12394-Article Text-37867-5-10-20200520

Journal of Business Economics and Management
ISSN 1611-1699 / eISSN 2029-4433

2020 Volume 21 Issue 4: 987–1009
https://doi.org/10.3846/jbem.2020.12394
THE HETEROGENEOUS EFFECTS OF CSR DIMENSIONS

ON FINANCIAL PERFORMANCE – A NEW APPROACH
FOR CSR MEASUREMENT
Rongjia SU 1, Chunping LIU 2*, Weili TENG 3
1College of International Studies, Sichuan University, No. 24 South Section 1,

Yihuan Road, 610065 Chengdu, China
2, 3Nottingham Business School, Nottingham Trent University, Shakespeare Street,
Nottingham, NG1 4FQ, UK
Received 12 October 2019; accepted 27 March 2020
Abstract. This paper investigates the differential effects of corporate social responsibility (CSR)
dimensions on corporate financial performance (CFP) across sectors in China. This research uses
a unique data set provided by China Stock Market and Accounting Research (CSMAR), showing
expenditure on CSR programs from 568 Chinese publicly traded firm-year observations from 2008
to 2017. Compared to previous studies using scores produced by extra-financial rating agencies, this
research quantifies CSR efforts by corporate expenditure on CSR practices, which offers quantitative
and precise information in explaining the CSR-CFP link. The results show that the dimension of
the environment has negative effects on financial performance in capital-intensive manufacturing
industries. The impact of HR expenditure on CFP is negative in the tertiary sector and resource-
intensive manufacturing industries. However, CSR investments in the community are positively re-
lated to financial performance in resource-intensive industries and other secondary sector (mining,
construction, and utilities). Firms, in general, could gain benefits when spending more on business
and financial stakeholders.
Keywords: corporate social responsibility, corporate financial performance, stakeholder theory,

extra-financial rating agencies, human resources, community, environment, business and financial
stakeholders.
JEL Classification: M14, M21, M41.
Introduction
The issue whether corporate social responsibility (CSR) contributes to corporate financial
performance (CFP) has great implications on CSR decision makings in a firm (Kao et al.,
2018). Hence, a great number of studies have been conducted to examine whether the market
rewards firms undertaking CSR activities (Albuquerque et al., 2019; Bhattacharya et al., 2020;
*Corresponding author. E-mail: [email protected]
Copyright © 2020 The Author(s). Published by VGTU Press

This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.
org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author
and source are credited.
988 R. Su et al. The heterogeneous effects of CSR dimensions on financial performance – a new approach...
Cheung et al., 2012). Empirical research in this area mainly investigated developed countries
(the United States and European countries) and usually revealed the positive link between
CSR efforts and financial performance (Kao et al., 2018). However, differences in the corpo-
rate environment and national environment make the concept of CSR highly contextual (Fu-
kukawa & Moon, 2004; Maignan & Ralston, 2002). In emerging markets, such as China, CSR
has attracted increasing interest from academics and the business community (Li & Zhang,
2010; Reimsbach et al., 2018). Firms in emerging economies and developed markets vary in
organisational behaviours (Fan et al., 2011). Therefore, mechanically applying CSR findings
drawn from developed economies to emerging markets may not have a good fit. As the world
largest emerging economy, China offers a different social and economic context to explore
the relationship between “doing good” and “doing well”. Given the diversity in markets and
institutional circumstances in China (Wang & Qian, 2011), this study can identify potential
factors that may affect the CSR-CFP link. This study can provide guidance to Chinese firms
in the CSR campaign. Findings can also be relevant for firms in other emerging economies.
This study has three goals. Firstly, this research examines specific CSR activities of pub-
licly listed firms in China from 2008 to 2017 and then group them into four dimensions to
quantify the levels of the CSR involvement. Secondly, this study explores the link between
different CSR dimensions and CFP to see whether “doing-good” will result in “doing-well”
in the Chinese market. Characterising CSR efforts by corporate expenditure on CSR-related
management practices enables us to evaluate CSR efforts more precisely. Thirdly, the study
assesses the heterogeneous effects of different CSR dimensions on CFP across industries. In
addition to constructing an overall model with industry as the control variable to capture
industry effects, this study also investigates the CSR-CFP link in various industries, including
manufacturing industries (resource-intensive, capital-intensive and labour-intensive indus-
tries), other secondary sector (mining, construction, utilities) and tertiary sector.
This research contributes to the literature in the following ways. First, the research uses
a unique data set provided by China Stock Market and Accounting Research (CSMAR) CSR
report details, showing expenditure on CSR programs by Chinese publicly listed firms from
2008–2017. CSR efforts are quantified by spending on CSR related management practices.
Previous research relies on ratings or scores produced by extra-financial rating agencies, such
as Vigeo in Europe or Kinder, Lydenburg, Domini (KLD) in the United States to measure
CSR (Crifo et al., 2016). However, the evaluation on CSR was rated by Vigeo or KLD, not by
the firms themselves (Cavaco & Crifo, 2014), which has been deemed not transparent (Chat-
terji et al., 2009). Instead, this paper quantifies CSR efforts by corporate expenditure on CSR
practices, which offers quantitative and precise information in explaining the CSR-CFP link.
Second, this paper explores whether the effect of CSR on firm performance is hetero-
geneous across industries. The majority of previous research have controlled for industrial
drivers of financial performance without considering industry influences on the CSR-CFP
link (Hoepner & Yu, 2010). Although many studies targeted at certain industries, such as
construction industry (Jiang & Wong, 2016), tourism-related industries (Inoue & Lee, 2011),
hospitality industries (Rhou, & Singal, 2020), manufacturing industry (Torugsa et al., 2012),
as well as restaurant industry (Rhou et al., 2016), this study presents an overall picture on
various industry types, including manufacturing industries, other secondary sector and ter-
Journal of Business Economics and Management, 2020, 21(4): 987–1009 989
tiary sector. More importantly, this research investigates the industrial heterogeneity in the
relationship between each CSR dimension and financial performance. This finding helps
companies in different sectors carry out more targeted and effective CSR initiatives.
The remainder of the paper is structured as follows. Section “Theoretical Background”
reviews theoretical framework and discuss insights from the literature on CSR dimensions
and CFP. Section “Methodology and Data” explains the data and research method. Section
“Empirical analysis” presents the findings on the effect of each CSR dimension on financial
performance across industries, key findings are also discussed in this part. Section “Conclu-
sions” provide summary of findings, practical implications, limitations, as well as offer pos-
sible avenues for future research.
1. Theoretical background
1.1. Corporate social responsibility
Corporate social responsibility can be defined as the voluntary commitment made by a firm
to surpass the conventional explicit and implicit obligations society expects (Falck & Heblich,
2007). CSR consists of considerations given to customers, suppliers, employees, stockhold-
ers, environment, and community (Contini et al., 2020; Flammer et al., 2019; Girerd-Potin
et al., 2014). To operationalize CSR, previous studies point out that CSR comprises several
dimensions, and each dimension is composed by a group of voluntary activities (Clarkson,
1995; Godfrey & Hatch, 2007; Waddock & Graves, 1997). The most frequently used one is
Carroll’s division of corporate social responsibility into economic, legal, ethical and philan-
thropic responsibilities (Carroll, 1991). However, ethical and philanthropic dimensions are
hard to be operationalized in empirical research due to ambiguous boundary (Clarkson,
1995; Schwartz & Carroll, 2003).
Avetisyan and Ferrary (2013) propose a new perspective, conceptualising CSR as an
emerging area consisting of CSR rating agencies and stakeholders. A stakeholder refers to
any person or group who can influence or be influenced by the attainment of corporate goals
(Freeman, 1984). Primary stakeholders include creditors, shareholders, employees, suppliers,
customers, public interest groups, and the natural environment (Clarkson, 1995; Freeman,
1984). There are different rights and interests among stakeholders (Clarkson, 1995). The
main goal of a company is to acquire the capability to balance the competing demands of
different stakeholders (Roberts, 1992). Hence, targeted measures and programs are required
to meet the different expectations of stakeholders to accomplish excellent financial perfor-
mance (Peloza & Papania, 2008). Voluntary activities targeted at different stakeholders should
manifest distinct CSR dimensions (Clarkson, 1995; Peloza & Papania, 2008).
1.2. Extra-financial rating agencies and their dimensions

Extant studies measure CSR using dimensions provided by extra-financial rating agencies,
such as Vigeo in Europe or the KLD in the United States (Crifo et al., 2016). Extra-financial
rating agencies provide investors with more comprehensive CSR information by a number
of sub-ratings (Girerd-Potin et al., 2014). While community, corporate governance, human
resources, environment, and human rights are five CSR dimensions both Vigeo and the KLD
rating value, KLD pays special attention to diversity (Vigeo considers this in human rights)
and product (Vigeo cares about business behaviour) (Girerd-Potin et al., 2014). Building on
the stakeholder framework proposed by Clarkson (1995), five CSR dimensions in Vigeo or
KLD data reflecting primary stakeholder issues have been widely used: environment, corpo-
rate governance, business behaviours towards customers and suppliers, community involve-
ment, as well as human resources (Forget, 2012).
However, researchers hold divergent views on whether a number of categories should
constitute one dimension or each category represents one dimension (Inoue & Lee, 2011;
Johnson & Greening, 1999; Kacperczyk, 2009). Corresponding to main stakeholders identi-
fied by Clarkson (1995), Girerd-Potin et al. (2014) consider business stakeholder as a proxy
for employees, customers and suppliers, and use financial stakeholders to represent stock-
holders and creditors. Although included by Girerd-Potin et al. (2014) in business stakehold-
ers, employee issue shows corporate attention in human resources. Given the role it plays
on business operation and financial performance, this paper regards it as another primary
stakeholder issue and use human resources as a single CSR dimension. Since supplier and
creditor items are not specified for all firms in this dataset, this study combines issues con-
cerning customers, suppliers, stockholders and creditors into one dimension called business
and financial stakeholders to include more companies in the sample. Based on prior research
(Cavaco & Crifo, 2014; Forget, 2012; Girerd-Potin et al., 2014; Inoue & Lee, 2011), this pa-
per proposes that CSR can be composed of four dimensions: (1) human resources (proxy
for employees, denoted as HR), (2) community, (3) environment (4) business and financial
stakeholders (proxy for customers, suppliers, stockholders, and creditors, denoted as BFS).
1.3. Multidimensionality of corporate financial performance

Different types of measures were used in examining corporate financial performance (Alshe-
hhi et al., 2018). To capture short-term profitability and assess future profitability, extant
studies often employ two kinds of indicators to represent CFP, accounting- and market-based
measures (Inoue & Lee, 2011; Luo & Bhattacharya, 2006; McGuire et al., 1988).
Accounting-based performance measures, such as net profit margin (NPM) and return
on assets (ROA) are backwards-looking indicators and reflect the historical financial perfor-
mance (Cavaco & Crifo, 2014). NPM is the net income divided by sales revenue (Sroufe &
Gopalakrishna-Remani, 2018). It shows the firm’s capability to generate net profit from its
sales. NPM has been commonly used in the literature studying the association between social
and financial performance (Hermawan & Mulyawan, 2014; Kamatra & Kartikaningdyah,
2015; Sroufe & Gopalakrishna-Remani, 2018). Another proxy of profitability is ROA, which
is the net income divided by the average total assets (Reimsbach et al., 2018; Wang et al.,
2008; Xu & Zeng, 2016). It measures management efficiency in using assets to earn income
and thus represents the firm’s profitability (Forget, 2012).
Additionally, market-based measures, such as Tobin’s Q, can serve as a substitute for
accounting-based measures (Lee & Jang, 2007). Tobin’s Q reveals the assessment investors
make on the corporate capability to create future earnings (Cavaco & Crifo, 2014; Luo &
Bhattacharya, 2006; McGuire et al., 1988). The forward-looking measure can thus be adopted
to identify the estimated future influence of CSR on financial performance (Cavaco & Crifo,
2014; Hillman & Keim, 2001). In this study, this paper uses three indicators to reflect dif-
ferent perspectives on financial performance, including accounting indicators, such as NPM
and ROA, and a market-based measure, Tobin’s Q.
1.4. Effects of CSR dimensions on financial performance

The study conducted by Daszynska-Zygadlo, Slonski, and Zawadzki (2016) proves the con-
tingency of CSR performance across sectors. They use Thomson Reuters ASSET4 database
to examine the impact of 3 CSR dimensions (environment, social and corporate governance)
on financial performance in 10 Global Industry Classification System (GICS) sectors. This
sample data cover 2428 companies from all over the world in the period of 2009–2012. They
find the consumer staples sector is only sensitive to governance and environmental efforts;
only environment initiatives are significant for healthcare and energy sector; and social di-
mension can positively affect financial performance in financials and utilities.
The CSR’s impact on financial performance may also be contingent upon which CSR
dimension is considered (Crifo et al., 2016). Some studies on the relationship between CSR
dimensions and financial performance suggest mixed results, showing a positive, negative
or neutral association between market value and each CSR dimension (Girerd-Potin et al.,
2014). As for environment, the study conducted by Galema, Plantinga, and Scholtens (2008)
find environment has positive impacts on market value. However, several studies reveal that
the link between environment and firm performance is negative or insignificant (Barla, 2007;
Filbeck & Gorman, 2004). Similar results are also found for employee and community di-
mensions. Human resource management seems to influence firm performance positively
(Huselid, 1995) or exert a negative effect (Gimenez et al., 2012). Brammer, Brooks, and Pav-
elin (2006) point out that involvement in the local community is negatively associated with
firm performance, while Kacperczyk (2009) identifies the positive effect of community on
market-based performance. Furthermore, Galema et al. (2008) find the effect of community
is insignificant.
There are also mixed results about business and financial stakeholders. The study done by
Wen and Fang (2008) shows that financial stakeholders do not affect financial performance
significantly. Forget (2012) reveals good business behaviour with customers and suppliers
is linked with better financial performance. On the other hand, Reitzig and Wagner (2010)
conclude that improving relations with suppliers can affect firm performance negatively be-
cause it gives rise to non-learning opportunity costs.
Based on the prior research, it can be seen that CSR is a multi-dimensional construct
whose dimensions have variant impacts on firm performance (Crifo et al., 2016; Forget,
2012). Several factors may account for the differences. Firstly, different measurements are
used for financial performance (Alshehhi et al., 2018). Some research focuses on investigat-
ing accounting-based indicators, such as ROA, NPM, ROE or ROI; while others look into
market-based indicators, such as Tobin’s Q or market-to-book ratio. Secondly, different di-
mensions are employed to represent the CSR construct. Studies examining European firms
mainly rely on Vigeo dimensions (Girerd-Potin et al., 2014), while research concerning US
firms use KLD dimensions (Reimsbach et al., 2018; Turban & Greening, 1997; Waddock
& Graves, 1997). Furthermore, findings vary with the country, industry, or company they
investigate (Alshehhi et al., 2018). Although there appear mixed results, a positive influence
of CSR on financial performance dominates the literature (Alshehhi et al., 2018). Thus, this
research proposes the following hypotheses:
Hypothesis 1 (H1): CSR practices in human resources positively affect corporate financial
performance
Hypothesis 2 (H2): CSR practices in community positively affect corporate financial per-
formance
Hypothesis 3 (H3): CSR practices in environment positively affect corporate financial per-
formance
Hypothesis 4 (H4): CSR practices in business and financial stakeholders positively affect
corporate financial performance
Therefore, this paper aims to individually investigate the impacts of the four CSR dimen-
sions on a firm’s short-term and long-term profitability across industries (see Figure 1).
HR Control variables
– Firm size
H1 – Debt
– Total asset turnover
Community – Industry
– Region
H2
Financial performance
Environment – Short-term profitability
– Long-term profitability
H3
BFS H4
Figure 1. Theoretical model
2. Methodology and data

2.1. Data selection
This paper uses annual data from publicly listed firms of the Shanghai and Shenzhen stock
exchanges in China. This sample covers a 10-year period from 2008 to 2017. CFP indicators
and CSR report were taken from the China Stock Market and Accounting Research (CSMAR)
database. This database established by Shenzhen GTA Education Technology (2000) is the main
source for financial and non-financial information of public-listed firms in China.
The CSR report derived from CSMAR database lists 26527 CSR activity items which
have been grouped into nine categories: corporate governance, employee relations, safety
conditions, environment and sustainable development, public relations and philanthropy,
the protection of stockholders’ rights, the protection of creditors’ rights, customer issues,
and supplier issues. These activities are measured in both financial and non-financial ways.
Non-financial CSR activities take different forms and vary across companies, certain CSR
programs conducted by one firm are not seen in others, which are not comparable and hard
to compute. To compare CSR engagement with a unified standard, this paper only chooses
financial contributions, which are CSR activities listing annual corporate expenditure. Com-
pared to previous studies using scores produced by extra-financial rating agencies (Crifo
et al., 2016), this study quantifies CSR efforts by corporate expenditure on CSR practices,
which offers quantitative and precise information in explaining the CSR-CFP link. After the
selection, corporate governance which lists no financial investments was excluded, 8 catego-
ries were left. This paper then merged CSR data with CFP indicators and removed missing
observations, the unbalanced panel dataset comprises 568 firm-year observations.
2.2. Measurements of variables

2.2.1. CSR dimensions
Based on the stakeholder framework proposed by Clarkson (1995), along with CSR di-
mensions provided by KLD and Vigeo, this study further groups 8 CSR categories in this
dataset into four broad dimensions representing primary stakeholder issue to reflect CSR
efforts. Employee relations and safety conditions can be represented by the dimension
human resources; public relations and philanthropy reflect the dimension community;
environment and sustainable development concerns the dimension environment. This pa-
per combines the protection of stockholders’ rights, the protection of creditors’ rights,
customer issues, and supplier issues into one dimension called the business and finan-
cial stakeholders based on an earlier study conducted by Girerd-Potin et al. (2014). They
consider business stakeholder as a proxy for employees, customers and suppliers, and use
financial stakeholders to represent stockholders and creditors. This study puts business
stakeholders and financial stakeholders together under one dimension to include more
companies and have more data, because supplier and creditor items are not specified for all
firms. Unlike Girerd-Potin et al. (2014), this study singles employee out as a CSR dimen-
sion (human resources) due to the importance it has on business operation and financial
performance. The further integration of dimensions is motivated by the fact that not each
company invest in all 8 types of CSR activities, and there are missing data over all 8 CSR
categories. This is similar to the concern mentioned by Cavaco and Crifo (2014). Therefore,
this paper proposes that CSR can be composed of four dimensions: (1) human resources
(proxy for employees), (2) community, (3) environment, (4) business and financial stake-
holders (proxy for customers, suppliers, stockholders, and creditors), which are among the
most commonly measured dimensions of corporate social responsibility (Cavaco & Crifo,
2014; Forget, 2012; Girerd-Potin et al., 2014; Inoue & Lee, 2011).
The CSR report from CSMAR lists the expenditure on each CSR activity independently.
Since several activities can jointly represent one CSR dimension, this paper builds an aggregate
measure for each of the four CSR dimensions. Drawing from approaches used by previous stud-
ies (Cavaco & Crifo, 2014; Inoue & Lee, 2011; Lanis & Richardson, 2012; Turban & Greening,
1997), this paper then constructed a measure of the summed expenditure for each dimension.
2.2.2. CFP indicators

CFP indicators were extracted from the CSMAR database. Following prior literature, this
paper employed three CFP indicators which combines accounting and market-based per-
spectives. Net profit margin (NPM) (Hermawan & Mulyawan, 2014; Kamatra & Kartikan-
ingdyah, 2015; Sroufe & Gopalakrishna-Remani, 2018), returns on assets (ROA) (Dixon-
Fowler et al., 2013; Sroufe & Gopalakrishna Remani, 2018), and Tobin’s Q (Delmas et al.,
2015; Inoue & Lee, 2011; Kang et al., 2016; Surroca et al., 2010). Both NPM and ROA are
common accounting-based indicators of firm profitability (Forget, 2012; Sroufe & Gopal-
akrishna-Remani, 2018). Tobin’s Q shows the investors’ assessment of a company’s capabil-
ity to generate earnings in the future and indicates growth opportunities (Cavaco & Crifo,
2014). These indicators have been widely used in research on CSR-CFP links (Cavaco &
Crifo, 2014; Inoue et al., 2013; Wang & Qian, 2011).
2.2.3. Control variables

Firm characteristics are often employed as control variables (Waddock & Graves, 1997).
Following prior studies, the following firm-specific control variables are used: firm size
(Wang et al., 2008; Zhao, 2012), leverage (Kao et al., 2018; Li & Zhang, 2010; Xu & Zeng,
2016), and asset turnover rate (Tippayawong et al., 2015). To control for possible differ-
ences in financial performance across industries and regions (Forget, 2012; Reimsbach
et al., 2018), this paper added industry dummies and region dummies. Companies in this
sample engage in 47 industry categories. According to Industrial Classification for National
Economic Activities (GB/T4754–2017) provided by National Bureau of Statistics as well
as the Amendments in the Industry Categories in the Provisions on the Division of Three
Sectors (2012), these 47 industry categories can be divided into primary sector, secondary
sector and tertiary sector. Considering a large quantity of data in the secondary sector, this
paper further breaks it down to the manufacturing industry and other secondary industries
(mining, construction, and utilities).
2.3. Empirical model

Consistent with previous studies (Forget, 2012; Inoue & Lee, 2011), the model to estimate
CSR-CFP link is shown as follows:
CFP = β0 + β1HR + β2Community + β3 Environment + β4 BFS + β5 Size +

m n
β6 Debt + β7TAT + ∑ αi Industryi + ∑ γi Regioni , (1)
=i 1 =i 1
where the dependent variable CFP is measured by ROA, NPM and Tobin’s Q, while inde-
pendent variables including human resources, community, environment as well as business
and financial stakeholders represent corporate expenditure on CSR-related management
practices. Moreover, this paper included company-, industry- and region-specific control
variables. The company variables consist of firm size, debt-to-asset ratio and total asset
turnover. This research included 2 industry dummies representing 3 different industry

categories (manufacturing industry, other secondary industries, and tertiary sector) and 6
region dummies representing 7 regions (east, south, north, middle, southwest, northeast,
and northwest). Table 1 provides a description and measurement of the control variables
and company variables. This research takes logarithmic forms to firm size, and CSR indica-
tors to avoid potential normality issue.
Table 1. Definitions of variables (source: China Stock Market and Accounting Research (CSMAR)
database)
Variables Names Definitions

net income divided by the average total assets
Return on assets ROA
(Wang et al., 2008; Xu & Zeng, 2016)
net income divided by sales revenue (Sroufe &
Net profit margin NPM
Gopalakrishna-Remani, 2018)
the market value of equity and debts divided by
Tobin’s Q Tobin’s Q total assets (Hess et al., 2010; Ng et al., 2009; Wei
& Li, 2003)
The size of company Size measured by a log of total assets (Kao et al., 2018)
the total liabilities divided by the total assets (Li &
debt-to-asset ratio Debt
Zhang, 2010; Wang et al., 2008; Xu & Zeng, 2016)
operating revenue divided by total assets (Kao
Total asset turnover TAT
et al., 2018).
3. Empirical analysis
3.1. Diagnostic tests
Before the estimation, this research checked the existence of outliers using studentised re-
siduals. If the detected studentised residuals are higher than 3.29, the corresponding obser-
vations are removed before being estimated, which follows Tabachnick, Fidell, and Ullman
(2007). Additionally, this study conducts heteroscedasticity tests for all the regressions by the
Breush-Pagan Lagrange test, which shows that almost all the regressions have heteroscedas-
ticity problems. This problem is addressed by the Newey-West procedure, which provides
heteroscedastic and autocorrelation-consistent (HAC) standard errors. By doing so, it also
avoids potential autocorrelations.
3.2. Descriptive statistics

Table 2 shows descriptive statistics for all the variables in different industries, including over-
all data, the manufacturing sector, other secondary sector and tertiary sector. Totally 568
observations are matched and merged for regressions. There are 274, 148, 139 and 7 obser-
vations for the manufacturing industry, other secondary sector, tertiary sector and primary
sector respectively. This research does not include primary sector data in this study due to
inadequate observations.
Table 2. Descriptive statistics of all industries
Variable Mean SD Min Max N

Overall
HR 8.41 3.54 –3.72 20.29 568
Community 6.92 3.89 –1.35 20.52 568
Environment 9.70 4.19 –4.58 24.13 567
BFS 11.41 4.03 9.88 24.39 567
NPM 0.11 0.15 –1.19 0.63 568
Tobin’s Q 1.00 1.09 0.05 8.66 568
ROA 0.04 0.06 –0.64 0.23 568
Size 24.79 2.35 20.85 30.66 568
Debt 0.59 0.21 0.11 0.95 568
TAT 0.66 0.45 0.02 2.24 568
Resource-intensive manufacturing industries
HR 8.02 3.20 0.24 13.79 63
Community 5.50 2.30 0.18 12.88 63
Environment 9.00 2.27 5.21 13.34 63
BFS 9.57 3.62 –9.88 15.48 63
NPM 0.07 0.10 –0.13 0.34 63
Tobin’s Q 1.13 0.99 0.19 4.58 63
ROA 0.05 0.06 –0.08 0.19 63
Size 24.09 1.32 21.19 26.18 63
Debt 0.52 0.18 0.13 0.83 63
TAT 0.89 0.41 0.32 2.24 63
Capital-intensive manufacturing industries
HR 7.55 3.08 –1.39 13.38 198
Community 5.09 2.64 –1.34 12.92 198
Environment 7.77 3.23 –4.58 17.53 198
BFS 9.92 2.51 1.79 15.98 198
NPM 0.06 0.10 –0.65 0.30 198
Tobin’s Q 1.38 1.26 0.27 8.66 198
ROA 0.05 0.06 –0.24 0.22 198
Size 23.31 1.38 20.86 26.96 198
Debt 0.52 0.16 0.15 0.83 198
TAT 0.84 0.45 0.11 2.21 198
Labour-intensive manufacturing industries
HR 6.18 2.53 0.79 10.56 11
Community 3.42 2.09 –1.20 5.65 11
Environment 7.02 2.35 2.30 9.15 11
BFS 10.22 0.95 8.79 11.28 11
NPM 0.04 0.03 0.01 0.11 11
Tobin’s Q 1.00 0.40 0.35 1.66 11
End of Table 2
Variable Mean SD Min Max N

ROA 0.04 0.02 0.01 0.07 11
Size 23.19 2.00 20.85 25.55 11
Debt 0.57 0.16 0.32 0.69 11
TAT 0.83 0.25 0.41 1.27 11
Other secondary sector: mining, construction, and utilities
HR 9.53 3.59 –2.23 20.29 148
Community 8.29 3.49 –1.31 16.63 148
Environment 9.72 2.63 1.79 14.82 148
BFS 11.21 2.92 1.39 18.26 148
NPM 0.08 0.14 –1.19 0.33 148
Tobin’s Q 0.79 0.74 0.10 5.71 148
ROA 0.05 0.08 –0.64 0.23 148
Size 25.29 1.66 21.23 28.04 148
Debt 0.57 0.18 0.11 0.89 148
TAT 0.63 0.29 0.10 1.94 148
Tertiary sector
HR 8.89 3.94 –3.71 15.64 139
Community 9.17 4.66 –0.92 20.52 139
Environment 13.20 5.29 3.81 24.12 139
BFS 14.90 4.95 2.30 24.39 139
NPM 0.25 0.18 –0.13 0.63 139
Tobin’s Q 0.54 1.02 0.05 7.61 139
ROA 0.03 0.02 –0.06 0.10 139
Size 26.95 2.65 21.41 30.66 139
Debt 0.75 0.23 0.12 0.95 139
TAT 0.29 0.42 0.02 2.16 139
As the manufacturing industry has the most of observations, this research further
breaks it down to resource-intensive (63 observations), capital- intensive (198 observa-
tions) and labour-intensive manufacturing industries (11 observations) based on the Stan-
dard International Trade Classification (SITC) provided by United Nations. However, the
number of observations in the labour-intensive industry is too small to produce any re-
gression result.
3.3. Overall regression

Table 3 presents the regression results for the overall data, which shows community, en-
vironment and business and financial stakeholders are highly and positively significant in
explaining NPM. It implies that if firms invest money in these aspects, they would benefit in
higher net profit generated as a percentage of revenue, which is similar to the ROA equation.
However, in terms of long-term performance (Tobin’s Q), only the investment spent on com-
munity and business and financial stakeholders are positively significant, which means that
money spent on employees and environment does not increase Tobin’s Q. Most of the control
variables are significant except size and TAT in the NPM and Tobin’s Q equation respectively.
Table 3 shows that 1% growth of expenditure in community, environment, and business
and financial stakeholders cause 0.38%, 0.84%, and 0.75% rise in NPM while contributing
to 0.18%, 0.09%, and 0.14% increase in ROA. With 1% rise in the spending in community
and BFS, Tobin’s Q can increase by 1.37 and 2.39 respectively. Hence, H2, H3 and H4 are
supported in overall data. Most of the industry and region dummy variables are significant.
The overall R-squared is between 40% and 60%, compared with 18% in the study of Inoue
and Lee (2011) and 20–49% in the research done by Cavaco and Crifo (2014). This implies
the model can explain the data reasonably well.
Table 3.1 Overall data
NPM ROA Tobin’s Q

Variable
Coef. Std. Err. Coef. Std. Err. Coef. Std. Err.
HR –0.1690 0.1234 0.0053 0.0454 0.15839 0.7023
Community 0.3835*** 0.1435 0.1762*** 0.0481 1.3728* 0.7259
Environment 0.8423*** 0.1657 0.0934* 0.0568 –0.8452 1.1214
BFS 0.7453*** 0.1392 0.1400*** 0.0428 2.3915*** 0.7577
Size 0.1083 0.4381 0.1728*** 0.1823 –14.3410*** 2.5035
Debt –13.883*** 2.9307 –16.429*** 1.2949 –175.499*** 19.708
TAT –9.7352*** 0.9880 1.9160*** 0.3910 –2.8961 6.0200
R-squared 57.31 40.94 55.54
3.4. Regressions across industries

3.4.1. Secondary sector: manufacturing
Table 4 shows the regression of the resource-intensive manufacturing industries. The expen-
diture on human resources is negatively correlated with firm performance. Therefore, H1 is
not supported in resource-intensive industries. Community and business and financial stake-
holders positively affect ROA and Tobin’s Q respectively, which supports H2 and H4. With an
extra one percent more HR expenses, NPM, ROA and Tobin’s Q decline by 0.51%, 0.41% and
6.15 respectively. If there is 1% increase in the community expenses, ROA will rise by 0.55%.
Looking at the capital-intensive manufacturing industries in Table 5, spending in hu-
man resources is all positively significant in NPM, ROA and Tobin’s Q, while environment
expenditure is negatively in these equations. Hence, H1 is supported while H3 is not proven
in capital-intensive manufacturing industries. Additionally, the spending on business and
1 Please note that all the numbers in the regressions are multiplied by 100.* , **, and *** represent 10%, 5% and 1%
significance level in this paper.
financial stakeholders is negatively significant in explaining Tobin’s Q, not supporting H4. For
the capital-intensive manufacturing industries, with an extra 1% more HR expenses, NPM,
ROA and Tobin’s Q increase by 0.37%, 0.27% and 4.54 respectively. If there is 1% increase in
the environment expenses, NPM, ROA and Tobin’s Q drop by 0.39%, 0.20% and 7.14 respec-
tively. Tobin’s Q drops by 2.66 with one percent more expenditure in BFS.
Table 4. Resource-intensive manufacturing industries
NPM ROA Tobin’s Q

Variable
HR –0.5125* 0.2724 –0.4078* 0.2346 –6.1486** 2.6439
Community 0.4903 0.4155 0.5530* 0.3093 –1.0545 2.3303
Environment –0.2837 0.3204 –0.2609 0.2619 –1.4624 2.3204
BFS 0.2014 0.1318 0.3392 0.2242 11.5466*** 4.1797
Size –0.4432 0.7599 –0.9049 0.6303 –35.2716*** 8.4679
Debt –15.3649 4.6556*** –13.9135*** 4.2823 –296.2026*** 34.6159
TAT 1.6947 2.172 4.7782* 2.5129 65.6229 22.5573
R-squared 84.19 67.37 87.30
Table 5. Capital-intensive manufacturing industries
NPM ROA Tobin’s Q

Variable
HR 0.3705* 0.1414 0.2713* 0.1038 4.5427** 1.8047
Community 0.3591 0.3297 0.1178 0.1323 –0.3774 2.1703
Environment –0.3870*** 0.1469 –0.1994* 0.1218 –7.1366*** 2.3333
BFS 0.1029 0.1631 –0.1101 0.1051 –2.6621* 1.5708
Size 1.7346*** 0.5736 1.2607*** 0.4181 –11.2102* 5.9849
Debt –36.8231*** 4.6974 –25.8925*** 2.5262 –292.5646*** 52.3445
TAT –2.6705*** 0.9547 3.1110*** 0.6799 21.3531** 8.9210
R–squared 56.27 54.07 67.19
3.4.2. Other secondary sector

Regarding the other secondary sector, such as mining, construction, and utilities, this re-
search finds that community expenditure has a positive impact on firm performance (see
Table 6), which supports H2. With 1% rise in community expenditure in these secondary
sectors, NPM, ROA and Tobin’s Q increase by 0.32%, 0.20% and 1.62 respectively. All the
other CSR dimensions are not significant except the environment in the Tobin’s Q equa-
tion, thus H3 is supported. If firms spend 1% more on environment, they would benefit in
getting 3.14 higher Tobin’s Q. Firm will get benefits in a longer term if they invest more in
environment in the mining, construction and utility industries. The control variables are all
significant except size in NPM and ROA equation with R-squared between 40% and 57%.
Table 6. Other secondary sector
NPM ROA Tobin’s Q

Variable
HR 0.2537 0.1790 0.0256 0.1105 0.5521 1.3832
Community 0.3187** 0.1546 0.1964** 0.0872 1.6160* 0.8497
Environment 0.1245 0.2181 0.1799 0.1325 3.1442* 1.6311
BFS 0.1391 0.2808 0.1175 0.0882 0.0321 0.9818
Size 0.2022 0.5772 –0.4535 0.3132 –23.0062*** 3.9898
Debt –30.126*** 4.0602 –16.9737*** 2.2122 –133.530*** 23.4251
TAT –0.2261 2.3946 5.7748*** 1.4035 40.0682*** 12.0020
R-squared 47.13 56.20 54.32
3.4.3. Tertiary sector

In terms of the tertiary sector in Table 7, the expenditures in human resources, environment
and business and financial stakeholders are significant in describing NPM, while only envi-
ronment is significant in explaining ROA. However, no CSR dimensions are significant in
Tobin’s Q equation in this sector. Environment and business and financial stakeholders are
positively related to NPM, causing 1.47% and 0.82% rise in NPM respectively. H3 and H4 are
supported. If firms spend 1% more in human resources, it is likely to create a fall of 0.78% in
NPM. Additionally, if firms spend 1% more percent in the environment in the tertiary sector,
it would create extra 0.08% of ROA at the same time.
Table 7. Tertiary sector
NPM ROA Tobin’s Q

Variable
HR –0.7750*** 0.2440 0.0067 0.0243 0.5787 0.7590
Community 0.1279 0.2479 0.0297 0.0337 0.1614 0.7165
Environment 1.4731*** 0.3742 0.0761** 0.0384 –0.3256 1.0140
BFS 0.8222*** 0.2823 –0.0086 0.0321 1.0486 0.7790
Size –2.9732*** 1.1068 –0.6721*** 0.1802 –12.7101*** 3.2396
Debt 16.3017* 6.2195 –1.5441 1.5900 –61.7863** 27.6117
TAT –21.5088*** 4.0471 0.4211 0.4641 3.0471 13.0342
R-squared 65.46 62.36 67.19
3.5. Discussion
The research results show that the CSR-CFP link in Chinese publicly listed firms is positive
on the whole, which is consistent with prior empirical studies targeting at developed coun-
tries (Kao et al., 2018). However, the financial impacts of CSR dimensions are contextual,
varying from sector to sector (see Table 8).
Table 8. Summary of all the regressions
Dependent
Sector HR Community Environment BFS
variables
NPM + + +
Overall ROA + + +
Tobin’s Q + +
Resource-intensive NPM –
manufacturing ROA – +
industries Tobin’s Q – +
Capital-intensive NPM + –
manufacturing ROA + –
industries Tobin’s Q + – –
NPM +
Other secondary
ROA +
sector
Tobin’s Q + +
NPM – + +
Tertiary sector ROA – +
Tobin’s Q
Regarding human resources, this research finds the impact of HR on CFP is negative in
the tertiary sector and resource-intensive manufacturing industries. The results differ from
the previous study done by Berman, Wicks, Kotha, and Jones (1999) which indicates a posi-
tive relationship between human resources and firm performance. It also contradicts with
the result concluded by Bravo, Buil, de Chernatony, and Martínez (2017), who use bank
employees in the United Kingdom as sample data, and find a positive perception of CSR ini-
tiatives among employees can enhance organisational commitment. The improved employee-
employer relationship can thus contribute to the financial performance of a firm. The data
from Chinese firms produce a different result. This may happen because human resources
are the key resources for tertiary sector in China. Firms spend a significant amount of money
on training employees with the necessary skills, but employees may leave the company after
accumulating enough experience and skills. High employee turnover will cause more re-
cruiting and training (Hancock et al., 2013), which can lead to poor short-term profitability.
For resource-intensive manufacturing industries, raw materials are viewed as crucial. More
investment in HR would take away company resources and increase cost, thus undermin-
ing financial performance in both the short and long run. However, a positive relationship
between human resources and firm performance is found in capital-intensive manufacturing
industries. In China, these industries are where the capital, technology and talented people
are gathered. Skilled professionals have higher requirements for human resources policies.
Improvement of workplace conditions, career development and training, equity incentive
programs, can attract motivated employees, reduce employee turnover (Portney, 2008), im-
prove productivity (Berman et al., 1999), encourage extra efforts made by employees (Khat-
tak et al., 2019) and ensure firm performance (Brekke & Nyborg, 2008).
CSR investments in the community are positively related to financial performance in re-
source-intensive industries and other secondary sector (mining, construction, and utilities).
These industries create many jobs opportunities but may also cause environmental damage.
Companies in these industries are faced with more public claims for the environment and
social concern (Jiang & Wong, 2016). In general, traditional Chinese values including Bud-
dhism, Taoism and Confucianism are ingrained in the minds of Chinese people, teaching
them to be benevolent, and compassionate to others (Wang & Qian, 2011). Thus, Chinese
consumers commend and reward firms that contribute generously, which has a positive im-
pact on corporate financial performance (Wang & Qian, 2011). However, this is not the case
in the study conducted by (Inoue & Lee, 2011). The sample data of their research use the
KLD STATS database consisting of annual ratings of around 3600 publicly traded U.S. com-
panies in tourism-related industries. Inoue and Lee (2011) find that CSR investment in the
community is negatively related to short-term profitability for airline firms, because there is
indirect relationship between airline firms and community, expenditure incurred outweighs
gains from community engagement.
In terms of environment, a negative link is found in the capital-intensive manufacturing
industries for both short profitability and long-term performance. This is likely because the
development of these industries relies heavily on capital, entailing a large amount of input.
With low resource exchanges (Kacperczyk, 2009; Mattingly & Berman, 2006), CSR efforts in
the environment are more likely to be driven by normative expectation than instrumental goals
(Donaldson & Preston, 1995), hardly generating any financial gains (Kacperczyk, 2009). On the
other hand, environment expenditure affects firm performance positively in other secondary
sector in the long run and in the tertiary sector in the short term. This may be attributed to the
fact that the Chinese government has attached great importance to environmental protection
in recent decades. The government can provide tax incentives (Yin & Zhang, 2012) and other
financial incentives to deliver corporate net benefits (Yin, 2017) to reward firms making efforts
to protect the environment. The effect of government compensation can be noticeable in these
industries, but negligible in industries requiring huge capital investment.
Compared with the mixed results produced from data in China, Daszynska-Zygadlo et al.
(2016) reveal the negative role of environment dimension from global data. Based on 2428
companies around the world, they find environmental efforts negatively affect Tobin’s Q in 8
sectors, and Price/Earnings ratio in 7 sectors (materials, consumer discretionary, financials,
healthcare, industrials, information technology, and utilities). One possible reason is pro-
vided by Derwall, Guenster, Bauer, and Koedijk (2005) and Semenova and Hassel (2008), it
is hard for environmentally sensitive industries to enjoy positive CSR impacts because of the
higher cost of environmental performance.
Moreover, firms, in general, could generate benefits in spending more in business and
financial stakeholders, because meeting the expectations of stakeholders can foster a favour-
able business environment and help firms to accomplish excellent financial performance.
However, a negative relationship is found in the capital-intensive manufacturing industries in
the long run. This may also because the growth of these industries depends heavily on capital.
Expenditure in business and financial stakeholders may increase cost and affect investors’
evaluation of future profitability.
Certain CSR dimensions affect firm performance in the short run but not in the long
run, such as HR in the tertiary sector, the environment in the tertiary sector, and BFS in
the tertiary sector. This may be because Tobin’s Q can be more responsive to macroeco-
nomic changes, government policies or to industry-related factors, such as price fluctuation
caused by changes in industry demand and supply (Cavaco & Crifo, 2014). However, the
case might be a bit different in China and other emerging markets. Private firms abound
in the tertiary sector. The majority of private companies in emerging economies are owned
or run by family members (Fan et al., 2011). This is also the case in China where over
three-quarters of China’s private firms is family-owned (Yang, 2011). Different from fam-
ily businesses in the U.S. and the U.K with diffused ownership and professional leadership
after being publicly listed, it is common for emerging markets firms to still have highly-
concentrated ownership and employ non-professional family members as managers (Fan
et al., 2011). Under this circumstance, investment decisions might be made arbitrarily by
the family business owner, making it hard for investors to have a positive assessment of a
firm’s ability to yield earnings in the future.
In some cases, CSR affects Tobin’s Q but has no effects on short-term accounting mea-
sures, such as the environment in the other secondary sector and BFS in the resource-in-
tensive and capital-intensive manufacturing industries. This is likely because carrying out
CSR programs shows a firm’s care for society. The strong influence of traditional values spur
Chinese stakeholders of the firm to welcome and reward generous firms (Wang & Qian,
2011). CSR efforts can improve corporate reputation and image, thus boosting investors’
confidence about a firm’s future profitability despite no significant financial impacts on short-
term profitability.
Conclusions
This research aims to investigate the heterogeneity of CSR’s effect on corporate financial per-
formance across industries. This study employs four dimensions including human resources,
community, environment, as well as business and financial stakeholders to represent CSR and
examine the effect of each CSR dimension on a firm’s short-term profitability and long-term
marketed-based profitability across industries, including manufacturing industry (resource-
intensive, capital-intensive and labour-intensive industries), other secondary sector (mining,
construction, utilities) and tertiary sector.
Findings from this study show that CSR has a positive impact on CFP as a whole, which
is consistent with the research done in developed countries. However, the research also re-
veals that various CSR dimensions have different influence on CFP across analysed industries
as the research context is China, an emerging market with different cultural context and
various sectors. Therefore, the paper can conclude that CSR’s influence on CFP is of context
related. The findings confirm that CSR-CFP link in China is contingent upon which CSR
dimension is considered and which industry is examined. Therefore, this research suggests
managers in different sectors should make CSR decisions carefully because each industry
can benefit or suffer from certain CSR efforts, and some sectors remain unaffected by CSR
investment.
Based on research results, this research can draw a number of practical implications to
help managers in China to invest in CSR activities which can benefit firm performance. Since
capital-intensive manufacturing industries react positively to human resources initiatives and
negatively to environment efforts, firms in these industries can conduct CSR activities around
human resources rather environment to deliver a good financial outcome. Investments can
be made to improve workplace conditions, social security coverage, payment systems, equity
incentive programs, employee participation, and career development and training. Compa-
nies in resource-intensive manufacturing industries can make CSR efforts in the community
for the short-term benefit and improve relations with business and financial stakeholders
for long-term performance. However, they need to be careful when investing in human re-
sources, given the negative impacts on financial performance. The other secondary sector,
such as mining, construction and utilities is sensitive to community actions, firms in this
sector can focus the CSR efforts on community issues. Engaging in community campaigns
and volunteer programs, donating to charity can help firms build harmonious relationship
with the community and benefit both the short-term and long-term profitability. Addition-
ally, firms in the tertiary sector seeking short-term profitability should make CSR invest-
ments in environment, such as providing eco-friendly services, holding training on green
development, recycling, and adopting paper-free office systems. Caution should be made
when investing in human resources in the tertiary sector as results of this research suggest
negative financial impacts.
The limitation of this research is that it mainly focuses on CSR dimensions which
represent stakeholders without considering human rights or diversity issues. Future re-
search can include these dimensions to explore the impacts on financial performance in
Chinese firms. Secondly, this research only chooses CSR activities listing annual corporate
expenditure to measure CSR efforts. Non-financial CSR activities take different forms and
vary across companies. Future research can compare and contrast voluntary programs
conducted by different companies and assess the effects on firm performance. Moreover,
this sample only includes publicly listed companies. Some companies which are not listed
also have invested in CSR significantly but not presented in the data. Therefore, further
research may explore ways that listed and non-listed firms choose to conduct CSR activi-
ties. Finally, the way that CSR expenditure is reflected in the accounting statements has
different implications on performance. If the CSR expenditure is counted in the income
statement, the profit margin will be smaller. While if it is counted in the balance sheet, the
profit margin will be higher. The link between CSR expenditure and firm’s performance can
be better understood if this paper could find out the accounting practice about how CSR
expenditure is counted. However, there is no unified way to categorise all the CSR items
in the accounting statement. For example, donations to the community (community) are
counted in the non-operating expenses in the income statement, while investment in the
equipment to reduce emission is counted in the capital expenditure in the balance sheet.
Therefore, the analysis is limited in identifying this differentiation. However, the paper
does provide a platform for future research to explore how this differentiation affects fi-
nancial ratios in CSR-CFP link and possible to analyze the link with each individual sector
in China and other emerging markets.
Acknowledgements
We are grateful to China Stock Market & Accounting Research (CSMAR) Database for the
generosity in providing the report they produce. We greatly appreciate the honourable re-
viewers and the editors of the Journal of Business Economics and Management for insightful
comments and useful suggestions to help us improve the quality of the research. We also
would like to thank China Scholarship Council, College of International Studies of Sichuan
University, and Nottingham Business School of Nottingham Trent University for support.
Funding
This work was supported by the China Scholarship Council under Grant [number
201806240014].
Disclosure statement
Authors do not have any competing financial, professional, or personal interests from other
parties
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Journal of Business Economics and Management

ISSN 1611-1699 / eISSN 2029-4433

THE HETEROGENEOUS EFFECTS OF CSR DIMENSIONS

Rongjia SU 1, Chunping LIU 2*, Weili TENG 3

1College of International Studies, Sichuan University, No. 24 South Section 1,

Nottingham, NG1 4FQ, UK

Received 12 October 2019; accepted 27 March 2020

Keywords: corporate social responsibility, corporate financial performance, stakeholder theory,

JEL Classification: M14, M21, M41.

*Corresponding author. E-mail: [email protected]

Copyright © 2020 The Author(s). Published by VGTU Press

1.2. Extra-financial rating agencies and their dimensions

1.3. Multidimensionality of corporate financial performance

1.4. Effects of CSR dimensions on financial performance

Figure 1. Theoretical model

2. Methodology and data

2.2. Measurements of variables

2.2.2. CFP indicators

2.2.3. Control variables

2.3. Empirical model

CFP = β0 + β1HR + β2Community + β3 Environment + β4 BFS + β5 Size +

turnover. This research included 2 industry dummies representing 3 different industry

Variables Names Definitions

3.2. Descriptive statistics

Table 2. Descriptive statistics of all industries

Variable Mean SD Min Max N

Variable Mean SD Min Max N

3.3. Overall regression

Table 3.1 Overall data

NPM ROA Tobin’s Q

3.4. Regressions across industries

Table 4. Resource-intensive manufacturing industries

NPM ROA Tobin’s Q

Table 5. Capital-intensive manufacturing industries

NPM ROA Tobin’s Q

3.4.2. Other secondary sector

Table 6. Other secondary sector

NPM ROA Tobin’s Q

3.4.3. Tertiary sector

Table 7. Tertiary sector

NPM ROA Tobin’s Q

Table 8. Summary of all the regressions

Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman.

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