UNIVERSITY OF ECONOMICS ERASMUS UNVERSITY ROTTERDAM HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES VIETNAM THE NETHERLANDS VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON FIRM PERFORMANCE: THE CASE OF VIETNAMESE COMPANIES BY TRAN PHUOC LOC MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHIMINHCITY, NOVEMBER2016 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHIMINHCITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON FIRM PERFORMANCE: THE CASE OF VIETNAMESE COMPANIES A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By TRAN PHUOC LOC Academic Supervisor: Prof. NGUYEN TRONG HOAI HO CHI MINH CITY, NOVEMBER2016 TIEU LUAN MOI download : skknchat@gmail.com DECLARATION This is to certify that this thesis titled “The impact of Corporate Social Responsibility on Firm Performance: The case of Vietnamese companies”, which is submitted in fulfillment of the requirements for the degree of Master of Arts in Development Economics to the Vietnam- Netherlands Program (VNP). The thesis constitutes only my original work and due supervision and acknowledgement have been made in the text to all material used. i TIEU LUAN MOI download : skknchat@gmail.com ACKNOWLEDGEMENTS First of all, I would like to thank and gratefully express my special appreciation to my supervisor – Prof.
Nguyen Trong Hoai for all of his guidance, useful recommendations and valuable comments for my thesis. Secondly, I wish to convey my deep gratitude to Dr. Pham Khanh Nam, Dr Truong Dang Thuy for their valuable suggestions and comments for my TRD as well as the econometrics models. Furthermore, I will never forget the dedication of all VNP teachers and supporting staffs to give us high-quality lectures.
Next, I am also grateful to my wonderful teammates and classmates at VNP C21 for their help and motivation in our great time together. Special thanks to my family, friends and colleagues who support and encourage me during the thesis and studying time in this program. ii TIEU LUAN MOI download : skknchat@gmail.com ABBREVIATIONS GSO General Statistics Office of Vietnam OLS Ordinary Least Square FEM Fixed effects model R&D Research and Development REM Random effects model ROA Return on assets ROE Return on equity SMEs Small and Medium Enterprises SOEs State-owned enterprises TCS Vietnam Technology and Competitiveness Survey UNIDO United Nations Industrial Development Organization VCCI Vietnam Chamber of Commerce and Industry VES Vietnam Enterprise Survey iii TIEU LUAN MOI download : skknchat@gmail.com ABSTRACT This study attempts to identify the determinants of Corporate Social Responsibility (CSR) and to examine the impacts of CSR on firm’s financial performance of 6435 Vietnamese firms extracted from the combination of the Vietnam Technology and Competitiveness Survey (TCS) and the Vietnam Enterprise Survey (VES) within a three year period from 2010 to 2012. By applying the panel data and Fixed Effects Model, the empirical results suggest that CSR may have positive relationships with firm performance whereas the determinants of CSR include firm size, R&D participation, final goods ratio and ownership structures.
These results are supported by a majority of empirical papers about CSR (Erhemjamts et al., 2012; Margolis et al., 2007; Russo and Fouts, 1997) and theories about CSR such as stakeholder theory, resource-based view and stewardship theory. In addition, the study also reveals the situation of CSR in Vietnam: although a large number of Vietnamese firms are already aware of CSR, most of firms only participate in Labor CSR, which is mandatory by laws while Community-related CSR is generally ignored. Based on the findings, the thesis may propose several policy recommendations to improve the CSR practice in Vietnam. iv TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENTS Contents DECLARATION.
iv TABLE OF CONTENTS. v LIST OF TABLES. vii LIST OF FIGURES .6 The structure of this study .1 Corporate Social Responsibility .2 Measurement of CSR .2 Measurements of firm performance .3 Corporate Social Responsibility and Firm Performance .1 Vietnam Enterprise Survey .2 Vietnam Technology and Competitiveness Survey .3 Data sample in this study.4 Corporate Social Responsibility Index (CSR Index). 27 v TIEU LUAN MOI download : skknchat@gmail.2 Variables and measurements .3 Conceptual framework and model specification.
38 RESEARCH FINDINGS AND DISCUSSIONS.1 Overview of Corporate Social Responsibility and performance in Vietnam .2 Descriptive analysis results .1 Determinants of CSR engagement.2 Effects of CSR on Firm Performance. 54 CONCLUSIONS AND RECOMMENDATIONS .3 Limitations of the thesis. 71 Appendix 1: Regression results for Fixed Effect Model. 71 Appendix 2: Hausman test results.
77 Appendix 3: Awareness of CSR questionnaires on the Baseline Survey Report 2010. 79 vi TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 2.1: Theories about CSR .1: Number of firms surveyed in VES and TCS dataset from 2010 to 2012.2: Structure of Survey Questionnaires in TCS .3: Categories of firm size .4: Categories of ownership type .5: Corporate Social Responsibility (CSR) Indicators .6: Summary of variables, measurements and expectations.1: Corporate Social Responsibility (CSR) Indicators by years .2: Mean value of CSR aspects by Firm Size .3: Mean value of CSR aspects by Ownership Type.4: Descriptive Statistics of key variables .5: Correlation Matrix of key variables .6: Determinants of CSR participation .7: Summary of Hausman test results for all regressions.8: Regression results examining the impact of CSR on ROA .9: Regression results examining the impact of CSR on ROE.10 Regression results examining the effect of three dimensions of CSR on firm performance. 58 LIST OF FIGURES Figure 2.1: The Pyramid Model of CSR .1: CSR Awareness category .2: Awareness scores by sectors.3: Awareness on topics of social responsibility .4: Awareness on topics of social responsibility – by number of firms. 45 vii TIEU LUAN MOI download : skknchat@gmail.com CHAPTER I INTRODUCTION 1.1 Problem statement In recent decades, social effects of enterprises are increasingly becoming essential in the field of economics and management (Fiori et al.
However, the main objective of an enterprise is to obtain profits or in other words, to increase firm’s financial performance. Generally, performance may be affected by both firm’s own decisions and strategies in its business. In this sense, researchers and scholars may raise a controversial question: what is the level of social and environmental adoption that firm should consider but still achieve the financial targets? Eventually, the concept of Corporate Social Responsibility (CSR) emerged as a new approach to resolve both social and environmental issues (Uadiale & Fagbemi, 2012). In general, CSR refers to the basic idea that enterprises attempt to satisfy social concerns and expectations in certain ways (Gossling & Vocht, 2007).
Until the late 1970s, CSR was still considered as a joke or an opposite standpoint by contemporary investors and scholars (Lydenberg, 2005). However, from the 1990s, the concept of CSR has been widely accepted and promoted from governments, enterprises to individuals. Nowadays, CSR has emerged and become an essential concept in the fields of management, economics and firm’s theory (Moir, 2001; Lindkvist & Llewellyn, 2003; Margolis & Walsh, 2003). Generally, CSR focuses on issues related to social and environmental effects from enterprises’ operations and decisions.
Carroll (1979, 1999) defines CSR as social responsibility that enables firm to operate in a profitable, law-abiding, moral and discretionary manners. Previously, companies utilized many measures such as diversifying their products, improving the quality of goods and services to gain competitive advantages on the marketplace. Nowadays, companies tend to reinforce their images, 1 TIEU LUAN MOI download : skknchat@gmail.com reputation, and brand development through the adoption of CSR activities. In fact, social responsibilities are essential to all companies and organizations because the customers are more concerned about businesses and products which bring more benefits to human and community.
Therefore, a better understanding of the relationship between CSR and firm’s performance could lead to wiser decisions for managers, stockholders, and stakeholders (Wu & Shen, 2013). Numerous papers may also provide extensive literature on the relationship between CSR and firm performance (Karaye et al. It is seen that a major number of papers argues the positive correlation (Margolis & Walsh, 2003; Orlitzky et al., 2003) whereas a few studies indicates the negative or neutral relationships (Wright & Ferris, 1997; McWilliams & Siegel, 2000). This practice invokes a curiosity among scholars who intentionally would like to examine the true relationship between CSR and performance.
In addition, empirical papers on CSR topics are mainly conducted for developed countries such as the US or European countries, where CSR practice is strongly and systematically developed (Belal, 2001; Gray et al. Hopper and Hoque (2004) also state that the number of empirical studies about CSR in developing countries is comparatively small. This lack of research about CSR practice may urge researchers to a motivation of conducting an empirical studies about CSR- Performance in developing countries, especially the ASEAN countries. Chapple and Moon (2007) argue that the ASEAN would achieve major focus on CSR study since the early 2000s.
According to the Vietnam Chamber of Commerce and Industry (VCCI), the concept of CSR was first introduced to domestic enterprises by transnational corporations in Vietnam (Nguyen, 2007). By the year 2003, Vietnamese government was aware of CSR practice through the program of World Bank: “Strengthening developing country governments’ engagement with Corporate Social Responsibility” (Twose and Rao, 2003). In 2007, the 2 TIEU LUAN MOI download : skknchat@gmail.com participation of Vietnam to the WTO recorded a stable step towards the promising picture of Vietnam’s globalization and CSR adoption. In this outlook, Vietnam government and enterprises would be two most important sides in the promotion of CSR practice in Vietnam: the government promulgates and enforce new policies while enterprises contribute to the implementation of CSR activities.
In fact, the Vietnamese government has passed some new laws and regulations to improve CSR practice. For instance, the new Environment Protection Law and Vietnam Agenda 21 for environment-related issues; new union law and labor code to support employees (Ho & Yekini, 2014). In 2004, the government employed Strategic Orientation with the target of Sustainable Development. The campaign attempted to develop 19 strategic areas following three aspects of Corporate Social Responsibility: economic, social and environmental criteria.
This practice may increase the role of government in CSR activities and is stepping stone to the “Green Growth” strategies for the years between 2011 and 2020. In addition, enterprises would be important actors who devote to the success of CSR since they are the ones who conduct CSR activities. Without social responsibilities, firm may operate to maximize profits regardless of its impacts on the society. One of most serious problems caused by firms may be environmental degradation.
For example, the case of Vedan, a Taiwanese food manufacturer, was sentenced in 2008 for its illegal exhaust of waste into Thi Vai River within 14-years period (Nguyen & Pham, 2011). Therefore, firm should be carefully aware of its social responsibilities to benefits itself and avoid committing harmful activities to the society. The main event that disseminates CSR concept among Vietnamese firms would be the project of the United Nations Industrial Development Organization (UNIDO), which support Vietnamese SMEs to “Adapt and Adopt CSR for Improved Linkages with Global Supply Chains in Sustainable Production” (Nguyen, 2007). This project is financed by the European Union with the essential cooperation of the VCCI to 3 TIEU LUAN MOI download : skknchat@gmail.com enhance the perception of CSR and introduce CSR standards in Vietnamese SMEs, hence increase their awareness and competitiveness on the international markets.
In Vietnam, many large enterprises has begun to engage in CSR activities due to the pressure of the globalization and international integration (Nguyen et al. However, over 90% of Vietnamese firms are small and medium-sized, which may not consider CSR as essential requirements. This practice presents the reality that the benefits from adopting CSR are still vague in Vietnam. In addition, the number of studies on CSR-related topics in Vietnam is relatively limited (Pham, 2010).