What Is The Level Of Adoption Of CSR Reporting By Australian Smes?

What Is The Correlation Between CSR Reporting By Australian Smes And Their Financial Performance?

Introduction

The past couple of decades have observed to a growing interest in Corporate Social Responsibility research in both business as well as commerce. It has been identified that a substantial number of the studies on the relation between Corporate Social Responsibility as well as organizational performance have focused on the economically developed nations and the large firms. More specifically, the small and medium size organizations have observed less attention in this particular area. Therefore, the most obvious gap in the external literature pertains to the constrained number of studies on the relation between corporate social responsibility and organizations performance from developed nations’ perspectives. Torugsa, O’Donohue, and Hecker (2012) claims that following the business practices of large and multinational organizations, the small and medium size organizations have started implementing CSR activities to increase the brand awareness and reach the desired performance level. Hahn (2013) called for investigation of the links between the responsible management for small and medium size enterprise and financial performance in the developed nations. Likewise, there are other facts and opinions the effect of CSR initiatives on the SMEs presented in the exiting studies. Thereby, to conduct the literature review, 15 journals have been selected that are relevant to the current study.

CSR in SMEs

There has been an increase in CSR activities and in spite of the increase in research on corporate social responsibility, no particular and agreed definition of CSR has been developed. As the consequence, there has been an ambiguous use of the terminology. According to Battisti, and Perry (2011), explained the ambiguity because of the fact that CSR has been implemented and studied in various academic fields. However, Crane,  Matten and Spence (2013) defined CSR as the concept whereby, the organizations integrate their social as well as environmental concept whereby the organizations integrate their social as well as the environmental concern in the organizational operation and in their interaction with their stakeholders. This paper uses the definition as it provides a clear and conceptualization of CSR and many scholars commonly use this definition. In addition to identify, the organization’s obligation toward the social and environmental issues, the concept and definition incorporates three other dimensions of corporate social responsibility- economic, stakeholders and voluntariness. Considering the characteristics of small and medium size organizations is significant in comprehending how CSR initiatives are practiced in small and medium size organizations. Inyang (2013) raised the point that the key difference between the large organizations and the small and medium size organizations is that,  generally, management lies with the owner as opposed to the large organizations. According to Turyakira,  Venter and Smith (2014) the SMEs are generally located in their local society, thereby, maintaining a close relationship with the number of stakeholders.

It is studied that these characteristics enable the small and medium size organizations to implement CSR practices, because the owners of such organizations make most of the major strategic decision. The business owners dealing with the operation of SMEs tend to make decision, initiate as well as implement CSR activities. Going forward, the focus of CSR practices in small and medium size organizations is associated with the immediate stakeholders, employees and further followed by the community, and the least practiced element of CSR is environmental related. As put forward by Stewart and Gapp (2014), Africa enters on multinational corporations, and the nature and practice of CSR. For example, Torugsa, O’Donohue and Hecker (2013) focused on CSR practices in Cameroon. Hence, they developed four different CSR practices; well-being of employees, ethical issues, corruption as well as the natural environment. Fitjar (2011) commented that CSR practices in SMEs in Sub-Sahran Africa are centered on the areas such as the workplace, market place as well as local community as well as the natural environment.

CSR and Firm performance in SMEs

Even though, corporate social responsibility has acquired a significant amount of attention in the academic as well as professional fields. However, here the questions is whether or not, the involvement in CSR activities contributes to the organizational performance in SMEs in the developing and developed nations. Thus, some studies on the link between CSR and organizational performance demonstrate positive, negative and non-significant results. In the study, conducted by Coppa & Sriramesh (2013) discovered a positive relationship between CSR and organizational performance. For example, Taneja, Taneja and Gupta (2011)  found a neutral relationship between corporate social responsibility and organizational performance. Hence, Taneja, Taneja and Gupta (2011) explained the fluctuation in the outcome between CSR as well as performance could be related to the context or country of study, several ways of CSR as well as different methodological approaches for the analysis. Here, Sheldon & Park (2011) indicated the need to consider the significance of deadline while examining the link between CSR and organizational performance. This happens even when the organizations actively engage in corporate social responsibilities, the link between CSR as well as firm performance could be negative if the nation economically unstable. As the consequence, the study conducted by Fernandez-Feijoo, Romero and Ruiz (2014), applied a longitudinal approach to loosen the casual association between CSR as well as companies’ performance as time frame plays a great role while examining the relationship.

Financial Performance-

While the study conducted by Williams and Schaefer (2013), demonstrate negative or neutral effect, the overall literature assumes that CSR influence the firm performance positively. However, Lee,., Herold and Yu (2016) observed that employee responsibility as well as the environmental responsibility have significant positive relationship with the corporate financial performance. According to Torugsa, O’Donohue and Hecker (2012), small and  medium size organizations are encouraged and motivated to follow and pursue CSR activities at the time when they consider a business benefit as well as value for the organization. Going forward, SMEs engage in community CSR when they expect advantages such as better business enhanced customer loyalty. Going forward, it is also observed small and medium size organizations get involved in social responsibility as it leads to the profitability as well as the growth of the business. The outcome of CSR includes developed relation between the communities and the organization and the enhanced brand image. As the consequence, this could also lead to enhanced performance in the long term, as the clients could buy products and services from other organizations. Ultimately, the responsibility could result in developed financial performance in the form of cost reduction. It is observed that here care for the environment could lead SMEs to acquire more contracts.

Corporate Reputation

Corporate reputation can be defined as the observers’ collective decision and judgment of a corporation based on the assessment of economical, social and environmental impacts attributed to the corporation over a certain period. According to Battisti and Perry (2011), corporate reputation can also be considered as an intangible resource that can be enhanced as well as destroyed by the organizations’ decision whether to or not to engage CSR initiatives in CSR activities. Even though, organization’s reputation is intangible, it enables sales and it attracts business partners as well as capital, while enabling the organizations to recruit as well as retain employees and contribute to an organization’s competitive benefits (Crane, Matten, & Spence, 2013). Developed reputation could ultimately lead to enhanced business performance in future.

Literature Gap-

The previous studies are conducted on the relationship between the CSR and the organizational performance. For example, Turyakira, Venter and Smith (2014) presented relevant evidences in terms of the relationship between CSR and the organizational performance but this study did not present the data in respect with the impact of CSR activities on the financial performance of the organization. Likewise, a study conducted by Stewart and Gapp (2014) mentioned that CSR activities conducted by the large and small size organizations could be effective if the nation is economically developed but this study did not provide any real-world evidences to judge the fact.

In conclusion, it can be mentioned that previous studies have focused on the relationship between the CSR activities and the organizational performance. However, the studies did not emphasize on how financial performance can be influenced by CSR initiatives. However, the analysis has been made considering a limited number of journals but large number of journals wild have provided more relevant outcomes.

Research Methodology

Research methodology illustrates the various approaches, design and research techniques. The methodology of research will establish the result of the study and that is why it can be considered as one of the most significant part of the study.  In this existing field of research, justification for selecting all the methods for the study has been justified. The pros and cons of each of the techniques have been discussed thoroughly in this section.  According to Mackey & Gass, (2015), research methodology consists of predetermined postulations, which are used to perform the research. The methodology of research should be exact and precise that can be used in research topics of similar nature.

Research Philosophy

The philosophy of research includes the nature and source of knowledge.  The creation of knowledge can seem to be intense but in reality, there are mainly four types of research philosophies. They are positivism, post positivism, realism and interpretivism. The hidden acts in the field of study are revealed with the help of positivism and it is the current philosophy of research (Taylor,Bogdan &DeVault, 2015). Positivism is the philosophy, which will help to improve the scope of observation of the research.

Research Approach

In this study, the significance of the hypothesis is immense as it aids to differentiate between the deductive and inductive research. The various assumptions in the study can be validated with the help of the deductive approach whereas in case of the inductive approach it is used for the establishment of new theories and generalizations. The research questions are implemented with the help of the inductive approach where as the commencement of the deductive approach done with the research objective and hypothesis (Flick, 2015). Therefore, for the present area of study, the deductive approach has been selected, as is the most apt approach. The existing theories in the field of research will be validated with the help of the deductive approach and that is the reason that it has been selected for this study.

Data collection

The data collection method that has been chosen for the study is the secondary analysis of the data. The secondary analysis will include the qualitative analysis and thematic analysis of the data that has been collected from the secondary sources. The secondary data has been collected from 15 peered reviewed journals. The research will analyze various journals and research papers based on the impact of the sustainable reporting on the financial performance of the small and the medium scale industries in the market (Silverman, 2016). The thematic analysis will create themes, which will portray the various aspects of sustainable reporting in Australia and the practices that are followed by the small and medium scale industries. This research will consist of one method for the study, which means that it is a study, which consists of mono methods.

Data Analysis

The qualitative analysis of the data will be done by identifying the common set of patterns within the answers of the interview. However, in this scenario the secondary data of the peer-reviewed journal will have to be analyzed so that they are able to gather valid information. The data has been randomly selected form the peer reviewed journals so that it can maintain the validity of the test.  The conclusion from the prevailing studies will have to be linked with the analysis of the data. The analysis of the data has been done by linking it with the goals and objectives of the study (Panneerselvam, 2014). This study will only consist of the thematic analysis of the data so the secondary from the various journals and articles will be used by creating a theme for themselves.

Findings and analysis

The analysis of the secondary data that has been collected from the various research papers and journals shows that sustainability reporting is a big burden for most of the small-scale organizations in Australia. However, it may seem that the companies in the market will be facing problems, as they do not have enough backing to manage the corporate social responsibility. The majority of the placements in the organization are in the small-scale industries, which means that the growth of the small-scale industry will be helping in the development of the economy of the country (Fernandez-Feijoo, Romero & Ruiz, 2014). The incorporation of the corporate social responsibility in to the practices of the organization means that it will give rise to a lot of risks in the market. The small and medium scale industries have limited resources and they use it to maintain their sustainability in the market. The sustainability reporting has to be included in to the financial accounts of the organization, which means that the organizations will have a double bottom line. The measurement of the corporate social activities and the tools used for it are complex, which is difficult to measure. Thus, most of the small and the medium scale organizations tend to avoid this cost as it change the business model of the organization (Lee, Herold & Yu, 2016).

The business model of every organization will include the revenue streams and the cost structure of the organization. When the sustainability reporting will be included in to the organization then it will increase the cost structure, which means that the capital for other investments will be reduced. The incorporation of the sustainability reporting is a long-term goal for most of the organization and the small-scale industries does not have the luxury to invest capitals on such practices (El Baz et al., 2016). However, it has been seen that there are lot of companies in the small scale and medium scale industry are growing at an rapid rate and this is because for the fact that the organization have made use of the sustainability reporting in the business model of their respective organizations.

This shows that corporate social responsibility is essential for the development and the growth of the organization that means that the organization who are willing to invest in the long term strategies of the organization may benefit from these practices. It has also been seen that the organization have made improvements in their image and funding by investing in the sustainability reporting (Das & Rangarajan, 2017). This will provide the organization with increased opportunity for expansion of business, which means that the organization will be able to recruit more number of employees. Thus, it will help in the overall growth in the economy of the country. Thus, the analysis of various articles and data shows that the sustainability reporting will have a lot of impact on the economy of a country especially for the developing countries.

Conclusion

Thus, it can be concluded from the study that corporate social responsibility reporting will have a lot of impact on the financial performance of an organization. The sustainability reporting will create new opportunities for the small-scale organization, which will help them to grow at a rate that is much faster than other organizations in the market. There are lot of small scale organizations who are growing at an rapid rate but the number of organization that are not following the practices are more. There is a clear distinction in the market that the organizations that follow sustainability reporting are more successful. Thus, it can be concluded form the analysis of the report that sustainability reporting has immense impact on the financial performance of the small and medium scale organizations.

Reference

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