What is the effect of CSR on sales and how is the
effect influenced by Brand Equity and Recession?
MASTER THESIS
MSc Marketing
Intelligence
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What is the effect of CSR on sales and how is the
effect influenced by Brand Equity and Recession?
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ABSTRACT
CSR is more and more needed as a strategy to survive in these turbulent political times to adopt a social responsibility and/or sustainability strategy to boost their visibility and
competitiveness. Even though there are countless of research papers on the effect of CSR on financial or firm performance, the conclusion is that there are mixed effects. Researchers state that the lack of moderation effects may be the cause for these mixed effects. Therefore, this article focusses on the effect of CSR on sales while also looking at the moderating effects of brand equity and recession. The results show support for the main effect of CSR on sales over time per firm, but no support for the two moderating effects. However, in addition to the moderating effect of recession, there has also been tested for the moderating effect of the economic state over time. These additional results show that the economic state of the U.S. has a positive significant moderating effect on the relation of CSR and sales over time per firm.
Keywords: CSR, brand equity, recession, financial performance, fixed-effects, panel data,
time-series analyses
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PREFACE
This piece represents the completion of seven years of studying; a long journey one might say, a culmination. A journey is not without sacrifices or victories. This paper represents the final obstacle but also achievement. To overcome obstacles, one cannot always do it alone. Therefore, I’d like to thank multiple people. This paper could not have been written without the help of my supervisor Abhi Bhattacharya PhD; the many discussions contributed a great deal to my progress of writing and completing this paper. Furthermore, I’d like to thank Harvest Digital for being thoughtful and giving me time and space to work on this paper without too many distracting variables. Next, I’d like to thank Peter van Voornveld for the weekly updates and discussions, creating insights and inspiration to search for new ways to approach a statistical problem. Finally, I’d like to thank my fellow group members and family for supporting me throughout the process of writing.
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Table of contents
1. INTRODUCTION ... 5
2. THEORIES AND HYPOTHESES ... 7
2.1CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE ... 7
2.2BRAND EQUITY AS A MODERATION ON CSR AND FINANCIAL PERFORMANCE ... 10
2.3RECESSION AS A MODERATION EFFECT ON CSR AND FINANCIAL PERFORMANCE ... 13
3. RESEARCH METHODS ... 17
3.1SAMPLE SELECTION AND VARIABLES ... 17
3.1.1 Sample selection ... 17
3.1.2 Independent variables ... 17
3.1.3 Dependent variable... 18
3.1.4 Control variables ... 18
3.2RESEARCH MODEL SPECIFICATION ... 19
4. RESULTS ... 21
4.1DESCRIPTIVE STATISTICS AND MULTICOLLINEARITY ... 21
4.2MODEL ESTIMATIONS AND FIT ... 22
5. DISCUSSION ... 24
5.1THEORETICAL IMPLICATIONS ... 24
5.2MANAGERIAL IMPLICATIONS ... 25
5.3ADDITIONAL FINDINGS ... 25
5.4LIMITATIONS AND FUTURE RESEARCH ... 26
6. REFERENCES ... 27
7. APPENDIX 1 STATISTICS WITH GDP REPRESENTING RECESSION ... 35
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1. Introduction
“In these politically turbulent times, corporate social responsibility (CSR) is growing in importance, putting more pressure on up-and-coming entrepreneurs to adopt a social responsibility and/or sustainability strategy to boost their visibility and competitiveness” (Entrepreneur.com, 2018). Indeed, most progressive firms globally do not view CSR as just their ethical responsibility to society and the environment, but instead as a way to achieve their strategic objectives while at the same time bettering the world (Du et. al., 2011). CSR is a firm’s commitment to maximize long-term economic, societal, and environmental well-being through business practices, policies and resources (Du et. al., 2011). CSR has been shown to result in various benefits such as customer satisfaction, loyalty, customer firm identification, and favorable firm image (Luo and Bhattacharya, 2006). A more controversial association is that of CSR with financial firm performance: does it hurt or benefit firms financially to excel in CSR practices (Luo and Bhattacharya, 2009)? Some CSR related studies have shown evidence that CSR is positively associated with companies’ financial performance (e.g., Reverte et al., 2016; Wang and Sarkis, 2013); however, other studies show mixed or insignificant relationships (e.g., Barnett and Salomon, 2012). Lack of consideration for moderating or mediating influences has been posited as a reason for these studies’ mixed results (Endrikat et al., 2014; Javed et al., 2016; Reverte et al., 2016).
6 Kirpalani, and Simms, 2018). When it comes to the direct effect of brand equity on financial performances, market research generally supports the positive impact of brand equity on financial performances (Baldauf et al., 2003; Kim et al.,2003; Buil et al., 2013). Furthermore, several studies on CSR (Chu & Yang, 2009; Maignan & Ferrell, 2004; Maignan et al., 2005) examine CSR's indirect effect on firm performance through brand equity linkage, suggesting that when a firm does its CSR, that firm greatly strengthens corporate image, thereby
improving firm performance. However, little research is done about the moderated effect of brand equity on CSR and financial performance as the lack of consideration for moderating influences that has been posited as a reason for the previous studies’ mixed results (Endrikat et al., 2014; Javed et al., 2016; Reverte et al., 2016).
According to the National Bureau of Economic Research, a recession occurs when economic activity significantly weakens across the economy, lasting more than a few months; with reductions normally noticeable in real gross domestic product (GDP), industrial
production, employment, real income and wholesale-retail sales (NBER, 2008). During economic contractions, managers are oftentimes pressured by stakeholders to reduce the firm’s marketing spending (Kotler and Caslione, 2009; Srinivasan et al., 2005). While research into previous recessions has shown that firms that continue to invest in marketing have produced better results (e.g. Hunt, 2009; Mattsson, 2009; Srinivasan et al., 2005), little research is done to the specific moderating effect of recession on CSR and financial
performance specifically. Therefore, this article combines the concepts of recession, brand equity and CSR and states a research question that tries to answer the lack of consideration for moderating influences that has been posited as a reason for the previous studies’ mixed results (Endrikat et al., 2014; Javed et al., 2016; Reverte et al., 2016) and states the following
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2. Theories and hypotheses
2.1 Corporate Social Responsibility and Financial Performance
Firms in various markets spend significant amount of money on corporate social
responsibility (CSR) activities (Bhardwaj, P., Chatterjee, P., Demir, K.D., and Turut, O., 2018). From a classic economical point of view this does not make sense. The economic theory states that the only objective of a firm is to maximize long-term returns for
shareholders that have entrusted management with their investment and forbids managers to use shareholder investments to support social practices to improve the world (Friedman, 1970). Stakeholder theory opposes this perspective of CSR and supports the ability of CSR to create firm benefits by aligning with stakeholders to enhance satisfaction and loyalty, produce positive identification with the firm, and deliver a positive firm image (Luo & Bhattacharya, 2006). Specifically, firms are increasingly describing CSR in terms of the interests of a
specific but large and diverse set of stakeholder groups (e.g. consumers, employees, investors, communities, government, environment, etc.) instead of just the shareholders and their efforts are shaped by the strong belief that its efforts in the CSR domain can evoke
company-favoring responses from these stakeholder groups (Balmer et al., 2007).
Hildebrand, Sen and Bhattacharya (2011) take a corporate marketing approach to explain CSR based on research on social identity (Tajfel et al., 1971) and, more specifically, organizational identification (Bergami and Bagozzi, 2000), which suggest that individuals often identify with organizations they belong to, attributing positive aspects of the
8 and develop relationships with not just products but also the organization or people behind the products (McAlexander et al., 2002), they are drawn, like their internal counterparts, to
identify, volitionally, with a select few of such organizations (i.e. the companies) even though they are not formal members. Their identity perspective on CSR suggests that it can elicit favorable reactions from a company’s stakeholders by causing them to identify with it.
Branco and Rodrigues (2006) state that CSR provides benefits, either internal, external or both. Investments in CSR activities may have internal benefits by aiding a company to create new resources and capabilities which refer to the corporate culture. Meanwhile, the external benefits of CSR are related to its effect on corporate reputation, which in turn can be understood as a fundamental intangible resource that can be created or depleted as a
consequence of CSR related activities. As Sen et al. (2006) noted, CSR awareness relates to favorite stakeholder reactions towards the firm, not only from a consumption perspective but from an investment and employment perspective as well. This insight confirms the notions of Du et al. (2011) that, by initiating in CSR activities, firms can not only generate favorable stakeholder attitudes and better support behaviors (e.g. purchase, seeking employment, investing in the company), but also, long-term build corporate image, strengthen stakeholder-company relationships, and enhance stakeholders' advocacy behaviors.
9 organizational tool that creates more effective use of resources, which has a positive impact on corporate financial performance.
All of this evidence leads to the following hypothesis:
H1: Corporate Social Responsibility has a positive effect on companies’ financial
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2.2 Brand Equity as a moderation on CSR and Financial Performance
The resilience of brands in today’s highly competitive and fast-moving environment has underlined the strategic importance of effective branding (Rambocas et al., 2018). The academic world confirms its importance by having marketing researchers done studies to the financial consequences of brand investments on sales revenue, profit margins, and share price (Kim et al., 2003). Baldauf et al. (2003) supported the effect of perceived brand equity on favorable firm and consumer-related outcomes including profitability, sales volume, and value. Likewise, Kim et al. (2003) tested the effect of customer-based brand equity on the financial performance of hotels and concluded that hotels with high customer-based brand equity have higher sales revenue which resulted into better financial results. Roberts and Dowling (2002) found that firms with greater reputation enjoy higher sales growth and higher return on assets (ROA). In confirmation of such studies, Shamsie (2003) found a positive relationship between reputation and firm performance. Finally, Cabral (2012) stated that a firm's performance depends on its reputation and that reputation depends on the firm's efforts and strategies to maintain and improve it.
Research on the relationship between reputation and firm performance showed that good reputation leads to both financial and non-financial advantages (Flatt & Kowalczyk, 2011). For example, Helm (2007) claimed that a company with a good reputation is seen as ‘less risky than companies with equivalent financial performance, but with a less well-established reputation”.
11 these firms already have positive attitudes and high retention rates. This argument suggests that CSR initiatives is a better strategy for smaller and successful companies to build positive attitudes and loyalty. Such a perspective is in line with findings that the effect of CSR on performance is smaller for market leaders (Du et al. 2011). This effect however is depending on the marketing resources of the firm as mentioned above, moreover the study showed that the gain has impact on the trust and number of customers but not on the financial performance of the firm.
The dynamic capabilities perspective states that firms need complementary
capabilities to create value from resources (Morgan, Slotegraaf, and Vorhies 2009). Given marketing’s focal role in the relationship between stakeholders and the firm (Kumar et al. 2011), marketing capability is likely to be a key factor in explaining governing shareholder wealth from CSR. Moreover, marketing capability embodies firms’ ability to better manage communications because this translates into effective use of marketing resources in creating important outputs (Wiles, Morgan, and Rego 2012). Superior communication may raise the chances of spreading greater awareness about CSR efforts among consumers and other stakeholders (McWilliams and Siegel 2000), therefore creating opportunities since research has argued that stakeholders often remain unaware of CSR initiatives, which lowers the chances of CSR to create stakeholder-based resources (Servaes and Tamayo 2013). A better Brand equity may therefore trigger a greater effect of CSR on firm performance when compared to firms with a worse brand equity because of the greater communication reach of their brand.
When it comes to brand equity and CSR involvement, Reverte (2009) finds that larger firms and firms with greater media exposure are associated with higher levels of CSR
12 suggests that less profitable and low-growth firms have fewer resources to spare for CSR activities than the more profitable and high-growth firms do. Finally, Clarkson et al. (2011) show that better financial resources lead to better environmental performance, which contributes to subsequent financial performance.
Therefore, we state the following hypothesis:
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2.3 Recession as a moderation effect on CSR and Financial Performance
Recessions makes consumer confidence drop which in turn causes a decline in customer spending (Ang, 2001) which plays a great role in causing and fueling recessions, as it starts a vicious cycle (Perry & Schultze, 1993). Consequences of consumers not buying are stacking inventories, production being cut, and employees being fired which in turn stimulates an economic decline (Dhalla, 1980).
14 sales and market share, decreased profits and slower growth during post-recession recovery (O’Malley, Story, and O’Sullivan, 2011).
Whether cutting marketing spending is the right thing to do during recession, is often debated in academic papers. Srinivasan, Lilien, and Sridhar (2011) show that advertising initiatives do not always lead to increasing profits and stock returns during recessions. Similarly, Van Heerde et al. (2013) and Steenkamp and Fang (2011) find mixed effects of advertisement on sales in the United Kingdom and the United States during recession. Nevertheless, firms are advised to invest in marketing assets in economically prosperous periods while shareholder returns to marketing assets are greater during an economic downturn when consumer confidence is low (Edeling and Fischer, 2016). Day (1994) underlines the importance of marketing by arguing that it maintains a pivotal connection between the internal processes of a firm and the customer. This connection between firm and customer is even more important during recessions, as consumer mentality, behavior and habits are subject to dramatic changes (O’Malley et al., 2011). To account for the fluctuations in consumer behavior, firms need to adopt strategies which fit these changing needs and preferences (Le & Nhu, 2009). An expression of a consumer’s changing mentality due to recession is the growing insecurity of employment which makes them more price conscious and reduce their spending (Ang, 2001). Another expression is the change in brand preferences due to consumers becoming less loyal (Ang et al., 2000), resulting in chaos in the
marketplace. This creates chances for marketers to adapt to the consumer’s need for reliability and security by creating trusted brands (Wong, 2009).
15 (Price and Sun, 2017). This in turn creates a competitive advantage through their goods and services (Thomé, 2009). Furthermore, the financial crisis can be a good indicator of socially responsible business activity. It highlights the difference between superficial companies which initiate in CSR practices but cut the CSR resources during recession and the firms which responsibly connected CSR to their core business (Yelkikalan and Köse, 2012). Wilson (2008) underlines the need for CSR during recession from a social point of view and suggests that firms should stick to their CSR practices during recession to provide the needs of society. These transparent CSR projects could provide the social support for society to overcome the down turn.
To summarize: considering that the habits, behavior and mentality are subject to dramatic changes due to recession, firms which stick to CSR practices differentiate
themselves from other companies which cut in CSR budget and create a transparent, secure image. This in turn may attract consumers since they become less loyal and long for more security during those insecure times. Moreover, CSR enhances builds corporate image and strengthens stakeholder-company relations.
This results into the following hypothesis:
H3 Moderation effect: Negative GDP increases the positive effect of CSR on a companies’
financial performance.
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3. Research methods
3.1 Sample selection and variables
3.1.1 Sample selection
The sample is a mix of data from the KLD, BAV and WRDS database. The WRDS database has been used to draw the financial instruments from (e.g. Firm size, advertising expenditures) while the KLD database is used for its social instruments (e.g. CSR and CSI ratings) and the BAV database has been used to extract the brand ratings such as brand equity. GDP has been acquired from the Federal Reserve Economic Database (FRED). The dataset contains data of 102 U.S. companies, focusing on a nine-year data period from 2007 – 2015, therefore being a panel dataset. Within this period, there is access to the CSR ratings from each company but also their accounting and branding information with an observable period of recession which started December 2007 and ended June 2009 (National Bureau of
Economic Research, 2010), creating a total of 792 observations.
3.1.2 Independent variables
18 Brand Equity has been measured with the Brand Asset Valuator (BAV). The BAV is an intuitively appealing, dynamic, marketing-based consumer evaluation technique developed by Young & Rubicam Inc. for measuring brand equity (Pahud de Mortanges and van Riel, 2003). The model dynamically conceptualizes brand equity as driven by two components: customer perceived brand Stature and customer perceived brand Strength. Antecedents of these two components are: the level of Differentiation of the brand, Relevance of this
differentiation to the consumer, the resulting Esteem, residing in the mind of the consumer as Knowledge (Pahud de Mortanges and van Riel, 2003). The two variables have been summed and divided by two to get the average “brand asset strength”, representing the variable “brand equity”.
Recession has been measured by using the annual growth of the U.S. GDP during 2007 – 2015. To create a clear distinction between the recession period versus the other years, a dummy variable has been made with the years 2008 and 2009 being labeled as the recession period (NBER, 2010) in addition to the years being the only years having negative GDP ratings.
3.1.3 Dependent variable
Sales has been chosen as the variable which represents financial performance. One of the potential benefits of CSR is that as sales increases, revenue increases as well and therefore the financial performance (Barnett and Salomon, 2006).
3.1.4 Control variables
19 variable has the value range between 5 and 15 while total assets shows values between 167.049 and 2692538. The firm size variable therefore loses information when compared to the total assets.
Corporate Social Irresponsibility (CSI) at t-1 is also controlled for. Kotchen and Moon (2012) state that firms engage in CSR as form of penance to compensate for their past CSI. More specifically, they argue that CSR is a type of Coasian solution that allows firms to efficiently reduce externalized costs (i.e., costs that the firm has caused through CSI but that it does not pay back in full). In essence, CSR allows the firm to make amends for the unpaid bill (Kang et al., 2016). In this data sample, CSI is controlled for at t-1: 1 period before CSR activities. CSI has a value range between 0 and 22 and represents the CSI activities of a firm over time.
Advertising expenditures is controlled for since it is known to positively affect sales and brand equity and on the other hand affect the firm’s CSR strategy (Kang et al., 2016). Advertising in this data sample represents the firms advertising expenditures and not the intensity, therefore being more dynamic.
Finally, there is also controlled for financial risk in the form of long term debt-to-total assets ratio because previous studies (e.g., Opler and Titman, 1994) suggest that a higher leverage ratio might indicate higher financial risk, and thus, worse financial performance.
3.2 Research model specification
This article adopts the approach of Baron and Kenny (1986) to examine the
20 and recession. The final step looks at the interaction or product of the predictor and
moderator. The moderator hypothesis is supported if the interaction is significant. Following these steps, the research models are specified as follows.
Step 1: the direct effect of CSR on sales (including the control variables) Model 1: Salesi,t
= αi + β1CSRi,t + β2BEi,t + β3GDPi,t + β7ADVERTISINGi,t
+ β8FIRMSIZE,t + β9CSI i,t-1 + β10DEBT-TO-ASSETSi,t + εit
Step 2: the impact of CSR on sales with the moderating effect of brand equity on the relations of CSR and sales (including control variables).
Model 2: Salesi,t
= αi + β1CSRi,t + β2BEi,t + β3GDPi,t + β4CSR*BEi,t + β7ADVERTISINGi,t
+ β8FIRMSIZE,t + β9CSI i,t-1 + β10DEBT-TO-ASSETSi,t + εit
Step 3: the impact of CSR on sales with the moderating effect of GDP (recession) on the relations of CSR and sales (including control variables).
Model 3: Salesi,t
= αi + β1CSRi,t + β2BEi,t + β3GDPi,t + β5CSR*GDPi,t + β7ADVERTISINGi,t
+ β8FIRMSIZE,t + β9CSI i,t-1 + β10DEBT-TO-ASSETSi,t + εit
Step 4: the impact of CSR on sales with the moderating effects of brand equity and GDP (recession) on the relations of CSR and sales (including control variables).
Model 4: Salesi,t
= αi + β1CSRi,t + β2BEi,t + β3GDPi,t + β4CSR*BEi,t + β5CSR*GDPi,t + β6BE*GDPi,t
+ β7ADVERTISINGi,t + β8FIRMSIZE,t + β9CSI i,t-1 + β10DEBT-TO-ASSETSi,t + εit
The R2 is used to see how much variance is explained per model and the X2 Wald statistic is
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4. Results
4.1 Descriptive statistics and multicollinearity
Table 1 presents the descriptive statistics for the key variables including the mean, standard deviation (SD), Standard Error (SE), minimum value, and maximum value. Interestingly, it shows that the standard deviations for sales, advertising, and firm size are bigger than their mean resulting in huge gaps between their minimum value and maximum value which indicate that there are big differences in the type of firms: a couple of huge, financially successful firms and little firms. CSR and CSI are ordinal variables with a minimum of 0 and a maximum of 22 and 18 respectively therefore having a low mean and standard deviation.
Table 3 shows the Pearson correlation matrix. Generally, most of the variables have a weak relation with the other variables. Advertising has a moderate linear relation with sales, CSR and brand equity which is understandable: advertising expenditures is controlled for since it is known to positively affect sales and brand equity and on the other hand affect the firm’s CSR strategy (Kang et al., 2016). Interestingly, lagged CSI has a moderately strong effect on sales, this might be explained by Kang et al. (2016) who found that firms benefit financially from CSR because it leads to positive financial performance; moreover, they found that CSR frequently trails CSI temporally—that is, that firms seem to use CSR
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4.2 Model estimations and fit
Table 4 (see appendix 1) shows 4 models which are all nested and fixed effects
models. The 4 models represent the 4 steps explained in the methodology section. All models have been tested with the Breusch-Godfrey test and showed no serial correlation
(Wooldridge, 2013). Furthermore, all models did show heteroscedasticity as a result of the Breusch-Pagan test (Breusch and Pagan, 1979). Therefore, an Arellano fix has been applied to get heteroscedasticity consistent-errors (Vogelsang, 2012). Also, the continuous variables used in the interaction terms are mean-centered before they are included in the analysis to mitigate multicollinearity problems as well as to facilitate the interpretation of the main effects (Chen et al., 2012).
The R2 in table 4 (see appendix 1) represents the model fit of each model and the Wald
X2 statistic is used to compare the nested models on the goodness of the fit with model 1 as
the reference model. Even though model 4 does not have a significantly better fit than model 1, it does have the highest R2 of all the models (R2 = 0.19152) which shows that it explains
the most variance of the dataset out of all the models. All estimates show consistent values across all models, therefore showing robustness. The reason for model 4, 3 and 2 not having a significantly better model fit compared to model 1 is because of the difference in the number of parameters. Model 2 and 3 have 1 additional parameter compared to the reference model and model 4 has 2 additional parameters, therefore losing degrees of freedom. Model 4 is used to interpret the estimation effects because it includes all variables needed for testing the hypotheses and has the highest explained variance in sales.
23 moderated effect of GDP on the relation between CSR and sales, therefore not supporting H3 which stated that lower GDP increases the significant positive effect of CSR on sales (brand equity moderation: β = -37.78, p = 0.29 and recession moderation: β = -92.81, p = 0.52).
In addition to the predicted effects, the results show that firm size (β = 0.07, p < 0.001), advertising expenditures (β = 4.28, p < 0.001), and lagged CSI practices (β =
-1096.40, p < 0.05) as time-varying and industry-specific controls have a significant positive
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5. Discussion
5.1 Theoretical implications
The main objective of this research was to understand the relationship between CSR and sales and the moderating effects of brand equity and GDP on the relation between CSR and sales, therefore creating new insights because previous research has shown that the relation of CSR on financial performance has mixed results (e.g., Barnett and Salomon, 2012). However, the Stakeholder theory (Friedmann, 1970) shows clear pathways which show that CSR creates benefits for the firm by increasing consumer satisfaction and loyalty, producing positive identification with the firm, and producing a favorable firm image (Luo & Bhattacharya, 2006). The analysis supports this theory and these previous outcomes and helps to provide contributions to the industry by including moderating effects, therefore accounting for the claim that the lack of moderations is a cause of mixed findings on the effect of CSR and financial performance (Endrikat et al., 2014; Javed et al., 2016; Reverte et al., 2016). The results show that the sales increase by $718.46 Million over time, on average per firm, when CSR increases by one unit.
There can be no statements made regarding the moderating effect of recession on the relation between CSR and sales since the effect is not significant. This might be due to the dropping confidence of a consumer which causes a decline in customer spending (Ang, 2001)
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5.2 Managerial implications
Managers should invest in CSR practices as the results show that it increases sales significantly over time, on average per firm. Since brand equity has no significant moderating effect on the relation of CSR on sales there is no real advice to be drawn. The direction of the moderating effect of brand equity is negative but since the p-value is way too high, there is no implication to be made. Therefore, there is no advice for managers of either small or big companies to engage in CSR activities as there is no clear evidence that either small companies can relatively gain much from it compared to big brand companies or that
companies with a big brand use it to maintain and reach even more markets. The same can be said for the moderating effect of recession on the relation of CSR on sales: there is no support for the moderating effect, therefore no advice.
5.3 Additional findings
Initially this paper looked at the moderating effect of recession on the relation of CSR on sales. Since this resulted in no significant effect, there is also been tested for a moderating effect of the economical state of the U.S. as a moderating effect on the relation of CSR and sales. This has been done by using the U.S. GDP as a continuous variable in contrast to the dummies that were used to differentiate the GDP of 2008 and 2009 which were labeled as recession years while the other years were not.
These new findings (table 8, appendix 2) show a positive significant moderating effect of GDP on the relation of CSR and sales (β = 0.27, p < 0.05). The units of GDP are in
Billions, this effect is expressed in thousands, meaning that a 1 unit increase of GDP results into an increase of the main effect by $270 over time per firm. This cause of this finding might be due to customer demand declining in economic uncertainty, causing a decline in
26 into under-consumption (i.e. a reduction in consumption) which plays a significant role in causing and fueling recessions, as it initiates a vicious cycle (Perry & Schultze, 1993).
5.4 Limitations and future research
The dataset measures CSR on an ordinal scale with a range between 0 and 22 which does not differentiate between different types of CSR. It might be that certain types of CSR have more effect on sales than others. Furthermore, regarding the effect of brand equity on the relation of CSR and sales; Cabral (2012) claimed that a firm's performance depends on its reputation and that reputation depends stochastically on the firm's efforts and strategies to maintain and improve it. This might be the reason why the results showed no significant effect and might have create new insights on the role of brand equity on the relation of CSR and sales.
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35
7. Appendix 1 Statistics with GDP representing Recession
TABLE 1
Descriptives (Observations = 792)
VARIABLE Mean SD SE Min Max
Sales 41077.80 67805.48 2409.36 219.61 483521.00
Brand Equity 3.28 2.44 0.09 0.36 13.17
CSR 6.12 5.22 0.22 0.00 22.00
RecessionDUMMY 0.21 0.41 0.01 0.00 1.00
Advertising 1031.91 1330.65 47.28 1.60 9729.00
Firmsize (total assets) 135197.8 5 400475.9 3 14230.29 167.05 2692538.0 0 CSI(t-1) 3.50 3.37 0.14 0.00 18.00 Debt-to-assets ratio 0.30 0.20 0.01 0.00 0.89 TABLE 2 Correlation matrix VARIABLE 1 2 3 4 5 6 7 8 1. Sales 1.000 2. Brand Equity .24 1.000 3. CSR .36 .45 1.000 4. RecessionDUMMY -.02 .07 -.11 1.000 5.Advertising .42 .40 .49 -.02 1.000
6. Firmsize (total assets) .30 -.14 .25 -.04 .15 1.000
7.CSI(t-1) .67 .31 .45 .15 .37 .27 1.000
36 TABLE 3 VIF-scores VARIABLE VIF Brand Equity 1.51 CSR 1.76 Recession 1.08 Advertising 1.42
Firmsize (total assets) 1.25
CSI(t-1) 1.48
Debt-to-assets ratio 1.04
TABLE 4
CSR, Brand Equity, recession, and Sales: HC-residuals
Fixed Model 1 Fixed Model 2 Fixed Model 3 Fixed Model 4 Sales Sales Sales Sales
CSR 596.19 ** 626.53 ** 606.43 ** 634.92 ** Brand Equity -1529.80 -1439.60 -1482.50 -1395.30 CSR x BE -38.59 -37.78 CSR x GDP -95.15 -92.81 Advertising 6.42 *** 6.49 *** 6.31 *** 6.37 *** Firmsize 0.09 *** 0.09 *** 0.09 *** 0.09 *** CSI(t-1) -1096.50 * -1089.60 * -1103.20 * -1096.40 * Debt-to-assets ratio -2143.60 -2213.70 -2498.00 -2557.90 X2 (Wald) 0.2666 0.2288 0.4831 R2 0.19046 0.19104 0.19096 0.19152
Note: *** - significant at p < 0.001; ** - significant at p < 0.01; * - significant at p < 0.05; . - significant at p < 0.10.
37
8. Appendix 2 Statistics with GDP representing the general state of economy
TABLE 5
Descriptives (Observations = 792)
VARIABLE Mean SD SE Min Max
Sales 41077.80 67805.48 2409.36 219.61 483521.00
Brand Equity 3.28 2.44 0.09 0.36 13.17
CSR 6.12 5.22 0.22 0.00 22.00
GDP 15838.14 1230.38 43.72 14418.73 18120.70
Advertising 1031.91 1330.65 47.28 1.60 9729.00
Firmsize (total assets) 135197.8
5 400475.93 14230.29 167.05 2692538.00 CSI(t-1) 3.50 3.37 0.14 0.00 18.00 Debt-to-assets ratio 0.30 0.20 0.01 0.00 0.89 TABLE 6 Correlation matrix VARIABLE 1 2 3 4 5 6 7 8 1. Sales 1.000 2. Brand Equity .24 1.000 3. GDP .36 .45 1.000 4. Recession .01 -.05 .03 1.000 5.Advertising .42 .40 .49 .02 1.000
6. Firmsize (total assets) .30 -.14 .25 .06 .15 1.000
7.CSI(t-1) .67 .31 .45 -.30 .37 .27 1.000
38 TABLE 7 VIF-scores VARIABLE VIF Brand Equity 1.48 CSR 1.69 GDP 1.11 Advertising 1.44
Firmsize (total assets) 1.27
Amount Years CSR 1.55
CSI(t-1) 1.57
Debt-to-assets ratio 1.04
TABLE 8
CSR, Brand Equity, GDP, and Sales: HC-residuals
Fixed Model 1 Fixed Model 2 Fixed Model 3 Fixed Model 4 Sales Sales Sales Sales
CSR 554.32 * 595.47 ** 678.63 ** 718.46 ** Brand Equity -975.33 -830.39 -704.91 -642.61 GDP 1.64 ** 1.68 ** 2.03 *** 2.06 *** CSR x BE -55.65 -47.57 CSR x GDP 0.27 ** 0.27 * BE x GDP -0.03 Advertising 5.34 ** 5.41 ** 4.19 . 4.28 * Firmsize 0.08 ** 0.08 ** 0.07 ** 0.07 ** CSI(t-1) -778.81 -760.39 -682.33 -666.83 Debt-to-assets ratio -481.76 -538.20 -2438.70 -2416.20 X2 (Wald) 0.55 4.97 * 5.38 R2 0.20395 0.20515 0.21452 0.2155
Note: *** - significant at p < 0.001; ** - significant at p < 0.01; * - significant at p < 0.05; . - significant at p < 0.10.
