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CSR-Enhancing Factors for Business vs. Public Stakeholders: Hong Kong

Published January 21, 2021

There are myriad factors that drive firms to increase corporate social responsibility (CSR) activities. For instance, some firms implement CSR as an instrument to seek eventual financial benefits, but others engage in CSR activities by the altruistic motivation to fulfill their social responsibilities.  Organizational resources also influence firms to commit to CSR efforts. Specifically, whereas financial strength enables firms to implement CSR practices, an unstable financial status can divert the attention of a firm away from CSR activities and towards more imminent, profit-seeking investments that are critical to their ongoing business operation. Other CSR-driving forces include the pressures and influences arisen from outside of a firm that induces the firm to engage in CSR activities. Firms often engage in CSR to conform to industry-wide CSR practices. Associated regulatory pressures from central or local governments, nongovernmental organizations (NGOs), and media also give pressure to firms to engage in CSR actions.

Although these CSR-enhancing factors are widely discussed in the literature, the relative impact of each factor on corporate social performance (CSP) for different stakeholders has not been explored. A specific CSR-enhancing factor that increases CSP for some stakeholders may not do so for the other stakeholders. This study submits that meaningful, differential CSR-related impacts should emerge from comparing CSR-enhancing factors for business vs. public stakeholders because of the different degree of interdependence between the firm and these two types of stakeholder groups.  Business stakeholders, e.g., employees, investors, suppliers, customers, are those who all related directly into the firm’s business operation whereas the public stakeholders are rather indirectly related to the firm’s business operation. Public stakeholder group are the governments and communities that provide infrastructures and markets, whose laws and regulations must be obeyed, and to whom taxes and other obligations may be due.

This study examines CSPs for four different business-stakeholder groups (i.e., investors, employees, suppliers, and customers) and two public-stakeholder groups (i.e., communities and the environment), and explores if CSR-enhancing factors have differential impacts on CSPs for business stakeholders vs. public stakeholders. A stark absence in research about the relative impact of CSR drivers for diverse stakeholders motivates this study. Building on the recent advance of stakeholder theory, which is grounded in a nature of a high interdependence between the focal firm and its business stakeholders, we build hypotheses about the differential impacts of CSR-enhancing factors on CSPs for business vs. public stakeholders. We test the hypotheses with a sample of small and medium size enterprises (SMEs) in Hong Kong.  Our study finds an evidence that varied CSR-engaging factors in the literature do not uniformly affect CSP for diverse stakeholders of Hong Kong SMEs.  In particular, this study finds firms perform CSR-related activities for public stakeholders (i.e., community and environment) more than for business stakeholders when (i) they have sufficient financial resources, (ii) peer firms adopt CSR practices, and (iii) governments, NGOs, media, and community activists exert pressure on them to do so.  Although consistent with the hypotheses, it is striking that institutional conformity does not increase the CSR performances of firms in relation to any of the business stakeholders, after controlling other CSR-enhancing factors. This indicates that the CSR-related activities associated with business stakeholders is not significantly dependent upon other peer firms’ adoption of CSR practices; however, a firm’s institutional conformity plays a key role in its social- and environment-related CSR activities. These findings generally support the argument that business stakeholders have a stronger interdependent relationship with their focal business, which influences the firm’s CSR effort for its business stakeholders vs. public stakeholders.

Regarding public policy implications of our findings, this study submits that government policies/authorities to encourage firms’ CSR activities in public environments or community issues are recommended to adopt a kind of stick-and-carrot approach.  While exerting regulatory and peer-firm pressures on firms may increase their involvements with non-profit CSR activities, this is a possible option only when the private firms have remaining financial resources that could be used for those purposes. Therefore, in parallel with regulations/pressures, the government authorities may also need to provide financial incentives for firms in such ways as giving tax reductions, allowing priorities in using government facilities if necessary, and securing locational/transportation advantages in the firms’ factory-building plans, etc.  Considering that financial resources are the most comprehensive and important factor among all the CSR enhancing factors, this study argues that public policies providing financial incentives for CSR will distinctively improve firms’ CSR efforts for communities.   

Min, Sungwook, Namwoon Kim, and Carlos Lo (2020), “CSR-enhancing Factors for Business vs. Public Stakeholders: Evidence from Hong Kong,” Journal of Asia Business Studies, Vol. 14 No. 3, pp. 399-419.