CSR Impact on SME Performance

This assignment delves into the relationship between corporate social responsibility (CSR) and the performance of small and medium-sized enterprises (SMEs). It examines various studies and models that demonstrate the potential benefits of CSR for SMEs, including improved financial performance, enhanced reputation, and increased customer loyalty. The assignment also considers the challenges faced by SMEs in implementing effective CSR strategies and highlights best practices for integrating social and environmental considerations into business operations.

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 1
Professional project
Proposed project Title: Effect of Corporate Social Responsibility (CSR) reporting
on the financial performance of Small and Medium Enterprises (SMEs) in
Australia
Name
Date

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 2
Table of Contents
Literature review.................................................................................................................................3
Introduction.....................................................................................................................................3
Literature Review...........................................................................................................................3
Economic Drivers for CSR.............................................................................................................4
Past Research..................................................................................................................................5
Research Aim..................................................................................................................................6
Research Questions.........................................................................................................................6
Methodology...................................................................................................................................6
Analysis..........................................................................................................................................7
References............................................................................................................................................8

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 3
Literature review
Introduction
Reporting on sustainability is becoming a normal practice in business as it moves into the
mainstream from the realm of early adopters and innovators. Failure of firms to actively engage in
sustainability reporting can have adverse impacts on the company’s image, financial performance,
and even its ability to raise capital. In Australia, most large and/ or listed companies undertake
sustainability reporting, mainly because of its benefits even though Australia does not have a legal
requirement for firms to undertake sustainability reporting ( 'Parliament of Australia,' 2013). While
it is commonplace for large and/ or multinational firms to make sustainability reports, especially in
the past ten years, the practice is not as widespread among SMEs ('Global Reporting Initiative,'
2016). Yet SMEs play a crucial role in economic growth and development of any country, including
Australia, accounting for about 90% of businesses (Zhou,Wu,&Luo,2007). In 2005, just 10% of all
sustainability reports were mad by SME’s, with large organizations and multinationals accounting
for the remaining 90% yet sustainability is vital for both SMEs and large organizations ('Global
Reporting Initiative,' 2016). This paper proposes to undertake research using secondary data, on the
impact that sustainability reporting has on the financial performance of SMEs in Australia. This
section undertakes a short literature review as well as discussing the method to be used for the
research and the aim of the research. It will also list research questions that will narrow down the
research aim; all in the context of the course of masters in Professional Accounting.
Literature Review
Sustainability reporting can have positive impacts on SMEs, such as improving risk
management, help unlock new opportunities within global markets, and foster responsible business
practices. Sustainability is among the biggest challenges for societies considered industrialized and
it has become an important strategic goal for many organizations around the world. A range of
stakeholders are interested in the transparency of an organizations’ activities; this implies
organizations need to maintain a continuous dialogue with stakeholders (Medel, García, Enriquez &
Anido, 2011). CSR refers to a business approach that makes a contribution to sustainable
development through the delivery of social, economic, and environmental benefits for all the
stakeholders. Research shows that most Millenials have volunteered for charitable causes and this a
trend that businesses must take cognizance of, especially to attract and retain this crucial market

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 4
segment (Millenials) as given a choice between two firms, Millenials will most likely choose the
firm with a greater CSR presence (Opedare, 2017).
Economic Drivers for CSR
CSR can result in improved financial performance in several ways when CSR is used in
decision making; the drivers do not operate in an isolated manner with different drivers affecting
companies differently and being different for companies in different sectors. CSR is increasingly
becoming an important factor for organizations to attract and retain talent and diversity in the
workplace. Firms that take cognizance of employee needs such as a good working environment
achieve better employee output and performance. CSR can be a vehicle tat businesses use to foster
innovation and learning; factors that are crucial for the long term growth and survival of
organizations in the ever competitive business environment. Businesses can use CSR to respond to
societal and environmental risks and convert them into business opportunities; for instance, cars that
use electricity derived from renewable sources. Businesses and markets operate in an ‘opinion
market’; the way customers, the society in general, and suppliers judge businesses will have both
direct and indirect impacts on the success and profitability of the company. CSR provides firms a
means to influence and manage the perceptions and attitudes of their stakeholders; this way, firms
can build trust with the stakeholders and this results in positive relationships delivering business
performance advantages to the business. Using CSR, firms have a better shot at effectively
managing their risks and this helps the organizations reduce or eliminate losses that are avoidable.
With CSR, firms can also identify new emergent issues and use their leadership positions as a way
of gaining competitive advantage; this also helps these businesses achieve better financial
performance.
Customers can be drawn to a business solely based on their CSR activities; by having a
robust CSR policy and activities, a business can draw customers away from competitors with less
CSR activities, thereby boosting its customer base. With a robust CSR profile, firms can
significantly reduce present and future expenses and costs; this has the effect of increasing
operational efficiency for these firms and hence, improving their financial performance. Investors
and the wider investing community are increasingly looking at CSR in similar terms to good
governance practices as well as long term risk management strategies. Analysts and investors place
just as much importance to CSR and the reputation of an organization as they do on the firms’
financial performance. SMEs are usually organizations with high growth potential with Australia
showing greater numbers of SMEs going public and issuing IPOs (‘Deloitte,’ 2016). apart from

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 5
underlying risks to a company’s stock, investors are increasingly looking at the company’s CSR as
an important factor in determining whether to invest in it or provide other financial instruments
such as loans (Werther & Chandler, 2014). The risk of legal repercussions for firms that fail to
fulfill CSR responsibilities such as environmental conservation is huge; such firms can loose their
operating licenses, especially multinationals. Stakeholders such as governments must give authority
to firms, such as those in the mining industry authority to do business; lack of, or a poor CSR
framework can put this in jeopardy. This can have adverse impacts for an organization as they may
cease operations and suffer huge losses.
Past Research
Research on the effects of CSR activities on the financial performance of industries in the
hospitality sector have shown mixed (both positive and negative) relations and outcomes for
organizations such as casinos, airlines, hotel, and restaurants. The effects contribute to different
strategic decision making by these companies (Kang, Lee & huh, 2010). There is a positive and
strong correlation between CSR and firm value for firms that have a high awareness by customers
as shown by advertising expenditures. So apart from engaging in CSR activities, customers must be
aware of these activities, either through firm advertising and/ or sustainability reporting. Further,
firms with a prior poor record as corporate citizens has the relation between firm value and CSR
awareness reversed (Servaes & Amayo, 2013). Entrepreneurial-ism is a major driver for business
success; its the willingness and competitive instinct for people to seek innovation fro areas that are
not traditional, such as in the CSR agenda. Such opportunities include commercially viable
activities that also serve the purpose of advancing social and environmental sustainability. So within
CSR, there is CSO (Corporate Social Opportunity) where firms can innovate in services and
products, building new models, and serving markets that are not yet served. SMEs are not usually
entrepreneurial in the filed of CSO; however, it is an area that has huge potential and great promise
for financial growth of SMEs and should be built into the SMEs systems (Jenkins, 2009).
CSR activities and investments are more than just increased business costs/ expenses; they
are absolutely essential for the continued survival of firms in a business world that is becoming ever
more competitive. Research in the UK shows that firms that achieve all, or most of the GRI (Global
Reporting Initiative) on sustainability reporting have a positive., albeit weak, relationship between
CSR and EPS (earnings per share), implying that CSR activities benefit not only the business, but
investors in the company (Sammy, Odemilin & Bampton, 2010). in investigating the ‘business case’
for CSR in SMEs, researchers have missed the point, perhaps by asking the wrong questions since

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 6
the collective grandness of SMEs is usually underestimated in CSR policy making and research;
SMEs engage in CSR in contexts that are different from large companies; hence there is a need, for
example, to understand how SMEs undertake CSR activities and how they impact their financial
performance (Morsing & Perrini, 2009). compared to large firms, proactive CSR research in SMEs
is considerably less; Proactive CSR refers to business practices and strategies that firms adopt
voluntarily, beyond regulatory requirements to manage their responsibilities to the society and
thereby contribute to society positively. In the Australia SME manufacturing sector, research shows
that there is a positive and significant correlation between proactive CSR and capabilities
(stakeholder management, shared vision, and strategic pro-activity) and financial performance. The
findings are consistent with the RBV theory that adopting value creating activities that make the
best use of the capabilities of a firm are essential to the firms’ financial success (Torugsa,
O'Donohue & Hecker, 2011).
Research Aim
The aim of this proposed research is to identify and undertake research on the effect that
CSR reporting has on the financial performance of SMEs in Australia with a focus on profitability
as a measure of financial performance.
Research Questions
 What is the level of adoption of CSR reporting by Australian SMEs?
 What is the correlation between CSR reporting by Australian SMEs and their financial
performance?
Methodology
This research will make use of secondary data on the financial reports of Australian SMEs;
the target population is the SMEs in Australia and a sample size will be selected using simple
randomization to give every possible member of the population an equal chance for being chosen.
This will also ensure the reliability and validity of the research results. The data to be used will be
obtained from the Small and medium Business Association of Australia (‘SME Australia,’ 2017)
and from the Australian Taxation Office where the official results of the SMEs will be obtained. The
research approach to be used is a descriptive analysis where secondary research methods and data
will be predominantly used

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 7
Analysis
The data will be analyzed graphically to demonstration trends as well as through the use of
statistics; the relation will be tested by establishing the correlation coefficient between SME
reporting and financial performance through a regression analysis. The financial performance is the
dependent variable while sustainability reporting is the dependent variable.

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 8
References
'Global Reporting Initiative'. (2016, October 05). Making the case for SME Sustainability
Reporting. Retrieved August 23, 2017, from
https://www.globalreporting.org/information/news-and-press-center/Pages/Small-Business,-
Big-Impact-Making-the-case-for-SME-Sustainability-Reporting.aspx
Jenkins, H. (January 01, 2009). A ‘business opportunity’ model of corporate social
responsibility for small- and medium-sized enterprises. Business Ethics: a European Review,
18, 1, 21-36.
Kang, K. H., Lee, S., & Huh, C. (March 01, 2010). Impacts of positive and negative corporate
social responsibility activities on company performance in the hospitality industry.
International Journal of Hospitality Management, 29, 1, 72-82.
Medel, F., García, L., Enriquez, S., & Anido, M. (January 01, 2011). Reporting Models for
Corporate Sustainability in SMEs. Journal of Information Technologies in Environmental
Engineering, 3, 407-418
Morsing, M., & Perrini, F. (January 01, 2009). CSR in SMEs: do SMEs matter for the CSR
agenda?. Business Ethics: a European Review, 18, 1, 1-6.
Opedare, A. (2017, June 16). Why Corporate Social Responsibility Is Becoming More Important To
Organizations | Articles | Chief Strategy Officer. Retrieved August 23, 2017, from
https://channels.theinnovationenterprise.com/articles/why-corporate-social-responsibility-is-
becoming-more-important-to-organizations
'Parliament of Australia'. (2013, April 15). Chapter Seven - Sustainability reporting: Current
legislative and market requirements. Retrieved August 23, 2017, from
http://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Ser
vices/Completed_inquiries/2004-07/corporate_responsibility/report/c07
Samy, M., Odemilin, G., & Bampton, R. (April 13, 2010). Corporate social responsibility: a strategy
for sustainable business success. An analysis of 20 selected British companies. Corporate
Governance: the International Journal of Business in Society, 10, 2, 203-217.
Servaes, H., & Tamayo, A. (May 01, 2013). The Impact of Corporate Social Responsibility on Firm
Value: The Role of Customer Awareness. Management Science, 59, 5, 1045-1061.
‘SME Australia’. (2017). SME Association of Australia. Retrieved August 23, 2017, from
https://www.smea.org.au/

Running Head: EFFECT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
REPORTING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM
ENTERPRISES (SMES) IN AUSTRALIA 9
Torugsa, A, O'Donohue, W, & Hecker, R. (2011). Capabilities, Proactive CSR and Financial
Performance in SMEs: Empirical Evidence from an Australian Manufacturing Industry
Sector.
Werther, W. B., & Chandler, D. (2014). Strategic corporate social responsibility: Stakeholders in a
global environment. Los Angeles [u.a.]: SAGE: s.n..
Zhou, L., Wu, W., & Luo, X. (June 30, 2007). Internationalization and the performance of born-
global SMEs: the mediating role of social networks. Journal of International Business
Studies, 38, 4, 673-690.