According to this research, CSR should be included in the growth strategy of a company because new responsible products and services may generate new revenue for the company (Baumgartner & Ebner, 2010; Kras & Grause, 2019). According to Ansoff (1957), this new revenue may come from new products and services for either existing or new markets. An example of a new product for an existing market could be a product or service with a smaller carbon footprint, which would be a more acceptable and thus more attractive solution than an existing product or service in the same market with a higher carbon footprint (Wiedman & Minx, 2007). In addition, an example of a new market could be a market that was created by environmental regulation, such as a sulphur washer market for ocean ships due to the sulphur directive (Eur-Lex, 2012; wartsila.com, 2020). Furthermore, new revenue may also come from the fact that customers are willing to pay more for sustainable products and services (Isfianadewi & Mahdi, 2018; Galbreth & Ghosh, 2013).
To sum up the theoretical discussion, one can assume that the financial information of the company has a positive effect on the net impact and its four dimensions as illustrated in figure 4:
Figure 4. Research model
The results of previous research on the CFP–CSP relationship vary. These results indicate a positive relationship based on the good management theory, which states that management is committed to high CSP and that company processes, such as HRM, are working (Orlitzky et al., 2003; Thomas & Simerly, 1994). Moreover, the stakeholder theory states that company management aims at high CSP because of the expectations of the stakeholders of the company, which is another important theory supporting the positive CFP–CSP relationship (Clarkson, 1995; Chin &
Sharfman, 2011). Additionally, the slack resource theory, according to which the slack financial resources of a company allow its management to invest in CSP, predicts a positive CFP–CSP relationship (Waddock & Graves, 1997). Scholars supporting the negative relationship base their views on the trade-off hypothesis, which states that CSP nets only a few positive effects but that there are numerous additional costs that reduce the financial performance (Waddock & Graves, 1997).
Another theory that supports the negative relationship is the managerial opportunism hypothesis, according to which management wants to use the additional resources only to maximise profits (Weidenbaum & Sheldon, 1987;
Friedman, 1970). Some scholars have also found a neutral relationship between CFP and CSP (Zhao & Murrell, 2016; Xie & Wang, 2017). In this research study, the positive relationship between CFP and CSP is assumed because the more recent literature findings and the slack resource theory both support it (Busch & Friede 2018; Kras & Grause, 2019; Guney & Kwabi, 2019). Therefore, it is hypothesised that:
Hypothesis 1: The higher the CFP is, the higher the CSP will be.
Despite the above, existing CSP literature seldom considers growth as part of competitive strategy (Chen et al.,2015) even though it is safe to assume that firms need to grow in order to stay in competitive markets—at least at some point in their life cycle. However, previous research has found that high-growth companies are important for the economy because they are typically responsible for the creation of the majority of new jobs (Coad et al., 2014; Henrekson & Johansson, 2010;
Mthimkulu & Azakpono, 2016; Daunfeldt & Halvarsson, 2015). Furthermore, subsequent industry growth receives a boost from the increase in high-growth companies (Bos & Stam, 2014). Additionally, high-growth companies also create new technological knowledge, which is needed for developing new sustainable products, services and solutions (Colombelli et al., 2014). Due to the reasons given
above, it can be argued that high revenue growth and CSP have a positive relationship. Therefore, it is next hypothesised that:
Hypothesis 2: High-growth companies have higher CSP than other companies.
Manufacturing companies are also seeking new growth from product-based services in order to get more revenue and because of better customer intimacy (ECSIP, 2014;
Kowalkowski et al., 2017). Thus, service-oriented companies are constituting a larger share of the whole company population (Kowalkowski et al., 2017). Furthermore, existing research argues that service companies have higher CSP than manufacturing companies (Cheung et al., 2013; Huang & Yang, 2014)—for example, engineering, consultancy and IT-service companies may have a lower burden on the environment and less safety and health issues than manufacturing companies, especially those with high emissions, high use of Earth’s resources and hazardous materials. This may be one more reason for companies to move towards servitisation. Furthermore, an incentive for servitisation may lie in the finding that CSP impacts company valuation more positively when a company is in the service sector in comparison to companies in the manufacturing sector (Cheung et al.,2013). Therefore, it is hypothesised that:
Hypothesis 3: Service companies have higher CSP than product companies.
The slack resource theory states that a firm’s ability to invest in responsible actions—
such as community, society and environment—increases as a result of slack financial resources because the firm has been profitable for at least some time (Waddock &
Graves, 1997). Previous research also indicates that there is a temporal lag between the sustainability investment made and the time period in which improvement in CSP can be registered. For example, Yilmaz (2013) studied Turkish banks and finds that one- and two-year temporal lags provide inconclusive results. Waddock and Graves (1997), however, studied a variety of industries and explain the 1990 CSP with the 1989 CFP. Additionally, Ahlström and Ficekova (2016) studied Nordic public companies with a one-year temporal lag in the CFP-CSP relationship. Thus, the temporal lag has been a seldom researched topic in terms of the CFP–CSP relationship, and the most common temporal lag resulting from this research seems to be one year.
In the final part of the empirical research, it is investigated whether the temporal lag can be longer than one year and how CSP would behave as the temporal lag becomes
longer. This could, for example, be concretised by the discourse on climate change as follows: rapid action to reduce emissions in order to reverse the trend of global warming is expected as quickly as possible. It can be argued that it takes several years after a climate investment is made before an acceptable emission level can be reached. This is the result of an improvement that occurs year-by-year when sources of emissions are gradually removed. The above example about the environmental impact brings forth a question about how other impact dimensions are behaving in terms of the length of the temporal lag. However, only seldom does previous research break down the aggregate CSP into different dimensions (Waddock &
Graves, 1997; McGuire et al., 2003; Busch & Friede, 2018). It can be argued that different impact dimensions are of quite different natures. Therefore, it is hypothesised that:
Hypothesis 4: The longer the temporal lag, the higher the CSP will be.
3 RESEARCH METHODS AND DATA
This chapter describes the industry setting, the data and variables selected as well as, the methodology used. The research constitutes an exploratory hypothetico-deductive quantitative study. The epistemological position is positivistic and the methods used are typical for this type of research. In the dataset the financial information of the companies is secondary, because it is normally used for reporting financial performance of the companies for official purposes. It is based on annual reports of the companies and has been audited by outside auditors. Net impact data is primary and used for reporting the corporate social performance. IBM SPSS Statistics 26-software is used for the quantitative analysis.