The Influence of Corporate Social Responsibility on Organizational Performance: Moderating Effect of Responsible Leadership and Corporate Governance

Abstract

The mixed and inconsistent findings on corporate social responsibility and organizational performance (CSR-OP) relationship have exposed the universal approach as tenuous and questionable. Scholars argued that all CSR initiatives of all the organizations, all the time cannot be rewarded and they suggested contingency approach to determine under which conditions CSR could come along with benefits. Researchers suggested the use of moderating variables to control the ambiguity surrounding CSR-OP relationship. Stakeholder theory underpins this research. This study tested the direct effect of aggregate and segregated CSR on organization’s financial and non-financial performance. It also investigated the moderating effects of responsible leadership and corporate governance on the relationship between CSR and organization’s financial and non-financial performance. Data in this study were collected from managers of 361 public listed companies in manufacturing sector of Pakistan and 179 valid responses were analyzed. This study used SEM path analysis to test the hypotheses. Results regarding the direct effects of aggregate and segregated CSR revealed that CSR significantly influenced organization’s financial and non-financial performance. The results revealed that CSR towards employees has a stronger impact on organization’s financial and non-financial performance. Moreover, findings reflected that responsible leadership and corporate governance both significantly moderated organization’s financial and non-financial performance. However, good corporate governance strengthened CSR-OP relationship whereas responsible leadership weakened this association. This research theoretically contributes to CSR stream of research. This study has strong implications for business organizations, their managers and other disparate stakeholders. In summary, findings of the study suggest that stakeholder perspective of CSR is a win-win situation for organizations and their disparate stakeholders.