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Corporate social responsibility, innovation capability and firm performance: evidence from SME

Author

Listed:
  • Dawit Bahta
  • Jiang Yun
  • Md Rashidul Islam
  • Muhammad Ashfaq

Abstract

Purpose - The purpose of this paper is to examine corporate social responsibility (CSR) and its effect on small and medium enterprises’ (SMEs) innovation capability and financial performance from the perspective of a developing country. It also aims to explore the role of innovation capability as a mediating factor in the linkage between CSR and SMEs’ financial performance. Design/methodology/approach - A questionnaire was distributed among managers/owners of the sampled companies. Using a data set of 402 Eritrean firms and partial least squares structural equation modeling, direct and mediating effects were tested. Findings - The result reveals that CSR has a positive and significant effect on the financial performance and innovation capability of SEMs. Besides, innovation capability has a positive and significant effect on the business performance of SMEs. The result also supports a partial mediation effect of innovation capability on the association between CSR and firm performance. Practical implications - The findings from this research could enhance the awareness of the entrepreneurs, researchers and policymakers on CSR-SMEs’ relationship and help understand the importance of CSR as a crucial driver mechanism for companies to become more innovative and competitive. Originality/value - By empirically examining the relationship between CSR, innovation capability and performance in SMEs, this study contributes to the ongoing scholarly discussion on the linkage between CSR and financial performance. Also, to the best of the authors’ knowledge, no other study investigated the mediating role of innovation capability on the link between CSR activities and firms’ financial performance in SMEs from a developing country perspective, making substantial contributions to research in terms of theory, practice and policy.

Suggested Citation

  • Dawit Bahta & Jiang Yun & Md Rashidul Islam & Muhammad Ashfaq, 2020. "Corporate social responsibility, innovation capability and firm performance: evidence from SME," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 17(6), pages 840-860, July.
  • Handle: RePEc:eme:srjpps:srj-12-2019-0401
    DOI: 10.1108/SRJ-12-2019-0401
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    Citations

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    Cited by:

    1. Ouidad Yousfi & Nadia Loukil, 2024. "Environmental laws in France: What are the effects of the Grenelle laws on firms?," European Journal of Law and Economics, Springer, vol. 57(3), pages 347-389, June.
    2. Saira Begum & Muhammad Ashfaq & Kaveh Asiaei & Khuram Shahzad, 2023. "Green intellectual capital and green business strategy: The role of green absorptive capacity," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4907-4923, November.
    3. Sharmin Taskin & Amna Javed & Youji Kohda, 2023. "Creating Shared Value in Banking by Offering Entrepreneurship Education to Female Entrepreneurs," Sustainability, MDPI, vol. 15(19), pages 1-15, October.
    4. Stawicka Ewa, 2023. "The Impact of Innovation on the Sustainable Development of Enterprises," Folia Oeconomica Stetinensia, Sciendo, vol. 23(2), pages 370-386, December.

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