RESEARCH ON THE INFLUENCE OF DIFFERENT LEVELS OF CORPORATE SOCIAL RESPONSIBILITY ON THE BRAND EQUITY

RESEARCH ON THE INFLUENCE OF DIFFERENT LEVELS OF

CORPORATE SOCIAL RESPONSIBILITY ON THE BRAND

EQUITY

MSc International Business and Management 2017/2018 University of Groningen, Faculty of Economics and Business

ABSTRACT

By actively assuming social responsibility, can enterprises achieve huge economic and social benefits. Strengthening the construction of brand equity can effectively improve the market competitiveness of enterprises. Up to now there are still many blind spots in the research on the relationship between corporate social responsibility (CSR) and brand equity. Some scholars have conducted in-depth research on the relationship between CSR and brand equity. However, most of them regarded CSR as a single variable. Based on the research results of relevant scholars, this thesis divides corporate social responsibility into three specific pillars: environmental, social and governance, and studies the impact of these three dimensions on brand equity respectively. In addition, this thesis also investigates the moderating effect of firm size on the relationship between CSR and brand equity.

This thesis conducts an Ordinary Least Squares (OLS) multi-regression analysis based on ESG ASSET4 database and selects 1,121 companies as sample of data. The results show the positive impact of Environmental CSR and Social CSR on the company’s brand equity. Similarly, in the robustness check, the outcomes are same which means the results are robust. However, there is negative relation between the G CSR and brand equity. In response, other moderating variables like industry type would be recommended to be added. These findings have certain implications for the future theoretical and practical research.

Table of Contents

ABSTRACT

1. INTRODUCTION ... 5

2. LITERATURE REVIEW ... 10

2.3 CSR and Brand Equity ... 19

2.4 The Moderating Role of Firm Size ... 24

2.5 The Conceptual Model ... 27

3. METHODOLOGY ... 29

3.1 Data Source and Sample ... 29

3.2 Measurement of Variables ... 30

3.2.1 Independent variable ... 30

3.2.2 Dependent variable ... 32

3.2.3 Moderating variable ... 33

3.2.4 Control variables ... 34

3.3 Empirical Approach and Preliminary Analysis ... 35

4. RESULTS ... 37

4.1 Descriptive Statistics ... 37

4.2 Baseline Results ... 38

4.3 Robustness Test ... 40

5. DISCUSSION ... 42

5.1 Theoretical Implications and Recommendations ... 43

5.2 Managerial Implications ... 45

5.3 Limitations and Suggestions for Future Research ... 47

5.3.1 Limitations ... 47

5.3.2 Suggestions for future research ... 48

6. CONCLUSION ... 50

7. ACKNOWLEDGEMENT ... 52

8. REFERENCES ... 53

List of Tables

Table 1 The Connotation of Brand Equity

Table 2 The Correlation Matrix

Table 3 VIF Test for Multicollinearity

Table 4 Descriptive Statistic

Table 5 OLS Regression Results

Table 6 Robustness Test

List of Figures

Figure 1 Carroll’s CSR Pyramid

1. INTRODUCTION

When enterprises enjoy their social rights, they are expected, at the same time, to fulfill their obligations to the community. At the end of the 20th century, corporate social responsibility (CSR) was accepted by more groups as a social activity. It has been rapidly expanded to the global scope and obtained great attention from the public. According to many scholars, it is an important part of CSR to deepen the understanding of environmental protection, pollution control, charity activities, care for vulnerable groups, equal treatment of employees, better service consumers and prohibiting the employment of child labor (Frederick, 1960; Knootz, 1993; Kotler, 2002; Walton, 1967). In recent years, the competition in the market has been increasingly fiercer. Enterprises are confronted with the pressure of increasing homogeneity of products (Hitt, Hoskisson, & Kim, 1997) and falling profits. Meanwhile, consumers are no longer satisfied with the product itself with the improvement of living standards. Demands for utility, environmental protection, social welfare and so forth are increasingly higher (Luo & Bhattacharya, 2006; Mohr & Webb, 2005). Therefore, fulfillment of CSR is no longer a cost constraint, but the source of opportunity and competitiveness. Below are two examples on how CSR affect an enterprise.

of act undoubtedly attracted the public’s attention, unsurprisingly, laying a solid foundation for the sales growth of other goods indirectly.

Here’s the other example of the opposite effect. On July 11, 2013, including four executives of GSK (China) Investment Co., Ltd. (hereinafter referred to as GSK China), more than 20 pharmaceutical companies and travel agents were investigated by the Chinese Ministry of Public Security in accordance with the law on suspicion of serious economic crimes such as commercial bribery (BBC, 2013). In order to open pharmaceutical sales channels and increase drug prices, GSK China bribed government officials, pharmaceutical industry associations, foundations, hospitals and doctors. GSK China was sentenced to a fine of 3 billion yuan (nearly 500 million US dollars) for the alleged involvement of GSK Chinese executives in criminal cases and the bribery of non-state workers (Jourdan & Hirschler, 2014). Four months after the alleged bribery incident in China, GSK for the first time publicly acknowledged the direct loss caused by the incident. Its 2013 Third Quarterly Bulletin showed the company’s net profit dropped 12% Year to Year. Among them, the sales of its two core businesses, namely prescription drugs and vaccines, plunged 61% (GSK Annual Report, 2013).

that they can effectively enhance the competitive capability to resist market risks and remain undefeated (Rangaswamy, Burke, & Oliva, 1993). With the further development of the market economy, the brand, especially a well-known one, has become the key to a corporate success. Enterprises with a higher value of brand assets can not only develop more stably and longer (Barwise, 1993), but also enjoy the brand premium to bring huge profits (Kapferer, 2012; McWilliams & Siegel, 2000).

In recent years, enterprises have been paying more and more attention to CSR. However, many companies do not understand the business benefits of CSR fundamentally (Tran, 2015), and do not comprehend how does CSR create value for brand equity (Hur, Kim, & Woo, 2014; Torres, Bijmolt, Tribó, & Verhoef, 2012). If enterprises can grasp the significance of and shoulder the responsibility of CSR, they will undoubtedly maintain their place in fierce market competition (Burke & Logsdon, 1996) and prolong the life cycle of enterprises (Sprinkle & Maines, 2010). Therefore, to attach great importance to the influence of CSR on the brand equity will be undoubtedly help enterprises safeguard and create more economic interests.

1. To explore the impact of firm size on the relationship between CSR and brand equity.

2. To further enrich the CSR and brand equity related research.

3. To provide some practical suggestions for the enterprises so as to establish strong brand equity and enhance competitive advantages through fulfilling the CSR.

In order to satisfy these existing aims above, the research question of this thesis is: what are the effects of environmental, social and governance CSR on brand equity?

And how are these relationships moderated by firm size?

responsibilities forwardly and properly, they will shape the corporate image, improve brand reputation, and further enhance the value of brand equity.

This thesis is developed as follows. First of all, relevant literature on CSR and brand equity as well as the relationship between them will be reviewed. Second, the role of firm size will be analyzed as a moderating variable in the conceptual model and the relevant hypotheses will be raised. Third, the methodology will be outlined and the results will be discussed. Lastly, theoretical and managerial implications, limitations and recommendations for future research will be listed.

2. LITERATURE REVIEW

As the theoretical foundation of this thesis, the definition and effects of CSR (independent variable) and brand equity (dependent variable) are introduced at the beginning in this chapter. Then, the relationship between CSR and brand equity is discussed and three main hypotheses about the effects of different levels of CSR on brand equity are put forward respectively. Moreover, the firm size, as a moderating variable, is described. At the end of this section, the conceptual model is presented.

2.1 Definition of CSR

CSR is a concept with rich connotation and broad extension. Enterprises are profit-oriented organizations and their primary economic goal is to earn profits. But in order to maintain enterprises own sustainable development, environmental and social responsibilities should be taken into consideration. This thesis defines CSR as “not only safeguard the interests of stakeholders but also incorporate environmental and social issues into the daily activities” (European Commission, 2002).

2.1.1 Overview of CSR research

of scholars focused on expanding the meaning of CSR. Until the 1980s, some scholars combined the CSR with other fields and its concept gradually developed into a research hotspot with diversity, involving many research fields and multidisciplinary studies.

Specifically, Sheldon (1924) argued that an enterprise should not be limited to maximize profits for its shareholders; it should also provide the community with economic services as much as possible. Sheldon also advocated including moral factors into the scope of CSR. Sheldon was the earliest scholar to discuss what CSR is although his remarks did not arouse widespread concern in the academia at that time.

In 1953, Bowen firstly put forward the concept of Businessman Social Responsibility. He believed that in formulating the relevant policies and regulations of the enterprise, the businessman should give full consideration to social goals and social values and conduct commercial activities accordingly. Since then, CSR has been receiving increasing attention from academic circles and the research scope has also become more extensive.

In the 1970s, as more and more scholars agreed with CSR, the research on CSR in academia became more in-depth. Scholars shifted their studies on CSR from the businessman level to the enterprise level. Johnson (1971) supposed that the business objective pursued by the enterprise is not merely the maximization of profit, but the interests of the region and society as a whole. Meanwhile, companies that achieve their own profit goals will perform better in fulfilling their social responsibilities. Carroll (1979) expounded the connotation of CSR from the firm level, including economic responsibility, legal responsibility, ethical responsibility and philanthropic responsibility.

or just a philanthropic act, but a source of opportunity, innovation and competitive advantage.

In addition to these scholars, with the deepening of research on CSR and the expansion of social influence, more and more government or non-governmental organizations have started researching CSR. Among them, influential ones include Social Accountability International (SAI), World Economic Forum (WEF) and International Organization of Employers (IOE). For example, SAI developed a

certification standard for CSR - Social Accountability 8000 International Standard (SA8000) in 1997. This is the first international standard of ethics in the world. Moreover, at the 1999’s WEF in Davos, the United Nations Secretary proposed all countries to sign a global agreement in order to urge global enterprises to better fulfill their social responsibilities.

Certainly, the theory development of CSR underwent some puissant counterattacks during the early days. Among them were Hayek (1969) and Friedman (1970), two laureates of Nobel Prize in economics, believed that to earn and maximize long-term profits for shareholders is the duty of enterprise. On the contrary, donating charities, protecting the natural environment, promoting social welfare, etc. are the social burden for enterprise, which will hinder the survival and endanger the development of enterprises.

Carroll (1991) proposed the “pyramid conceptual model of CSR”, including economic, legal, ethical and philanthropic responsibility. Carroll argued that economic responsibility is the most basic responsibility of the enterprise. Followed by the legal responsibility of enterprises, which means enterprises should obey the law and law is society’s codification of right and wrong. Ethical responsibility, however, lies in the third layer of the pyramid, which includes moral standards and norms, as well as responsibilities for the shareholders, employees, consumers and community. The top of the pyramid is philanthropic responsibility, including taking action or developing projects to promote the development of human welfare and be good corporate citizen. I will discuss the effects of CSR based on the Carroll’s CSR pyramid model. The figure below is Carroll’s pyramid conceptual model of CSR.

Figure 1. Carroll’s CSR Pyramid (Adapted from Carroll, A. 1991. The Pyramid of Corporate Social Responsibility. Business Horizons, 42: 39-48)

For the first layer, CSR can bring immeasurable economic benefits to the enterprises. Streiner (1979) argued that fulfilling CSR can not only bring short-term benefits to the enterprise, but also long-term ones. In terms of short-term benefits, many

scholars have found that there is a positive correlation between CSR and CFP (Moskowitz, 1972; Pava & Krausz, 1996; Preston & Bannon, 1997; Schadewitz & Niskala, 2010). For the long-term competitiveness, Davis (1960) believed that the fulfillment of CSR is positively related to corporate competitiveness. In other words, the more CSR, the higher its competitiveness. The study by Van Beurden & Gössling (2008) found that the positive linkages between CSR and CFP are the role of advertising, that is, corporate CSR behavior serves as an advertising campaign that gives businesses a positive image that has won even more customers. Barnett (2007) concluded that if companies are to have a longer-term and broader view on CSR, they will find that CSR is able to bring financial benefits to their enterprise. From the perspective of enhancing brand value, the research results are too numerous to mention. Scholars such as Creyer (1996), Keller (2003), Sen, Bhattacharya, & Korschun (2006) et al. all come to similar conclusions that the fulfillment of CSR can indirectly enhance the brand value. All of these economic benefits are created by CSR.

For legal responsibilities, as have mentioned at the beginning, only by lawful, honest and fair management, and by actively assuming the corresponding social responsibilities can enterprises receive the recognition and respect of the government and consumers in a country. GSK China has paid a heavy price for its bribery. In addition, McGuire et al. (1988) proved that the CSR can significantly improve corporate performance, and to some extent, helped enterprises evade legal and tax risks.

and promote the sale of products (Willmott, 2001) and enables consumers to make a positive assessment of their products and thereby enhance their brand satisfaction (Bhattacharya & Sen, 2004). Hansen et al. (2011) found that CSR helps to improve the trust of employees and thus generate good business performance. Specifically, the attitude of the enterprise towards social responsibility affects the attitude of the enterprise staff towards the enterprise. If the CSR behavior of the enterprise gives the employees perception and trust and support, their enthusiasm for work will be greatly enhanced. On the contrary, if employees are unaware that the enterprise does not perform well in social responsibility (such as polluting the environment, infringe on consumer interests, etc.), it will conflict with the business, causing loss of enthusiasm for work and even job quitting. CSR can significantly improve the company’s share price by improving stakeholder support and trust in the enterprise, improving relationships with key stakeholders (Flammer, 2013), and finally promote consumer loyalty and enhance corporate image (Homburg et al., 2013). Therefore, enterprises should shoulder obligation of what is right and fair (Carroll, 1991).

In conclusion, based on the Carroll’s pyramid model of CSR, there are wide implications of CSR. CSR can not only bring numerous economic profits but also involve invisible non-economic benefits. In this thesis, I use the brand equity as dependent variable to examine whether there is value-added to brand equity when enterprises invest in CSR.

2.2 Brand Equity

Brand equity, a new emerging concept in marketing research and practice in the 1980s, shows the market-based intangible relationship assets that link brands to customers (Christodoulides & Chernatony, 2010). The connotation of brand equity itself, as well as the differences between scholars’ research perspective, led to the confusion about the connotation of brand equity. As a result, similar to CSR, scholars have not reached an agreement on the definition of brand equity and evaluation methods yet. In general, brand equity can be researched from three perspectives, namely, financial perspective, market perspective, and consumer perspective.

The three perspective each have their own characteristics. The conception of brand equity from a financial point of view is intended to accurately assess the value of a brand by using relevant economic and financial models (Brasco, 1988; Shocker & Weitz, 1988; Simon & Sullivan, 1993). Financial view is an important reference for corporate liquidation and mergers and acquisitions, and to a certain extent, reflects the future value of the enterprise (Mullen & Mainz, 1989). Financial view provides scientific and practical business data close to the actual. However, this point of view only uses financial data to evaluate and measure brand equity. It does not provide detailed information on brand management for the enterprise.

Different from the financial perspective focusing only on short-term interests, market-oriented brand equity pays more attention to the brand’s market competitiveness and brand extension (Doyle, 1990; Farquhar et al., 1991; Mullen & Mainz, 1989). The research also increasingly combines brand equity with consumer attitudes and behaviors (Rangaswamy, Burke, & Oliva,1993). The market perspective holds that brand equity often allows brands to maintain their competitiveness in fierce competition, grow rapidly in the market and gain a competitive advantage (Baldinger, 1990). This perspective also attaches importance to the outcome of good brand equity rather than the composition of brand equity, which cannot explain which factor affected brand equity.

customer recognition (Aaker, 1991; Blackston, 1995; Keller, 1993; Kim, 1990; Lassar, Mittal, & Sharma, 1994). The perspective thinks that brand equity is mainly reflected in the customer response to different brand marketing activities (Fayrene & Lee, 2011;

Yoo & Donthu, 2001). Constructing a model of evaluating brand equity from the perspective of consumers will help enterprises improve their brand equity and may further clarify the impact of CSR on brand equity.

In summary, in terms of the definition of brand equity, the financial perspective is mainly based on the discounted cash flow as a starting point. It quantifies the brand equity and provides a reference for the internal performance evaluation and how the enterprise manages the brand. The connotation of brand equity will be sorted out from the financial perspective, market perspective and consumer perspective (as shown in Table 1 in the Appendix)

2.3 CSR and Brand Equity

integrate CSR. CSR is the intangible competitive advantage of enterprises, which has great potential benefits (Melo & Galan, 2011).

From the perspective of stakeholders, CSR can be refined into social responsibilities to shareholders, employees, customers, communities and the government. Hsu, Chen, & Liu (2016) concluded that the stakeholders (such as customers, shareholders, employees, suppliers and communities) have a positive impact on the global brand value of the enterprise, especially the customer’s influence. Klein & Dewar (2004) found that CSR performance in the product crisis can effectively reduce consumer dissatisfaction and affect consumers’ brand evaluation. Specifically, a big chunk of scholars researched the correlation between CSR and brand equity. The research results show that the higher consumer acceptance of the social activities of enterprises, the higher brand equity of the enterprise and consumer satisfaction increases with the level of CSR. In other words, CSR activities have a highly positive correlation between consumers’ willingness to purchase and corporate brand equity (Chan, 2014; Luo & Bhattacharya, 2006; Mohr & Webb, 2005).

equity. When the public charity has high correlation, it can help enhance the effect of brand equity; otherwise, it may have a dilution effect on the brand equity.

To sum up, many scholars have made a great deal of theoretical research on the impact of CSR on brand equity. First, scholars discussed the definition and dimensions of CSR and brand equity for long. In this process, both the CSR theory and the brand equity theory have been greatly enriched. Second, the research on the significance of CSR for enterprises, such as the economic benefits, social benefits and environmental benefits of CSR, has drawn the attention of enterprises and has triggered a larger scale of CSR discussion.

However, there are still some shortcomings in related researches. Firstly, it is not difficult to find in previous studies that academics are more inclined to verify the impact of CSR on brand equity through quantitative analysis. Although quantitative analysis has its advantages, it cannot overcome the shortcomings that the data are not representative. At the theoretical level, the research on the impact of CSR on brand equity is still relatively scarce.

Thirdly, current studies mainly focus on the research on the relationship between CSR and CFP. There is relatively little research on the relationship between CSR and brand equity. Even when studying the relationship between the two, based on different theories and different perspectives, most scholars regard CSR as a whole and few refine CSR into different dimensions. Therefore, the effects of different levels of CSR, which then constitutes an interesting research gap.

Based on ESG ASSET4’s database as the research data source, this thesis refers the research of Liang & Renneboog (2013) which divided CSR into three pillars, environmental CSR (E CSR), social CSR (S CSR) and governance CSR (G CSR), and investigates their impacts on brand equity respectively.

the level of E CSR is positively correlated with the company’s brand equity. Based on this, the first hypothesis was put forward:

Hypothesis 1: the higher environmental CSR of a firm, the higher the brand equity

In addition, the social aspect of corporate social responsibility is the second pillar of this thesis. While maintaining their own survival and pursuing their own development, enterprises must assume corresponding obligations in the interest of safeguarding the overall interests of the society in face of various social problems and various needs of stakeholders. According to Knootz (1993), the more social obligations an enterprise undertakes, the stronger its ability to deal with various social problems. Enterprises should proceed from the social and moral point of view, and actively fulfill their responsibilities to the community. This will help enhance the company’s brand awareness and expand the social influence of enterprises. Kotler (2002) also believes that donating money to improve the overall welfare of the community as well as society can also bring potential long-term benefits to the enterprise. Therefore, I put forward the second hypothesis:

Hypothesis 2: the higher social CSR of a firm, the higher the brand equity

correlation among corporate governance, CSR, and firm performance (Harjoto & Jo, 2011). Governance ability is an important indicator to measure the level of governance and sustainable development capacity. It requires companies not only to seek the interests of the company’s shareholders, but also consider how to maximize the benefits of other stakeholders outside of the shareholders. G CSR addresses corporate leadership, internal controls and shareholder equity enhancement and improvement. Hansen et al. (2011) found that the improvement of governance can help to improve the operational efficiency of enterprises, reduce the management cost, enhance the sense of belonging and trust of employees, and have a positive impact on corporate performance. This thesis argues that attaching importance to governance can not only bring short-term and direct economic benefits to enterprises, but also bring long-term and indirect non-economic benefits, thus enhancing the corporate brand equity and social influence. Therefore, this thesis proposes the third hypothesis:

Hypothesis 3: the higher governance CSR of a firm, the higher the brand equity

2.4 The Moderating Role of Firm Size

shoulder their social responsibilities. For instance, after a catastrophic earthquake, named Wenchuan earthquake, a well-known Chinese company suffered a dramatic drop in the company’s stock due to a mismatch between its donations and firm size and some irresponsible remarks, which caused great losses to the enterprise. Therefore, this thesis chooses the firm size as a moderating variable.

Mackey (2007) pointed out in his research that firm size cannot be a moderating variable between CSR and firm performance, because there may be a monotonous relationship between the two, which may affect the accuracy of the conclusion. Child (1973) also believed that given the more complex organizational structure of large-scale enterprises, there may be some potential impact factors that affect conclusions. But he did not specify what the specific underlying factors are.

However, more studies confirm that large companies usually have more resources and expertise than SMEs (Moen, 1999; Rothwell & Dodgson, 1991). Therefore, whenever and wherever the stakeholders need to improve their brand value, large-scale enterprises can achieve higher economic and non-economic benefits in social responsibility activities and have a significant social and environmental impact (Brammer and Millington 2008; Adams and Hardwick, 1998).

Firstly, regarding the first relationship, Misra & Panda (2017) stated that consumers can be viewed as editors to encourage companies invest more in environmental actions. Bhattacharya & Sen (2004) points out that CSR behaviors can influence consumers’ internal and external responses and enhance consumers’ brand loyalty. The internal response refers to the attitude and evaluation of consumers to the enterprise, while the external response refers to the consumer’s purchase intention and purchase decision-making. Therefore, when enterprises devote into environmental activities, consumers’ attitudes to those enterprises will change and strong relationship will be created. Normally, the large size firms have more unique advantages so as to devote themselves to the environmental activities. Based on the hypothesis 1, I pointed out the following hypothesis:

Hypothesis 4a: the larger the size of the enterprise, the greater the effect of environmental CSR on a firm’s brand value

Hypothesis 4b: the larger the size of the enterprise, the greater the effect of social CSR on a firm’s brand value

Generally, in order to improve operational efficiency, large companies attach great importance to optimizing the structure of the board of directors, improving managers’ leadership, ensuring effective coordination among departments, and implementing employee’s execution (Hansen et al., 2011). Large enterprises not only emphasize the importance of short-term economic profits, but also pay more attention to long-term economic and non-economic benefits. Emphasizing on the corporate organization is a non-economic activity. This non-financial behavior, can make enterprises obtain greater benefits over the original ones. Therefore, the last hypothesis of this thesis was proposed:

Hypothesis 4c: the larger the size of the enterprise, the greater the effect of governance CSR on a firm’s brand value

2.5 The Conceptual Model

moderating variable of the correlation, uses the robustness test, and puts forward methods and strategies to enhance the CSR and brand equity.

After these analysis, a model of the impact of CSR on brand value is constructed, as shown in the Figure 1 below.

Figure 2. Conceptual Model

3. METHODOLOGY

This section will briefly introduce the ASSET4 database used in this thesis. The relevant variables involved, including the independent variable CSR and the dependent variable brand equity, will be defined; so will the definition of different levels of CSR and the selection of data. At the same time, the moderating variable of firm size, as well as two control variables R&D intensity and ROA, will also be introduced in this chapter.

3.1 Data Source and Sample

This thesis selects the relevant data in 2015 for testing and uses the relevant data in 2016 as the basis for robustness test. The reason to use single-year data instead of interval years is that it can effectively reduce the impact of multi-year analysis and avoid a very short time lag as media reporting (Brown & Deegan, 1998), such as negative news or going public. This thesis selects ASSET4 Global as the initial data source, and the sample size (n) is 5,931. However, due to the lack of scoring data related to E CSR, S CSR, G CSR, brand equity, R&D intensity, and ROA, n =4,810 sample data are excluded and therefore the final testing data capacity is n =1,121. It should be noted here that the selection of the control variables in this thesis is not satisfactory, which will be further explained in the following parts.

3.2 Measurement of Variables

(1) Measurements based on analysis of the contents of annual report. This method collects such corporate social information as disclosed in the company’s published annual report and organizes and quantifies this information to conduct research on CSR. (2) Pollution indices. Under normal circumstances, the government or professional evaluation agencies should first establish the relevant environmental pollution index system and then measure the environmental pollution of the target enterprises. (3) Perceptual measurements derived from questionnaire-based surveys. Questionnaire method establishes the research model of CSR, designs each dimension in the model, compiles some measurement questions that can reflect these dimensions, distributes the objects to be studied, and finally measures the enterprises by summarizing the scores of each dimension.

(4) Corporate Reputation indicators. The most widely used reputation index method is the index of CSR published by Fortune magazine.

(5) Data produced by measurement organizations. The most well-known organization is KLD Research & Analytics, Inc. (KLD).

research in each area. The three indicators are in the value of 0 to 100; the greater the value, the higher the feasibility of investment.

First of all, this thesis uses the specific value of environmental rating in ASSET4 as a concrete indicator to measure the level of E CSR. The environmental pillar measures a company’s ability of influencing resource reduction, emission reduction, and product innovation. Corporations, with mature management practices ability, can convert environmental risks into opportunities so as to generate stakeholder’ benefits. Therefore, such value is believed to be valid and reliable.

Then, for social CSR, the specific value of social scoring was used to measure social CSR. Donations to the community and other related activities can have a positive impact on a company’s brand reputation. This indicator measures the capacity of companies to generate employment quality, health & safety, human rights, and community et al. So it’s reasonable that this method of assignment is feasible.

In the same way, finally, this thesis uses the specific score of governance as an indicator of the level of CSR in governance. The governance pillar measures a company’s systems and processes, which could ensure steady board structure, protected shareholder rights, sound compensation policy, and visionary strategy. Therefore, such an indicator is reliable.

3.2.2 Dependent variable

potential value displayed by corporate brand. At the present stage, the most influential value assessment methods are Interbrand and the World Brand Laboratory (WBL). This thesis does not cover details of these methods. In short, both Interbrand and WBL take into account both the long-term and the short-term impact of the brand on the business operations, which has a high reference value and has had a huge impact on the brand equity research.

In this thesis, I use the score of “Brand Value” in the economic pillar (the range of 0-100) in the ESG ASSET4 database as a measure of brand equity. Because of the same database as the independent variable CSR, such emphasis will also to a certain extent control the potential and unknown impact of different database computing methods and ensure more accurate results through “controlling variable”.

3.2.3 Moderating variable

The ASSET4 database is still the sole source of data (as mentioned above, to control the unknown, potential impact of different databases due to differences in statistical methods), using the score of “Market Leadership” as a specific quantitative value of firm size. In principle, the firm size can be measured by amount of sales, amount of revenues, total assets, total sales or number of employees, etc. No matter which measurement method is chosen, it does not affect the validity of the analysis (Orlitzky, Schmidt, & Rynes, 2003).

“Score-Market Leadership” was chosen to measure firm size. The reason is “Score-“Score-Market Leadership” is described as “Net sales or revenue in US dollars.” In other words, the indicator “Score-Market Leadership” has similar functions. Therefore, this indicator is selected as a specific quantitative value of firm size.

3.2.4 Control variables

By referring to the previous research, this thesis selects the control variables that affect the relationship between CSR and brand equity: R&D intensity and ROA. Both of them are used as the control variables in this thesis to reduce the impact of potential influencing factors on the analysis. Similarly, these two control variables are also derived from the ESG ASSET4 database.

McWilliams, Siegel, & Wright (2006) stated that R&D investment makes it possible for enterprises to improve product quality, reliability and credibility. As mentioned above, consumers’ attitude towards a firm and its products certainly affect the success or failure of marketing strategy of the firm. Meanwhile, consumers’ attitude to a brand depends on the evaluation of the brand quality and ultimately the relationship among CSR, firm size, and brand equity. Based on this, R&D intensity was chosen as a control variable which is measured by “Score-R&D Expenses”.

as an economic indicator, may have some uncertain effect on the existing correlation among CSR, firm size, and brand equity. To circumvent this effect, I used ROA as another control variable and measured it using “Score-Return on Assets”.

In addition, this thesis uses the ESG ASSET4 database as the sole source of research data. There are few researchers who study on whether the use of different databases has an impact on the research accuracy. As we all know, each database uses different calculation methods and there are even some different ways in the acquisition of the original data. Then it is not clear whether there are some potential unknown effects while using data from different databases for research. Based on this analysis, a single database was selected, which may help “control variables”.

3.3 Empirical Approach and Preliminary Analysis

The OLS multi-regression analysis was presented through the use of Stata. Using the OLS regression analysis, it can be seen whether my hypotheses would be proved and examine whether the correlations are significant.

might have some errors that need to be controlled. Therefore, I used the variance inflation factor (VIF) to check this phenomenon. If the value is higher than 10, there is multicollinearity (Graham, 2003). After test, the result shows that average VIF is 2.09 which is lower than 10. Therefore, we can conclude that the estimators are not affected by multicollinearity (see Table 3 in the Appendix).

4. RESULTS

After controlling the OLS assumption, the regression results were analyzed in this section. First of all, I focus on the descriptive statistic. And then the OLS regression was run to see the significance of the results.

4.1 Descriptive Statistics

The table 4 illustrated the results of descriptive statistics. It is evident that R&D intensity that measured by the score of “R&D Expenses” has serious left-skewed. Table 4. Descriptive Statistic

In the table 3, I reported the summary of the analysis. Model 1 and model 2 does not included the control variables and mode 3 and model 4 include the control variables. The model 3 test the first hypothesis, through the correlation between three dimensions of CSR - Environmental, Social, Governance and the brand equity which is dependent variables. In the model 4, I consider the moderating effect of firm size in the main relationships.

Variables N Mean Std. Dev. min max

4.2 Baseline Results

The table 5 shows the main results of OLS analysis.

Model 1 conducts the relationship between E CSR, S CSR, G CSR and the brand equity of companies without the control variables. The result shows that positive correlation for both E CSR and S CSR and the variables highly significant at 1%, 5% significance level respectively. However, there is negative relation between the brand equity and the G CSR, but the significant level only at 5% significance level. To capture the control variable influence, the R&D intensity and the ROA were added in the model 3. However, the outcomes had no obvious difference. The coefficient between both E CSR, S CSR and brand equity was still positive and statistically significant at 1%, 5% level. In conclusion, H1 and H2 are supported by the results. Environmental and Social responsibility has a value-added effect on brand equity. The company would like to enhance their trust and loyalty that from customers to increase their brand value.

the analysis. When the size of firms is bigger, an increase in E CSR will lead to an increase in company’s brand equity.

Table 5. OLS Regression Results

Model 1 Model 2 Model 3 Model 4

VARIABLES BE BE BE BE E CSR 0.0953*** -0.281*** 0.0966*** -0.280*** (0.0286) (0.0810) (0.0287) (0.082) S CSR 0.0699** 0.0134 0.0706** 0.0126 (0.0312) (0.0866) (0.0312) (0.085) G CSR -0.0355** -0.0455 -0.0355** -0.0399 (0.0149) (0.0359) (0.0149) (0.036) R*D 0.0284 -0.026 (0.119) (0.088) ROA -0.0124 -0.018 (0.0235) (0.276) Size -0.0294 -0.0063 (0.0876) (0.019) Size*E CSR 0.00669*** 0.00673*** (0.00176) (0.00178) Size*S CSR -9.48e-05 -0.000110 (0.00180) (0.00177) Size*G CSR 0.000403 0.000319 (0.000654) (0.000676) Constant 39.78*** 45.76*** 38.90*** 46.67*** (1.227) (3.830) (6.355) (14.72) Observations 1,121 1121 1,121 1,121 R-squared 0.090 0.414 0.09 0.417

4.3 Robustness Test

Robustness check is a usual method in empirical analysis in order to examine more in depth. Usually, adding more dependent variables or modifying independent variables is a common way to do the robustness check. However, in this thesis, the relationship between CSR and brand equity in 2016 was considered. The same data were retrieved from ESG ASSET4 database in 2016 and the OLS regression analysis was done again for the robustness test (see Table 6 in the Appendix).

In the Model 1, it could be found the same results with the original regression. The relationship between E CSR and brand equity is positive and highly significant. The relationship between S CSR and brand equity is only statistically significant at 5% significance level. However, the correlation between G CSR and brand equity is not significant. In the Model 3 adding the control variables, the outcomes have no changes compare with the model 2. Hence, the hypnosis 1 and hypnosis 2 are supported by the robustness check. Hypnosis 3 is not supported by the results.

5. DISCUSSION

Hypothesis 1 and Hypothesis 2 are significant and the relationship consistent with my exception based on the main model that including the control variables. This supports the statement that companies engaging in E CSR and S CSR experience a higher brand equity. When enterprises focus on improving the quality of life of their employees and the economic development of their local communities, it can enhance the satisfaction with the general public, resulting in a value-added effect on brand value (Rahman, 2014; Yadav & Jain, 2014). In terms of the E CSR variables, if the company makes more effort to reducing the pollution and participate in activities beneficial to the environment, the brand equity would be higher. This finding is in accordance with the that of El Ghoul et al. (2011) which states that improving environmental policies and product strategies can contribute substantially to reducing the capital cost of the firm. In other words, the lower capital cost, the higher the brand equity. In the robustness check, all the results remained same.

pollution, and they would respect and value a brand that aims to decrease of waste, air emission and to implement actions that reduce its impact on the surrounding environment (Kumar Panda, 2017). Indeed, consumers are prone to have the higher confidence in the company. Hence, only hypothesis 4a is supported.

In addition, the influence of R&D intensity and ROA on the brand equity of the company was explored. Adding R&D intensity and ROA in the regression has no influence in this research.

5.1 Theoretical Implications and Recommendations

brand equity. Such findings, in some way, show that research on CSR as a whole/single variable is not detailed enough. Therefore, this thesis refines CSR into three different dimensions, which, to a certain extent, enriches the relevant theories and has certain theoretical significance.

At the same time, this thesis regards the firm size as the moderating variable of the relationship between CSR and brand equity, and the research in this field is very few. Based on the relevant research, I find that firm size can be used as a moderating variable to analyze the relationship between CSR and brand equity. Large enterprises usually have more social resources and expertise than small and medium-sized enterprises. They can also obtain higher economic and non-economic benefits in their social responsibility activities and have a significant social and environmental impact. Specifically, the larger the firm, the stronger the relationship between CSR and brand equity. This result is consistent with studies by Adams & Hardwick (1998), Brammer & Millington (2005) and others. Therefore, this thesis does not agree with the viewpoint that the size of a firm held by Child (1973), Mackey (2007) and others cannot serve as a moderating variable between CSR and brand equity, and provides a reference for future research in relevant fields.

according to their own needs, which will greatly enrich the research ideas and encourage many interesting attempts.

5.2 Managerial Implications

The findings of this thesis provide a reference for managers to formulate the strategic plan of CSR. The findings show that CSR should not be separated from the company strategy. This thesis explores three different CSR dimensions. To be specific, E CSR and S CSR all show that actively engaging in social activities not only has a positive impact on the company’s brand image, but also on the long-term development of the company. Therefore, managers should start to consider more participation in the corresponding social actions.

value the fulfillment of social responsibilities, actively shoulder their social responsibilities, and show a healthy corporate image to the general public, can they gradually establish a good brand image and enhance their brand equity.

At the same time, enterprises should not only consider their own economic interests, but should take the initiative to undertake the task of environmental protection. Enterprises should pay attention to the issue of environmental protection, establish a good sense of E CSR, and reduce environmental pollution. In the production, management and other activities, enterprises should attach importance to green production and green marketing. They should take the initiative to protect the environment, reduce waste and pollution to the surrounding environment, and create the possibility for the sustainable development of the enterprise.

5.3 Limitations and Suggestions for Future Research

Subject to time and personal capacity constraints, there are still many shortcomings in this study.

1.Limitations of cross-sectional data.

The study uses the relevant data from 2015 and 2016 as the sample data. The cross-sectional survey method is to obtain the descriptive data collected at a specific time point or in a relatively short period of time. The collected data are status information gained through the survey. Although this method can quickly get the result of CSR impact on brand equity, it may overlook the effects “time lag”. Therefore, in the future research, if we can use the panel data not the cross-sectional data to do the relevant research, we can more scientifically and more systematically explain the relationship between these relevant variables.

2. Limitations in dividing the independent variables and dependent variables and choosing quantitative methods

awareness, brand recognition, brand association, brand loyalty and market behavior. All of these are worthy of further investigation.

3. Limitations of control variables.

In the selection of control variables, only two variables, R&D intensity and ROA, are selected. Due to the lack of corresponding data, most of the companies are excluded, which affects the final sample data and may make the result of the study unsatisfactory (Adding R&D intensity and ROA has no influence on the correlation among CSR, firm size, and brand equity). In fact, there are certainly other factors that will affect this relationship, for example, industry type.

5.3.2 Suggestions for future research

Based on the previous research results, this thesis studies the relationship between CSR and BE in an objective and rigorous way, But due to the existence of many uncontrollable factors, it has the above deficiencies. Therefore, in the future research, it’s suggested:

1. To select the relevant panel data for nearly 5 years to conduct research, to take into account the “time lag”, to explore the factors that affect “time lag” such as media coverage, and to discuss the effect on of “time lag” on the relationship between CSR activities and brand equity.

quantitative indicators to quantify them. We can try a combination of different databases so more and more appropriate quantitative indicators can be selected. For the brand equity indicator system, the research in this thesis only takes brand equity as a whole/single variable. Future research can be based on relevant theories such as the Customer-based Brand Equity model proposed by Keller (1993) and the Five-star Brand Equity model proposed by Aaker (1996), and the brand equity can be decomposed into different dimensions for related research.

6. CONCLUSION

After summarizing relevant scholars’ research ideas, it can be seen that CSR is a concept with rich connotation and extensive extension. This thesis follows European Commission’s view that business is part of society and that business and society are inextricably linked. Therefore, enterprises must also take into account the interests of the community as a whole in the pursuit of economic interests. Not only should enterprises work hard to achieve economic goals but also they should be responsible for the environment and the society.

Based on the research results of Liang & Renneboog (2013) and the ESG ASSET4 database, this thesis divides CSR into three specific dimensions: E CSR, S CSR and G CSR, constructs the indicator system of CSR, respectively, and studies the impact of these three dimensions on brand equity. In addition, this thesis builds the theoretical model by using the firm size as a moderating variable. This thesis also introduces R&D intensity and ROA as control variables to explore the existing relationship between CSR and brand equity.

Through the above model, Stata software was used to analyze the data in order to explore the correlation between CSR and brand equity, and whether the firm size has a moderating role on the relationship.

Through the analysis, I found that E CSR and S CSR have a positive impact on the company’s brand equity. Managers should focus on improving the governance of the company’s internal structure and actively participate in social activities in order to enhance the corporate social impact, establish a good corporate image, and improve customer loyalty to the brand. G CSR has a negative impact on the company’s brand equity. However, in robustness test, the correlation between G CSR and brand equity is not significant.

7. ACKNOWLEDGEMENT

My greatest gratitude to my supervisor Dr. Olof Lindahl for his guidance and enthusiasm in the research and writing of the essay. Insights from my supervisor inspired my writing, and the regular urging and warmhearted encouragement gave me the motivation to overcome difficulties. This is the cornerstone of my thesis.

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9. APPENDIX

Table 1. The Connotation of Brand Equity Financial

perspective

Researchers Connotation

Bonner & Nelson (1985)

Brand equity is a measurable goodwill that is closely related to the brand name.

Shocker & Weitz (1988)

The difference between the cash flows of a product with a brand name and a product without one.

Brasco (1988) Brand equity is classified as intangible assets in the corporate financial statements and the sum of the cash premiums at the current stage and the expected future profit discounts. Biel (1992) Additional cash flow generated after the

brand name is placed on the product or service.

Simon & Sullivan (1993)

Brand equity refers to incremental discounts on future cash flows discounted by the brand name over the absence of the brand name. Market

perspective

Researchers Connotation

Farguhar (1989) Brand equity is the added value of a product brand.

Mullen & Mainz (1989)

From a competitive perspective, brand equity is a price premium relative to competitors. Doyle (1990) Brand equity comes from investing in

establishing a lasting advantage over competitors.

Barwise (1993) A long-term customer loyalty and the financial value brought about by its loyalty. Rangaswamy,

Burke & Oliva (1993)

Brand equity can be viewed as the residual value of a brand extension as it relates to brand impressions, attitude preferences, behavioral preferences.

Consumer perspective

Researchers Connotation

Kim (1990) Brand equity is the brand’s potential force that influences the consumer’s special combination of brand thinking, perception, and association, which in turn affects consumer behavior.

Keller (1993) Based on the consumer perspective, brand equity is the different response to marketer activities due to consumer brand knowledge differences, which mainly depends on consumers’ brand associations, likes and brand uniqueness.

Park & Srinivasan (1994)

Brand equity is reflected in the overall preferences of the customer’s brand as well as the overall effect of the objective evaluation of the brand’s multiple attributes. Lassar, Mittal &

Sharma (1994)

The value of a brand name’s contribution to a product is due to the increased utility and benefits that customers bring to the brand. Blackston (1995) Like a company, a customer is a co-owner of

a brand and the creation of brand equity is the process by which a customer interacts with a brand.

Yoo & Donthu (2001)

Netemeyer et al. (2004)

Brand equity is the extra cost that consumers are willing to pay for their favorite brands that exceed their price.

Table 2. The Correlation Matrix

1 2 3 4 5 6 7 E 1 S 0.848*** 1 G 0.079** 0.243*** 1 BE 0.289*** 0.268*** -0.027 1 Size 0.444*** 0.417*** 0.0100 0.643*** 1 R*D intensity -0.1619*** -0.1622*** -0.0111 0.0402 -0.084** 1 ROA 0.162*** 0.151*** 0.033 0.031 0.073* -0.221*** 1

Table 3. VIF Test for Multicollinearity

variable VIF E CSR 3.93 S CSR 4.06 G CSR 1.14 Size 1.26 R*D intensity 1.07 ROA 1.07 Mean VIF 2.09

Table 6. Robustness Test

Model 1 Model 2 Model 3 Model 4

VARIVARIABLES BE BE BE BE

E CSR 0.0852*** -0.192*** 0.0922*** -0.220***

(0.0105) (0.0274) (0.0227) (0.0623)