Improving competitive advantage through corporate social responsibility in South Africa

111 Pages·2014·1.83 MB·English

by  Marieke Smits

Improving competitive advantage through corporate social responsibility in South Africa:
The role of social and environmental impact levels

Marieke Smits
13403649

A research project submitted to the Gordon Institute of Business Science, University of
Pretoria, in partial fulfilment of the requirements for the degree of Master of Business
Administration.
10 November 2014

© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
Abstract
The question as to whether companies can “do well while doing good” has been investigated
by academics for over four decades. Conclusive evidence of a positive link between Corporate
Social Responsibility (CSR) and Corporate Financial Performance (CFP) so far has however
remained elusive.
In building on previous research findings, this study aimed to provide a deeper understanding
into the mediating and moderating factors that impact a firm’s ability to generate returns from
social investment. In particular, the moderating effect of social and environmental (SEI) impact
levels on CSR returns were further investigated. Following the risk-reduction and value-
creating hypotheses, it was asserted that sustainable firms with high SEI would yield superior
CFP as compared to their peers with lower levels of social and environmental impact.
The findings revealed that sustainable firms with high levels of social and environmental
impact indeed had higher CFP than their peers with medium and low social and environmental
impacts levels. However, the same results were yielded for non-sustainable companies.
Although the main hypothesis did not yield the expected outcomes, the study provided
important insights into the role of moderating factors on the ability for firms to generate
returns from CSR. Moreover, the study uncovered previously unexplored areas of CSR and
thereby opened up new avenues for future research.

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© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
Keywords

Corporate social responsibility
Corporate financial performance
Social and environmental impact
Intangible resources
CSR - CFP link

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© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
Declaration

I declare that this research project is my own work. It is submitted in partial fulfilment of the
requirements for the degree of Master of Business Administration at the Gordon Institute of
Business Science, University of Pretoria. It has not been submitted before for any degree or
examination in any other University. I further declare that I have obtained the necessary
authorisation and consent to carry out this research.

Marieke Smits. 10 November 2014

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© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
Acknowledgements
I would like to extend a big “thank you” to the following people:
 To my supervisor, Morris Mthombeni, for his guidance, support and suggestions.
 To Riaan Terblanche and Johan van Jaarsveld, for seeing potential in me and
convincing me to do this MBA. I owe this journey to you both.
 To my parents, for instilling a curiosity in me to always explore and take the unbeaten
path. I would never have ended up in South Africa if it wasn’t for my wanderlust.
 To Andile, for always believing in me and teaching me to persevere during difficult
times. It’s because of you that I am where I am today.
 To my classmate Salsa, for his willingness to share his financial modelling expertise
with me. I would have been nowhere without your help!
 To the JSE Indices team, for their quick and very professional assistance.
 To the ladies of the GIBS Information Centre. A special thanks to Monica Sonqishe for
always being willing to help me out – night or day.
 To my classmates, study mates and now friends. The past two years would not have
been the same without you. I will miss spending our weekends together!
 To all those other people that kept me motivated and managed to put a smile on my
face when things were tough. You know who you are. I could not have done this
without your support –Ryyyar!

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© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
List of figures
Figure 1: SEI as a moderating factor influencing the CSR - CFP link.............................................. 4
Figure 2: Carroll's hierarchy of Corporate Social Responsibility ................................................... 3
Figure 3: How CSR fits into the sustainability debate ................................................................... 4
Figure 4: How SIC moderates CFP returns to CSR ....................................................................... 14
Figure 5: Reputation as mediating mechanism leading to sustained competitive advantage ... 17
Figure 6: Social and environmental impact as moderating factor for CFP ................................. 19
Figure 7: Final stratified sample .................................................................................................. 30
Figure 8: Final outcome of study ................................................................................................. 63
Figure 9: SEI as a moderating factor influencing CFP – results. .................................................. 65

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© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
List of tables
Table 1: Variability in CSR - CFP outcomes: exemplary articles .................................................... 8
Table 2: CSR as a mediating factor for CFP: Exemplary articles .................................................. 12
Table 3: Stakeholder opportunities and risks ............................................................................. 15
Table 4: Financial data sourced from the McFAS database ........................................................ 28
Table 5: Financial data obtained from McFAs database ............................................................. 32
Table 6: Industry sectors classified as high impact as per the JSE SRI Index .............................. 33
Table 7: Industry sectors classified as medium impact as per JSE SRI Index .............................. 34
Table 8: Industry sectors classified as low impact as per the JSE SRI Index ............................... 34
Table 9: Actual sample descriptions – Group 1 (ALSI excluding SRI) .......................................... 42
Table 10: Actual sample descriptions - Group 2 (SRI) ................................................................. 42
Table 11: Data extracted from McFAS database including line items and codes ....................... 43
Table 12: Descriptive statistics for ALSI (excluding SRI) and SRI Index ....................................... 45
Table 13: Spearman's rho bivariate non-parametric correlation for Group 1 (ALSI minus SRI) . 47
Table 14: Spearman's rho bivariate bivariate non-parametric correlation for Group 2 (SRI) .... 48
Table 15: ANOVA test performed for Group 2 (SRI) ................................................................... 49
Table 16: Post-hoc Bonferroni, Tukey and Sidak for Group 2 (SRI) ............................................ 51
Table 17: Absolute Tobin's q. values per SEI level (SRI) .............................................................. 52
Table 18: ANOVA test performed for Group 1 (ALSI excluding SRI) ........................................... 53
Table 19: ANOVA post-hoc test performed on Group 1 (ALSI excluding SRI) ............................. 54
Table 20: SRI high SEI firms ......................................................................................................... 60
Table 21: SRI low SEI firms .......................................................................................................... 60

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List of abbreviations

ALSI All Share Index
BBBEE Broad-Based Black Economic Empowerment
CFP Corporate Financial Performance
CR Corporate Responsibility
CSP Corporate Social Performance
CSR Corporate Social Responsibility
ICB Industry Classification Benchmark
JSE Johannesburg Stock Exchange
RBT Resource-Based Theory
RBV Resource-Based View
ROI Return on Investment
SCA Sustained Competitive Advantage
SEI Social and Environmental Impact
SIC Stakeholder Influence Capacity
SRI Socially Responsible Investment index

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© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
Table of Contents
Abstract ............................................................................................................................... i
Keywords ........................................................................................................................... ii
Declaration ........................................................................................................................ iii
Acknowledgements ............................................................................................................iv
List of figures ...................................................................................................................... v
List of tables .......................................................................................................................vi
List of abbreviations ........................................................................................................... vii
Table of Contents .............................................................................................................. viii
1. INTRODUCTION TO RESEARCH PROBLEM ..................................................................... 1
1.1 Introduction ......................................................................................................... 1
1.2 Background to the problem .................................................................................. 1
1.3 Relevance to South African Business ..................................................................... 2
1.4 Academic motivation for the research .................................................................. 3
1.5 Research objectives .............................................................................................. 3
2. THEORY AND LITERATURE REVIEW ............................................................................... 1
2.1 Introduction ......................................................................................................... 1
2.2 Corporate Social Responsibility ............................................................................. 1
2.2.1 Sustainable development and sustainability ........................................................ 4
2.3 CSP – Towards a focus on actions, not responsibilities ........................................... 5
2.4 The business case for CSR – Doing well while doing good? ..................................... 6
2.5 Criticism on the universal business case: Operationalising CSP .............................. 9
2.6 Criticism of the universal business case: The role of intangible resources ............. 10
2.6.1 Intangible resources as mediating factors .......................................................... 13
2.6.2 The Resource-Based View ................................................................................... 15
2.7 Social and environmental impact as moderator for CFP ....................................... 18
2.8 Conclusion ......................................................................................................... 19
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3. RESEARCH HYPOTHESES ............................................................................................. 21
3.1 Research problem .............................................................................................. 21
3.2 Research hypotheses .......................................................................................... 21
3.2.1 Hypothesis 1 ........................................................................................................ 22
3.2.2 Hypothesis 2 ........................................................................................................ 22
3.2.3 Hypothesis 3 ........................................................................................................ 23
3.3 Consistency Matrix ............................................................................................. 25
4. RESEARCH METHODOLOGY ........................................................................................ 26
4.1 Introduction ....................................................................................................... 26
4.2 Research design ................................................................................................. 26
4.3 Population ......................................................................................................... 27
4.4 Sampling method and size .................................................................................. 28
4.5 Variables ............................................................................................................ 31
4.5.1 Dependent variables – Company Financial Performance (CFP) .......................... 31
4.5.2 Independent variables – Levels of SEI ................................................................. 33
4.5.3 Control variables ................................................................................................. 35
4.6 Assumptions ...................................................................................................... 35
4.7 Time horizon ...................................................................................................... 36
4.8 Data collection tool and method ......................................................................... 36
4.9 Data analysis ...................................................................................................... 38
4.10 Limitations ......................................................................................................... 38
4.11 Research ethics .................................................................................................. 40
5. RESULTS .................................................................................................................... 41
5.1 Overview ........................................................................................................... 41
5.2 Sample description ............................................................................................. 41
5.3 Data Collection Process ...................................................................................... 43
5.4 Data integrity ..................................................................................................... 44
5.5 Tests performed ................................................................................................. 44
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