Social Responsibility in Spain Practices and Motivations in Firms

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Social responsibility in SpainPractices and motivations in firms

Jose-Manuel Prado-Lorenzo, Isabel Gallego-Alvarez,Isabel-Mara Garca-Sanchez and Luis Rodrguez-Domnguez

Facultad de Economa y Empresa, Universidad de Salamanca,Salamanca, Spain

Abstract

Purpose The purpose of this study is to analyse CSR practices implemented by Spanish companiesand the relationship between such practices and corporate financial performance.

Design/methodology/approach The empirical analysis carried out was performed in two phasesor stages: analysis of the data obtained through content analysis; and analysis of the motivationsbehind CSR practices using a dependency model, multiple linear regression, enabling their effect oncorporate performance to be explained. Several control variables were introduced to represent the sizeof the companies, expressed in terms of total assets, and the industry in which the firm operates.

Findings The paper underpins the fact that in Spain there has been a significant increase inpractices favouring the reduction of environmental impact, as well as the creation of comfortableworkplaces, especially promoting workers rights. Several of these corporate practices associated withsocial responsibility in Spanish firms show a positive and significant impact on the rate of salesgrowth but there is a lack of impact on productivity or market value. Moreover, other responsiblepractices are not related to short-run improvements in companies performance.

Practical implications The findings allow the authors to conclude that CSR practices in Spanishfirms are geared towards social welfare, and that they are mainly associated with differentiation withregard to competitors and improving the company image, which lead to performance-linked economicadvantages (such as sales increases).

Originality/value The paper has analysed corporate practices in a specific country separately(Spain) and has determined the relationship between CSR and firm performance.

Keywords Corporate social responsibility, Business performance, Working practices,Motivation (psychology), Financial performance, Spain

Paper type Research paper

1. IntroductionSeveral authors such as Gladwin et al. (1995) have postulated that corporate socialresponsibility (CSR) is a business strategy based on differentiation from competitors,involving advantages in the long-term.

But in the CSR field, different theories and approaches, which are complex and in

some cases contradictory, are used to explain the corporate motivations that lead tosustainable behaviour (Chand and Fraser, 2006).

In general, there are two opposing poles in the debate about the socialresponsibilities of corporations: the neoclassic economic and the moral philosophymodels. The former model considers that there is a negative relationship between CSRand corporate performance due to cost disadvantages. The latter model proposes a

neutral association because responsible firms are not aiming at obtaining a competitiveedge, but rather social welfare. Finally, the hybrid models are based on the fact that

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Management Decision

Vol. 46 No. 8, 2008

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q Emerald Group Publishing Limited

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DOI 10.1108/00251740810901417


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organizations should implement strategic activities in order to satisfy the needs of theirstakeholders, since companies would obtain greater benefits at a minimum cost.

Previous evidence is not sufficiently conclusive as regards the association between afirms voluntary sustainable practices and its performance. On the one hand, some

researchers have found a negative relationship between CSR and corporateperformance (e.g. Wier, 1983; Bromiley and Marcus, 1989; Davidson and Worell,1988); whereas others have found an inconclusive relationship (Alexander andBuchholz, 1976; Abbott and Monsen, 1979; Aupperle et al., 1985).

However, most of the research has found a positive relationship (Moskowitz, 1972,1975; Simpson and Kohers, 2002; Lopez et al., 2007), which leads us to consider that themodels based on the search for economic advantages prevail as explanatory paradigmsof socially responsible corporate activities.

Nevertheless, as Jamali and Mirshak (2006, p. 244) confirm, a growing body ofevidence seems to suggest that cultural differences, associated with several countriesand regions, affect CSR dynamics, with companies in different contexts showing varied

responses to this change on the business conduct landscape.Patterns of differences in national emphasis amongst the practices of Europeannations are generally well documented (Adams et al., 1998). In particular, culturalfactors may also help to explain differences in environmental concerns, the strength ofgreen politics and demands for corporations to act in socially responsible ways(Muller-Rommel, 1989; McCormick, 1991). Moreover, there are pervasive influencesfrom the social and political structure of society as well as from accidents of history(Loft, 1988; Adams and Harte, 1995).

In this sense, a study of the Spanish environment is interesting because Spain formspart of a group of European countries in the Mediterranean arc with quite similardevelopment and cultural characteristics. It is a country in which corporate socialresponsibility ranks significantly behind others such as the USA and the UK. The

reason must be sought in a culture which, to date, has not given sufficient importanceto responsible corporate behaviour. Furthermore, governments establish divergentpolicies regarding the fostering and promotion of CSR. For example, in the UK there isa Ministry of CSR which coordinates efforts in this area, whereas in Spain governmentintervention is limited to several acts in 2007.

Hence, in the presence of several factors which give rise to different levels ofresponsible behaviour and the aforementioned influence of cultural factors, this paperfocuses on analysing CSR practices, overall and individually, implemented by Spanishcompanies and the relationship between such practices and corporate financialperformance. This general aim can be specified in the following objectives:

. to establish the short-term effect of CSR practices on income-related figures,

taking as a reference some basic profitability factors such as sales andproductivity (Porter and van der Linde, 1995; Fombrun et al., 2000);

. to determine the long-term effect of CSR practices on intangible elements of thefirm; and

. to identify which CSR practices impact firm performance.

Our findings show that in Spain there is extensive implementation of practices gearedtowards reducing environmental impact and ensuring safe, comfortable workplaces

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from both a physical and a psychological point-of-view especially promotingworkers rights and liberties.

In addition, practices targeted at integrating different stakeholders into the businesscontext in order to identify their needs and interests and, ultimately, to satisfy them

have been undertaken on a voluntary level.As regards the factors behind such practices, it is worth emphasizing that, although

there is an orientation towards the attainment of social welfare owing to the fact thatseveral CSR practices do not affect firm performance, this orientation existsside-by-side with the search for competitor differentiation and improving the firmsimage, which imply economic advantages associated with returns and profits viaincreases in sales from year-to-year.

2. Corporate social reponsibility: an overviewEnsuring sustainable development, the development which makes it possible tosatisfy the needs of the present without compromising the ability of future generations

to satisfy their own needs (World Commission on Environment and Development,1987, p. 43), calls for the global and joint participation of all the agents involved(governments, companies, citizens, etc.).

Among these agents, the private sector especially should take on the obligationsderiving from the impact of the organisations activities and operations on society, theworkforce, the environment and human rights.

Along these lines, numerous organisations are currently totally sensitized andvoluntarily undertake environmental transformations in their operations andproduction systems, such as environmental criteria in the selection of suppliers,designs focused on reducing resource consumption and waste generation at theproduct usage stage, etc., as well as socially optimum practices.

These corporate actions aimed at the coexistence of organizational and socialbenefits come under the CRS concept. In other words, CSR is a set of managementpractices that ensures the company maximizes the positive impacts of its operations onsociety (Jamali and Mirshak, 2006, p. 244).

This business commitment to contribute to sustainable economic development hasamong its characteristics both the willingness to carry out sustainable actions bycorporations and the performance of such activities beyond the legal obligationsrequired for the company.

The Commission of the European Communities (2001, 2002) underlined this firstcharacteristic by indicating that CSR is a concept whereby companies decidevoluntarily to contribute to a better society and a cleaner environment.

As regards the second characteristic, McWilliams and Siegel (2001) define CSR as

operating in a manner that meets and even exceeds the legal, ethical, commercial andpublic expectations that society has of business.

Moreover, CSR not only affects the organisations management, its production andcommercial activities, but also its relationship with stakeholders. Clarkson (1995) andWaddock et al. (2002), among others, affirm that the fundamental idea of CSR is thatbusiness corporations have an obligation to work towards meeting the needs, interestsand expectations of a wider array of stakeholders, working with employees, theirfamilies and the local communities.


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2.1. Corporate social responsibility in SpainIn Spain, the concept of Corporate Social Responsibility came into being at the end ofthe 1990s. At that time, the Association of Collective Investment and Pension FundInstitutions (INVERCO) introduced the concept of Responsible Social Investment in

order to promote responsible saving among investors.There are currently an increasing number of Spanish companies that believe they

should contribute to sustainable development by planning their operations with a viewto favouring their economic growth and increasing their productivity andcompetitiveness while guaranteeing the protection of the environment andencouraging social responsibility, and thus complying with general interests.

The internationalization of Spanish firms had a great impact on this process, bothowing to the demands imposed on them by the countries they were operating in andbecause of the concern of Spanish society with regard to the behaviour of Spanishfirms outside Spains borders.

Moreover, efforts have also been made on behalf of different organizations and

institutions. At a regional level, we must mention the publication of the Green Paper bythe European Union (2001), which establishes a common framework for member Stateswith regard to CSR. In Spain, Government initiatives and several associations relatedto the promotion of socially responsible corporate behaviour did not appear until 2003.

Among these initiatives, we can distinguish compulsory ones, implemented bypublic agencies, from those that are voluntary, promoted by private organizations.

2.1.1. CSR initiatives promoted by public agencies. Certain CSR-related initiativesimplemented by public agencies can be highlighted:

. Occupational Hazard Prevention Act (Law 54/2003). This Act aims atencouraging a real culture of prevention of occupational hazards in Spanishcorporations.

.

CSR White Paper, drawn up by a committee of the Spanish Parliament (2006),which summarizes experts experiences and describes some guidelines andrecommendations. The objective is to encourage CSR corporations and toconstitute a basis for regulations on this matter. As a result, in 2007 the SpanishParliament passed the Act of Environmental Responsibility which regulatesaspects relating to the prevention and repair of environmental damage.

. Act 3/2007 (Law 3/2007, March 22), on the effective balance between men andwomen, with the aim of promoting equality of opportunities for men and women.

On the other hand, the Spanish Accounting Standards Board obliges Spanish firms toproduce and disclose an environmental report in their annual accounts owing to thefinancial repercussions this information has on firms and the growing demand for this

information from users. But social information is considered voluntary information.2.1.2. CSR initiatives promoted by private agencies. Within the private sector, the

efforts made by the Spanish Association of Accounting and Business Administration(AECA), the Observatory of Corporate Social Responsibility (ORSC) and the Forum forCorporate Reputation (FRC) are worth highlighting.

The AECA has released several reports dealing with CSR and CorporateGovernance. The ORSC was created in 2003 with the support of several organisationsworking independently on the study and promotion of CSR. Finally, the FRC is a

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meeting place for working on the analysis and dissemination of trends, tools, andmodels of corporate reputation in business management. It considers that the socialresponsibility of the company is one of the components that have most impact oncorporate reputation.

3. The relationship between csr and corporate performanceThe relationship between corporate social performance and firm performance has beena topic of both interest and controversy (Preston and OBannon, 1997). In general, thereare two opposing poles in the debate about the social responsibility of corporations: theneoclassic economic and the moral philosophy models.

The first model the neoclassic economic model or Shareholder Capitalism considers that there is a negative association between CSR and financial or economicperformance, since firms could face some competitive disadvantages (Aupperle et al.,1985). They would be incurring costs that might otherwise be avoided or which shouldbe borne by others (Waddock and Graves, 1997).

Under this paradigm, the only responsibility of business towards society is themaximization of profits to the shareholders within the legal framework and the ethicalcustom of the country (Friedman, 1970).

The pure moral philosophy models generally consider that firms bear a fiduciaryresponsibility to all stakeholders, not just shareholders (Freeman, 1970), and can makea substantial contribution toward social betterment; however, their obligations arelimited to areas of expertise and/or direct influence. Other proponents argue thatcorporations reap the benefits of serving as a community citizen and therefore owe acongruent contributory obligation to that community (Korten, 1996); in other words, itis the right thing to do (Kang and Wood, 1995).

These latter models considered that the effect of CSR on corporate financial

performance could be positive or negative but that it is not the basis for action.In between, the hybrid models state that the incorporation of CSR can lead todifferentiation and competitive market advantages for the firm, something that canform part of the brand for the present and future (Carroll, 1979, 1991). More specifically,business contributions can have a direct impact on both social welfare and acorporations income or strategic balance sheet (Mohr et al., 2001).

According to their arguments, the costs of CSR are minimal whereas the benefitsmay be potentially great. Within this perspective, firms design meaningful strategiesthat emphasize the importance of stakeholders values.

Empirical evidence has not reached unambiguous conclusions regarding thereasons that motivate companies to undertake voluntarily sustainable practices. Whilesome researchers have found a negative relationship between CSR and corporate

performance (e.g. Wier, 1983; Bromiley and Marcus, 1989; Davidson et al., 1987;Davidson and Worell, 1988), others have found an inconclusive relationship(Alexander and Buchholz, 1976; Abbott and Monsen, 1979; Ingram and Frazier,1980; Aupperle et al., 1985).

However, most research has found a positive relationship (Moskowitz, 1972, 1975;Sturdivant and Ginter, 1977; Bowman, 1978; Ingram, 1978; Fry et al., 1982; Cowen et al.,1987; Spencer and Taylor, 1987; Abratt and Sacks, 1988; Russo and Fouts, 1997; Griffinand Mahon, 1997; Waddock and Graves, 1997; Preston and OBannon, 1997; Simpson


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and Kohers, 2002; Lopez et al., 2007). This line of research leads us to consider that thehybrid models prevail as explanatory paradigms of corporate actions. Moreover, theresults of the meta-analysis that has been realized by Orlitzky et al. (2003) allow us toaffirm that voluntary sustainable practices are more highly correlated with short-run

performance such as productivity than long-run performance like market value.In this sense, several authors, e.g. Davis (1973), suggest that adopting voluntary

responsibility practices lead firms to gain a competitive edge that produces short-runimpacts such as increases in productivity by improving their ability to attract highquantities of high-quality human resources (Moskowitz, 1972); sales benefits becausecustomers may be sensitive to social issues (Vandermerwe and Oliff, 1990; Russo andFouts, 1997); and a reduction in costs which could be expected to affect relationshipswith lenders (Webb, 2005) and, possibly, with potential suppliers.

On the other hand, Spicer (1978), Shane and Spicer (1983) and Heinkel et al. (2001)proposed a plausible line of reasoning, or even, a theoretical model in which firms witha strong social or environmental performance record may gain investor trust and are

regarded as a less risky investment compared to those firms that perform poorly. Thissituation leads corporate social responsibility practices to be valued as an intangiblebusiness component which influences a firms market value and its cost-of-capital.

Nevertheless, the effect of social practices on market value could be less importantthan current income owing to the fact that it is quite difficult to provide in adequateform the benefits of organizations responsible behaviour when the potential benefitsare mostly visible in the distant future (Walley and Whitehead, 1994; Henderson, 2002).

In accordance with the preceding arguments, the following hypothesis can beestablished:

H1. A positive relationship is expected between corporate social responsibilitypractices and firm performance. Said relationship shall be stronger for the

firms short-run performance than for the firms long-run performance.Another aspect that is quite interesting is the effect of each typology of the firms socialpractices on the companies performance. Pava and Krausz (1996, pp. 333-335) affirmedthat Druckers definition of corporate social responsibility (Drucker, 1989) alsounderscored the existence of two-types of socially responsible actions, those which leadto better financial performance, and those that do not.

The literature review undertaken by Pava and Krausz (1996, p. 348) allows theseauthors to affirm that environmental activities, employee and consumer relations andproduct quality are inextricably linked to financial performance, but they knownothing else about other responsible practices.

Moreover, in general, these previous studies represented corporate social

responsibility practices by reputation index or by grouping all the practices togetherinto one single score which makes it difficult to estimate separately the effect that eachpractice has on economic performance.

In order to contrast the validity of Pava and Krauszs theory we propose thefollowing hypothesis.

H2. A positive relationship is expected between certain CSR practices whenconsidered individually and the firms performance, while other responsibleactions may have no effect whatsoever.

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4. Method4.1. Sample descriptionAlthough several studies have used international firms in the analysis of corporatesocial performance and firm performance, according to Jamali and Mirshak (2006), the

divergent results of previous studies may be due to the cultural features associatedwith the geographic area where the company operates. As a consequence, it seemsmore appropriate to analyse corporate practices in a specific country separately and todetermine the relationship between CSR and firm performance.

Therefore, this study covers a whole set of Spanish corporations, regardless of theiractivity. Nevertheless, this population is represented by a set comprising no-financialcompanies listed on the Madrid Stock Exchange because of the availability and qualityof their information. As a result, our first sample was made up of 117 corporations fromdifferent sectors.

We selected this sample because they represent the set of the largest manufacturingSpanish companies. In this sense, the largest companies are more likely to have

sufficient resources and incentives to adopt a policy of voluntary social responsibilityactions and voluntary responsible behaviour, so that a lack of actions or little use ofthem is likely to reflect a conscious choice. They belong to important activity sectors inthe Spanish economy and have international presence; furthermore, five of them arealso listed on the selective Dow Jones Sustainability Index.

We removed any firms belonging to the finance and insurance sectors because oftheir specific operating features and the particular rules and regulations, especiallyregarding information issues, which make their situation different from the remainingsample companies.

We analysed the CRS Reports and Ethics Codes disclosed by the sample companieson their web sites; this has become the compulsory means of disclosure of corporategovernance and other issues, since Circular, 1/2004 (CNMV, 2004)[1] was issued. These

regulations oblige listed companies to use their web pages as a communication toolwith its stakeholders and, especially, with its shareholders. In the international context,the primary venues of disclosure are usually mass media releases such as corporatewebsites and press releases (Holder-Webb et al., 2007).

Following the line of research papers such as those by Tilt (2001) and Hartman et al.(2007), content analysis was used to measure firms CSR practices from the datasupplied in the different documents and reports observed.

For this purpose, a list-questionnaire was designed covering the items ofenvironment, product, human rights, labour, product responsibility and societyaccording to the Global Reporting Initiative (GRI, 2006) guidelines for corporate socialreports.

Each category contains finer detail about specific areas of disclosure and is codedusing 0 or 1, taking the value 0 if no information is revealed and the value 1 if theinformation indicates that the firm has performed some activity regarding the itemcoded.

4.2. VariablesAccording to the previous sections, we used the classification criteria established bythe Global Reporting Initiative (GRI, 2006), specified as Environment, Human Rights,


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Labour, Product Responsibilities and Society. It represents a transnational attempt to

extend the credibility of financial reporting into social responsibility areas by

employing similar standards for preparation and reporting and it is used

internationally (Roberts and Koeplin, 2007). Also, GRI indicators are increasingly

used in research on CSR disclosure in different countries (Clarkson et al., 2008).We have opted not to directly choose the classification criteria of CSR practices

followed in the previous studies, owing to the variety and heterogeneity of

methodologies adopted when examining CSR practices. In Table I, some studies which

have referred to various types of CSR are specified.

Our final choice for the GRI classification also has to do with the widespread

adoption of GRI in the drawing-up of Sustainability Reports in Spain. A total of 85

percent of the indicators proposed by the GRI are used in the Sustainability Reports of

the companies analysed.

Dependent variable. As stated in Section 3, CSR practices could have different effectson corporate performance, as shown in Table II. According to the economic model, CSR

practices have a negative effect on corporate performance owing to the fact that theyimply significant costs for companies, in activities that do not need to be necessarily

profitable or economically necessary.

The hybrid model suggests opposing principles considering that responsible

corporate behaviour can be linked to the achievement of higher economic benefits in

the short term, reflected in performance figures, or to long-term intangible effects,

Carroll (1991) EconomicLegalEthicalDiscretional or philanthropic concerns

Preston and OBannon (1997) Community and environmental responsibilityWorkersQuality of products and services

Waddock and Graves (1997) Employee relationsProductCommunity relationsEnvironmentTreatment of women and minorities

Moore (2001) EmployeesCustomersShareholdersSuppliersCommunity

EnvironmentHess (2001) EnvironmentWomenMinoritiesCharitable givingCommunityFamily benefitsWorkplace issuesSocial disclosure

Table I.Classifications of CSRpractices in previousliterature

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ordinarily without an accounting impact on the Balance Sheet in the short-run, butpositively valued by markets.

Finally, the pure moral philosophy model does not consider the relationshipbetween CSR and economic performance to be relevant owing to the fact that CSR

practices are realized with the aim of obtaining social welfare.He nc e, we rep re se nt s hort -run e conomic resu lts by m eans of t he

Increased-Productivity and Increased-Sales variable. The long-run intangible effectis measured by the Market-to-Book ratio.

Independent variables. CSR practices are synthesized in the numeric variable CSR,which takes values from 1 and 5 as the sum of the individual variables representing theitems shown in Table III (Environmental; Human Rights and Labour; ProductResponsibility; Society). Hence, these variables form a compound CSR index.

Subsequently, in the following stage of this work, we consider each itemindependently through dummy variables, which take the value 1 if the company meetsthe item requirements and the value 0 otherwise. The aim of considering the practices

selected individually is to test our second hypothesis designed to determine which CSRpractices impact the result and which do not.

We have taken the ISO 9001, ISO 14001 and OHSAS as references since thesestandards imply the firms compliance with environmental, human labour and qualityregulations (Montabon et al., 2000; Fray, 2007), and they also involve the developmentof a system that will help the organization to achieve its own objectives and targetsregarding social responsibility. Moreover, these systems improve management, whichwill indirectly lead to better social performance (Tibor and Feldman, 1996).

The code of ethics and the CSR Report imply the existence of a set of corporateactivities, which are aimed at promoting exemplary behaviour concerning theinteraction of employees and shareholders with other stakeholders.

Theory Impact Variable

Economic model Negative Increased salesIncreased productivity

Hybrid models Positive Performance Increased salesIncreased productivity

Goodwill Market to book Pure moral philosophy models Neutral

Source: Authors own based on Godfrey and Hatch (2007)

Table II.Motivations of CSR andits impact on corporate

performance

Environmental Accreditation of environmental behaviour (ISO14001)

1 point

Human rights and labour Accreditation of behaviour regarding humanresources (OHSAS)

1 point

Product responsibility Quality accreditation (ISO 9001) 1 pointSociety Code of ethics 1 point

Report on corporate social responsibility 1 pointTable III.

CSR practice items


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4.3. Statistical techniquesThe empirical analysis carried out was performed in two phases or stages:

(1) analysis of the impact of CSR practices on corporate performance, by means ofseveral mean differences tests; and

(2) analysis of the motivations behind the CSR practices using a dependencymodel, multiple linear regression, which enables their effect on corporateperformance to be explained.

First, we performed some mean differences tests on the rates of increases in sales,productivity and Market-to-Book (MB) ratio among companies. The objective of thesetests is to check whether the undertaking of externally-recognized CSR practices leadsto significant differences in corporate performance, from a descriptive point-of-view.

Given that the variables analysed do not show normal distributions, we opted toapply non-parametric tests, such as Mann-Whitney U and Kolmogorov-Smirnov Z,which are consistent in the presence of non-normal distributions. While Mann-Whitney

U is the most common test for two independent samples, Kolmogorov-Smirnov Zprovides us with a more global test, which detects the differences in the positions andshapes of distributions.

Subsequently, in order to study in depth the results previously obtained, analyse thecausal relationship and confirm the role played by CSR practices in attaining a higherrate of sales growth, two dependence models were formulated. These models attemptto explain the behaviour of a dependent variable through several independentvariables. The variables which represent corporate performance correspond to thedependent variables to be predicted by a set of independent variables showing the CSRpractices.

In the first model (expression, equation 1), all the corporate practices weresummarized in a single independent variable (CSR). The sales growth in the 2004-2005

period is stated as the dependent variable, on which we aim to study the impact of CSRpractices. In order to isolate the effect of the aforementioned factors, several controlvariables were introduced to represent the size of the companies, expressed in terms oftotal assets, and the industry in which the firm operates. Firm size and industrycontribute to explaining a significant part of the variability of the results, since they arestrongly affected by the specific characteristics of the companies (Rumelt, 1991;Holder-Webb et al., 2007):

SGRi;04205 CSR2 Practi;04 Sizei;05 Industryi;05 1 1

where:SGRi,04-05 shows the sales growth rate in the 2004-2005 period;

CSR-Practi,04 is a numeric variable which takes values from 1 to 5, representing thefive possible CSR practices undertaken by companies (CSR report disclosure,Environment, Labour, Product-Customers and Code of Ethics);

Sizei,05 represents total assets as our measure of corporate size; andIndustryi,05 shows the main industrial sector in which company i does business,

through dummy variables.In the second model (expression, equation 2), the five corporate practices CSR

report, Environment, Labour, Product-Customers and Code of Ethics were considered

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independently. Also, the influence of corporate size and the industry the firm operatesin was controlled:

SGRi

;

042

05 CSR2 Rep

ti;

04 Environm

ti;

04 HRights2 Lab

ti;

04 Prod

2 Responsibti;04 CodEthicsti;04 Sizei;05 Industryi;05 12

where: CSR-Repi,04 Environmti,04 HRights-Labti,04 Prod-Responsibti,04 CodEthicsti,04represent CSR practices regarding Environment, Human Rights and Labour, ProductResponsibility (Customers) and Codes of Ethics, respectively.

5. Empirical results5.1. Description of the statisticsAccording to the data presented in Table IV, almost 55 percent of the 117manufacturing companies analysed disclose corporate social responsibility on their

web pages. On the contrary, 45 percent of the companies still do not reveal a report oncorporate social responsibility publicly. The disclosure of information on CSR has beena recent practice in Spanish corporations, which has been started by the largest listedcompanies. In this sense, these figures are in keeping with those obtained by Fernandezand Luna (2004) for the largest public companies, which found that 40 percent of thesecompanies reveal information on human resources, 29 percent disclose informationabout environmental issues and 37 percent, on charitable contributions.

Regarding the degree to which certain social and environmental conducts wereobserved on the part of the firm, 15.40 percent have a Code of Ethics, 30.80 percenthave an ISO14001 or EMAS certification of environmental behaviour and almost 18percent have the ISO9001 quality certification. On the other hand, only a minor numberof companies have the certification of conduct with respect to human resources

(OHSAS).

5.2. Univariate analysis: motivations behind CSR practicesIn this section, the results concerning the impact of several CSR practices on differentvariables relating to performance and long-run production capacity are given. Afterapplying non-parametric Mann-Whitney U and Kolmogorov-Smirnov Z tests, weobtained the results shown in Table V. Panel A shows the results obtained for the2003-2004 period and Panel B reflects the results for 2004-2005.

From these panels, some conclusions about the association between CSR practicesand the rates of increases in sales, productivity and MB ratio can be deduced.

Corporate social responsibility Frequency Percentage

Certification of environmental behaviour (ISO 14001) 36 30.80Certification of product quality (ISO 9001) 21 17.90Certification of behaviour with human resources(OHSAS)

7 6.00

Public disclosure of a Code of Ethics for conduct 18 15.40Disclosure of information on CSR 64 54.70

Table IV.Item frequency of

corporate socialresponsibility


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PanelA:20032

2004Period

PanelB:20042

2005

CSRpractices

Tests

Rate

of

increasesin

sale

s

Rateof

increasesin

productivity

Rateof

increasesin

MBratio

Rateof

increasesin

sales

Rateof

increasesin

productivity

Rateof

increasesin

MBratio

Disclosureofinformation

onCSR

Mann2

WhitneyU

953.00

0***

956.0

00

1,0

07.000

899.000***

775.0

00**

992.000

Kolmogorov2

SmirnovZ

1.55

9**

0.9

63

0.838

1.307*

1.1

28

0.794

Certificationof

environmentalbehaviour

(ISO14001)

Mann2

WhitneyU

1120.00

0**

21.0

35

917.000

1073.000*

21.3

32

1109.000

Kolmogorov2

SmirnovZ

1.39

4**

0.6

79

1.181

1.098

0.9

16

0.673

Certificationofbehaviour

withhumanresources

(OHSAS)

Mann2

WhitneyU

361.00

0*

20.1

05

398.000

386.000

20.9

95

361.000

Kolmogorov2

SmirnovZ

1.46

2**

0.6

68

1.003

1.304*

1.0

75

0.975

Certificationofproduct

quality(ISO9001)

Mann2

WhitneyU

822.00

0**

685.0

00**

791.000

726.000**

782.0

00

808.000

Kolmogorov2

SmirnovZ

1.39

1**

1.3

28**

0.731

1.409**

0.8

84

0.589

Publicdisclosureofacod

e

ofethicsforconduct

Mann2

WhitneyU

645.00

0

621.0

00

656.000

668.000

489.0

00*

528.000

Kolmogorov2

SmirnovZ

1.51

8**

0.7

53

1.177

1.411**

1.0

95

1.177

Notes:*p-value,

0.10;

**p-value,

0.05;***p-value,

0.01.

Thecoefficientsshowthestatisticalte

stsofMann-Whitney(U)andKolmogo

rov-Smirnov

(Z)onthedifferencesintherateofincreasesinsales(3rdcolu

mn),inproductivity(4thcolumn)and

inMBratio(5thcolumn)inthe2003

-2004period

betweencompanieswhic

himplement/donotimplementCSR

practices(inrows).

Inaddition,

thefollowingcolumnsshowthestatisticaltestsinthe

2004-2005period

Table V.Mean differences tests

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The disclosure of information on Corporate Social Responsibility evidences a positiveassociation with the rate of sales growth, probably linked to an improved companyimage. The companies which have disclosed a greater volume of information on CSRhave experienced greater sales growth, as opposed to those organizations which have

not disclosed information publicly. On the contrary, there are hardly any significantdifferences in the productivity and MB ratio.

Likewise, the certification of environmental behaviour shows a positive associationwith the rate of increases in sales but does not seem to generate differences in obtaininga higher rate of increase in productivity and MB ratio.

As regards the certification of behaviour with human resources, we reach similarfindings: the companies with the certification show greater rates of sales growth, asopposed to those without external certification; nevertheless, the certification does notseem to lead to significant differences in productivity and MB ratio.

Corporate practices relating to product quality imply a positive association with theincrease in sales and productivity during the 2003-2004 period in comparison with

companies without the certification of quality.Finally, the disclosure of a code of ethics does not seem to generate consistent andsignificant differences in sales, productivity and MB ratio.

In conclusion, corporate practices relating to social responsibility lead to differencesin the rates of increases in sales, probably as a consequence of the improvement in thecompanys image. On the other hand, there are no differences in productivity and MBratio.

5.3. Multivariate analysisPrior to estimating the OLS regressions on the impact of CSR practices on corporateperformance, we analysed Pearsons correlations, as well as several statistical issues,such as normality, homokedasticity, multicollinearity and residuals.

In Table VI, the correlations among the main variables that were involved in theregression analysis are shown. The correlations show direct relationships between thediverse CSR practices, although they do not reach especially high values. The highestcorrelation is shown between Environmental and CSR reports (0.631).

Subsequently, we checked the normality and homokedasticity and analysed themulticollinearity and the behaviour of the residuals. With regard to normality, weapplied the one-sample Kolmogorov-Smirnov test, evidencing that the variables do notshow normal distributions. However, the assumption of normality may be considered

CSR 1 2 3 4 5 6 7

CSR 1.000Sales growth 2004 2 2005 0.259 1.000Size 0.297 20.057 1.000CSR report 0.091 0.235 1.000Environment 0.167 0.237 0.631 1.000Human rights & labour 0.391 0.273 0.261 0.413 1.000Product responsibilities 0.060 0.103 0.131 0.558 0.248 1.000Code of ethics 0.309 0.226 0.357 0.324 0.333 0.151 1.000

Table VI.Pearsons correlations


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as unnecessary to obtain most of the results found in the multiple regression analysis(Greene, 1999, pp. 204-205). As for homokedasticity, we applied Levenes test forvariance homogeneity. The values obtained (Table VII) evidence problems ofheteroskedasticity mainly in CSR-Report, Human Rights and Labour, and Codes of

Ethics. Hair et al. (2001) recognize that heteroskedasticity constitutes a commonnon-fulfilment of the statistical models in regressions. The usual means oftransforming variables to alleviate heteroskedasticity (e.g. change to an inversevariable) are not directly applied to our variables, since they are dummy variables; thechange to an inverse value would invalidate most of the observations obtained forthose variables.

Despite the issues detected in normality and homokedasticity, the models fitproperly and their behaviour is statistically correct. For example, the values obtainedfrom Durbin-Watsons test (1.876 and 1.774, in models 1 and 2, respectively) are aroundthe value of 2, which reflect the absence of autocorrelation in the residuals from theregression (Verbeek, 2004). In addition, the condition indexes for collinearity are under

the value of 10, which evidence the absence of multicollinearity (Belsey et al., 1980).This absence is also confirmed by the values obtained in tolerances (. 0.700) andvariance-inflation factors (, 2).

In order to study in depth the results previously obtained and confirm the roleplayed by CSR practices in attaining a higher rate of sales growth, two models wereformulated. Table VIII displays the results obtained for the model that takes globalpractices as the independent variable.

The explanatory power of this model (R2) is 9.80 percent, for a confidence level of 99percent (p-value , 0.01). Regarding the variables, the CSR variable is significant at aconfidence level of 99 percent.

Moreover, the manufacturing and new technology industries have a positive andstatistically significant effect at the confidence level of 95 percent (0.01 , p-value ,

0.05) and 90 percent (0.05 , p-value , 0.10), respectively. Energy has a negative andstatistically significant effect at the confidence level of 90 percent. The rest of thedummy variables representing the activity sectors and firm size have no statisticallysignificant effect on corporate performance.

As can be observed in Table VIII, the set of corporate practices linked to socialresponsibility show a positive and significant impact on the rate of sales growth.Consequently, the undertaking of such practices implies an improved image for thecompany in markets, so that its sales volume seems to be increased. This result led usto accept H1. To be specific, the univariant analysis evidenced a significant impact of

Variables Levenes test Significance

CSR 0.462 0.498Sales growth 04-05 3.144 0.079CSR-report 236.151 0.000Environmental 0.425 0.516Human rights & labour 44.300 0.000Product responsibilities 4.227 0.042Codes of ethics 32.016 0.000

Table VII.Variance homogeneity(Levenes test)

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CSR practices on the intangible value of the company represented via its market value.The estimated lineal regression showed a significant impact of CSR practices on

short-run business performance, but only on sales growth, not on productivity.Table IX shows the results found for each CSR practice, considered separately.The explanatory power of this model is 30.80 percent, for a confidence level of 99

percent; two of the five practices analysed turned out to be statistically significant.Human rights and labour and code of ethics show a positive and statisticallysignificant effect at a confidence level of 99 percent (p-value , 0.01). This result led usto accept H2, which is related to the fact that certain business practices influence firmperformance while others do not.

Variables Coefficients

CSR 0.2612.747 * * *

Corporate size 20.12921.320

Cement, glass and construction materials 20.02220.231

Retail trade 0.0340.349

Construction 20.05520.575

Energy and water 20.189. 21.833 *

Chemical industry 0.00020.003

Real Estate 0.036

0.375Mass media 0.0160.167

Basic metals 20.04220.446

New technologies 0.1661.777 *

Food and beverages 0.0070.079

Manufacturing industry 0.2172.330 * *

Graphic arts 20.03120.332

Metal transformation 0.035

0.369Transport and communications 20.039

20.411F2 ANOVA 6.649 * * *

R2 2 adjusted 0.098N 105

Notes: *p-value , 0.10; * *p-value , 0.05; * * *p-value , 0.01; dependent variable: sales growth rate2004-2005; independent variables: CSR practices (globally considered), corporate size and industrydummies

Table VIII.Impact of CSR practices

on sales growth


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Variables Coefficients

CSR Report 20.021

20.232

Environmental 0.006

0.066

Human rights and labour 0.595

5.697 * * *

Product reponsibilities 0.044

0.496

Code of ethics 0.242

2.761 * * *

Corporate size 20.100

21.110

Cement, glass and construction materials 20.009

20.107

Retail trade 20.01420.174

Construction 20.190

22.218 * *

Energy and water 20.457

24.523 * * *

Chemical industry 20.005

20.060

Real Estate 20.005

20.061

Mass media 20.012

20.142

Basic metals 20.07220.858

New technologies 0.019

0.825

Food and beverages 20.024

20.286

Manufacturing industry 0.129

1.557

Graphic arts 20.013

20.154

Metal transformation 0.019

0.222

Transport and Communications 20.068

20.817

F2 ANOVA 12.570 * * *

R2 2 adjusted 0.308N 105

Notes: *p-value , 0.10; * *p-value , 0.05; * * *p-value , 0.01; dependent variable: sales growth rate2004-2005; independent variables: CSR practices (individually considered), corporate size and industrydummies

Table IX.Impact of CSR individualpractices on sales growth

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An in-depth analysis of such practices shows that corporate actions in humanresources and rights and publicly stating different corporate responsibilities through acode of ethics of conduct for employees and managers also have a positive effect onsales volume. The remaining CSR practices lack a significant effect when they are

considered globally in conjunction with other practices. However, when they areconsidered separately, they show a positive and significant relationship leading tosales increases, according to the previously applied mean differences tests.

Constructions and energy have a negative and statistically significant effect at theconfidence levels of 95 percent and 99 percent, respectively. The new technologies,metal transformation and manufacturing industry variables are not statisticallysignificant, although their effect on the estimated model was positive. The remainingindustry variables and firm size have a negative effect on corporate performance, butare not statistically significant.

6. Discussion of results

Our findings are consistent with previous literature, which has demonstrated a positiveimpact of CSR on financial performance. Our results show an effect on factors associatedwith short-term performance, which make it possible to classify the relationship withinthe hybrid models. Under these paradigms, companies implement CSR practices in orderto obtain a competitive edge while contributing positively to social welfare.

As regards the joint effect of CSR practices, a detailed analysis of the results showsthat they positively impact sales increases but not business productivity. These resultsare contrary to those obtained by Turban and Greening (1996) which strongly supportthat a firms social performance record signals labour conditions; socially responsiblecompanies gain a competitive edge by improving their ability to attract high quantitiesof high-quality human resources.

Neither does there seem to be fulfilment of the expectations of Russo and Fouts

(1997), who argue that a proactive environmental policy within the firm ultimatelyrequires a structural change in production and service delivery processes. Thisredesign involves the development, acquisition and implementation of newtechnologies and may lead to economic advantages vis-a-vis competitors.

In contrast, CSR practices lead to improvements in a companies image and theadvantages of a good reputation result in sales benefits owing to the fact thatcustomers may be sensitive to social issues; they could generate new marketopportunities and they serve to single out companies from their competingintra-industry peers.

Furthermore, it can be seen that the effect of responsible practices on long-runperformance is zero, perhaps as a consequence of the fact that in the Spanish market:

.

the Markowitz view prevails, where in a rational market, CSR is not a pricedfactor in the market so investors do not expect socially and environmentallyresponsive companies to deliver stock returns unlike from non-responsive firms(Kurtz, 1997); or

. it does not price CSR efficiently as in Hamilton et al.s (1993) scenario whereinvestors underestimate the possibility that stocks of socially responsiblecompanies can be undervalued compared to those of less socially-responsiblecompanies and produce higher risk-adjusted returns.


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In this sense, event studies, including Shane and Spicer (1983), Davidson and Worrell

(1988) and Hamilton (1995), evidence that the market will react negatively to

announcements of social irresponsibility and there also exists an asymmetrical stock

return sensitivity to environmental news. More specifically, Klassen and McLaughlin

(1996) found evidence suggesting that a stock price increase following positive

environmental information about the firm is weaker than a price decline in response to

negative news.

Nevertheless, studies that have used regression or correlation analysis such as Chen

and Metcalf (1980) and Mahapatra (1984), both in the USA, failed to confirm that

pollution control initiatives are rewarded with improved stock performance. Thomas

(2001; UK) and Ziegler et al. (2002; Europe), however, also document moderate evidence

of a positive relationship between environmental performance and stock returns for

markets outside the USA.

As regards the effect that different typologies of CSR practices have on some basic

profitability aspects, results allow us to state that firms introduce differentiating

elements into their relations with labour and stakeholders, which are quickly

transmitted to society. On the contrary, improvements in environmental management

and in product and process quality are transmitted slowly.

These latter results differ from those obtained by Preston and O Bannon (1997) and

Waddock and Graves (1997) for the USA, as environment and product responsibilities

do not affect firm performance at all. The difference could be a consequence of the fact

that the culture of Spanish customers does not positively value improvements

introduced into the productive process and in the product geared towards reducing the

companys environmental impact and increasing product safety. Perhaps traditional

consumers need time to change their consumption patterns and to introduce these

responsible criteria into their decision making (Vitell and Muncy, 1992; Ingram et al.,2005), as Balabanis et al. (1998) have obtained for UK companies, where some CSR

effects do not seem to materialize immediately as they could only be detected at a later

stage.

To sum up, it can be stated that, within the Spanish context, CSR practices,

especially human rights and labour and ethical relations with society, positively

impact business results. In contrast, these practices do not lead to a more efficient use

of resources and neither are they received positively by capital markets.

These results entail important managerial and theoretical implications. First,

theoretically, this paper shows that CSR practices are not valued as highly as in

other countries such in the USA and the UK. Second, the positive effect on firm

performance postulated by scholars stems from the effect that the favourableimage of the company has on increasing sales and not on increasing productivity.

Third, firms implement responsible practices which do not impact their

profitability.

As regards the practical implications, CSR practices constitute a suitable corporate

strategy both from an ethical and an economical point-of-view, as they serve to

improve companies images, make them stand out and lead to a competitive edge such

as sales increases.

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7. ConclusionsA growing body of evidence seems to suggest that cultural differences associated withdifferent countries affect CSR dynamics, with companies in different contextsexhibiting varied responses to this change in the business conduct landscape.

This work shows that in Spain there has been a significant implementation ofpractices favouring a reduction in environmental impact, as well as the creation of safeand comfortable workplaces, especially promoting workers rights and freedoms.These practices are strongly associated with the regulatory efforts made by theSpanish Government, with the aim of fostering CSR in Spanish companies andpromoting responsible behaviour in environmental and labour issues, since Spain is atthe top of the ranking of accidents in the workplace in the EU.

Furthermore, in this case voluntarily, the CSR practices undertaken aim to integratethe different stakeholders into the business context, in order to identify their needs andinterests and, ultimately, to satisfy them.

Overall, the corporate practices associated with social responsibility in Spanish

firms show a positive and significant impact on the rate of sales growth. The detailedanalysis emphasizes the role played by corporate actions concerning human resourcesand the public disclosure of the different responsibilities assumed by corporationsthrough a code of ethics in increasing sales volume.

These findings allow us to conclude that CSR practices in Spanish firms evidence anorientation towards social welfare, and that they are mainly associated withdifferentiation regarding competitors and improving the company image, which leadto performance-linked economic advantages (such as increases in sales).

This work is subject to the limitations linked to the characteristics of the Spanishenvironment as regards ethical practices and those related to worker safety and rights.In this sense, we cannot fail to mention the pressure exercised by the mass mediaregarding the high workplace accident rate and the repercussions of collective fraud.

Such pressure could generate a culture in which business respect for said areas couldbe called for and overvalued.

A comparative analysis between countries in different geographical and culturalareas could generate an interesting line of future research. The obtainment of resultssimilar to those in this paper in other countries would allow their generalization.

Finally, it would be interesting to undertake an analysis in which the environmentaland product responsibility practices implemented by companies were observed moreclosely in order to validate the results obtained as regards the non-existence of arelationship with the business result.

Note

1. Circular, 1/2004 was a rule issued by the Spanish Securities Regulator (CNMV), concerningthe corporate governance of listed companies (CNMV, 2004).

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Further reading

Congreso de los Diputados (2006), El Libro Blanco de la RSE, Boletn Oficial de las Cortes

Generales, num. 424, 4 de agosto de 2006.

Congreso de los Diputados (2007), Ley de responsabilidad medioambiental, Boletn Oficial de lasCortes Generales, num. 130-10, 17 de octubre de 2007.

Forum for Corporate Reputation (2004), Available at: www.reputacioncorporativa.org

Ley 54 (2003), Ley 54/2003 de 12 de diciembre, de reforma del marco normativo de la prevencion

de riesgos laborales (Law 54/2003, 12 December, Labour Risks Prevention Act).

About the authorsJose Manuel Prado Lorenzo is a Professor of Accounting at the University of Salamanca. He hasbeen Dean of the Faculty of Economics and Business of the University of Salamanca, President of

the Editorial Board of the Journal of Economy and Finance of Castile and Leo n, member of the

Consultative Meeting of the University of Salamanca. Likewise, he is the Research Director of the

Head Office of Balances of Castile and Leon. He has published numerous papers on topics ofaudit, sectorial analyses and financial accounting. His more recent lines of investigation are thecorporate social responsibility and the analysis of the Local Administration from the perspective

of the efficiency and the sustainable development. He has published articles in journals such as

Journal of Productivity Analysis, Polish Journal of Environmental Studies and SustainableDevelopment.

Isabel Gallego-Alvarez is a Associate Professor of Accounting at the University of

Salamanca. Although she has carried out work related to costs and management accounting, her

line of research is focused on financial accounting and specifically on the relationship between

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accounting and taxation. Up until now, her publications have dealt with the development of

different aspects in this subject, such as the application of accounting norms and principles,theoretical-practical aspects of different operations and analysis of the situation of the firm.Other research subjects have been those related to intangible assets, business ethics and

corporate social responsibility. She has published a book (Suppositions of Financial Accountingand Tax Accounting ) and papers in several journals, such as: Managerial Auditing Journal,

Journal of Intellectual Capital, Corporate Social Responsibility and Environmental Management,Polish Journal of Environmental Studies, Management Decision and Online Information Review.She has participated in different national and international congresses and in several books onCorporate Social Responsibility. Isabel Gallego-Alvarez is the corresponding author and can becontacted at: [email protected]

I.M. Garca Sanchez has a PhD in Economics and Management Sciences (2004) from theUniversity of Salamanca, where she joined as an Assistant Professor of Accounting. She has

published articles in journals such as Online Information Review, Journal of ProductivityAnalysis, Waste Management & Research, Polish Journal of Environmental Studies andSustainable Development.

Luis Rodriguez-Dominguez, has received recently his PhD degree with honors in the

University of Salamanca (Spain). His main lines of research are focused on Corporate SocialResponsibility, Intangibles and Business Ethics. His studies have been published in the Polish

Journal of Environmental Studies, Online information Review and the Journal of IntellectualCapitaland have been exposed in some of the most relevant European and Spanish congresses.


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