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Corporate social responsibility and an enterprise’s operational efficiency: considering competitor’s strategies and the perspectives of long-term engagement

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Abstract

This study employs an existing slacks-based measure-data envelopment analysis to calculate an enterprise’s operational efficiency. With Tobit and threshold regressions, the author analyses the effects of the corporate social responsibility (CSR) engagement of both a focal company and its competitors on its operational efficiency. Long-term CSR engagement plays an important role in corporate efficiency. A firm may enhance the effects of its short-term CSR engagement and decrease those of its competitor’s long-term CSR engagement on efficiency by increasing its own long-term CSR engagement. When a competitor’s long-term CSR engagement is high, its short-term CSR engagement will decrease corporate efficiency. However, when the competitor’s long-term CSR engagement is low, the firm’s long-term CSR engagement will improve its efficiency.

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Notes

  1. Technical efficiency (TE) refers to the ability to produce the maximum outputs at a given level of inputs or to use the minimum level of inputs at a given level of outputs. Allocative efficiency (AE) refers to the ability to select the optimal mix of inputs in light of given prices to produce a given level of outputs. The measure of overall cost efficiency (CE) is the product of technical and allocative efficiency. The TE measure can be decomposed into pure technical efficiency (PTE) and scale efficiency (SE); the former can be obtained by estimating the efficient frontier under the assumption of variable returns to scale, and it serves as an index to capture managerial performance (Thanassoulis 2001). Vitaliano and Stella (2006) argue that CSR affects either TE or AE. Because AE is equal to CE divided by TE, researchers can observe the effects of CSR engagement through CE change. Because CSR generally makes consumers more willing to reward the firm or pay a higher price for its products, we can observe the impact of CSR activities on corporate performance through sales increases. However, CSR will not affect the firm’s production process.

  2. As indicated in Waddock and Graves (1997), the use of KLD has several advantages. For instance, KLD is an independent rating agency that exclusively focuses on CSP assessment. All the S&P 500 companies are rated on multiple attributes relevant to CSP. Moreover, the measures used in this data set have been shown to exhibit robust construct validity (e.g. Mattingly and Berman 2006; Godfrey et al. 2009).

  3. Other CSR indices include the FTSE4Good Index Series (developed in 2001 by FTSE International Limited and co-established by the London Stock Exchange PLC and Financial Times) and the Dow Jones Sustainability Group Index (co-developed by Dow Jones and Sustainable Asset Management in 1999).

  4. There were 33 KLD ranking items prior to 2001. The number increased to 35, 36, 38, 39, and 40 items in 2002, 2003–2004, 2005, 2006, and 2007–2008, respectively.

  5. For example, because there were 40 KLD items in 2007, the total maximum KLD score was 40 in that year.

  6. Labour cost refers to the sum of salaries; board, welfare, and training expenses; and overtime pay (shift charge). Asset cost is the sum of handling fees, brokerage expenses, and other operating expenses; the cost of capital refers to interest expenses. The loan measure includes short-, medium-, and long-term loans, export and import bill advances, overdrafts, other loans, and overdue receivables.

  7. The management authority incentive design model (Sklivas 1987) states that a business owner does not focus only on corporate profit but also takes corporate marketing and sales into consideration when he or she prepares the remuneration provisions in the incentive contract with agents to inspire them to compete in markets.

  8. We have also run two alternative specifications for our decay model. In the first alternative specification, we use a set of weights (1/2, 1/3, 1/6). The sum of the weights that are assigned to short-term CSR engagement, proxied by the adjusted KLD score, is 1. The second alternative specification is based on Barron and Barrett (1994, p. 1517) who recommended the use of rank order centroid weights of Barron (2001) in determining the best multi-attribute alternative. The set of weights is (11/18, 5/18, 2/18). The sum of the weights is also 1. Our results remain unchanged qualitatively.

  9. This study also uses sales revenue to proxy firm size, but the main conclusions relating to CSR engagement remain the same. Findings for other variables are similar.

  10. We thank an anonymous referee for pointing out the importance of justifying why such a distinction matters.

  11. The threshold number, 10.1179, was obtained following Tsay’s (1998) approach.

  12. We again used Tsay’s (1998) approach to calculate the threshold number for the competitor’s long-term CSR engagement.

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  1. Department of Business Administration, Da-Yeh University, No. 168, University Rd., Dacun, Changhua, 51591, Taiwan, ROC

    Shou-Lin Yang

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Yang, SL. Corporate social responsibility and an enterprise’s operational efficiency: considering competitor’s strategies and the perspectives of long-term engagement. Qual Quant 50, 2553–2569 (2016). https://doi.org/10.1007/s11135-015-0276-z

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