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THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY (CSR) ON THE
COMPANY’S FINANCIAL PERFORMANCE BY

CHU MAI LY Graduation Project Submitted to the Department of Business Studies,
HELP University College, in Partial Fulfilment of the Requirements for
the Degree of Bachelor of Business (Accounting) Hons
3 Acknowledgement

This project would not have been made possible without the assistance, support and
encouragement of many people. I wish to take this opportunity to thank all the people
who have helped me during the time of completing the dissertation. I would like to
express gratitude towards Dr. Pham Duc Hieu and Dr. Le Van Lien and to Ms Shumathi
for their support and guidance. I would also thank some my friends for their financial
support for this project.


Alternatively, CSR could lead to higher costs and thus to worse financial performance.
Many studies are taken in which the method of study is quantitative or using the KLD
data base. In this study, I will examine the relationship of CSR and financial
performance in a different view and different method. This study makes clear
relationship in the aspect of identifying the costs and benefits of CRS, how those costs
and benefits will affect the accounting earnings or profits of the firms. Those issues will
be improved by the case of Vedan and Miwon in Vietnam.
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TABLE OF CONTENTS
Page
Declaration of Originality and word count ii
Acknowledgement iii
Abstract iv
Table of Content v

CHAPTER 1 INTRODUCTION 7
1.1 Background of study 8
1.2 Statement of purpose 8
1.3 Structure of study 9

Chapter 2 LITERATURE REVIEW 10
2.1 The history of CSR 10
2.2 The definition of CSR 11
2.3 The term of CSR 13
2.4 Theories describing the CSR/financial performance relationship 15
2.4.1 The theory suggest positive relationship 16
2.4.2 Theory suggest a negative relationship 19
2.5 The link between corporate social performance and corporate financial
performance. 20

4.1.3 Vedan after apply CSR 38
4.1.4 Vedan resolves their problem 39
4.2 Miwon 40
4.2.1 Case study of Miwon 40
4.2.2 Miwon before apply CSR 40
4.2.3 Miwon after apply CSR 41

Chapter 5 CONCLUSIONS 42
5.1 Summary 42
5.2 Conclusion 43
5.3 Recommendation 44 REFERENCES/BIBLIOGRAPHY 45

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Chapter 1: Introduction
1.1. Background of study
In today‘s society, there is a growing interest in and demand for Corporate Social
Responsibility (CSR). Reasons for this can be multinational corporations‘ increasing

1.2. Statement of purpose
This thesis tries to find out the impact of CSR on the company‘s financial performance
but does not focus on why and how firms behave socially responsible. The relationship
between CSR and firms‘ accounting performance will be thoroughly analyzed to
estimate impacts of CSR policy changes. Additionally, costs and benefits of CRS are
also accounted for. One other interesting question is raised that whether CSR can
increase profit of the company and after reading and researching, two Vietnamese
companies are selected: Miwon and Vedan, which are the outcome of adopted CSR.
In order to analyze the question ―what is the impact of CSR on the company‘s
profitability?‖ the project is divided into five parts:
 What is the CSR?
- The definition of CSR
- The theories of CSR
 What is the finance performance?
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 What is the relationship between CSR and finance performance?
 The role of CSR to increase profit of the company.
 The outcome of adopted CSR in Vedan and Miwon in Vietnam

1.3. Structure of Study
The thesis will be divided to main parts:
Chapter 2 provides some basic understandings about CSR; the relevant theories
describe the relationship between CSR and finance performances as well as empirical
studies of CSR and financial performances. The relevant theories will be examined in
two aspects of positive and negative relationship. Chapter 2 also discusses three main
problems of CSR: The link between corporate social performances and corporate
financial performances, how CSR affects accounting performances, and additional
accounting issues and implications. The framework for the subsequent analysis will be
created from this chapter.

proper way for social welfare.
Hence, in twentieth century, there is a backlash against the large corporations was
appearance. They were criticized as being too powerful, creating monopoly markets and
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practicing socially irresponsible policies. Consequently, laws and regulations were
enacted to regulate those large organizations, reduce their power and protect employees,
consumers, and society. The labor movement also occurred to require a greater social
responsibility in business activities. As a result of it, all businesses over the world began
to gradually increase their social responsibilities further rather than pursuit the highest
profit with impacts on social welfare.
In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism
changed society's expectations about organizations' activities. They required the large
organizations must have large responsibilities and contribute more to reduce social
problems and engage in solving them. Many governments issued legal mandates related
to employees‘ rights, product safety, working condition and environmental protection.
They were the first bricks to build up the modern concept of CSR today, which refers
that corporations should aim towards the new goal above their current economic goal
and legal responsibilities to contribute to the betterment of society.

2.2. The definition of CSR
The definition of corporate social responsibility is not abstruse. According to Business
for Social Responsibility (BSR), corporate social responsibility is defined as ―achieving
commercial success in ways that honor ethical values and respect people, communities,
and the natural environment.‖ McWilliams and Siegel (2001:117) describe CSR as
―actions that appear to further some social good, beyond the interest of the firm and that
which is required by law.‖ A point worth noticing is that CSR is more than just
following the law (McWilliams & Siegel, 2001). Alternatively, according to Frooman
(1997:227), the definition of what would exemplify CSR is the following: ―An action by
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between the different categories of socially responsible conduct are porous, since a
change in the law or in common practices can cause an activity to migrate from the
upper quadrants to the bottom ones.

2.3. The term of CSR
―CSR has often been criticized for running fast and loose with its concepts‖ (Barnett,
2007). During the first years of the modern CSR concept, some researches indicate that
social responsibility of business has been focused thoroughly but unfortunately, it leaded
to excessive effort in estimating accountability‘s performance. Therefore, Archie B.
Carroll (1979), Professor of University of Georgia, concluded that it was too narrow and
too static to fully describe the social efforts or performance of business. Additionally,
two new terms: Corporate Social Responsiveness (CSR2) and Corporate Social
Performance (CSP) were also defined and emerged during this period. Corporate Social
Responsiveness requires companies to link CSR with strategic management. On the
other hand, Carmen Valor (2005) wrote that Corporate Social Performance probably
builds the managerial framework to deal with CSR and simultaneously measures CSR.
Ackerman and Bauer (1976) were the first researchers provide the differences between
responsiveness and responsibility. In 1994, Frederick defined Corporate Social
Responsiveness as the capacity of a corporation to respond to social pressures and gave
it the popular shorthand name, CSR2. He also described this new term as a conceptual
transition from Moral contemplation to responsive action of Litz (1996): the
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―philosophical – ethical concept of corporate social responsibility…to the action
oriented managerial concept of corporate social responsiveness‖. It represents ―an effort
to treat as a management issue one which had been predominantly treated as a social
and/or ethical issue‟ (Ackerman and Bauer, 1976).
According to a new definition of corporate social responsiveness, Vallentin, in 2009,
stated that a counterpoint to the principle of CSR now appeared. It was similar to the
argument of Sethi in 1979, which proved that a responsive company was by definition

2.4. Theories describing the CSR/financial performance relationship
With the long stream of literature examining the association between corporate social
responsibility and financial performance come a number of theories describing the
relationship. This section provides a summary of the most common theories used to
describe associations between CSR and financial performance. Many of the theories are
similar or overlap to some extent with one another.
A theory suggesting a positive relationship between CSR and financial performance is
stakeholder theory. Stakeholder theory argues that a firm‘s boundary extends beyond the
primary stakeholders to include any group that is affected by, or can affect the
achievement of the firm‘s objectives (Freeman, 1984). Instrumental stakeholder theory
suggests managers ―must induce constructive contributions from their stakeholders‖
(Donaldson and Preston, 1995, pp. 71-72) to achieve organizational goals efficiently. A
hybrid position between normative and instrumental stakeholder theory maintains CSR
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is will not result in financial performance gains if it is not based on moral principles or is
not genuine (Jones, 1995; Frank 1988). From an agency perspective, stakeholder
relationships act to monitor managerial decision-making and encourage long-term
achievement of organizational goals (Cornell and Shapiro, 1987; Hill and Jones, 1992;
Jones, 1995; Jensen, 2001). Using this reasoning, one would have to assume the cost of
voluntarily engaging in better environmental and/or social performance is less than the
costs that the firm would incur absent any such action. This is similar to what Jensen
(2001) calls ‗enlightened value maximization‘. Jensen states, ―Enlightened value
maximization utilizes much of the structure of stakeholder theory but accepts
maximization of the long run value of the firm as the criterion for making the requisite
tradeoffs among its stakeholders‖ (p. 9, 2011).

2.4.1. The Stakeholder Theory
The importance of stakeholders in terms of CSR was formally recognized by Freeman in
the middle of the 1980. However, its concept seemed to be unclear until 1995,

those groups and receiving their support is the key for the survival of the organization
(The 1963 International memorandum at the Stanford Research Centre).
Post et al (2002) believes that effective and creative stakeholder management is a vital
requirement to stabilize and improve the wealth creating capacity and profitability of the
organization. The stakeholder management is kind of a competitive advantage source. Its
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evidence is as contracts between organization and stakeholders, which is based on trust
and coordination and therefore less expense are required in monitoring and enforcing
such contracts (Jones, 1995). The failure of the corporate system and its ability to
continue as a going concern can be a result of the failure of remaining the participation
of a primary stakeholder group (Clarkson, 1995).
Similarly, Jarillo (1988) and Jones (1995) cited that the coordinative working relations
with stakeholders would contribute organization success. In reality, stakeholders even
have power to severely affect the continuity of the organization (Freeman, 1984).
However, Orts and Strudler opinion about the instrumental theory in 2002 was different.
They argued that ―the best interests of stakeholders will inevitably also promote the best
interests of shareholders is unreasonably optimistic‖ because of the conflict of interests
and ethics among those stakeholders.
From Hemphill (2004) and Berman and Wicks (1999)‘s argument, an instrumental basis
of the stakeholder theory is perfectly consistent with shareholder theory. It stated that the
last result, after enhancing the first three stakeholders‘ welfare, is the organization could
have nothing to do with the welfare of the last stakeholder group: the shareholders. It is
almost identical to the nature of Friedman‘s view (1970), which proved the social
responsibility of business is to increase its profits. However, those arguments of CSR
above seem to be a bias motivation towards the previous outcome of CSR – increasing
corporation social responsibility for social betterment.
The ultimate clarification for stakeholder theory is possibly found in its normative base.
In order to support the stakeholder theory, Gibson (2000) referred to the theory of
deontology, which represents that individuals have the right to be treated as ends in

social expenditures in order to take advantage of the opportunity to increase their own
short-term private gains. Conversely, when financial performance weakens, managers
may attempt to offset, and perhaps appear to justify their disappointing results by
engaging in conspicuous social programs. Managerial opportunism could lead to
negative financial performance effects in other ways as well.
Managers may engage in corporate philanthropy to augment their own personal
reputation in the community (Balotti and Hanks, 1999). Jensen (2001) argues more
strongly that a firm attending to multiple stakeholders without a clear, single-valued
objective leaves managers with unclear direction on resource allocation decisions,
politicizing the corporation. The consequence is that managers are ―empowered to
exercise their own preferences in spending the firm‘s resources‖ (p. 10). In such cases,
the profit maximizing benefits of CSR investment are not maximized; but rather the
manager‘s utility is maximized. This potentially leads to less than optimal CSR
investment from the firm perspective. CSR that is intended to benefit the organization‘s
financial performance must be integrated with corporate strategy to be effective
(Brammer and Pavelin, 2006; Porter and Kramer, 2006). Another way to move this
stream of research forward is by describing CSR benefits and costs and articulating how
these costs and benefits would be reflected in financial performance.

2.5. The link between corporate social performance and corporate financial
performance.
The question whether there is a real relationship between corporate social performance
(CSP) and corporate financial performance (CFP) has been raised as an interesting
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debate topic for many researchers during the twentieth century (Dodd, 1932, Jarell and
Peltzman, 1985, Hoffer et al., 1988, Preston and O‘Bannon, 1997, McWilliams and
Siegel, 2000, and Simpson and Kohers, 2002). Some researchers supported the idea that
the relationship between CSP and CFP is positive some argued it is negative based on
their own empirical studies whereas others concluded that there is no relationship at all.

from negative events and/or externalities. Second, firms create goodwill and/or other
intangible assets, favorably impacting financial performance. The last CSR‘s benefit is
that firms gain efficiencies, reducing costs and improving financial performance.

2.6.2. How economic benefits are reflected in accounting earnings
From the previous part relating to economic benefit of CSR, there are three major types
of economic benefits, which an organization can receive by acquiring increasing CSR
policies.
Firstly, in terms of avoiding the economic impact of negative externalities, increasing
CSR and the firm‘s social reputation reduce the probability of compliance and/or
regulatory costs in the future periods. Some empirical evidence resulted from recent
researches showed negative impacts on firm that have bad environmental performance.
Additionally, an organization sometimes has to deal with industrial accidents, which
easily impose numerous amounts of expenses of remediation, litigation, etc. More
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socially responsible organizations are generally considered to be less likely to cause
those accidents. Furthermore, saving those expenses also associates with the lower
regulatory requirements and an organization‘s operation activities are more welcomed
by people and the government. Thus, if the organization scarifies the costs of being more
socially responsible, the higher sales and higher accounting earnings will be the last
outcome of CSR policies.
Another positive impact of CSR is like the growing insurance for accounting earnings of
the firm or, in other way, maintaining accounting earnings less volatile. Firms that are
more socially responsible try to reduce conflicts among stakeholder groups and align
corporate and social goal. In contrast, less socially responsible firms ignore their
negative externalities of their operating activities that are imposed on society. In the
future, some of those externalities will be realized and, therefore, lawsuits, political or
social conflicts will be raised, which results in penalties, regulations to those firms.
Consequently, their revenue will suffer from a significant fluctuation. Although those

2.6.3. Economic costs of CSR
Similar to economic benefits of CSR, economic costs of CSR are also difficult to
directly observable. Costs of CSR vary by industries and are based on the level of
potential conflicts between the corporation and society. Investing in CSR will result in a
higher price of inputs, higher labor costs and higher research and development costs (to
invent a more efficient and environmentally friendly production processes).
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Additionally, negotiation with stakeholder groups also imposes costs to the high socially
responsible firms. However, the incremental costs of CSR are not fully and easily traced
and recorded in the balance sheet. A second feature of the economic costs of CSR is the
considerable amount of upfront cash outflows, which decrease the competitive ability of
socially responsible firms compare to less socially responsible firms.
Interestingly, even if the corporation can present all costs of CSR on its balance sheet,
the updating accounting system is required and it results in initial upgrading costs.

2.6.4. How economic costs are reflected in accounting earnings
As mention previously, goodwill is one of the economic benefits from CSR. However,
goodwill also leads to economic costs associated with chartable contributions, employee
volunteer programs and consumer recycling programs. While those costs possibly
contribute to the economic benefits of goodwill that positively affects future accounting
sales, those immediate expenses cannot be ignored.
Likewise, although the internal competencies create competitive advantage that
contribute to future expected benefits, such competencies would also require some
immediate costs. In order to being more socially responsible, an organization has to
invest a large amount of upfront costs of consulting fees and upgrading accounting
information systems. The final outcome of the investment is increasing intangible assets
and helps the organization to be more prepared and easily adapt to changing external
environment (such as government policies changes or crisis). However, the benefit is in
long run; while the costs expose immediately, which possibly do not meet capitalization