csr bequeath competitive advantage: a relative study of indian firms

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This article can be downloaded from http://www.ijmrbs.com/currentissue.php

Int. J. Mgmt Res. & Bus. Strat. 2014 Rupal Tyagi, 2014

CSR BEQUEATH COMPETITIVE ADVANTAGE:

A RELATIVE STUDY OF INDIAN FIRMS

Rupal Tyagi1*

Value maximization has become core strategic concern for every organization and CorporateSocial Responsibility (CSR) is playing an important role in increasing the value. Practitionersare still not able to recognize this 'compulsory effect' of value creation and role of CSR indetermining the competitive performance. The paper explores the difference between two CSRportfolios scaled by S&P ESG Scores on Indian sample firms. The study reports that there is asignificant difference among the various performance indicators of two groups - Top CSR andLow CSR which indicates competency level is high for Top CSR performers.

Keywords: Corporate Social Performance, Corporate Financial Performance, CompetitiveAdvantage, India, Business Strategy

*Corresponding Author:Rupal Tyagi � Rupal Tyagi

INTRODUCTION AND

PROBLEM STATEMENT

Modern finance theory hypothesizes that the

objective of managerial decision-making should

be to maximize company value. Managers and

practitioners have often been criticized for being

1 Social Sector Research Practitioner and has attended the Department of Management Studies, Indian Institute of Technology Roorkee,Roorkee (Uttarakhand) India.

Int. J. Mgmt Res. & Bus. Strat. 2014

ISSN 2319-345X www.ijmrbs.com

Vol. 3, No. 3, July 2014

© 2014 IJMRBS. All Rights Reserved

single minded about value maximization1 and not

considering the broader aspects of corporate

strategy or the interests of other stakeholders.

Managers seem to have come around to the view

that value maximization should be the primary

objective of their firms by the efficient allocation

of resources2. However, profit maximization3 or

1 Shareholder Value maximization, also known under value based management, states that management should first and foremost considersthe interests of shareholders in its business decisions. In other words, this is the act or process of adding to an individual’s net worth byincreasing the share price of the common stock in which that individual has invested.

2 In a business unit, the goal of maximum profit depends on how the resources are allocated among different projects. Economically speakingby Efficient Allocation of resources, we mean the distribution of available resources in such a way that all resources are fully utilized andthere are increasing returns to scale. Efficient allocation of resources is that combination of inputs, outputs and distribution of inputs, outputsthat any change in the economy can make someone better off (as measured by indifference curve map) only by making someone worse off(Pareto efficiency). Pareto efficiency, or Pareto optimality, is a concept in economics with applications in social sciences and engineering namedafter Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.

3 In economics, profit maximization is the (short run) process by which a firm determines the price and output level that returns thegreatest profit. There are several approaches to determine it such as the total revenue - total cost method relies on the fact that profit equalsrevenue minus cost, and the marginal revenue - marginal cost method is based on the fact that total profit in a perfect market reaches itsmaximum point where marginal revenue equals marginal cost.

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increasing the market share no longer remains

the focus of businesses (Jenkins 2005; Marrewijk,

2002). Practitioners are compelled by increased

competitive pressures to examine the quality and

magnitude of CSR activities. Further, despite the

growing involvement in CSR, shadow of the

doubt remains as to whether such initiatives could

potentially lead to firm’s better performance and

as a source of sustained competitive advantage

(Dusuki and Dar, 2005).

Further, it was argued that CSR and corporate

giving can and should be strategically aligned with

the core competencies of the firm to benefit

society along with generating returns for the

company. The scholars confront corporate

philanthropy as a cost-efficient means for firms

to better their wider competitive context, and

argue that, if philanthropic activity is not aligned

with the company’s core competencies, it cannot

build sustainable social impact.

Strategic philanthropy or strategic CSR, in this

view, “can be the most cost-effective way for a

company to improve its competitive context,

enabling companies to leverage the efforts and

infrastructure of nonprofits and other institutions”

(Porter and Kramer, 2002). Strategic CSR can

arguably yield sustainable social benefits apart

from improving employee motivation and

corporate repute. CSR has become a critical

aspect in strategic decision making of a firm

primarily because of financial scandals and drop

of investors’ confidence (Fiori et al., 2007). Thus,

it leads to the thought of reputation building that

has become the most valuable asset of any firm.

CSR initiatives can contribute to reputational

advantages such as increased trust in investors,

new market opportunities and positive reactions

of capital markets (Fombrun et al., 2000; Spicer,

1978). Klein and Dawar (2004) proposed that

CSR has value for the firm as a form of insurance

policy against negative events. CSR pushed the

managers to consider how best they can utilize

this platform for addressing issues such as

organizational actions, concern for society and

the environmental influence that may lead to the

competitive advantage of firms. Competitive

advantage denotes the power of a firm to surpass

others which may result from successful

differentiation from rivals’ actions (Porter, 1996).

In this manner, the firm can make more efficient

and sustainable contributions to the society while

simultaneously fulfilling its economic objectives

(Bruch and Walter, 2005; Porter and Kramer,

2002, 2006).

According to the Resource- Based View

(RBV)4 of strategic management, possession of

valuable, rare, inimitable and non-substitutable

resources is one of the ways to outperform

competitors (Barney, 1991, 2001; Grant, 1991;

Wernerfelt, 1984) and in turn may expect to earn

superior returns (Roberts and Dowling, 2002).

Resources include both tangible and intangible

assets, such as leadership, market agility, and a

positive social reputation (Mahoney and Pandian,

1992; Coff, 1997). CSR can differentiate a firm’s

products (Porter, 1991), reduce its operating

costs (King and Lenox, 2000), and serve as a

platform for future opportunities as well as a buffer

4 The Resource-Based View (RBV) or Good Management Theory proposes that a company should try to satisfy its stakeholders withoutpresupposing its financial condition. It is a business management tool used to determine the strategic resources available to a company.This will lead to have good image, reputation and competence. Its fundamental is that the basis for a competitive advantage of a firm liesprimarily in the application of the bundle of valuable resources at the firm’s disposal. To transform a short-run competitive advantage into asustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile. Effectively, thistranslates into valuable resources that are neither perfectly imitable nor substitutable without great effort as cited on www.wikipedia.com.

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from disruptive events (Fombrun et al., 2000).

Intangible asset like reputational capital may help

the company to obtain more favorable terms of

trade when negotiating with various stakeholders

(Cornell and Shapiro, 1987; Bowen et al. 1995;

Jones, 1995). Benefits colligated with good

reputations (Fombrun and Shanley, 1990;

McGuire et al., 1990; Landon and Smith, 1997;

Herremans et al. 1993; Podolny, 1993) ultimately

leads to enhancements in company’s input-output

efficiency or generate new market opportunities

(Derwall et al., 2005).

On the other side of the coin, CSR has been

seen as a cost to the firm rather than a source of

revenues. A firm’s costs of adhering to ethical

standards will translate into higher product prices,

a competitive disadvantage and lower profitability

(Walley and Whitehead, 1994). CSR may

definitely be a superior corporate behaviour in

terms of social welfare if the expected reduction

of negative externalities is accompanied by a

creation amount of aggregate economic value

(and not merely shareholder return) equal or

superior to that of non socially responsible firms

(Becchetti et al., 2005a). That may render a

powerful incentive for firms to adopt CSR beyond

edified selflessness. Thus still uncertainty

shrouds around whether CSR builds or destroy

corporate wealth. Critics of CSR opine that

expending limited resources on the social scene

inevitably lessens the competitive status of a firm

by unnecessarily increasing its costs where CSR

has become “an inescapable priority for business

leaders” (Porter and Kramer, 2006). Searching

the best way to enhance corporate performance

and revealing the facts that may impact the growth

and betterment of the firm and provides vast

space to academic research.

ARGUMENTS FROM

LITERATURE

The question whether CSR initiatives could

potentially lead to firm’s better performance or

as a source of sustained competitive advantage

is critical to answer. Muruganantham (2010)

pointed CSR as a relevant strategic marketing

tool, and firms use CSR to enhance the image,

generate brand equity and increase employee

loyalty. CSR is a strategy for achieving corporate

objectives and if not carefully implemented, may

harm the competitive advantage of the firm

(Dentchev, 2004). Dentchev (2004) inquired into

the variety of positive and negative effects of CSR

on competitiveness from diversified group of

respondents. The study of Fauzi and Idris (2009)

integrated the concept of strategic management

into the definition of CSR as sustainable corporate

performance including economy, social, and the

environment. They also documented positivity in

the outcome.

Ji-ming and Hao-bai (2007), Sen (2006) and

Kobori et al. (2009) examined whether CSR

activities lead to competitive advantage and

sustainable development. The study of Marín et

al. (2009) proved that the CSR contributes to the

competitive success. Siegel and Vitaliano (2006)

stated the strategic use of CSR matrix into a firm’s

differentiation strategy. Sloan (2007) addressed

the gap between competitive strategy and social

responsibility along with explored the integration

process whereas Zsolnai (2006) tried to get the

fresh substance of competitiveness in context

with CSR through enlightening acts of progressive

socially responsible firms.

Competitive Advantage and BrandPerformance

Brand image, brand loyalty and brand

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performance creates value for the shareholdersby increasing the future cash flows (Rosário andCustodio, 2007). One of the core areas of CSRresearch looks forward to understanding thebrand psychology behind the CSR mask. CSRand corporate reputation have positive effects onindustrial brand equity and brand performance Laiet al. (2010). CSR is a valid source of intangiblecompetitive advantage (Melo and Galán, 2009).According to Smith et al. (2010) sociallyresponsible firms have significant market valuepremium, superior financial performance, andlower cost of capital. Rodrigues et al. (2011) alsovalidated the relationship between CSR practicesand brand image, identity salience, brand loyaltyand willingness in paying a premium price for aproduct or service from a CSR firm. Willingnessof consumers is heterogeneous to pay for socialand environmental issues and dynamicallyimpressed by habit persistence (Becchetti et al.,2005b). This is also confirmed by the study of Aliet al. (2010b) which found no relationship betweenawareness of CSR activities and consumerpurchase intention.

Reputation Mitigates Risk Behavior

Reputation is an intangible asset for a firm whichcannot be imitable and this brings competitiveadvantage to firms with low risk behavior.Reputation is a ‘fundamental intangible elementin the generation of competitive advantages forthe organization, mainly from the perspective ofstrategic models based on resources andcapabilities, though also from that of environmentmodels’ (Sánchez and Sotorrío, 2007).

The research of Selvi et al. (2010) exploresCSR impact on firm reputation before and afterthe financial crisis and evidenced a positiveassociation. High-reputation firms experience aneconomic benefit, by looking distinctively at firms’market value of equity, and related financialperformance and risk level (Wang and Smith,

2010). Giannarakis and Theotokas (2011)evaluated the effect of the financial crisis on CSRfirms and indicated that firms increase theirperformance so that they may regain the lost trustin businesses. Cheah et al. (2007) discussed theimpact of product recalls on their shareholderreturns that could significantly damage acompany’s reputation, profitability and brandintegrity. Their study looked into the effect onshareholder wealth and the extent to which theadoption of CSR practices by these firms affectedmarket reactions surrounding product recallannouncements.

The work of Sapovadia (2008) provides a wayto realize the vision of mitigating risks andoptimizing performance simultaneously in today’scompetitive and regulatory environment. Roseand Thomsen (2004) said that ‘the benefits of agood reputation are none other than the possibilityof demanding a higher price for the products orservices supplied by the company; the paymentof lower prices in its purchases; attracting morequalified people in the labor market; greater loyaltyfrom consumers and employees and greaterstability of incomes’ (cited in Sánchez andSotorrío, 2007).

RESEARCH RATIONALE,

OBJECTIVES AND

HYPOTHESIS

Intense competition has gripped the industry in

recent years with major world players entering

the market bringing better technology and

experience. Examining to what the extent

reputation generated from social, environment

and governance activities coincide on the

competitive performance of the company is a

challenge and this would be interesting in the

present state of the domestic market. It is

expected that there is an impact of CSR activities

on competitive performance of the firm.

53



With many flaws repeated and corrected in

subsequent studies along with the improvement

over time in CSR studies, research extended

stronger theoretical rationale and more and better

variables controls. For the research following

conceptual model was proposed (Figure 1).

Thus, study attempts to bring out the competitive

flavor of the Indian CSR firms. With this objective,

an effort has been made to assess the role of

CSR in creating competitive value to firms. The

study hypothesis that financial or market

performance of High CSR firms and Low ESG

firms are significantly different.

Hypothesis: There is a significant difference in

competitive performance of Highly Socially

Responsible and Low socially responsible Indian

firm’s citrus paribus.

SAMPLE SIZE AND DATA

SOURCE

A total of 253 firms were selected out of 500 onthe basis of following criteria:

• Must be listed on S&P ESG 500 India indexthrough all the years since the index waslaunched, i.e., year 2005 to the year 2010when the study was conducted.

• Financial data of these 6 financial years 2005to 2010 must be available for all sample firms

As per the availability of financial data, 38 firmswere eliminated and final 215 firms were retainedin the sample. Analysis was conducted on 1281company years, representing 215 firms and anaverage of 6 years per firm. Refer Annexure I forthe list of sample Indian firms used in the analysis.The study combines the two archival data sourcesfor the analysis, first, data of CSR and second,data of Competitive Performance of Indian firms.The main data constraint in the analysis was theavailability of CSR data of Indian firms. Like USand other western countries, Indian firms haveno such index / ratings of CSR until 2005 whenCRISIL5, S&P6 and KLD7 collaboratively launchedESG Scores.

The study uses these ESG scores as a proxy

for CSR of Indian firms while for financial data

Capitaline Plus8 database were used. To examine

5 CRISIL is India’s leading Ratings, Research, Risk and Policy Advisory Company. CRISIL offers domestic and international customers aunique combination of local insights and global perspectives, delivering independent information, opinions and solutions that help themmake better informed business and investment decisions, improve the efficiency of markets and market participants, and help shapeinfrastructure policy and projects.

6 S&P-Standard & Poor’s Index Services, the world’s leading index provider, maintains a wide variety of investable and benchmark indicesto meet an array of investor needs. Its family of indices includes the S&P 500, an index with $1.32 trillion invested and $4.91 trillionbenchmarked, and the S&P Global 1200, a composite index comprised of seven regional and country headline indices

7 KLD Research & Analytics, Inc. is an independent investment research firm providing management tools to professionals integratingenvironmental, social and governance factors (ESG) into their investment decisions. KLD Indexes, a division of KLD, constructs indexesthat are accepted as the benchmarks for ESG investment strategies. Investors, trustees and consultants depend on the quality and integrityof KLD Indexes, which are designed to be transparent, representative and investable. Today, more than $11 billion is invested in funds basedon KLD’s family of indexes.

8 CAPITALINE is corporate database of Indian companies which contains extensive data on Company such as Bio-data, Collaborators,Expansion Plans, Shareholding Patterns, 10-year Profit & Loss, Balance Sheet, Schedules & Notes to Account, Fund Flows, FinancialRatios (in all 650 finance fields per company which cover almost 98% of any annual report). It also covers full text of Director’s Reports,Auditor’s Report and extensive news clippings of companies.

Figure 1: Conceptual Model

COMPETITIVENESS

Financial

Indicators

Stock Market

Indicators

Technological

Indicators

Growth

Indicators

HIGH CSR

FIRMS

LOW CSR

FIRMS

54



competitiveness, study formed two groups

quintile by ESG scores and a comparison was

made between the groups to ascertain the results.

Measuring Corporate SocialResponsibility

Past studies have used various methods to

measure CSR. Rating provided by other

organizations is the mostly used method such

as KLD Scores (Waddock and Graves, 1997a).

The present study employed S&P 500 ESG Score

India index which was sponsored by the

International Finance Corporation (IFC), and

developed by a consortium of Standard & Poor’s,

CRISIL, and KLD in 2005. The index represents

the first of its kind to measure Environmental,

Social, and corporate Governing (ESG) practices

based on quantitative as opposed to subjective

factors. The index employs a unique and

innovative methodology that quantifies a

company’s ESG practices and translates them

into a scoring system which is then used to rank

each company against their peers in the Indian

market. Unlike previous indices of this kind that

measure ESG parameters on a committee and

internal consensus basis, the S&P ESG India

index and its quantitative scoring system offers

investors complete transparency (Sinha, 2009).

For detailed methodology index can be accessed

from the website of CRISIL.

Measuring Competitiveness

The corporate performance is the organization’s

ability to attain its goals by using resources in an

efficient and effective manner Daft (1991).

According to Ventrakaman and Ramanujam

(1986), corporate performance can be divided into

operational and financial performances where

Operational performance includes market share,

product quality, and marketing effectiveness.

Financial performance can be measured in two

ways – One, market-based performance (e.g.,

stock price, dividend payout and EPS) and two,

accounting-based performance (e.g., ROA,

ROE).

Competitiveness can be observed from

different perspectives, through products, firms,

industry and branches of the economy or national

economies. At each level of aggregation, there

are different measures or indicators of

competitiveness. As competitiveness is linked to

a large number of variables, defining it is in itself

a research problem. So is measuring

competitiveness, it being the broad, relative

concept without bearing any direct relationship

with economic performance indicators. ‘Financial

ratio is a well accepted technique to assess

financial performance’ pertaining to the profitability,

efficiency and liquidity (Gupta et al., 2011).

According to our line of reasoning, present study

uses various performance measures to solve

subjectivity related problems.

The variables were identified on the basis of

factors related to competitiveness at the firm level,

in view of the explicit issues peculiar to the Indian

industries. Table 1 show variables which have

been used in the examination of competitive

performance of two groups scaled by ESG

scores.

RESEARCH METHODOLOGY

The data set was screened for outliers, normal

distribution and skewness. The present study

used robust methods where observations with

most extreme outliers were dropped from the

samples while extreme outliers were replaced

with adjacent values from the remaining data

(Barnett and Lewis, 1994). It is to be noted that

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Table 1: Description of Variables Considered for Competitive Performance

Indicators Sub-indicators Symbol

FINANCIAL PERFORMANCE Liquidity Ratio Current Ratio CR

Leverage Ratio Debt To Equity Ratio DE

Efficiency Ratio Asset Turnover Ratio ATR

Profitability Ratio Return on Assets ROA

Return on Net Worth RONW

Return on Capital Employed ROCE

Operating Profit Margin OPM

STOCK MARKET PERFORMANCE Earnings Per Share EPS

Price Earnings Ratio PER

Price to Book Value PBV

TECHNOLOGICAL PERFORMANCE Innovation Research & Development Expenditure RD_EXP

ESCALATION Growth Variables Total Assets TA

Numbers of Employees EMP

Net Sales NSales

Profit After Tax PAT

all extreme observation cannot be removed due

to their important contribution in the sample, thus

the method of transformations was adopted so

that extreme scores can be kept in the data set

yet the skew and error variance of the variable(s)

can be reduced (Hamilton, 1992). Data set were

examined and every transformation9 was

employed to all the data sets to check which

method gave the best results. As suggested by

Msetfi (2011, pp. 32-34), finally, power

transformation (variablepower) also called Box-Cox

Transformation was used to transform the data.

The ‘Power for transformation’ value suggests that

if one raises the variable to the power value given

here, the variances will be equal. This will improve

the data to a normal distribution and will remove

its skewness. Independence Student T Test of

parametric tests of differences between means

for analyzing the competitive characteristics of

the two groups—top and bottom quintile by ESG

scores of Indian firms was conducted to find out

the difference of competitive performance

between the two groups.

RESULTS AND DISCUSSION

Table 2 reports the Descriptive Statistic of

variables identified for the study. Generally studies

have compared financial and CSR performance

9 Transforming data means performing the same mathematical operation on each piece of original data. There are various transformationswhich can be applied on dataset as per the best fit. Log Transformation is mostly used in the literature. Though current practices disclosethat Box-Cox transformation are better able to shape the data than log. The statisticians George Box and David Cox developed a procedureto identify an appropriate exponent (Lambda = l) to use to transform data into a “normal shape.” The Lambda value indicates the power towhich all data should be raised. In order to do this, the Box-Cox power transformation searches from Lambda = -5 to Lambda = +5 untilthe best value is found.

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Table 2: Descriptive Statistics for All Variables

ES ESG OPM ROCE RONW ROA EPS DE RD MCAP

MEAN 6.08 3.91 1.83 1.28 3.46 0.23 1.79 0.99 0.15 1.56

MEDIAN 6.15 3.90 1.99 1.44 3.50 0.22 1.83 0.49 0.00 1.54

MAXIMUM 14.48 5.04 3.00 1.82 7.95 0.74 3.39 19.35 2.50 1.96

MINIMUM 0.00 3.14 0.00 0.00 0.00 0.01 0.00 0.00 0.00 0.00

STD. DEV. 2.13 0.30 0.70 0.49 1.03 0.14 0.55 1.78 0.40 0.12

SKEWNESS 0.16 0.46 -1.61 -2.04 -0.48 0.63 -1.02 4.90 3.47 0.89

KURTOSIS 3.17 3.62 5.15 5.60 5.65 3.09 5.54 36.41 15.67 3.47

JARQUE - BERA 6.81 65.29 793.71 1240.39 415.05 82.72 564.33 64694.00 11137.63 182.34

PROBABILITY 0.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

SUM 7790.75 5007.32 2323.75 1625.99 4329.41 288.48 2290.21 1270.82 188.97 2004.15

SUM SQ. DEV. 5806.90 112.59 621.96 310.80 1318.09 25.65 391.69 4047.35 205.03 19.07

OBSERVATIONS 1281 1281 1273 1271 1252 1233 1281 1281 1281 1281

PBV CR PE TA NSALES ATR RD_EXP TI EMP PAT

MEAN 1.25 0.78 5.11 0.82 1.68 1.06 0.61 0.62 15.73 3.93

MEDIAN 1.23 0.41 4.61 0.83 1.65 0.99 0.00 0.62 13.77 3.48

MAXIMUM 2.14 21.26 40.59 0.91 2.29 1.87 6.02 0.78 44.15 9.94

MINIMUM 0.66 0.00 0.00 0.72 1.30 0.65 0.00 0.47 2.65 1.01

STD. DEV. 0.23 1.42 3.56 0.03 0.16 0.25 1.30 0.05 7.32 1.49

SKEWNESS 0.57 6.12 5.25 -0.52 0.83 1.27 2.35 -0.23 1.22 1.35

KURTOSIS 3.46 59.17 45.32 2.68 4.01 3.76 7.79 3.23 4.66 4.93

JARQUE - BERA 81.46 158249.60 101491.00 63.03 199.47 376.07 1402.64 14.04 314.78 566.78

PROBABILITY 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

SUM 1599.75 891.84 6549.85 1051.09 2152.87 1351.59 776.73 789.04 13653.47 4846.26

SUM SQ. DEV. 65.50 2307.18 16248.54 1.55 30.93 83.16 2148.32 3.33 46484.41 2726.16

OBSERVATIONS 1276 1149 1281 1281 1281 1281 1281 1281 868 1233

Table 2 (Cont.)

Note: All the variables are in transformed scale

using financial indicators and there exist a few

studies which examine the competitiveness.

Thus, for comparison, all studies were selected

which have compared CSR in both contexts either

financial or competitive performance. The mean

value of ROA is 0.23 and SD is 0.14 which is

57



closed to the SD (0.058) of Waddock and Graves

(1997a). ROE mean value is 3.46 which closed

to Mahoney and Roberts (2007) – 4.99 and

Trebucq and Charles-Henri (2002) – 5.72 while

SD of ROE is 1.03 for the present study. Similarly,

mean of OPM (also referred as ROS) is 1.83 and

mean of SD is 0.70 which are very close to

Waddock and Graves (1997a) scores. Mean

value of EPS is 1.79 closed to Laan et al. (2008)

and SD is 0.55. Mean of ROCE and Mcap is 1.28

and 1.56 while SD is 0.49 and 0.12 respectively.

Mean value of DE (0.99) is closed to Moon (2007)

– 0.64, Laan et al. (2008) – 0.41 and SD of DE is

1.78. Mean of RD is 0.15 closed to Garcia-Castro

et al. (2010) – 0.04.

To analyze performance characteristics of the

sample firms, Top and Bottom Quintile analysis

on ESG scores in line with the estimation done

by Poddi and Vergalli (2009) and Moon (2007) was

performed. These studies compared two groups

of High CSR (CSR) and Low CSR (Non-CSR).

Independent t-test of parametric tests of

differences between means for analyzing the

characteristics of the two groups was conducted.

It is used in experiments in which there are two

conditions and different subjects have been used

in each condition.

Levene’s test can be conceptualized as similar

to a t-test in that it tests the hypothesis that the

variances in the two groups are equal (i.e., the

difference between the variances is zero).

Therefore, if Levene’s test is significant at p <=

0.05 then it can be concluded that the null

hypothesis is incorrect and that the variances are

significantly different. If, however, Levene’s test

is non-significant (i.e., p > 0.05) then the null

hypothesis must be accepted that the difference

between the variances is zero and so the

variances must be roughly equal.

All observations were equally divided into 3

groups to compare the competitiveness

performance. The Top group represents

observations which scored high in ESG scoring

while BOTTOM group scored low ESG scores.

Top and Bottom observations were used in the

analysis to examine the mean difference. The

Table 3 shows the Group Statistics of

experimental groups – TOP and BOTTOM while

Table 4 shows results of Independent t-test and

Levene’s test. N indicates the total number of

observations in each group for each variable.

Levene’s test is significant for all variables

except for RONW, ROA, EPS and PBV (because

p greater than 0.05). If the significance value of t

is seen, two tailed value of p is greater than 0.05

for RONW and ROA so it was concluded that

there was no significant difference between the

means of these two variables from both the

groups.

The top- and bottom- quintile companies differ

significantly considering all the indicators except

RONW and ROA. Results indicate that ROCE is

significantly different between the two groups, i.e.,

also consistent with the work of Sinha (2009) that

documented Indian firms have high ROCE in the

top category by G scores. Top quintile companies,

on an average, have a significantly lower debt ratio

(0.69% to 1.21%) which is again consistent with

Sinha (2009).

Top quintile companies, spend more in R&D

(0.18% to 0.12%), have high profit margins (1.7%

to 1.9%) and have substantially larger market

capitalization (1.64% to 1.51%). Their financial

performance is better, as their EPS is higher

(1.91% to 1.71%), and also their RONW is higher

(3.50% to 3.42%), though not significant. Top

quintile group shows that these firms are better

58



Table 3: Group Statistics of Top and Bottom Quintiles by ESG Scores

Indicators Groups N Mean Std. Deviation Std. Error Mean

ES TOP BOX 429 8.201 1.426 0.069

BOTTOM BOX 429 3.942 1.247 0.060

ESG TOP BOX 429 4.232 0.197 0.009

BOTTOM BOX 429 3.596 0.129 0.006

OPM TOP BOX 427 1.742 0.773 0.037

BOTTOM BOX 427 1.933 0.569 0.028

ROCE TOP BOX 425 1.233 0.551 0.027

BOTTOM BOX 429 1.327 0.427 0.021

RONW TOP BOX 421 3.496 0.996 0.049

BOTTOM BOX 418 3.424 1.079 0.053

ROA TOP BOX 417 0.233 0.148 0.007

BOTTOM BOX 411 0.237 0.141 0.007

EPS TOP BOX 429 1.910 0.526 0.025

BOTTOM BOX 429 1.697 0.541 0.026

DE TOP BOX 429 0.692 0.956 0.046

BOTTOM BOX 429 1.209 2.310 0.112

RD TOP BOX 429 0.184 0.447 0.022

BOTTOM BOX 429 0.116 0.347 0.017

MCAP TOP BOX 429 1.636 0.143 0.007

BOTTOM BOX 429 1.513 0.084 0.004

PBV TOP BOX 429 1.230 0.228 0.011

BOTTOM BOX 424 1.299 0.230 0.011

CR TOP BOX 366 1.047 2.038 0.107

BOTTOM BOX 403 0.577 0.935 0.047

PER TOP BOX 429 4.761 2.336 0.113

BOTTOM BOX 429 5.555 3.859 0.186

TA TOP BOX 429 0.802 0.034 0.002

BOTTOM BOX 429 0.837 0.029 0.001

NSALES TOP BOX 429 1.781 0.165 0.008

BOTTOM BOX 429 1.602 0.120 0.006

59



Table 3 (Cont.)

Indicators Groups N Mean Std. Deviation Std. Error Mean

ATR TOP BOX 429 1.066 0.267 0.013

BOTTOM BOX 429 1.034 0.232 0.011

RD_EXP TOP BOX 429 0.963 1.624 0.078

BOTTOM BOX 429 0.341 0.902 0.044

TI TOP BOX 429 0.583 0.049 0.002

BOTTOM BOX 429 0.643 0.045 0.002

EMP TOP BOX 331 18.895 7.855 0.432

BOTTOM BOX 262 12.246 5.206 0.322

PAT TOP BOX 417 4.872 1.747 0.086

BOTTOM BOX 411 3.191 0.869 0.043

Note: All the variables are in transformed scale

Table 4: Comparison of Top and Bottom Quintiles by ESG Scores

Variables Levene’s Test for Equality of Variances t-test for Equality of Means

F Sig. t df Sig. (2-tailed) Mean Difference Std. Error Difference

ES 5.50 0.02* 46.57 856 0.00* 4.26 0.09

ESG 26.33 0.00* 55.96 856 0.00* 0.64 0.01

OPM 32.56 0.00* -4.11 852 0.00* -0.19 0.05

ROCE 36.32 0.00* -2.77 852 0.01* -0.09 0.03

RONW 1.19 0.28 1.00 837 0.32 0.07 0.07

ROA 2.50 0.11 -0.44 826 0.66 0.00 0.01

EPS 0.04 0.85 5.85 856 0.00* 0.21 0.04

DE 38.85 0.00* -4.29 856 0.00* -0.52 0.12

RD 15.14 0.00* 2.48 856 0.01* 0.07 0.03

MCAP 140.77 0.00* 15.32 856 0.00* 0.12 0.01

PBV 0.00 0.99 -4.37 851 0.00* -0.07 0.02

CR 29.18 0.00* 4.17 767 0.00* 0.47 0.11

PER 5.49 0.02* -3.65 856 0.00* -0.79 0.22

TA 22.37 0.00* -16.13 856 0.00* -0.03 0.00

NSALES 54.45 0.00* 18.20 856 0.00* 0.18 0.01

ATR 5.27 0.02* 1.83 856 0.07* 0.03 0.02

60



able to utilize their assets efficiently compared to

the bottom group as test shows that there is asignificant difference in mean of ATR (1.1% to1.03%). Similarly, High CSR firms are better ableto generate Sales, PAT and Income compared toLow CSR firms which are again significant at p <0.01 confidence.

There also exists significant mean differencewith regard to Size factor represented by numberof employees and Total assets between both thegroups. The results indicate that for both thegroups there is a significant difference in themean of TA and EMP which hence indicate thatthe size is an important factor in determining thelevel of CSR. Significant difference in PER atp<=0.01 shows that High CSR firms are moreprofitable, more effective in creating value and,therefore, more lucrative for the investorscompared to Low CSR firms. Significantdifference in PBV at p<=0.01 shows that HighCSR firms are better firms in terms of valuedstocks while CR (Current Ratio) shows that Topfirms are more capable of paying its obligations(significant at p<=0.01).

These numbers imply that there exists positiveassociation between the firm’s socialperformance and competitive performance.Moreover, Firm with High CSR scores are winner

in almost every parameter compared to Low CSR

scored firms. This implies that being responsible;

firms have additive advantage over their

competitors and other market players. This

proves the hypotheses that mean of High CSR

firms are significantly different from Low CSR

firms indicating that CSR leads to healthy and

ethical competitive advantages and diminishes

malpractices of competition.

CONCLUSION

The existing debate about the concern of thelegitimacy and value in socially responsiblebusiness has brought forth different views of therole of the firm in society and dissonance as towhether wealth maximization should be the solegoal of a corporation. The studies have identifiedbenefits from socially responsible behavior,though it is still difficult to quantify and measurethem statistically. From Independent t test andLevene Test, study found out that there is a stronginfluence of ESG or CSR on competency of Indianfirms. Results indicate that there is a significantdifference between High CSR performer and LowCSR performer with regards to variousperformance indicators. This implies that sociallyresponsible firms are better in financialperformance and have a competitive advantage

over other players in the market.

Table 4 (Cont.)

Variables Levene’s Test for Equality of Variances t-test for Equality of Means

F Sig. t df Sig. (2-tailed) Mean Difference Std. Error Difference

ATR 5.27 0.02* 1.83 856 0.07* 0.03 0.02

RD_EXP 149.30 0.00* 6.93 856 0.00* 0.62 0.09

TI 11.66 0.00* -18.64 856 0.00* -0.06 0.00

EMP 50.07 0.00* 11.80 591 0.00* 6.65 0.56

PAT 222.67 0.00* 17.49 826 0.00* 1.68 0.10

Note: *Significant at 0.01%; All the variables are in transformed scale.

61



A socially responsible firm has an advantage

in terms of loyal customers who ultimately ensure

firms profit level. High reputation in the eyes of

stakeholders improves the competitiveness of the

company, such as customers may purchase the

products of the company even highly priced or

more in quantity. McWilliams and Siegel (2001)

stated that firms supplying CSR products to their

own customers have got a different demand curve

compared to enterprises that do not provide CSR.

Firms with strong financial backing have more

resources to invest in social performance orbits

such as employee welfare, eco-friendly and

waste prevention technologies and community

development. These investments strengthen

public image, improve community and

stakeholder relations compared to companies

with low financial backing.

According to Waddock and Graves (1997a),

meeting stakeholder expectations before they

become problematic indicates a proactive

attention to issues that otherwise might cause

problems or litigation in the future. Moreover,

reputed firms attract more accomplished

employees and business partners; brand loyalty

from consumers, best offers from suppliers, low

risk of negative events such as boycotts or so

which could damage the reputation that costs

millions in information and advertising campaigns

or litigation (Tsoutsoura, 2004). This process

becomes a source of economic advantage in

attracting customer sympathies and attentions,

reduces the potential internal and external

conflicts as legal lawsuits from Government and

other authorities (Ehsaan and Kaleem, 2012)

which in the long term may preclude the

possibility of a long-term effect on social

performance or competitive performance.

Moreover, managers are step forwarding to

produce CSR as strategic decisions that will favor

company profit while giving competitive

advantage as well (Porter and Kramer, 2002;

Rowley and Berman, 2000).

RECOMMENDATIONS AND

CONTRIBUTION

This study not only contributes to the empirical

literature in different ways but offers

recommendations. The over-riding research

constraint faced in conducting the analysis was

the lack of a reliable measure of CSR for

evaluating Indian companies from any CSR

perspective. Though, there are few recent

attempts to rate CSR activities of Indian

companies like the Karmayog CSR rating. Later,

an objective assessment of CSR like that done

by KLD in the US was launched in collaboration

with CRISIL to rate and score Indian firms. The

present study utilizes those scores for the

measuring CSR which have not been used by

any other study till date. It is important to explicate

the CSR contribution as the creation of intangible

assets—corporate reputation and image

reflected in the results. Findings suggest that

CSR is and able to bring competitive advantage

in the long run.

LIMITATIONS OF THE

STUDY

Like the previous studies, the present study is

also influenced by few undesirable factors. Hence

the analysis is not completely free from biases

and may suffer from a certain degree of

subjectivity. The analysis was conducted on

relatively small number of companies - 215 and

their coverage period compared to the previous

studies was curbing – 6 years. Agreeing with

Fauzi (2009), the period coverage of the study is

62



important because the characteristic of CSR and

corporate performance is discretionary, i.e.,

independent-CSR and outcome-corporate

performance has no direct relationship. It was

observed that the cross sections are from 52

categories of industries. Issues faced by each

category being unique and different from the other,

an aggregate analysis across multiple categories

of industries might have missed industry-specific

issues (Griffin and Mahon, 1997).

SUGGESTIONS FOR FUTURE

RESEARCH

Future research in this area could go forward in

a number of directions: It is to be borne in mind

that CSR initiatives inflict significant programmatic

and administrative costs on businesses and only

financially strong firms are able to maintain CSR

activities in the long run and can afford the

overhead CSR costs or investments (Mittal et al.,

2008). Thus, there are many factors which are

required to be taken care of such as industry

sector, size, multi-nationality and market risk

profile of firms. Different measures can be used

such as MVA, EVA and Tobin’s Q to assess

corporate performance. Increasing size of sample

firms and years of observations can dramatically

improve the outcome. The extended study period

and short-term and long-term measures of

competitive performance could be employed

(Aupperle et al., 1985).

Godfrey and Hatch (2007) contend that

“corporate social responsibility activity is not one

comprehensive activity but rather a collective

name for many different activities”. Accordingly,

it should not be expected that the effect of CSR

is to reside in a single measure of competitive

performance.

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APPENDIX

List of Firms

S. No. Name of Firms S. No. Name of Firms S. No. Name of Firms

1 A B B 36 Canara Bank 71 Gateway Distr.

2 Aban Offshore 37 Carborundum Uni. 72 Glaxosmit Pharma

3 ACC 38 Century Textiles 73 GlaxoSmith C H L

4 Adani Enterp. 39 CESC 74 Glenmark Pharma.

5 Aditya Bir. Nuv. 40 Chambal Fert. 75 Godfrey Phillips

6 Alfa Laval (I) 41 Cipla 76 Godrej Consumer

7 Allahabad Bank 42 CMC 77 Godrej Inds.

8 Alok Inds. 43 Colgate-Palm. 78 Graphite India

9 Alstom Projects 44 Container Corpn. 79 Grasim Inds

10 Andhra Bank 45 Coromandel Inter 80 Greaves Cotton

11 Apollo Hospitals 46 Corporation Bank 81 GTL

12 Apollo Tyres 47 CRISIL 82 Guj Alkalies

13 Arvind Ltd 48 Crompton Greaves 83 Guj Fluorochem

14 Asahi India Glas 49 Cummins India 84 Guj Gas Company

15 Ashok Leyland 50 Dabur India 85 Guj Inds. Power

16 Asian Paints 51 DCM Shriram Con. 86 H D F C

17 Aventis Pharma 52 Deepak Fert. 87 H P C L

18 B H E L 53 Dena Bank 88 Havells India

19 B P C L 54 Dishman Pharma. 89 HCL Infosystems

68



APPENDIX (CONT.)

List of Firms


20 Bank of Baroda 55 Divi’s Lab. 90 HDFC Bank

21 Bank of India 56 Dr Reddy’s Labs 91 HEG

22 Bannari Amm.Sug. 57 EID Parry 92 Hero Motocorp

23 BEML Ltd 58 Electrost.Cast. 93 Hexaware Tech.

24 Berger Paints 59 Engineers India 94 Hind.Construct.

25 Bharat Electron 60 Esab India 95 Hind.Oil Explor.

26 Bharat Forge 61 Essar Oil 96 Hindalco Inds.

27 Bharti Airtel 62 Exide Inds. 97 Honeywell Auto

28 Bhushan Steel 63 Fag Bearings 98 Hotel Leela Ven.

29 Biocon 64 Federal Bank 99 I O B

30 Birla Corpn. 65 Finolex Cables 100 I O C L

31 Blue Star 66 Finolex Inds. 101 ICICI Bank

32 Bombay Dyeing 67 G M D C 102 IDBI Bank

33 Britannia Inds. 68 G N F C 103 IFCI

34 C P C L 69 G S F C 104 India Cements

35 Cadila Health. 70 GAIL (India) 105 Indian Hotels

106 Indraprastha Gas 143 Nag. Fert & Chem 180 Shree Cement

107 IndusInd Bank 144 Natl. Aluminium 181 Shriram Trans.

108 Infosys 145 Nava Bharat Vent 182 Simplex Infra

109 Infotech Enterp. 146 Navneet Publicat 183 Sintex Inds.

110 ING Vysya Bank 147 NDTV 184 SKF India

111 Ingersoll-Rand 148 Neyveli Lignite 185 South Ind.Bank

112 Ipca Labs. 149 NIIT 186 SREI Infra. Fin.

113 ITC 150 NTPC 187 SRF

114 IVRCL 151 O N G C 188 Sterlite Inds.

115 J & K Bank 152 Opto Circuits 189 Sun Pharma.Inds.

116 Jain Irrigation 153 Orchid Chemicals 190 Sundram Fasten.

117 Jet Airways 154 Orient Paper 191 Supreme Inds.

69



APPENDIX (CONT.)

List of Firms


118 Jindal Steel 155 Oriental Bank 192 Tata Chemicals

119 JSW Steel 156 P & G Hygiene 193 Tata Motors

120 Jyoti Structures 157 Panacea Biotec 194 Tata Power Co.

121 Kalpataru Power 158 Patni Computer 195 Tata Steel

122 Kansai Nerolac 159 Peninsula Land 196 TCS

123 Karnataka Bank 160 Petronet LNG 197 Thermax

124 Karur Vysya Bank 161 Pfizer 198 Thomas Cook (I)

125 Kesoram Inds. 162 Pidilite Inds. 199 Titan Inds.

126 Kotak Mah. Bank 163 Polaris Finan. 200 Torrent Pharma.

127 KPIT Infosys. 164 Praj Inds. 201 Trent

128 Lak. Mach. Works 165 Prism Cement 202 Tube Investments

129 Larsen & Toubro 166 PTC India 203 TVS Motor Co.

130 LIC Housing Fin. 167 Punjab Natl.Bank 204 UltraTech Cem.

131 Lupin 168 Radico Khaitan 205 Union Bank (I)

132 M & M 169 Rajesh Exports 206 Unitech

133 M R P L 170 Ranbaxy Labs. 207 United Phosp.

134 Madras Cement 171 Raymond 208 Usha Martin

135 Mah. Seamless 172 REI Agro 209 UTV Software

136 Marico 173 Rel. Indl. Infra 210 Voltas

137 Maruti Suzuki 174 Reliance Capital 211 Welspun Corp

138 Mastek 175 Reliance Inds. 212 Wipro

139 Max India 176 Ruchi Soya Inds. 213 Wyeth

140 Monsanto India 177 S A I L 214 Zee Entertainmen

141 Moser Baer (I) 178 S Kumars Nation 215 Zuari Inds.

142 Motherson Sumi 179 Sesa Goa

csr bequeath competitive advantage: a relative study of indian firms

Documents

value maximization1

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viewthat value maximization

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csr performers

corporate social performance

role of csr indetermining