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Corporate social responsibility, financial performance and risk in Indonesian natural resources industry

Author

Listed:
  • Devie Devie
  • Lovina Pristya Liman
  • Josua Tarigan
  • Ferry Jie

Abstract

Purpose - With an attempt to give a deeper explanation regarding the manifestation of socially and environmentally responsible cultures among Indonesian natural resources industry, this paper aims to highlight the empirical confirmation on the correlation of corporate social responsibility (CSR), corporate financial performance (CFP) and risk. Likewise, corporate risk’s role as a mediating variable in the indirect effect of CSR on CFP is also examined. Design/methodology/approach - Kinder, Lydenberg and Domini’s (KLD) measurement approach is used as a basis to assess social responsibility activities as it gives more social rating transparency. CFP captures both accounting- and market-based measurements, whereas volatility of stock return is adopted as a proxy of firm risk. Partial least squares analysis is conducted on 40 Indonesian listed firms in natural resources sector, with observation years from 2008 to 2016. Findings - It is revealed that CSR positively affects CFP, although the correlation is stronger in the long run. Significant negative influence to risk is also discovered. However, risk has a significant adverse correlation with CFP when two years’ lagged value is used. Hence, CSR affects CFP through risk in the long-term, both directly and indirectly. Practical implications - The empirical result suggests that CSR serves as a tool in managing the risk of enterprises and performance, especially in the long-term. Accordingly, firms should incorporate CSR as a strategic investment and manage a strong relationship with stakeholders. Originality/value - This report expands further prior works and contributes to CSR and financial management literature by discovering the true nature of CSR effects as an investment in the future. This is the first study which tests and proves that CSR in Indonesian natural resources industry plays a significant role as a strategic risk management instrument that leads to a sustainable and long-lasting financial performance.

Suggested Citation

  • Devie Devie & Lovina Pristya Liman & Josua Tarigan & Ferry Jie, 2019. "Corporate social responsibility, financial performance and risk in Indonesian natural resources industry," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 16(1), pages 73-90, January.
    • Handle: RePEc:eme:srjpps:srj-06-2018-0155
    DOI: 10.1108/SRJ-06-2018-0155
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    Citations

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    Cited by:

    1. , Aisdl, 2020. "Corporate social responsibility and firm financial performance: A literature review," OSF Preprints aymk7, Center for Open Science.
    2. Tarsisius Renald Suganda & Jungmu Kim, 2023. "An Empirical Study on the Relationship between Corporate Social Responsibility and Default Risk: Evidence in Korea," Sustainability, MDPI, vol. 15(4), pages 1-20, February.
    3. Manuela Gomez‐Valencia & Maria Alejandra Gonzalez‐Perez & Ana Maria Gomez‐Trujillo, 2021. "The “Six Ws” of sustainable development risks," Business Strategy and the Environment, Wiley Blackwell, vol. 30(7), pages 3131-3144, November.
    4. Rafael Becerra-Vicario & Daniel Ruiz-Palomo & Ana León-Gómez & José Manuel Santos-Jaén, 2023. "The Relationship between Innovation and the Performance of Small and Medium-Sized Businesses in the Industrial Sector: The Mediating Role of CSR," Economies, MDPI, vol. 11(3), pages 1-18, March.
    5. José Manuel Santos‐Jaén & Antonia Madrid‐Guijarro & Domingo García‐Pérez‐de‐Lema, 2021. "The impact of corporate social responsibility on innovation in small and medium‐sized enterprises: The mediating role of debt terms and human capital," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(4), pages 1200-1215, July.
    6. Jelena Titko & Anna Svirina & Tatjana Tambovceva & Viktorija Skvarciany, 2021. "Differences in Attitude to Corporate Social Responsibility among Generations," Sustainability, MDPI, vol. 13(19), pages 1-12, October.
    7. Rong Wu & Jian Zhang & Yubing Yu & Sajjad M. Jasimuddin & Justin Zuopeng Zhang, 2023. "The Impact of Value Cocreation on CSR Innovation and Economic Performance," Sustainability, MDPI, vol. 15(5), pages 1-22, February.
    8. Samuel Adomako & Mai Dong Tran, 2022. "Stakeholder management, CSR commitment, corporate social performance: The moderating role of uncertainty in CSR regulation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1414-1423, September.
    9. Xiaoyang Xu & Muhammad Imran & Muhammad Ayaz & Sonia Lohana, 2022. "The Mediating Role of Green Technology Innovation with Corporate Social Responsibility, Firm Financial, and Environmental Performance: The Case of Chinese Manufacturing Industries," Sustainability, MDPI, vol. 14(24), pages 1-20, December.
    10. Ana León-Gómez & José Manuel Santos-Jaén & Daniel Ruiz-Palomo & Mercedes Palacios-Manzano, 2022. "Disentangling the impact of ICT adoption on SMEs performance: the mediating roles of corporate social responsibility and innovation," Oeconomia Copernicana, Institute of Economic Research, vol. 13(3), pages 831-866, September.
    11. , Aisdl, 2020. "Tổng quan lý thuyết về trách nhiệm xã hội và hiệu quả tài chính của doanh nghiệp," OSF Preprints y5xke, Center for Open Science.

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