The Effects of CSR for the Business Performance

CSR may be economically useful for an IT organization. In general, managers are seeing that CSR is helping both the society and the business itself to succeed (Tewari, 2010, 23). Investments into CSR stimulate the development of intangible resources which affect positively into the financial results (Surroca, Tribo &

Waddock, 2010, 482-483).

As stated earlier, organization’s core values are indirectly related to the organizational performance, and successfully socially responsible organization tends to have better outcomes in profitability, market share and non-financial measures such as organizational commitment and effectiveness, customer satisfaction and system implementation success. By this, there is evidence that socially responsible organizations are more likely to be successful (Jin & Drozdenko, 2010, 356)

It is argued that organizations that engage internal and external CSR actions are more likely to achieve better performance (Hawn & Ioannou, 2016, 2584). This may occur since CSR is affecting indirectly into the financial performance of an organization. (Surroca, Tribo & Waddock, 2010, 482-483) Also, CSR engagement is positively associated with firm value. The impact of CSR intensity on firm value is statistically and economically significant which states that CSR intensity plays an important role to increase the firms’ value. (Jo & Harjoto, 2011, 351) Also, CSR contributes to cost savings and risk management because it optimizes the resources. Less wasteful resources save money (Rönnegard, 2013).

Furthermore, intangible resources are invisible and difficult to acquire by competitors (Grant & Jordan, 2015, 91). Thus, intangible resources help in creating competitive advantage and better business performance (Surroca, Tribo &

Waddock, 2010, 482-483). Hence, the intangible resources are argued to be the main reason for the diverge between companies’ book values and stock market valuations (Grant & Jordan, 2015,91).

Investments into CSR are stimulating the development of intangible assets which are said to affect positively into the financial results (Surroca, Tribo & Waddock, 2010, 482-483). When discussing an IT organization, it is noteworthy that also technology is an intangible asset because it is mostly based on intellectual property such as defined by patents, copyrights, trade secrets and trademarks (Grant &

Jordan, 2015, 92).

To give more insight, CSR can be compared to Research & Development (R&D) -operations: CSR and R&D both require intangible resources which are difficult to imitate and substitute. CSR and R&D are consistent with Resource-Based View’s theory which marks these intangible resources as important factors to achieve competitive advantage and at the same time, benefits society. (Padgett & Galan, 2010, 414-415)

CSR and IT consume organizational resources are said to develop competitive advantage separately. (Andersen, Hong, Zhang, 2011, 107) When following differentiation strategies by making investments into R&D and CSR, the investments into R&D may allow an organization to manage costs more efficiently and help in considering if the CSR activities are necessary to meet stakeholder expectations.

(Padgett & Galan, 2010, 416) However, as intangible resources, IT and CSR investments are both associated with profitable performance. Organizations may be able to create valuable intangible assets with CSR, improve relations with stakeholders and also the use of IT can positively impact competitive advantage.

(Andersen, Hong, Zhang, 2011, 107)

Relating to this, the managers should focus more on managing intangible resources because the responsibility and financial performance are linked together through intangible resource management. These managerial practices may include culture improvement programs and human resource programs that improve the involvement of the employees (Surroca, Tribo & Waddock, 2010, 483) Also when an organization is aware of their core competencies they can identify new opportunities in their external environment. Thus, competence is creating value by solving certain problems and identifies new problems that can be solved. Thus, new opportunities are created. (Rönnegard, 2013)

Also, CSR is said to be helpful in the organization’s efforts to foster effective corporate governance and at the same time to ensure the organization’s sustainability via actions that promote accountability and transparency. (Jo &

Harjoto, 2011, 351) One of the fundamentals in creating governance that works is the information transparency. In this goal, the CSR may be helpful. It is stated that there is a connection between CSR and the Information asymmetry (Lu & Chueh, 2015, 119-120). Information asymmetry occurs when one party in an economic transaction possesses greater knowledge than the other party, for example, the seller of service has better knowledge than the buyer (Investopedia, 2018a).

Hence, it is stated that organizations with higher CSR have lower information asymmetry compared to those organization who do not invest on CSR and there is even a negative relationship between CSR and information asymmetry: the gap between bid-ask to spread on the markets is lower for those who practice CSR. (Lu

& Chueh, 2015, 119-120) This happens mostly because the financial analysts are giving more value to the firms that engage in CSR. Thus, CSR is also in the interest of shareholders, practitioners and government regulations. (Jo & Harjoto, 2011, 375) Also, the excess returns are lower when CSR is practiced. CSR organizations compensate fewer excess returns to an investor than non-CSR organizations when higher information asymmetry exists. (Lu & Chueh, 2015, 120) Excess return means the abnormal rate of return of the portfolio not explained by the overall market rates’

return. Rather, it is generated by the skill of the investor or portfolio manager (Investing Answers, 2018). Also, CSR organizations have less overreaction than when the book to market effect and intangible information are considered (Lu &

Chueh, 2015, 120). Book to market means book value compared to market value (Investopedia, 2018b).