Master Thesis
The Effects of Internationalization on Corporate Social
Responsibility by Emerging Market Multinationals
Author: Michelle Meijer Student number: S3750868 Email: m.meijer.38@student.rug.nl
Supervisor: Dr. Sathyajit Gubbi Co-assesor: Dr. A.A. Erumban
MSc International Business and Management Faculty of Economics and Business
University of Groningen
ABSTRACT
Prior research has shown that emerging market multinationals (EMNEs) struggle with legitimacy issues when internationalizing. However, there is less information present regarding the effect of internationalization on the overall performance regarding corporate social responsibility of an emerging market multinational. I argue that with increasing internationalization, emerging market multinationals face more diverse pressures to act in a socially responsible way. Acting in a socially responsible way results in more legitimacy and overcoming the liabilities of origin. This increases the overall performance of an EMNE. In addition, I suggest that the size of the firm has an impact on the overall corporate social responsibility performance. In order to test the hypotheses, I conducted a regression analysis including 183 firms from 12 different emerging markets. The results of this study show that the internationalization of a firm has a positive impact on the overall corporate social responsibility performance of an EMNE. In addition, the results suggest that the size of an EMNE has a positive influence on the overall corporate social responsibility performance of the firm, and that the institutional quality has no significant effect on the overall performance regarding corporate social responsibility of a firm.
Key words: Emerging markets, emerging market multinational, corporate social responsibility,
CSR, internationalizing
ACKNOWLEDGEMENT
Table of Contents Abstract ... ... 2 Acknowledgement ... 3 List of Tables ... ... 5 List of Figures .... ... 5 Introduction ... ... 6 Literature review ... 10
Corporate Social Responsibility ... 10
CSR in Emerging Markets ... 11
Institutional Quality ... 13
Internationalization of Emerging Markets and CSR ... 14
Theoretical Model ... 16 Methodology ... ... 19 Variables ... ... 19 Dependent variable ... 19 Independent variables ... 20 Control variables ... 21 Empirical Analysis ... 22 Descriptive Statistics ... 23 Results ... ... 26
Results of the Regression ... 26
Robustness Check ... 28
Discussion ... ... 31
Contributions and Implications ... 34
Limitations and Further Research ... 35
Conclusion ... ... 37
References ... ... 38
Appendix A: Sample distribution of country of headquarters, industry, and year ... 44
Appendix B: VIF test ... 45
Appendix C: Hausman Test ... 46
List of Tables
Table 1: Description of variables used ... 17
Table 2: Descriptive Statistics and Correlation matrix ... 19
Table 3: Random Effect regression on CSR performance ... 21
Table D1: Robustness Total Sales proxy ... 47
Table D2: Robustness Industry ... 48
Table D3: Robustness Location ... 49
INTRODUCTION
Emerging market economies (EMs) are growing fast and so are the firms in the emerging markets. Emerging market multinationals (EMNEs) are expected to account for more than 45 percent in the Fortune Global 500 by the year of 2025 (Dobbs, Remes, Smit, Manyika, Woetzel, & Agyenim-Boateng, 2013). By 2018, almost a third of the Fortune Global 500 largest firms (by revenue) worldwide are EMNEs, nearly five-folds increase since 2005 (Casanova & Miroux, 2018). As these emerging market multinationals are growing and internationalizing rapidly, their importance in the global economy is increasing as well.
As multinationals are active in multiple countries, EMNEs have to cope with a larger and more diverse group of stakeholders which increases the pressure to improve its corporate social responsibility (CSR) performance and implement the global CSR standards (Brammer, Pavelin, & Porter, 2006). CSR performance can be defined as “a business organization's configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm's societal relationships” (Wood, 1991). As environmental problems are growing, and so are EMNEs, more in-depth research is required regarding the corporate social responsibility of these EMNEs (Borin & Metcalf, 2010).
appropriate and in line with social norms, values and beliefs (Suchman, 1995), legitimacy is essential for a firm’s existence and future growth (DiMaggio & Powell, 1983; Suchman, 1995).
However, research suggests that weak institutional environments of emerging markets prevent the development of a strong CSR framework and gaining legitimacy on the international market (Coluccia, Fontana, & Solimene, 2018; Jamali & Mirshak, 2007; Nwabuzor, 2005). Furthermore, institutional and economic factors offer little support, nor put pressure on organizations to improve their CSR performance, even though CSR activities have proven to be a sustainable competitive advantage and key success factors (Li, Fetscherin, Alon, Lattemann, & Yeh, 2010). Moreover, as EMNEs often have less incentives to invest in integrated CSR activities and the development of a well-constructed CSR strategy due to the lack of formal and informal pressures (Nwabuzor, 2005), many EMNEs are prone to engage in less integrated CSR activities such as donating to charities. This results in a CSR strategy which is less integrated into the firms’ overall business operations (Jamali & Mirshak, 2007) which results in a lower overall CSR performance. Thus, this study aims to extend the prior research regarding CSR in EMNEs and investigates how internationalization effects the overall CSR performance of an EMNE. This thesis addresses this gap by asking the following question:
Does rapid internationalization of emerging market multinationals affect the overall CSR performance of an emerging market multinational?
Second, I suggest that the size of a firm can have an influence on the CSR performance of a firm (Børing, 2019; Youn, Hua, & Lee, 2015) as the size of a company is a proxy for its visibility (Brammer & Millington, 2006; Brammer & Pavelin, 2004; Branco & Rodrigues, 2008). Because larger firms face more pressure from different stakeholders, these firms also have more pressure to report their business activities (Cowen, Ferreri, & Parker, 1987), and thus also their CSR. Thus, I expect that larger EMNEs, tend to have a better overall CSR performance.
Finally, firms from emerging markets are struggling with a legitimacy gap with the Western World (Fiaschi et al., 2014), and host country stakeholders have a strong influence on the (local) CSR activities of a firm (Rhee, Park and Petersen, 2018), This can result in an enhancement of the subsidiaries’ competitiveness, resolving social issues with the help of building on their local network and innovating the value chain (Rhee et al., 2018). Additionally, improving a firms CSR performance, can increase its legitimacy, credibility and could foster trust (Maignan & Ferrell, 2004; Peloza & Shang, 2011). Therefore, I expect that firms located in countries with higher institutional quality, have a higher CSR performance.
To test the hypotheses, this study is based on a quantitative research method, covering 183 firms from 12 different emerging markets. The data for this research, has been retrieved from the Thomson Reuters Eikon database, the Orbis database, annual reports, and the World Bank. This research finds support regarding the positive effect of internationalization of an emerging market multinational on its CSR performance. In addition, I also find support that the size of an EMNE has positive influence on their overall performance regarding corporate social responsibility.
exposure towards global norms and legitimating actors (Dau. 2013; Hafsi & Farashahi, 2005; Kostova & Zaheer, 1999). This research adds to existing literature by shedding light on the effect internationalization has on an EMNE, as firms from emerging markets differ from firms based in developed markets. In addition, this study adds to existing literature, that not only firm size from developed markets can have an influence on the CSR performance of a firm (Børing, 2019; Youn et al., 2015), but that this is also the case for firms from emerging markets. Finally, this study finds that even though firms from emerging markets are struggling with a legitimacy gap (Fiaschi et al., 2014) and by improving their firms CSR performance, they can increase their legitimacy (Maignan & Ferrell, 2004; Peloza & Shang, 2011), the institutional quality has no significant effect on the CSR performance.
LITERATURE REVIEW
Corporate Social Responsibility
Corporate social responsibility (CSR) has been widely studied and discussed by many academics and scholars. As many studies have been devoted to CSR, a wide range of definitions have been suggested, however, there is not a clear and universal definition (McWilliams, Siegel, & Wright, 2006). Due to the large amount of different definitions of CSR, confusion regarding CSR and its definition might occur. In order to reduce confusion, and increase productive engagement regarding CSR, Dahlsrud (2008) devoted a study towards analyzing 37 definitions of CSR. In. the study of Dahlsrud (2008), CSR can be categorized into five dimensions, namely; the environmental dimension, the social dimension, the economic dimension, the stakeholder dimension, and the voluntariness dimension. Even though there is not a universal definition, in the study of Dahlsrud (2008), there is one definition which covers all five dimensions, and which is used the most frequently, which is the definition of the Commission of the European Communities (2001). The Commission of the European Communities (2001) define CSR as follows: “it as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (Commission of the European Communities, 2001).
(Marimon, Llach, & Bernardo, 2011), the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines (Brown, de Jong, & Levy, 2009; Marimon, Alonso-Almeida, Rodríguez, & Alejandro, 2012), or the United Nations Global Compact (UNGC) (Perez-Batres, Miller, & Pisani, 2011).
CSR in Emerging Markets
Generally, EMs can be characterized by having a low income, rapid industrialization and liberalization of their economy (Hoskisson, Eden, Lau, & Wright, 2000). Furthermore, EMs frequently experience institutional voids, which refers to the absence or the underdevelopment of an effective institutional system (Khanna & Palepu, 1997).
practices is often not monitored or assessed, Jamali and Mirshak (2007) refer to this type of CSR as “amateurish and sketchy”.
In previous research there is suggested that the limitation of freedom, absence of free press and corruption can interfere with developing a strong CSR framework (Baughn, Bodie, & McIntosh, 2007; Nwabuzor, 2005). The access to, and the ability of stakeholders to spread information regarding corporate (ir)responsible behavior is often limited (Nwabuzor, 2005). This leads to a lower public pressure on companies to behave in a socially responsible way, as stakeholders are hindered in the engagement (Baughn et al., 2007).
Institutional Quality
The institutional environment plays a large role regarding the CSR practices of a company. Institutions are “the rules of the game” (North, 1990: 3) in a society, and therefore, are unique in every county due to the different expectations and regulatory and social pressures (Keig, Brouthers, & Marshall, 2019). Because of these different type of pressures, the institutional environment can be divided into formal and informal institutions (DiMaggio & Powell, 1983; Keig et al., 2019; Tolmie, Lehnert, & Zhao, 2020) and play a large role in the socially responsible behavior of firms (Campbell, 2007). Informal institutions refer to the different norms and values of and therefore the cultural aspect of a society, whereas formal institutions are characterized by the rules and regulations of a country (Halkos & Skouloudis, 2016). When focusing on the formal institutions, Gjølberg (2009) found that firms which operate in countries with strong institutional environments, tend to have a higher CSR score. These formal institutional pressures tend to be one of the main drivers of a firm’s CSR performance (Chan & Welford, 2005; Dasgupta, Hettige, & Wheeler 2000; Henriques & Sadorsky, 1996; Sarkar, 2008). The reason for this to be the driver of a firm’s CSR performance, is the threat of legal sanction due to the rules and regulations (Ortiz-de-Mandojana, Aguilera-Caracuel, & Morales-Raya, 2016).
influence an organization: coercive, mimetic, and normative isomorphism. Coercive isomorphism stems from legitimacy and political pressures, mimetic isomorphism implies the mimicking of other firms in order to overcome uncertainty, and normative isomorphism stems from professionalization (DiMaggio & Powell, 1983). Taking these pressures into account can help firms maintaining their legitimacy in both home and host country (DiMaggio & Powell, 1983).
Internationalization of Emerging Markets and CSR
Recently, liberalization and a fast-economic growth has allowed internationalization of large firms in EMs (Fiaschi et al., 2014). Among these EMs, four countries have economically grown especially very quick; Brazil, Russia, India, and China (BRIC countries). Even though these BRIC countries have grown remarkably, these four countries are still struggling with having full legitimacy on the international market. The reason for this, is that the norms and values in their culture differ from the norms and values which are present in the Western World. In order for the BRIC countries to close this legitimacy gap with the Westers World, BRIC countries adjusted towards the Western view of CSR (Fiaschi et al., 2014). As previously mentioned, EM economies are growing fast and so are the firms in the EMs. Emerging market multinationals (EMNEs) were expected to account for more than 45 percent in the Fortune Global 500 by the year of 2025 according to an article published in 2013 by McKinsey Global Institute (Dobbs et al., 2013). However, already in 2018, almost a third of the 500 largest firms (by revenue) worldwide are EMNEs, comparing this to 2005, where 7% of the Fortune Global 500 consisted out of firm coming from EMs (Casanova & Miroux, 2018).
THEORETICAL MODEL
Based on the previously discussed literature, there can be said that most researches regarding CSR and internationalization are done for developed market multinationals. Emerging market multinationals differ from the “regular” multinationals from developed markets. Therefore, the research which has been done on multinationals from developed markets, cannot be directly be applied towards EMNEs. This first need to be researched. This thesis has addressed the gap by asking the following question: Does rapid internationalization of emerging market multinationals affect the overall CSR performance of an emerging market multinational? I expect that internationalization, will have a positive effect on the emerging market multinational CSR activities. These expectations are based on the research of Dau (2013) and Hafsi and Farashahi (2005), where is suggested when firms are expanding towards different foreign markets, emerging market multinationals are being exposed towards international CSR standards and practices. Therefore, I propose:
Hypothesis 1. Greater internationalization leads to more overall CSR performance for EMNEs.
Hypothesis 2. Larger EMNEs, tend to have a better overall CSR performance.
As mentioned before, firms from emerging markets are struggling with a legitimacy gap with the Western World (Fiaschi et al., 2014). This is supported in the research of Rhee et al., (2018), where is found that foreign subsidiaries face local legitimacy issues in host countries. Because of this, host country stakeholders have a strong influence on the (local) CSR activities of a firm. The result of this, is that there can be an enhancement of the subsidiaries’ competitiveness, resolving social issues with the help of building on their local network and innovating the value chain (Rhee et al., 2018). Additionally, improving a firms CSR performance, can increase its legitimacy, credibility and could foster trust (Maignan & Ferrell, 2004; Peloza & Shang, 2011).
Furthermore, scholars found that the country of origin can be important when social judgments are being made of firms in the international business context, which is the basis of the legitimacy issues EMNEs can face on the international market. In the research of Kostova and Zaheer (1999) is mentioned that firms experience challenges in gaining acceptance in foreign countries due to host country stereotyping. Ramachandran and Pant (2010) did research on this issue, and found that for EMNEs, their country of origin can be a source of social bias and disadvantages in a host country. In order to overcome these disadvantages due to the country of origin of an EMNE, Rhee et al. (2018), suggest that firms should continue to increase the engagement with local stakeholders, and pay attention to the CSR activities in the host country. Continuing, Marano et al. (2017) argues that by implementing a well-constructed CSR framework, EMNEs can overcome the institutional voids which are present in their home country, and so reduce the negative stereotyping.
Hypothesis 3. Higher institutional quality leads to a higher overall CSR performance for EMNEs.
METHODOLOGY
The main question in this research is: Does rapid internationalization of emerging market multinationals affect the overall CSR performance of an emerging market multinational? In order to answer this question, the hypotheses need to be tested. This is done with the help of a quantitative research method on a country and firm level. The quantitative data which has been used for this research, has been retrieved from the Thomson Reuters Eikon database, the Orbis database, annual reports, and the World Bank. The sample for this research consists out of all multinational firms located in one of the 26 EM countries according to the MSCI Emerging Market Index (MSCI, 2020). The initial sample consisted out of 754 firms from 25 different countries, as only the firms which had data for all 5 years for the combined ESG score, were considered for this study. First, there was filtered on revenue and operating income as these variables have been retrieved from the same database. This resulted in a sample of 666 firms. Then, the sample was reduced as not for every firm the sales where specified in domestic sales and foreign sales, or the sales were not available in the Orbis database. This resulted in a sample of 183 firms. The additional data needed for these 183 firms, were gathered via the Orbis database, annual reports, and the World Bank. Therefore, after screening firms on the availability of all data needed between 2015 and 2019 for this research, the sample consists out of 183 firms from 12 different countries. As it takes at least one year to observe any effects from the independent and control variables on the dependent variable, the independent and control variables are lagged.
Variables
Score, as this score is discounted for firm impacts from ESG Controversies (Refinitiv, 2020). This score consists out of the environment, social, and government factors of firms, which cover over 400 measures grouped into 10 categories. The environmental factor entails the categories use of resources, emission and innovation. The social factor includes the categories workforce, human rights, community and product responsibility of a firm. And the third factor includes management, shareholders and CSR strategy as categories. The ESG scores in the database are measured at a firm level, and the data is updated every 2 weeks for accurate representation. The ESG scores are a continuous measure between 0 and 100, with 0 being the lowest score and 100 the highest. The ESG scores are based on information which has been derived from publicly reported data (Thomson Reuters Eikon, 2017).
indicators on a scale of -2,5 to 2,5. The scores of a country are combined in an average WGI score per year ranging from 2015-2019.
controlled for State Ownership in which the value “1” stands for a firm which is state owned, and “0” when a firm is not state owned. Lastly, there is controlled for Industry. The type of industry has been derived from Orbis.
TABLE 1
Description of variables used
Variable Measure Value Data source
Overall CSR
performance The firms’ CSR performance Continuous Thomson Reuters Eikon database Internationalization The degree to which
a firm is international regarding sales
Continuous Orbis and Annual Reports
Firm size The natural
logarithm of the total employees
Continuous Orbis and Annual Reports
Institutional Quality The average WGI score of a country
-2,5 to 2,5 World Bank
Organizational Slack The ratio of current assets to current liabilities
Continuous Orbis
Profitability The profit margin of a firm
Continuous Thomson Reuters Eikon database R&D Intensity Ratio of R&D
expenditures to sales
Continuous Orbis
State ownership If a firm is owned by
the state or not 0 or 1 Orbis
Industry Indicator of the industry
Empirical Analysis
In order to test the hypotheses of this research, I made use of a stepwise regression. This stepwise regression is done with the help of the statistical software STATA. As the hypotheses are tested with the use of panel data, the regression analysis needs to be done through either a random or a fixed effect. Which of these two effects needs to be used, can be determined by the Housman test (Park, 2011). With the outcomes, the relationships between variables can be studied, and the results can be interpreted. Furthermore, it tests if the hypotheses can be accepted or not. The regressions with either a fixed or random effect, test for multicollinearity and omit the tested variables which have high correlations (Park, 2011). Moreover, a variation inflation factor (VIF) test, can identify whether multicollinearity appears between variables.
Descriptive Statistics
seven industries are observed in the sample, where the manufacturing industry has a majority of 60.7 percent.
TABLE 2
Descriptive Statistics and Correlation matrix
Variables (ESG) (FSR) (FirmSizea) (Institutional
Quality) (Slack) (Profitability
a) (RDIntensity) (SIC) (Stateownershi
RESULTS
Table 3 presents the results from the regression analysis using the random effect regression and contains a total of 4 models. In order to decide whether I should use a fixed or random effect regression analysis, a Housman test is performed. The result of the Housman test was p = 0.001 (as can be seen in appendix C), this indicated that according to Park (2011), a fixed effect regression fits my panel data set. However, as I am interested in the time invariant variables for the industry and the state ownership, I use random effect regression as per precedence (Clark & Linzer, 2012: 27). Model 1 of my regression includes the dependent variable and includes all the control variables. Then, in model 2 the first independent variable is added to the regression in order to test the first hypothesis. In model 3, the second hypothesis is tested. In model 4, the third hypothesis is tested, and in the last model, all variables are included. As mentioned before, the sample data ranges from 2015 till 2019, and the independent variables together with the control variables Slack, Profitability and R&D intensity are lagged with the use of STATA.
Results of the Regression
Model 2 tests the first hypothesis of this research, which predicts that greater internationalization leads to more overall CSR performance for EMNEs. The level of internationalization was measured by the ratio of domestic sales to foreign sales within the timeframe 2015-2019. Looking at the results in table 3, we find that the foreign sales ratio has a positive and significant effect on CSR (β=6.575, p=<0.1). Thus, the first hypothesis can be confirmed.
Hypothesis 2 is tested in model 3, which suggests that larger firms tend to have a better overall CSR performance. The results show that there is a positive and significant effect (β=1.988, p=<0.05) on CSR by the firm size based on the number of employees. Thus, the second hypothesis can be accepted
Third, in the fourth model, hypothesis 3 is tested, which suggests that higher institutional quality leads to a higher overall CSR performance for EMNEs. The variable institutional quality shows an insignificant effect (β=1.774, p=n.s.), and therefore cannot be confirmed.
TABLE 3
Random Effect regression on CSR performance
Variables (1) (2) (3) (4) (5)
ESG ESG ESG ESG ESG
Independent Variables Internationalizationb 6.575* 6.062 (3.709) (3.79) FirmSizeab 1.988** 2.219*** (.826) (.85) Institutional Qualityb 1.774 2.465 (2.456) (2.547) Control Variables Slackb -.402 -.395 -.143 -.401 -.12 (.702) (.701) (.708) (.703) (.707) Profitabilityab 1.23*** 1.192*** 1.152*** 1.182*** 1.046** (.442) (.441) (.441) (.447) (.446) RDIntensityb -.306 -.283 -.274 -.328 -.281 (.285) (.284) (.284) (.288) (.287) SIC -1.614* -1.286 -1.283 -1.605* -.93 (.945) (.957) (.95) (.956) (.973) Stateownership 3.887 5.431 3.05 4.856 5.724 (5.257) (5.294) (5.242) (5.487) (5.455) Constant 53.485*** 49.568*** 33.951*** 53.064*** 27.503*** (3.583) (4.197) (8.868) (3.656) (9.43) Observations 670 670 670 670 670 Pseudo R2 .z .z .z .z .z
Standard errors are in parentheses *** p<.01, ** p<.05, * p<.1
a Logarithm variable b Lagged variable
Robustness Check
In order to check if the outcome of the regression analysis is robust or is sensitive to the chosen measures, a robustness check is done using alternative measures for some of the variables.
Therefore, with using an alternative proxy for firm size, again support for hypothesis 2 has been found. However, looking at the variable internationalization, it remains significant in the last model with the proxy for firm size, compared to the measure for the firm size in table 3.
Next, we run a regression analysis to test whether the results differ across industries. To do this, the sample has been split into manufacturing and non-manufacturing industries. The first three industries found in Appendix A are included in the manufacturing industries, and the remaining industries for non-manufacturing. As can be seen in Appendix D, table D2, for the non-manufacturing industry, no significant effect can be found towards CSR. For the manufacturing industry, the variables FSR (β=9.547, p=<0.5) and Firm Size (β=2.597, p=<0.05) are positive and significantly related to CSR, whereas the variable for institutional quality remains insignificant. Thus, when analyzing the CSR performance based on different industries, hypothesis 1 and 2 can be supported when looking at the manufacturing industry.
In addition, the sample has been split into Asian and Non-Asian firms to check for the robustness of our results. Looking at the Asian EMNEs, we find support for 2, but not for hypothesis 1 and 3. However, when looking at the non-Asian firms, we no longer find support for all three hypotheses. Thus, significant positive effects regarding Firm Size on CSR, seem to be depending on the EMNEs location.
DISCUSSION
This study has been done as the interest regarding the internationalization strategies of EMNEs has increased (Luo & Tung, 2018) next to the enlarged stakeholders’ expectations regarding the social responsibility of EMNEs (Chapple & Moon 2005; Sanders & Carpenter, 1998). The aim of this study was to extend the research on how internationalization effects the overall CSR performance of an EMNE. This has been done with the help of the three hypotheses: Greater internationalization leads to more overall CSR performance for EMNEs; larger EMNEs, tend to have a better overall CSR performance; and higher institutional quality leads to a higher overall CSR performance for EMNEs.
In prior research has been found that when firms from EMs internationalize, their country of origin can be a source of social bias and disadvantages in a host country (Ramachandran & Pant, 2010). In order to overcome these challenges, Marano et al. (2017) argues that by implementing a well-constructed CSR framework, EMNEs can overcome the institutional voids which are present in their home country, and so reduce the negative stereotyping. However, there is still limited knowledge on how the overall CSR performance of an EMNE is affected by internationalization. Therefore, this research enriches the CSR and IB literature by examining the relationship between internationalization and the EMNEs overall CSR performance.
Improving a firms CSR performance, can increase its legitimacy, credibility and could foster trust (Maignan & Ferrell, 2004; Peloza & Shang, 2011). The findings of this study are in line with the studies of other scholars which focused on MNEs from developed markets rather than EMNEs. Therefore, this study is providing evidence that greater internationalization leads to more overall CSR performance for EMNEs. I suggest that this is because when the levels of internationalization increase, emerging market multinationals are being exposed towards international CSR standards and practices (Dau, 2013; Hafsi & Farashahi, 2005), and therefore, face the pressure to adopt these international standards. However, my results suggest that the relationship between internationalization and the overall CSR performance depends on the industry type. When I split the sample depending on their type of industry, I only find support for this relationship within the non-manufacturing industry. An explanation for this can be that Wallace, Naser and Mora (1994), found that different industries might give different relationships regarding CSR due to the unique characteristics of the industry. In addition, Reverte (2009) found that newer manufacturing industries which have less impact on the environment, are publishing less information regarding CSR. Firms in the manufacturing industry are more likely to have negative social and environmental externalities than firms in the non-manufacturing industry (Handayani, Wahyudi, & Suharnomo, 2017). Because of these negative and social externalities, firms might be compensating this with extra investments and intensively CSR reporting, which can be seen as reactive CSR (Groza, Pronschinske, & Walker, 2011).
al., 1987), and thus also their CSR. As MNE’s from developed markets, differ from MNE’s from emerging markets, it would not be a surprise to find different results. However, my findings are in line with these studies, and therefore are providing evidence that larger EMNEs, tend to have a better overall CSR performance. I suggest that this is because larger firms have more financial resources compared to small and medium firms, and therefore have the ability to conquer the extra costs regarding the development of CSR policies (Jennifer Ho & Taylor, 2007; Lang & Lundholm, 1993). However, my results suggest that the relationship between the firm size and the overall CSR performance is depending on the industry type, which can be explained by the fact that Wallace et al. (1994), found that different industries might give different relationships regarding CSR due to the unique characteristics of the industry. My results are also suggesting that the relationship between the firm size and the overall CSR performance is depending on the location. This as firm size seems to have a positive and significant effect on the overall CSR performance for Asian firms, but not for non-Asian firms. An explanation for this could be that some regions might attract more FDI from already existing MNEs (Chapple & Moon, 2005), and therefore, the CSR standards are already higher in these locations. Another explanation could be that centrally located EMNEs are more embedded in unique institutional environments (Zameer & Saeed, 2020), which could have an influence on the firms located in these environments to include CSR practices.
Contributions and Implications
This paper makes several contributions to the literature regarding emerging markets, emerging market multinationals, and CSR.
Starting, this research contributes towards EMNEs internationalization strategies. This as prior research found that in EMs there are little incentives for companies to start a CSR strategy of improve its current CSR performance (Baughn et al., 2007; Nwabuzor, 2005). However, when expanding abroad, companies from EMs receive pressure from the international market with global CSR standards (Marano et al., 2007). This research adds to this existing literature, that internationalizations has a positive relationship to a firms overall CSR performance. Therefore, the results of this research suggest that the pressures from the international market, not only have a positive impact on the CSR performance in the host country, but also in their home country. This adds evidence to the findings of Marano et al. (2007) and Rhee et al. (2018) As in prior research is suggested that firms experience challenges in gaining acceptance in foreign countries due to host country stereotyping (Fiaschi et al., 2014; Kostova & Zaheer, 1999; Rhee et al., 2018). Which can be overcome by firms paying attention to the CSR activities in the host country. In addition, improving a firms CSR performance, can increase its legitimacy, credibility and could foster trust (Maignan & Ferrell, 2004; Peloza & Shang, 2011).
study of Wallace et al. (1994), who found that different industries might give different relationships regarding CSR due to the unique characteristics of the industry.
Third, this paper does add to literature that even though firms from emerging markets are struggling with a legitimacy gap (Fiaschi et al., 2014) and improving a firms CSR performance can increase its legitimacy (Maignan & Ferrell, 2004; Peloza & Shang, 2011), the institutional quality has no significant effect on the CSR performance.
The findings of this study also provide some implications and recommendations for managers. Starting, in this study it became clear, that increasing levels of internationalization positively influences the overall CSR performance of an EMNE. By understanding what the added value of becoming more embedded into the meta-institutional field as a result of internationalizing (Kostova & Zaheer, 1999), managers can embrace the different CSR standers. By embracing these diverse standards, managers are able to find matching CSR solutions which are applicable for their overall operations. This can result in a more global CSR policy, which reduces the disadvantages regarding the country of origin of an EMNE (Rhee et al., 2018).
Limitations and Further Research
Second, the level of internationalization has been measured with the use of the FS/TS ratio. This ratio does not include the geographical spread of the firms’ foreign sales, and additionally does not include if the sales have been generated via FDI or trade. Because of this, in future research there could be focused on the geographical dispersion of the foreign sales, and how the foreign sales have been generated.
Third, this study captures institutional quality as a whole, and is not specified in formal and informal institutional quality. Specifying formal and informal quality separate in future research, could provide scholars with different outcomes and conclusions.
Next, in this study I only focused on firms from emerging markets, therefore the results of this study can only be applied to firms originating from these markets. For further research, the same research could be done for firms from developed markets, and/or from third world countries in order to compare the results.
CONCLUSION
This research aimed to broaden the information regarding firm from EMs within the CSR topic. The aim was to provide an answer to:
Does rapid internationalization of emerging market multinationals affect the overall CSR performance of an emerging market multinational?
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APPENDIX A
Sample distribution of country of headquarters, industry, and year
Country of Headquarters
Freq. Percentage Cum.
Brazil 11 6.0 6.0 Chile 8 4.4 10.4 China 26 14.2 24.6 Colombia 3 1.6 26.2 Greece 5 2.7 29.0 India 24 13.1 42.1 Indonesia 19 10.4 52.5 Malaysia 3 1.6 54.1 Philippines 4 2.2 56.3 South Africa 25 13.7 69.9 Taiwan 44 24.0 94.0 Thailand 11 6.0 100.0 Total 183 100.00
Industry Freq. Percentage Cum.
Agriculture, Forestry and Fishing 2 1.1 1.1 Mining & Construction 22 12.0 13.1 Manufacturing 111 60.7 73.8 Transportation 22 12.0 85.8 Trade 10 5.5 91.3 Services 7 3.8 95.1 Administration 9 4.9 100.0 Total 183 100.00
Year Freq. Percentage Cum.
APPENDIX C Hausman test
Regression results
ESG Coef. St.Err. t-value p-value [95% Conf Interval] Sig
lag_FSR 6.062 3.79 1.60 .11 -1.366 13.49 lag_FirmSize 2.219 .85 2.61 .009 .552 3.886 *** lag_WGI 2.465 2.547 0.97 .333 -2.527 7.457 lag_Slack -.12 .707 -0.17 .865 -1.505 1.265 lag_Profitability 1.046 .446 2.34 .019 .171 1.92 ** lag_RDIntensity -.281 .287 -0.98 .327 -.844 .281 SIC -.93 .973 -0.96 .339 -2.837 .977 Stateownership 5.724 5.455 1.05 .294 -4.967 16.415 Constant 27.503 9.43 2.92 .004 9.021 45.985 ***
Mean dependent var 48.667 SD dependent var 20.474
Overall r-squared 0.098 Number of obs 670
Chi-square 22.860 Prob > chi2 0.004
R-squared within 0.008 R-squared between 0.103
*** p<.01, ** p<.05, * p<.1 Regression results
ESG Coef. St.Err. t-value p-value [95% Conf Interval] Sig
lag_FSR 7.193 6.416 1.12 .263 -5.413 19.799 lag_FirmSize 1.576 1.327 1.19 .236 -1.032 4.184 lag_WGI 27.06 7.159 3.78 0 12.993 41.127 *** lag_Slack 1.01 .823 1.23 .22 -.608 2.628 lag_Profitability .314 .666 0.47 .637 -.995 1.623 lag_RDIntensity .078 .42 0.19 .852 -.746 .903 o 0 . . . . . o 0 . . . . . Constant 23.298 12.674 1.84 .067 -1.605 48.2 *
Mean dependent var 48.667 SD dependent var 20.474
R-squared 0.038 Number of obs 670
F-test 3.161 Prob > F 0.000
Akaike crit. (AIC) 4369.644 Bayesian crit. (BIC) 4401.194
*** p<.01, ** p<.05, * p<.1 Hausman (1978) specification test
Coef. Chi-square test value 22.21
APPENDIX D Robustness Tests
TABLE D1 Total Sales proxy
Variables (1) (2) (3) (4) (5)
ESG ESG ESG ESG ESG
Independent Variables Internationalizationb 6.575* 6.196* (3.709) (3.736) Total Salesab 3.101*** 3.144*** (.762) (.764) Institutional Qualityb 1.774 1.626 (2.456) (2.441) Control Variables Slackb -.402 -.395 -.041 -.401 -.033 (.702) (.701) (.7) (.703) (.7) Profitabilityab 1.23*** 1.192*** .906** 1.182*** .822* (.442) (.441) (.442) (.447) (.447) RDIntensityb -.306 -.283 -.166 -.328 -.164 (.285) (.284) (.283) (.288) (.285) SIC -1.614* -1.286 -1.009 -1.605* -.683 (.945) (.957) (.933) (.956) (.955) Stateownership 3.887 5.431 1.371 4.856 3.679 (5.257) (5.294) (5.161) (5.487) (5.369) Constant 53.485*** 49.568*** 5.638 53.064*** .901 (3.583) (4.197) (12.276) (3.656) (12.523) Observations 670 670 670 670 670 Pseudo R2 .z .z .z .z .z
Standard errors are in parentheses *** p<.01, ** p<.05, * p<.1 a Logarithm variable
Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
ESG ESG ESG ESG ESG ESG ESG ESG ESG ESG
Non-Manufacturing Manufacturing Independent Variables Internationalizationb 8.079 6.691 9.547** 9.472** (7.154) (7.235) (4.427) (4.531) Firm Sizeab 1.991 1.861 2.597** 3.226*** (1.215) (1.239) (1.118) (1.172) Institutional Qualityb .137 .518 2.48 3.664 (5.084) (5.053) (2.887) (3.023) Control Variables Slackb -2.386* -2.337* -2.399* -2.369* -2.322* .488 .503 .957 .459 1.019 (1.268) (1.268) (1.261) (1.277) (1.271) (.842) (.839) (.862) (.845) (.858) Profitabilityab 1.455* 1.459* 1.249 1.455* 1.262 1.158** 1.083** 1.111** 1.077** .92* (.817) (.814) (.818) (.826) (.828) (.528) (.526) (.525) (.536) (.532) RDIntensityb .406 .651 .397 .406 .601 -.586* -.628* -.502 -.632* -.595* (.504) (.548) (.501) (.506) (.548) (.347) (.345) (.347) (.354) (.35) Stateownershio 11.305 12.612 10.589 11.373 11.967 4.937 6.921 3.593 6.339 7.316 (13.949) (13.856) (13.676) (14.273) (13.99) (5.649) (5.668) (5.649) (5.982) (5.913) Constant 51.834*** 48.867*** 34.732*** 51.784*** 33.253*** 47.101*** 42.693*** 22.139** 46.571*** 10.981 (3.587) (4.446) (11.053) (3.746) (11.366) (2.419) (3.16) (11.016) (2.506) (11.912) Observations 182 182 182 182 182 488 488 488 488 488 Pseudo R2 .z .z .z .z .z .z .z .z .z .z
Standard errors are in parentheses *** p<.01, ** p<.05, * p<.1
TABLE D3 Robustness location
Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
ESG ESG ESG ESG ESG ESG ESG ESG ESG ESG
Non-Asian Asian Independent Variables Internationalizationb 4.768 4.293 7.273 6.53 (6.799) (6.825) (4.442) (4.606) Firm Sizeab 1.732 1.954 2.061** 2.383** (1.636) (1.695) (.945) (.973) Institutional Qualityb 2.003 3.471 2.793 3.353 (5.847) (6.018) (2.791) (2.907) Control Variables Slackb -1.149 -1.145 -.922 -1.147 -.901 -.39 -.382 -.146 -.381 -.118 (1.142) (1.143) (1.164) (1.145) (1.168) (.899) (.898) (.903) (.902) (.901) Profitabilityab 2.618*** 2.545*** 2.459*** 2.549*** 2.256** .765 .75 .718 .698 .625 (.826) (.833) (.838) (.852) (.877) (.516) (.515) (.515) (.523) (.52) RDIntensityb -.142 -.181 -.666 -.04 -.587 -.193 -.154 -.163 -.221 -.158 (3.525) (3.522) (3.546) (3.558) (3.559) (.29) (.29) (.289) (.294) (.294) Stateownershio 5.369 5.581 5.149 6.088 6.548 3.754 5.709 2.946 5.37 6.517 (13.428) (13.418) (13.371) (13.661) (13.562) (6.054) (6.148) (6.057) (6.426) (6.436) Constant 55.235*** 52.296*** 38.209** 54.894*** 32.812* 52.3*** 48.101*** 32.246*** 51.49*** 24.429** (5.261) (6.733) (16.931) (5.374) (18.056) (4.704) (5.346) (10.317) (4.864) (11.024) Observations 196 196 196 196 196 474 474 474 474 474 Pseudo R2 .z .z .z .z .z .z .z .z .z .z
Standard errors are in parentheses
*** p<.01, ** p<.05, * p<.1
