How does corporate social responsibility benefit firms? Evidence from Australia

Abstract

Purpose: There is a small but growing body of empirical research examining benefits of corporate social responsibility (CSR) beyond traditional, accounting‐based financial benefits. To extend this body of research in contexts outside of Europe and the USA, the purpose of the present paper is to empirically examine three potential benefits of demonstrating CSR: reduced employee turnover; increased customer satisfaction; and improved reputation. Design/methodology/approach: The paper collected data on latent constructs through a survey of chief executive officers across a spectrum of industries in Australia. Confirmatory factor analysis assessed psychometric properties of the constructs, while regression analysis was used to examine posited hypotheses. Findings: The findings suggest that firms engaging in CSR can benefit in ways beyond a pure bottom‐line outcome. First, due to exhibited fairness, socially responsive activities appear to be a means to reduce employee turnover. Second, by meeting justice needs of customers, CSR is likely to increase customer satisfaction. Lastly, CSR activities provide visible signals from which stakeholders infer various positive characteristics of firms, thus creating an avenue to increase overall firm reputation. Practical implications: Firms can choose to do nothing with respect to their social responsibilities to doing much. While proactively engaging in CSR is not without opportunity cost, the results of this paper suggest executives should not dismiss CSR altogether. Originality/value: Value from this paper is derived in three ways: relying on non‐financial dependent variables, it supplements limited CSR research conducted in this stream; the data and implications drawn come from Australia, thereby adding needed international insight into the benefits of CSR; and the paper supplements financial‐driven theories used in CSR research by focusing on employee justice perceptions, equity, and signaling theories.