Corporate social responsibility, innovation capability and firm performance: evidence from SME
ISSN: 1747-1117
Article publication date: 24 July 2020
Issue publication date: 31 August 2021
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.
Keywords
Acknowledgements
This article is a part of the PhD thesis of the Dawit Teclemariam Bahta to be submitted to Dongbei University of Finance and Economics. We are thankful to the anonymous referees for many helpful comments to improve the article.
Citation
Bahta, D., Yun, J., Islam, M.R. and Ashfaq, M. (2021), "Corporate social responsibility, innovation capability and firm performance: evidence from SME", Social Responsibility Journal, Vol. 17 No. 6, pp. 840-860. https://doi.org/10.1108/SRJ-12-2019-0401
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited