). Ethnic diversity and board size are treated differently: ethnicity is operationalized as a dummy (the presence or not of minorities in the board); board size is a numerical discrete variable expressed as the number of members in the board. Since variables are presented on different scales, in order to perform the overall diversity, for each variable has been used the same scale, thus, those variables which were not given as percentages have been rescaled.
3.2.4 Control variables
30
firm size, based on Harjoto et al. (2015), which has been found in the literature as a characteristic that can interfere in the ability of the firm to undertake CSR. Differences, even if small, might tend to ease larger firms to be most involved in CSR, because of a broader availability of infra-structure and financial resources to support their sustainable programs (Lima Crisostomo, de Souza Freire, & Nobre Parente, 2014). In this study size is measured as the total sales as reported by companies in the ASSET4 database. According to Orlitzky (2001), firm size can be measured through different operationalization (e.g. amount of sales revenues, total asset and total sales, number of employees), but, whichever measurements is chosen, it doesn’t impair the validity of the analysis. Therefore, in this research, due to the lack of information in ASSET4 of other possible measurements for firm size, total sales are used.
Based on McWilliams and Siegel (2001), also R&D intensity is used as a control, since it is considered to be a major contributor to information asymmetry; strong evidence confirms that companies incorporate CSR in their marketing strategies to exploit the appeal of social responsibility to the market’s key segments. Therefore, firm-level investment in R&D provides information about CSR attributes which may be used to create reputation of quality, reliability, and honesty. Measure for firm’s R&D intensity is obtained by companies’ R&D expenses divided by sales.
Furthermore, management tolerance of risk might also be included as control, since employment by the company of any advanced risk management technique reflects management’s attitude toward events that potentially provoke extra costs, but reduce costs in the future. For instance, the employment of solar power, the realization of a recycling programs, or still the establishment or removal of facilities, like the installation of environmentally friendly factories. ASSET4 provides a specific indicator for this measurement.
31
advertising that provides information to CSR attributes may be used to create reputation for quality, reliability, or honesty of the company – attributes that may be difficult to determine for the consumer alone (McWilliams, Siegel, & Wright, 2006b).
Moreover, researchers found that association with firm value depends also on the quality of the products offered by firms. Quality has been regarded as a key strategic component of competitive advantage; therefore, improving product quality is a matter of concern to firms, since it is a starting point to provide satisfaction and generating loyalty in customers (Yuen & Chan, 2010). I control for product quality considering the category ‘product quality’ in ASSET4, which includes the impact of products or services on consumers or on the community.
Because previous studies already determined the impact of financial performance on attitudinal factors such as the reputation of a company (Fryxell & Wang, 1994), I include in my research also prior firm performance as a variable which may play a role on customer loyalty. Return on assets (ROA) has been used as a measure of the efficiency of management in generating earnings (Bear et al., 2010b).
Finally, as mentioned above, previous researches included industry as control variable since it has a significant impact in CSR implementation and in turn on firms’ performance aspects. However, due to the model of analysis of data, industry is already considered fix in the analysis.
3.3 Empirical approach
32
To identify if fixed effect model was appropriate for the analysis, Hausmann test was accomplished to check whether correlation was present between unobserved effects and the regressors. In fact, Hausmann tests whether the unique errors are correlated with the regressors and the null hypothesis is that they are not correlated. After running Hausman test, the null hypothesis has been disconfirmed, therefore fix effects model was preferred over the random effects one. Results of Hausmann test are included in the Appendix A.
By using a fix effect model, it is possible to control for all time-invariant differences between the subjects, thus avoiding bias on the outcomes because of omitted time-invariant characteristics.
Following Aouadi et al. (2016), I also used industry-fixed effect, thus keeping industry fixed along the panel. Once determined the appropriate model of estimation, hypothesis have been tested through a regression.
3.4 Preliminary Analysis
In order to perform a regression, some assumptions need to be tested, specifically named normality, heterosckedasticity, multucollinearity and linearity.
Therefore, I tested the linearity between the independent and dependent variable and, according to the scatterplot, it showed a linear relationship.
33
as in the fixed effects model. I transformed the model by transforming each variable in mean-centered variables and then I performed an OLS procedure (Aouadi & Marsat, 2016). Following this method, VIF never exceeds 1.28 for all the variables under analysis and the result shows a mean = 1.12, which is below 10 and confirms the absence of multicollinearity.
Concerning normality test for normal distribution check, according to Gelman and Hill (2006), normality test does not affect the parameter estimates in multilevel models; therefore, they argue against normality test claiming that it can be ignored.
Finally, the homoscedasticity assumption affirms that the error variance should be constant; if the variance of the residuals is not constant the residual variance is called heteroscedastic. Based on the analysis, the null hypothesis of homogeneity has been rejected, thus signaling presence of heteroscedasticity. Therefore, I decided to correct it in Stata using the appropriate command.
4. RESULTS
Table 2 and 3 illustrate the descriptive statistics and the correlation matrix of the observed variables. The theoretical concept of this study is based on one model for investigating the relationship between firms’ CSR practices and customer loyalty. The model comprises 2226 observations dispersed over 319 U.S. companies.
34
percentage of minorities in the board is below 50%, even if the variance is not high. It might mean that board members do not show particular ethnic difference.
Table 2. Descriptive statistic
Variable Obs Mean SD Min Max
CL 1,830 58.65424 26.82243 5.08 98.24 CSR 2,129 59.10876 31.4474 8.45 94.89 RDintensity 2,117 .4179835 .8350053 0 2.224199 firm_size 2,127 48.47965 3.54937 44.36 98.81 riskmanagement 2,122 60.91245 11.59735 .07 65.46 mktg 2,122 69.87729 20.23996 .83 79.12 profitability 1,472 52.8641 18.6508 0 99.78 Product_qaulity 2,110 .2203791 .4146006 0 1 OVERALL_DIV 2,142 49.11116 7.711411 .49 89.69 Gender 2,124 17.38928 8.471439 0 66.67 Culture 2,129 46.5007 49.88912 0 100 Outsdirectorship 1,938 60.24001 24.00939 1.04 98.56 Board_size 2,128 42.70363 13.8823 0 100
To test the hypothesis, regression analyses have been conducted. Variables used in the analyses were organized according to how they were displayed above. Table 4 reports the results of the OLS regressions using year-fixed effects and industry-fixed effects. Models from 1 to 7 report the results using a 1-year lead for customer loyalty dependent variable. Model 1 only examines the effects of the control variables on the dependent variable; Model 2 reports the direct effect of corporate socially responsible practices on customer loyalty; in Model 3 is introduced the interaction effect of the overall board diversity on the main relation, and, in Model 4, 5, and 6 is present the direct effect of CSR practices on customer loyalty and the interaction between the four items of board diversity, respectively gender, culture outside directorship and board size.
35
negative statistically significant effect (p<0.05) on customer loyalty, suggesting that higher customer loyalty is related to lower risk tolerance.
In Model 2 CSR practices effect on consumer loyalty has been added to the control variables. The model shows a significant positive impact of corporate social responsibility on customer loyalty (p < .05). The result can therefore support Hypothesis 1, according to which firms’ corporate socially responsible practices have a positive impact on the loyalty of costumers.
The following models add to the previous the interaction effects of the moderating variables. Specifically, Model 3 displays the interaction effect of the overall diversity of the board. As it is possible to see in Table 4, the direct effect of the overall diversity on the relation id partially significant, but the regression model with its interaction effect is not statistically significant; only the control variable risk tolerance remains partially significant (p < 0.05), and negative. As the direct effect and the control variable are the only two to show partial significance in the model, there is no evidence found to support Hypothesis 2.
Model 4 introduced gender as first single items representing diversity, thought as the percentage of women in the board. Gender, is not a direct significant predictor variable of customer loyalty. Moreover, when interacted with CSR, it shows a positive relationship, and this trend seems to be in accordance with previous studies which supported the positive influence of women in boards as bearers of sensibility in decision-making processes; however, it does not show significance. Therefore, since again the only significant effect is due by the control variable risk tolerance, it is not possible to find support for Hypothesis 2a.
36
In model 6 it is considered the moderating effect of outside directorship. The direct effect of the variable on the customer loyalty, even if positive, doesn’t show a significant impact. The interaction effect is also not significant and it is negative; this seems to be contrary to previous studies which support the involvement of outsider directors in decision-making process. However, Hypothesis 2c has to be rejected due the insignificance of the interaction effect.
Finally, Model 7 displays the effect of board size, also in this case, due to the absence of significance in the impact of this variable on the main relationship, Hypothesis 2d has to be rejected.
4.1 Robustness test
Robustness test, or robustness check, is usually employed by researchers to inspect how regressions react when changing the original model by incurring a modification in some way, specifically in terms of adding, removing, or changing regressors. This kind of analysis helps researchers to detect misspecification in the original model, thus improving the plausibility of results and conclusions (Lu & White, 2014).
37
measurement of customer loyalty adopted in this study, and therefore, I employed the index ‘brand value’ calculated by ASSET4 to re-perform my analysis.
However, results shown in Table 5 of the Appendix, are not statistically significant, weakening the robustness of my findings on CSR-customer loyalty relationship.
One explanation for the obtained result, might be that value considers only the financial aspects and the one closely linked to the sale of the company. Specifically, value regards price, product or service tangible and attributes, but differently from my customer loyalty measure, it ignores components such as trust, or management commitment in generating satisfactory programs, elements which might play a fundamental role in a context of corporate social responsibility.
In addition, the moderating role of both the overall diversity and the single components of diversity in board of directors, do not show significance again. However, it is interesting to see that, only in Model 3, the main relation between CSR and customer loyalty turned to be slightly significant (p<0.1). Such results may indicate again a positive impact of CSR activities on customer loyalty. Moreover, contrary to the main regression, the model shows that the moderating effect of the overall diversity, even if not significant, has a positive beta; this might suggest a slight positive incidence of board diversity on the effect of CSR on loyalty.
38
Table 4. OLS regression results
(1) (2) (3) (4) (5) (6) (7) Variables CL CL CL CL CL CL CL CSR 0.0892** 0.0921 0.00353 0.0949* 0.112 -0.00834 (0.0454) (0.0857) (0.0749) (0.0549) (0.0868) (0.179) OVERALL_DIVERSITY 0.437* (0.237) CSR x OVERALL_DIVERSITY -0.000452 (0.00348) RDintensity 0.514 0.0949 0.0974 0.183 0.165 0.989 0.138 (1.520) (1.532) (1.524) (-1.534) (1.547) (1.607) (1.537) riskmanagement -0.214** -0.214** -0.190* -0.193* -0.214** -0.202* -0.207** (0.105) (0.104) (0.104) (0.105) (0.104) (0.106) (0.105) firm_size -0.168 -0.171 -0.162 -0.136 -0.172 -0.0364 -0.153 (0.389) (0.388) (0.386) (0.390) (0.389) (0.400) (0.389) mktg 0.0174 0.00500 -0.00130 0.005522 0.00446 -0.0144 0.00633 (0.0647) (0.0649) (0.0646) (0.0650) (0.0650) (0.0698) (0.0650) profitability -0.000427 -0.00467 -0.0121 -0.00165 -0.00424 0.0453 -0.00391 (0.0516) (0.0516) (0.0514) (0.0517) (0.0517) (0.0555) (0.0517) product_quality -0.240 -0.346 -0.413 -0.858 -0.313 -0.218 -0.667 (2.800) (2.797) (2.784) -2.813 (2.800) (2.984) (2.811) Gender -0.152 (0.279) CSR x gender 0.005500 (0.00386) Culture -0.477 (4.310) CSR x culture -0.00915 (0.0636) Outsdirectorship 0.00890 (0.0817) CSR x outsdirectorship -0.000319 (0.00119) Board_size -1.054 (1.068) CSR x board_size 0.00861 (0.0153) Constant 78.39*** 74.66*** 68.83*** 77.94*** 74.80*** 65.48*** 85.20*** (20.92) (20.98) (21.37) (25.45) (21.08) (21.79) (23.97) year-fixed effects YES YES YES YES YES YES YES industry-fixed effects YES YES YES YES YES YES YES Observations 1,234 1,234 1,234 1,227 1,234 1,121 1,233 R-squared 0.005 0.009 0.021 0.011 0.009 0.011 0.010 Number of company_id 302 302 302 301 302 297 302 Standard errors in parentheses
39
5. DISCUSSION
The aim of the proposed research was to investigate whether, a relationship which is apparently new and full of inconsistencies in the literature, namely the positive effect of firm’s CSR practices on customer loyalty, might be clarified. Moreover, the specificity of the analysis conducted from the firm point of view, provided the opportunity to investigate whether this relationship might be moderated by several aspects of board diversity: gender, ethnicity, outside directorship and board size.
Prior research expresses the need to gain a deeper insight on the already studied CSR-firm performance relationship and, in doing this, it argues the possibility to investigate intermediate processes which are direct antecedents of performance. Customer loyalty provides an interesting area of research in this field, especially if investigated at the firm-level. Moreover, in accordance with previous studies (Mandhachitara & Poolthong, 2011b), there is the necessity to test the relationship model using different and more innovative measurements for loyalty, to explore whether the strengths and the directions of the variables could still be confirmed. In line with that, this study makes use of a company set of information to determine the results, instead of basing the analysis on a customer’s perspective. Furthermore, research has been conducted in U.S. in a time lag which spans the years from 2008 until 2014 and this is consistent with Pérez and Del Bosque (2013), which call for further investigation of the model in time of international financial crisis, to avoid variation of customer perceptions derived from different time frames.
40
perception of CSR, thus resulting in the positive evaluation of organizations expressed through their loyalty. Several other studies have also reported that CSR initiatives similarly impact certain consumer attitudes towards a company and its offering. For instance, Pérez and Rodriguez del Bosque (2015), argue a positive association between CSR activities and customer satisfaction, demonstrating that the perception of responsible behavior impacts customer identification with the organizations, enhancing positive customers’ reaction. My findings demonstrate that, beyond the more immediate customer affective response (identification and satisfaction), a more complex concept such as loyalty, meant as the willingness to consciously repeat the purchase, is positively influenced. However, my result has been proven to be not robust to a different measure of customer loyalty (i.e. brand value). Hence, the significance of my hypothesis might be due to biases in measurement. In fact, whilst the measurement offered by ASSET4 for customer loyalty was comprehensive of both financial and more social aspects, it completely ignores customers’ perceptions and, as I already said, it is a quite new approach in this field of research. Therefore, the result obtained cannot be confirmed as long as other studies will replicate it with the methodology proposed here.
Results failed to support the moderating role of board diversity as positive influencer in the relationship between CSR activities and customer loyalty. Consequently, the study gives no proof to the influence of board diversity on the CSR-customer loyalty relationship. These results come partly as a surprise. Anyway, part of the findings appears to be similar to those of previous researches (Bear et al., 2010b; Hafsi & Turgut, 2013; Harjoto et al., 2015) which investigated the role of diversity of boards in the context of CSR.
41
behavioral approach is the best to implement. In this particular case, women can be seen as provider of sensitivity and guidance to make the difference. Moreover, others argued that insignificant impact might be due to the fact that, although the increase of female percentage in boards of directors, women remain the minority group members, thus, they may find more difficult to voice their opinions and to be heard (Brewer & Kramer, 1985).
Furthermore, the study does not support the hypothesis that an ethnic diversity of directors positively moderates the relation. I believe results on the effect of ethnic diversity to be similar to ones of gender effect. Indeed, diversity in ethnicity of the board is still in its early stage and this might explain the inexistence of significant of the ethnic diversity effect.
Even outside directorship resulted not significant in the analysis. The finding is interesting because also such characteristic has been considered fundamental by previous studies in issues concerning CSR. In addition, it is possible to include in this unexpected result also the outcome obtained from board size, which resulted to have no effect on the relation between CSR and customer loyalty. For both the insignificant results may be found a possible explanation in the variance of the sample. While the previous items, gender and ethnicity, are related to demographic differences among board members, size and outside directorship are more close to what is the structure of the board. In this case, as argued by Hafsi et al. (2013), an effect is visible only when there are clear differences among firms. Instead, in the sample selected, companies result to be probably too similar to each other when measured against variables considered in the diverse composition of boards. In addition, if considering the governance research, this fact is not excessively surprising. In fact, due to recent reforms, both board size and acceptance of outside directors are subscripted to conformed norms, and thus, not differentiated among firms. Therefore, as a direct effect of statutory change, it is likely that differences among firms, and as result diversity of boards, become less visible and as a consequence, they turn to be less influential and less oriented to social motives.
42
and possible explanations, it is not surprising the insignificant effect of the overall board diversity. Overall, the differences considered in boards do not seem to have an effect on the proposed relationship. Nevertheless, such result provides an interesting point of discussion. Two motives may underpin this finding. First, insignificant result might be again partially explained by the small variance of the sample in the study. Fortune 500 are all enterprises that range around $12 trillion and employ almost 28 million people worldwide, therefore they are considered among the largest and affirmed companies all over the world. As such, they tend to be under high level of public scrutiny and control, condition which might mostly have led to form boards with diverse resources. If this is the case, the most of the examined boards do capture the benefits of diversity, but as a consequence, it may result less visible and its positive influence may be lowered, because of the difficulties in making valuable and significant comparisons between the companies (Bear et al., 2010b).
Secondly, Fama and Jensen (1983), argue that diversity in boards responds partially to the agency theory. As claimed in previous paragraphs, purpose of such theory is not the boost of social issues and, least of all, the implementation of relationships with external stakeholders like customers. Rather, it prioritizes the control of manager’s discretion and in so doing, it helps to minimize costs, as the ones which might be invested in creating such CSR-customer relationship.
5.1 Theoretical implications and recommendations
The present study has few theoretical implications. First, it has provided support to the generalizability of the CSR-customer loyalty relationship since the sample of companies used in the studies belongs to a wide range of industries, thus it doesn’t represent specific concerns which could be different from one sector to another (Campbell, 2007).
43
behavior from a different point of view: the one of the firm (Pérez & Del Bosque, 2013). The availability of data has allowed to move beyond the traditional measure of customer loyalty by incorporating managerial and corporate applications, as previous research asked for.
Further, this research has employed as reference a very common trend employed in examining corporate social responsibility, namely the stakeholder theory, and it has somehow contributed to give insight into its ideologies. Indeed, while literature has often analyzed perception of CSR at a country-level analysis, by evaluating stakeholders in contexts like male versus female customers, individual versus collectivistic customer, difference in age, etc., research has given less attention to how the process which leads to loyalty, might be affected by the heterogeneity internal to the firm (e.g. members of board of directors). Even if findings turned to be not significant concerning the role of board diversity and its implication on the creation of customer loyalty, the paper expands knowledge about the influence that various types of stakeholders may have in relationship to firm’s actions in contexts of corporate social responsibility.
44
Hence, this research provides managers with empirical support to the importance of building positive relations with customers in order to gain a sustainable competitive advantage over competitors, which can be captured in the loyal behavior. This may represent an aspect of survival for some companies, especially in time of crisis, when customers tend to cut unnecessary cost and loyalty may serve as motivation to not stop buying.
Additionally, findings imply that, focalization on the combination of diverse aspects of diversity in the board of the company, may not be sufficient to strengthen the positive relation with customers: other aspects, like the awareness of managers to the various effects of CSR initiatives on customer evaluations, may result more influential.
5.2 Limitations and suggestions for further research
The research presents some limitations which need to be highlighted to the reader. First, even if the study is based on multiple industries, it is focused only on a single country (U.S.). Therefore, results do not allow to prove a complete generalization. This is because, due to the crisis context, which may be perceive differently from one country to another, along with the differences in cultural traits of the society, customer reaction to CSR activities might be significantly different to those of other countries. Consequently, further research should test these findings in other countries to get cross-cultural validation to the results (Barbarossa, Miceli, & de Pelsmacker, 2012).
Furthermore, although the study presents substantial observations, companies selected in the sample are a limited kind of firms, the Fortune 500, which have been chosen to isolate bigger organizations and exclude the smaller ones. Nevertheless, future research could take a more comprehensive look at the companies and get out of the Fortune 500 only, considering a broader range of enterprises. In this way, a greater variance may be captured.
45
robustness test fail to support the CSR-loyalty relationship implying that adequacy of the measurement need to be checked. In addition, even if data retrieved from surveys or interviews is vulnerable to biases, an attitudinal component is part of loyal behavior, thus further studies might measure customer loyalty in an even broader sense, by triangulating data to improving the validity of the results. Nevertheless, although the decision to use an innovative measurement of loyalty in this research, a more solid point of the study lies in the use of a panel data for the analysis. This might be considered a strength, since loyalty is a construct that takes time to be built; therefore, with cross-sectional data, the implications of customers’ loyal attitude on CSR activities wouldn’t have been detected accurately (Chung et al., 2015).
46 6. CONCLUSION
A review of academic literature shows that the identification of a clear and rigorous conceptualization of CSR is still unclear; moreover, similar conclusion is given for a unique and certain measure of customer loyalty, considered today a quite complicate task (Pérez & Del Bosque, 2013).
Nevertheless, the purpose of this study has been to fill the gap in the literature on the relation established between CSR and customer loyalty, by providing a reliable, valid, and efficient measurement of loyalty perception. In so doing, I tried to make a step further in this research, considering loyalty from the firm’s point of view, instead of on customers’ perception. Even if this research venue is quite new and there are still few empirical studies testing such kind of measure, it adds validity to previous similar studies on CSR context and stakeholders’ responses, identifying a probable positive impact of socially responsible activities of firms on customer loyalty. Thus, it is possible to conclude that CSR represents a critical factor of firms’ survival and success in relation to its stakeholders and findings may be helpful for those of firms that are still reluctant in investing in CSR projects, due to the initial cost and commitment.
Moreover, I shed more light in the field of stakeholder theory, concerning the potential role of board diversity as moderator of such relationship. In this case, results have shown unanticipated findings related to the insignificant effect of the interaction. However, they seem to be partially contingent on external or governmental factors, not closely link to the nature of each firm.
47 7. Acknowledgement
48
8. REFERENCES
Accenture & UNGC. 2010. A new era of sustainability: UN Global Compact–Accenture CEO
study 2010. New York: United Nations Global Compact and Accenture.
Aouadi, A., & Marsat, S. (2016). Do ESG controversies matter for firm value? evidence from international data. Journal of Business Ethics, 1-21.
Baghi, I., Rubaltelli, E., & Tedeschi, M. (2009). A strategy to communicate corporate social responsibility: Cause related marketing and its dark side. Corporate Social Responsibility and Environmental Management, 16(1), 15-26.
Bass, B. M., & Steidlmeier, P. (1999). Ethics, character, and authentic transformational leadership behavior. The Leadership Quarterly, 10(2), 181-217.
Baum, C. F. (2006). An introduction to modern econometrics using stata Stata press.
Bear, S., Rahman, N., & Post, C. (2010). The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97(2), 207-221. Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of
Financial Studies, 22(2), 783-827.
Bernardi, R. A., Bean, D. F., & Weippert, K. M. (2002). Signaling gender diversity through annual report pictures: A research note on image management. Accounting, Auditing & Accountability Journal, 15(4), 609-616.
Bernardi, R. A., Bean, D. F., & Weippert, K. M. (2005). Minority membership on boards of directors: The case for requiring pictures of boards in annual reports. Critical Perspectives on Accounting, 16(8), 1019-1033.
Bowen, H. R. (1953). Social responsibilities of the businessman. NewYork: Harper&Row.
