Investigating Relationship between Corporate Social Responsibility and Financial Performance using Structural Equation Modelling

Abstract

The objective of present study is to investigate the relationship between corporate social responsibility (CSR) and financial performance (FP) with the help of a stakeholder approach in the context of small and medium enterprises (SME) industry in Delhi NCR. A sample of 382 SMEs was analysed through a structured questionnaire having 22 statements out of which two statements were removed due to low factor loading. The goodness of fit was measured by AMOS–SEM and relationship between variables was examined by path analysis. The overall model was fit and finding indicated a weak positive relationship between CSR and FP. The results were in conformance with previous research works by Jain, Vyas and Durga (2016) and Weber (2008). It was also observed that SMEs are socially responsible towards their stakeholders, but it is more in informal nature rather than adopting it as a strategy. Further, the results revealed that CSR of SMEs is associated with religious spirit.

Keywords

Corporate social responsibility stakeholder financial performance small and medium enterprises

Introduction

Over the last two decades, there have been a lot of talks regarding corporate social responsibility (CSR) and its implementation. The traditional concept of CSR refers that a firm is responsible if it produces goods and focuses on profit maximization (Agatiello, 2008; Cochran & Wood, 1984; Greenwood, 2001). There is a paradigm shift in understanding the concept of CSR. The modern concept of CSR says that firm has to include social interests of the people in community because business is not an economic entity and it is a social entity (Sarkar, 2005). The importance of ethical business conduct has been developed in terms of social initiatives and corporate philanthropy (Frederick, 2006). But globalization, privatization, liberalization, environmentalism and relevance of stakeholder relationship have made CSR a global concern (Aras & Crowther, 2008). In 2001, European Commission defines CSR as ‘A concept whereby companies integrate social and environment concerns in their business operations and interaction with their stakeholders on a voluntary basis, as they are increasingly aware that responsible behaviour leads to sustainable business success’.

It has been observed that businesses and corporations in developed nations view CSR as legal responsibility, whereas businesses in developing countries consider CSR as voluntary responsibility (Visser, 2008). Consequently, the relationship between business and society has moved on from paternalistic philanthropy to understanding of the roles and responsibility of business and corporation in any society. Freeman (1984) discarded the shareholder concept of CSR and considered through the stakeholder’s point of view. Stakeholders may be defined as those communities or groups which can affect and can be affected by the deeds of organizations as they share certain demands or expectations with them. If businesses are managing their social responsibility properly, then it will reduce risk as well as improve their sustainability and overall performance (Wang, 2008). Large firms formalize and publicize their CSR practices (Carroll, 1979), but the CSR in small and medium enterprises (SME) has been remained as neglected and demanded as substantial attention (Lapointe & Gendron, 2004). There is a difference between large firms and SMEs. Hence, implementation of CSR for large and small companies may be a different approach (Spence & Schmidpeter, 2003).

Small businesses are not generally concerned with CSR because of its small size and peculiar characteristics. However, SMEs are contributing in CSR and associated with economic, environmental and social development. Hence, it is inside the CSR movement (Spence, 1999; Spence & Schmidpeter, 2003). The CSR has been one of the inevitable priorities for corporate business leaders (Porter & Kramer, 2006). Since FP is imperative for the growth and livelihood of any business, various researchers and scholars reiterated that all forms of CSR activities have to be aligned with the core competencies of the corporations due to which economic objectives can be contributed (Porter & Kramer, 2002). In Drucker’s view, ‘Business must convert its social responsibility into business responsibilities attempting social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs’ (Carroll, 1999). As it has been clearly seen, developing countries have societal and environmental problems such as environmental pollution, human rights and labour issues. If firms engage in CSR activities, they can reduce environmental and societal problems (Henderson, 2001).

It is argued that implementation of CSR matters in terms of size. Ortiz and Kühne (2008) used the term responsible business behaviour instead of CSR to describe a strategic concept that should help SMEs to discover what constitutes their economic, social and environmental responsibilities. Hence, SMEs are not just smaller versions of larger scale business (Jenkins, 2004), and they have different structures and management styles (Perez-Sanchez, 2003), which can affect the magnitude and scale of their CSR activities. Majority of SMEs are having family-owned businesses, which are privately held by a small group of shareholders. Earlier, the corporate sector has performed philanthropic activities in the form of donations and charitable giving, but these disparate charitable initiatives were usually considered as uncoordinated and having no clear decision criteria. Hence, it has been aligned to CSR for the better competencies in organization. Strategic philanthropy or strategic CSR is nothing but a commitment of corporate resources to treat community issues which would create advantage to corporation’s strategic position. Thus, firms can contribute to the communities in cohesive way by rationally mentioning what they stand for as corporate business (Saiia et al., 2003).

Lepoutre and Heene (2006) advocated for small business social responsibility that a responsible entrepreneur is one who not only exercises with fairness and honesty in business dealing with all the internal and external stakeholders such as customer, business partners and competitors but also thinks for the welfare of employees generating opportunities to employees which makes them more competitive and skilled. Gupta (2012) stated that CSR for SMEs can be understood through stakeholder’s concept. Toyne (2003) and Jenkins (2004) also implicated about CSSR of SMEs on the same track. Vives (2006) stated that implementation of CSR in SMEs is concerned with three responsibilities: first, internal social obligation in terms of health and social security measures as well as working condition betterment; second, external social measures connecting with the local community through integration; and third, environmental measures which emphasizes reduction of energy consumption and recycling of wastes.

Literature Review

Longo, Mura and Bonoli (2005) studied the social responsibility of Italian SMEs to find out major factors for social value creation. It was found that Italian SMEs are contributing to the society, employees and customers not only because of ethical reasons but also for the improvement financial position.

Avram and Sven (2008) studied the responsible behaviour considering Austrian SMEs. They focused on the generation of social capital which is in need of hour in building the trust and reputation. They concluded that SMEs in Austria face more obstacles to implement business activities like financial and personal resources.

Jamali, Zanhour and Keshishian (2008) studied the social activities and responsibilities of SMEs in developing countries. It was found that SMEs are engaged in CSR voluntarily, which led to responsible conduct of business rather than influencing on the profitability of the business. Hammann (2009) examined the relationship between SMEs’ social responsibility and value creation of German SMEs. The finding suggested that socially responsible management practices towards all the stakeholders have positive effect on the firm performance.

Fauzi (2009) made a theoretical and empirical study on Corporate Social and Environmental Performance: A Comparative Study of Indonesian Companies and Multinational Companies Operating in Indonesia. The study investigated the differences between the social and environmental performances of Indonesian companies and MNCs operating in Indonesia by taking 21 companies as samples. The result revealed that there was no significant difference in social performance between Indonesian companies and MNCs. In addition, it revealed that there was significant difference in environmental performance between Indonesian companies and MNCs.

Makni and Claude (2008) made a study on the causal relationship between corporate social performance (CSP) and FP by taking the sample of 179 publicly held Canadian firms and use the measures of CSP provided by Canadian Social Investment Database for the years 2004 and 2005. The result found no significant relationship between a composite measure of a firm’s CSP and FP, except for market returns. However, using individual measures of CSP, it revealed robust significant negative impact of the environmental dimension of CSP and three measures of FP, namely, return on assets, return on equity and market returns.

Liu and Fong (2010) studied the relationship between CSR orientation and FP of Chinese SMEs. The result revealed that internal activities such as job creation, training of staffs and environmental sustainability of Chinese SMEs had no influence on FP. Hence, there was no positive relationship between CSR and FP.

Bnouni (2011) examined the relationship between CSR and FP of French SMEs. It was found that social responsible strategy could lead to sustainability in the SMEs only if a certain level of profitability would be achieved. There was positive but marginal relationship between the various components of the CSR and FP.

Kechinche and Soparnot (2012) studied that SMEs are most important sector not only in emerging market but also all over the world. The research was concluded that SMEs are associated with CSR movement encompassing on economic, environmental and social development. Baumann-Pauly et al. (2013) studied that SMEs and smaller firms focus on imperative features which are suitable to CSR but not capable to relate it through its disclosure in society. They assume that contributing to the CSR may lead to the trust building, legitimacy and reputation.

Soheli Ghose (2012) made a theoretical study on a look into CSR in Indian and emerging economies, investigated the association between actual investment in CSR activities and actual sales figure of the companies by taking nine companies (GAIL India, Gujarat Fluorochemicals Ltd, Hindustan Copper Ltd, L&T, Mahindra and Mahindra, ONGC, Mahindra Ugine Steel Company, National Aluminium Company Ltd., and Mangalore Refinery and Petrochemicals) at random from different sectors. Pearson’s correlation test was performed to test the hypothesis. The author found significant correlation between investment in CSR activities and sales. In addition, the study also explored CSR concern. The CSR is linked to the broader issue of corporate governance. In India, only 40 per cent of companies practice CSR initiatives. It revealed that majority of the companies did not focus on CSR seriously and those who did, did it keeping philanthropic structure in mind and 50 per cent of companies made their employee betterment activities in the name of CSR initiative, not really contributing to the outside community.

Jain et al. (2016) examined relationship between CSR and FP of SMEs in Rajasthan with the lens of stakeholder taking the sample size of 384 SMEs. Their study revealed that SMEs are not formally associated with CSR activities rather they are associated with philanthropic and non-institutionalized activities. Apart from this, it was found positive but weak relationship between CSR and FP of SMEs.

The existing literature on CSR and FP has been observed that most of the studies are contextual (Raman, 2006). The CSR seems to have positive effect, negative effect as well as neutral effect on FP of firms in various studies. It is observed that researchers were inconclusive and complex in most of researches because CSR and FP relationship were not able to link strategic importance of CSR for firms. A lack of provable link between CSR and FP often discourages firms from engaging in CSR work. There is still the need to understand the linkage between CSR work and FP having its strategic relevance which represents that a gap exists in the literature to conduct the study in India.

Theoretical Framework and Hypothesis Development

The CSR has been measured through stakeholder approach which encompasses on customer, employee, environment and community.

Customer-related CSR

The customer satisfaction is treated as an important element concerned with corporate business strategy which is driving force to the long-term profitability and increased market value (Gruca & Rego, 2005).When the firm engages in socially responsible activities, it generates corporate reputation due to which the customers who use product or services become satisfied and lead to FP (Lichtenstein, 2004). The CSR is the antecedent dimension to estimate customer satisfaction (McGuire et al., 1988). The CSR related with customers helps the companies to meet their needs, as majority of the customers prefer those products and services which do not harm the society. It enhances the customer’s esteem, making them feel more valued. For example, in any firm which gives job opportunity to the disabled person, customers become satisfied and contribute to the firm by purchasing the product and service of that firm due to which FP is strengthened (Lai & Yang, 2010). Hence, the current study develops following hypothesis:

H1: Customer-related CSR has significant effect on FP.

Employee-related CSR

When the firm initiates social involvement, employees feel proud and committed towards it. It means the association with the firm reflects positively due to which employee’s contribution is linked (Brammer, Millington & Rayton, 2007). It is believed that good deeds of a firm make an employee most curious to share their firm with external person which is linking pin of job satisfaction, employee retention and employee morale. Volunteer programme in form of CSR keeps employees motivated in the company and the corporate image and reputation can be strengthened in the eyes of local community which do not need to advertise due to which competitive advantage can be gained (Filho, Wandeley, Comez & Farache, 2010). The CSR helps to enhance creativity of employees due to which practical ideas can be possible and they will be inspired to create originality. Following hypothesis is developed in this context:

H2: Employee-related CSR has significant effect on FP.

Environment-related CSR

The CSR related with environment is a way of reflecting the social legitimacy of firms towards environment (Patten, 1991). It is the prime responsibility of the business to protect the interest of the environment where it is established. The firms which give priority to this dimension focus mostly on eco-friendly vehicle, eco-efficiency, prevention of pollution, energy efficiency and renewable energy (Buysse & Verbeke, 2003). Firm must have aim to minimize ecological impact as it is portrayed under total quality management. Hence, firm has to build credibility and ensure the environmental integrity among different stakeholders (Walley & Whitehead, 1994). But application of environmental integrity consumers more resources (financial and non-financial) as firm has to link various value chain. If these business practices are taken care, it will impact environment positively, otherwise it will go against the environment protection. Hence, the business which performs environment-related CSR generates strong reputation and yields FP (Armitage & Marston, 2008). A hypothesis framed in the association of environment-related CSR and FP is:

H3: Environment-related CSR has significant effect on FP.

Community-related CSR

When the firm demonstrates its commitment towards community, it improves the business reputation due to which FP can be enhanced. A firm can engage with local community contributing charity or donation to the community, sponsoring an event and providing funds to the community projects. The community development has to be taken care in the social disclosure of the firm (Raman, 2006). The community-related dimension of CSR associates that how firm can interact with local community, build trust and develop partnership which leads them to accompany sustainability. It helps to enhance employee loyalty and create positivity in the mindset of them for making harmonious relationship between colleagues (Filho et al., 2010). The study develops following hypothesis:

H4: Community-related CSR has significant effect on FP.

Figure 1.

Source: Authors’ representation.

The past studies related with the association between CSR and FP furnish a framework to proceed a study with the help of stakeholder approach in SMEs from Delhi NCR. Figure 1 represents the proposed model of study. The study proposes a hypothesis that there is a positive relationship between CSR and FP of SMEs. The following hypotheses have been formulated to examine the relationship between CSR and FP.

Research Methodology

Research Design and Data Collection

The current study is a cross-sectional study which was conducted in Delhi NCR. The data have been collected from 382 SMEs belonging to textile, food processing, jewellery, carpet, machine tools and ceramics. A structured questionnaire including demographic dimensions was circulated to the respondents for data collection (Table 1). As per the study of Sapienza (1990) and Wicks (1999), the relationship between CSR and FP has been one of the deserted areas of research. Hence, to fill the gap, the current study has been viewed CSR with the help of stakeholder’s perspective. There were five constructs used in the study: customer construct, employee construct, environment construct, community construct and FP construct. All these constructs were measured on a five-point Likert scale. In total, 22 items were included in five constructs adapted from previous studies (Bhattacharya & Sen, 2004; Hopkins, 2003; Jain et al., 2016; Stanwick & Stanwick, 1998; Sweeney, 2007).

Table 1.

Demographics Characteristics

Demographic Variables	Number	Percentage
Age
Between (20 and 30) years	77	20.15
Between (30 and 40) years	143	37.45
Between (40 and 50) years	98	25.65
Between (50 and 60) years	45	11.71
Above 60 years	19	4.98
Gender
Male	289	75.65
Female	93	24.35
Educational background
Secondary education	43	11.25
Higher secondary education	87	22.77
Bachelor degree	163	42.67
PG degree	89	23.31
No. of Employees
Less than 25	19	4.97
Between (25 and 75)	196	51.30
Between (75 and 125)	103	22.96
Above 125	64	20.77
Type of Industry
Textile	57	14.92
Food processing	48	12.56
Jewellery	96	25.13
Carpet	54	14.14
Machine tools	20	5.23
Ceramics	107	28
Year in Business
Less than 5 years	49	12.82
Between (5 and 10) years	88	23.03
Between (10 and 15) years	107	28
Above 15 years	138	36.13
Ownership Nature
Sole proprietorship	132	34.55
Family business	169	44.24
Partnership	81	21.21

Source: Authors’ representation.

Research Tool

Structured equation modelling (SEM) was employed in the current study to examine the relationship between CSR and FP. As recommended by Gerbing and Anderson (1998), SEM is categorized into measurement model and structural model. Measurement model is employed to test the validity and applicability of the indicators for each construct and structural model is used to explore the relationship between multiple dependent and independent variables (Smith, 2003). In current study, one second-order latent variable (CSR) was used, whereas five first-order latent variables were used: customer (CS), employee (EMP), environment (EN), community (CM) and financial performance (FP) (see Table 2).

Table 2.

List of Variables with Their Statements

S. No.	Factors	Statements
1(a)	Customer	Value and respect to the customer (CS1)
		Helps to solve complaints of customers in stipulated time period (CS2)
		Accuracy and clarity in information provided to customer (C3)
		Assurance of quality in given cost to customer (C4)
(b)	Employee	Support to the employee benefits (EMP1)
		Commitment towards health and safety of employees (EMP2)
		Maintenance of quality of work–life balance (EMP3)
		Encourages employees to develop long-term career (EMP4)
		Providing job opportunity to deserved candidate (EMP5)
(c)	Environment	Reduction of pollution from environment (EN1)
		Support to conserve energy in society (EN2)
		Recycling and waste management (EN3)
		Environmentally friendly container or wrapper (EN4)
		ISO certification for the safety of society (EN5)
(d)	Community	Providing job opportunities to local community (CM1)
		Donation to charity which is available in local community (CM2)
		Involvement in a project with local community (CM3)
		Employees volunteer on behalf of local community (CM4)
2	Financial performance	The benefit of CSR is seen in long run (FP1)
		Increases in the profitability of the company (FP2)
		Changes in sales revenue of firm (FP3)
		Changes in firm’s ROI (FP4)

Source: Authors’ representation.

Results

The results of the present study have been categorized into two parts: measurements model and structural model. Both the models have been tested by AMOS 21.

Measurement Model

Measurement model is employed to test the validity and suitability of the indicators for each construct (Roberts & Wortzel, 1979). The result of five-construct model indicates fit to the data. Cronbach’s alpha and composite reliability were used to test the construct reliability of all the constructs. The degree of construct variance is measured by squared factor loadings. The explanatory power of any variable can be high, moderate and below if squared factor loading of observed variable is more than 0.5, between 0.3 and 0.50 and less than 0.3, respectively (Holmes, 2001). The model fit was checked by degree of freedom ratio (CMIN/df), comparative fit index (CFI), goodness of fit index (GFI), Tucker–Lewis index (TLI), root-mean-square error of approximation (RMSEA) and root-mean-square residual (RMR) (Byrne, 1989; Hu & Bentler, 1999). In current study, first, zero-order level of the entire construct has been tested and then joint constructs have been tested. The model fit of individual construct and joint construct has been mentioned in Tables 3 and 4. Figure 7 represents the proposed model of joint measurement.

Table 3.

Joint Measurement Model

Goodness of Fit Index	Chi-square	CMIN/DF	GFI	AGFI	NFI	IFI	TLI	CFI	RMSEA
Value	390.87	2.398	0.909	0.882	0.932	0.959	0.952	0.959	0.061

Source: Authors’ representation.

The value of GFI, AGFI, CFI and TLI has to be more than 0.90 for the good fit indices. The RMSEA having less than 0.05 signifies acceptable fit index (Gerbing & Anderson, 1998). For the confirmatory factor analysis and structural model evaluation, the chi-square must be insignificant and four indices should be significant. These fit indices are evaluated to determine whether or not the proposed model best explained the relationship between the observed and unobserved variables. The individual standardized factor loading and R2 are presented in Figures 2–6. The standardized factor loading of individual construct is within the acceptable level (Holmes, 2001) which is statistically significant.

Figure 2.

Source: Authors’ own presentation.

Figure 3.

Source: Authors’ own presentation.

Figure 4.

Source: Authors’ own presentation.

Figure 5.

Source: Authors’ own presentation.

Figure 6.

Source: Authors’ own presentation.

Figure 7.

Source: Authors’ own presentation.

As per Table 5, chi-square of each individual construct is supportive except environment. The GFI of all the variables is more than 0.90 which holds fit (Joreskog & Sorbom, 1989). The AGFI of environment construct is less than 0.9. The NFI, IFI and CFI of all the constructs are more than acceptable level. The TLI of environment construct is less than acceptable level. As per Table 4, all indexes are within acceptable level except AGFI and RMSEA. Hence, the result of individual measurement model holds fit. Table 6 shows the standardized factor loading, R2, CR, AVE, MSV and ASV of joint model. The factor loadings of all the constructs are more than 0.60, which are statistically significant and the covariance between CSR and FP is significant (P < 0.001). Composite reliability, AVE, MSV and ASV were calculated to test convergent validity and discriminant validity (Bagozzi & Yi, 1988). The AVE of all the construct is greater than 0.5 and composite reliability is more than 0.7 which confirms convergent validity in proposed model (Fornell & Larcker, 1981). AVE>MSV>ASV represents the presence of discriminant validity in current study. Considering the entire measurement model, it can be concluded that the measurement model is fit and it supported the reliability of the constructs. After checking the reliability, convergent validity and discriminant validity of the proposed model, the structural model would be performed.

Table 4.

Summary of CFA

Variables	Label	Standardized Factor Loading	R2	Composite Reliability	AVE	MSV	ASV
Customer	CS1	0.85	0.72	0.866	0.618	0.340	0.175
	CS2	0.77	0.60
	CS3	0.76	0.58
	CS4	0.78	0.61
Employee	EMP1	0.87	0.75	0.879	0.646	0.320	0.176
	EMP3	0.87	0.75
	EMP4	0.83	0.69
	EMP5	0.81	0.65
Environment	EN1	0.78	0.61	0.908	0.711	0.320	0.197
	EN2	0.88	0.78
	EN3	0.92	0.85
	EN5	0.93	0.86
Community	COM1	0.75	0.57	0.938	0.790	0.340	0.187
	COM2	0.82	0.67
	COM3	0.85	0.72
	COM4	0.70	0.50
Financial Performance	FP1	0.84	0.71	0.928	0.763	0.138	0.074
	FP2	0.91	0.83
	FP3	0.88	0.77
	FP4	0.87	0.75

Source: Authors’ representation.

Table 5.

Individual Measurement Model

Index of Fit	Customer	Employee	Environment	Community	Financial Performance
Chi-square	4.193	8.284	55.173	7.500	6.147
CMIN/DF	2.097	4.142	27.586	3.750	3.073
GFI	0.995	0.989	0.930	0.991	0.992
AGFI	0.974	0.944	0.650	0.953	0.958
NFI	0.995	0.992	0.962	0.990	0.995
IFI	0.997	0.994	0.963	0.992	0.997
TLI	0.992	0.983	0.889	0.977	0.990
CFI	0.997	0.994	0.963	0.992	0.997
RMSEA	0.054	0.091	0.264	0.085	0.074

Source: Authors’ representation.

Table 6.

Standardized Regression Weights

		Paths	Estimate	S.E.	C.R.	P	Squared Multiple Correlation (R2)
FP	←	Customer	0.404	0.060	6.709	***
FP	←	Employee	−0.095	0.068	–1.514	0.130	0.18
FP	←	Environment	0.038	0.071	.605	0.545
FP	←	Community	0.120	0.087	2.019	0.044

Source: Authors’ representation.

Structural Model

In the present study, the relationship between CSR and FP has been shown which was depicted in the form of hypothesis. The fitness of proposed structural model is checked through GFI. All the assumptions of SEM are met. The model fit of hypothesized construct represented that the data are fit as GFI = 0.917, AGFI = 0.946, TLI = 0.932, RMSEA = 0.047, RMR = 0.051 and CMIN/df = 2.86.

Table 6 and Figure 8 show the estimates and structural model, respectively. The standardized regression weights of different stakeholders (customer, employee, environment and community) are 0.40, −0.095, 0.038 and 0.120, respectively. All stakeholders are capable to explain the FP by 18 per cent. The proposed hypothesis for the current study (there is positive and significant relationship between CSR and FP of SMEs) has been accepted, but weak relationship has been found.

Figure 8.

Source: Authors’ representation.

Discussion

The present study aims to find out the CSR activities of SMEs in Delhi NCR towards different stakeholders and its effect on their FP. The finding of our study is similar to Waddock and Graves (1997) and Jain et al. (2016). The owner/managers were asked their contribution of business towards meeting the need of different stakeholders. From the responses of different statements, many SMEs mentioned that there is no formal strategy for implementation in CSR activities but informally they are associated with betterment of society. The CSR is not meant for mandatory expenses, rather it is religious spirit.

When SME owner/managers were asked about CSR contribution towards the customers, majority of them mentioned that they are fulfilling CSR deeds valuing and respecting the customers (factor loading 0.85). The SMEs retain customers for longer period of time and make them happy resolving the complaints in stipulated time (factor loading 0.77). They provide reliable and accurate information about product contents (factor loading 0.76) to the customers. The quality of quantity is assured (factor loading 0.78), providing samples to the customers.

Employees are the lifeblood of any organization because they achieve organizational goals and lead the business in growth horizon. Hence, it is the prime responsibility of business men to retain the potential employees. For the same, firms implement CSR strategies to improve the skills and take care of the health and safety of employees. Many SMEs support to the employees considering their benefits (factor loading 0.87). The commitment of business towards health and safety was also considered (factor loading 0.87), as they are provided food and pure drinking water at workplace in subsidized rate. The SMEs are actively associated with maintenance of quality of work–life balance (factor loading 0.83) due to which they can give their best in performance. SMEs facilitate different services to learn and increase efficiency due to which employees are encouraged to develop long-term career (factor loading 0.81). SMEs bear all expenses, in case employees get accident on site. In festive season, employees are distributed bonuses also. Some of the SMEs responded that the employees who are working for longer period of time are provided provident fund.

The firms implement CSR activities towards the protection of environment. The owner/managers of SMEs revealed that they are working on reduction of pollution from environment producing environment-friendly products (factor loading 0.78). They understand the value of energy; hence, they support to conserve energy in society (factor loading 0.88) using energy-efficient compact fluorescent light bulbs. The SMEs help in recycling and waste management (factor loading 0.92) giving priority to the usable products. Apart from this, most of SMEs have ISO certification which encompasses on environmental management and assures to the external stakeholders (factor loading 0.93). Overall, they are associated with maintaining the environmental integrity minimizing the ecological impact in environment.

The business is given its existence in community; hence, the owner/managers of SMEs responded that they are performing community-oriented CSR activities of SMEs through social ties and local interdependences (Murillo & Lozano, 2006). For the same, SMEs provided job opportunity to the local community (factor loading 0.75) which helps in making harmonious relationship with community too. The SMEs are donating some portion of profitability (factor loading 0.82) as charity at the time of local events and social and religious ceremony. Apart from that, SMEs involved in a project with local community (factor loading 0.85) that connect community and make it feel happy. The employees of SMEs also volunteer (factor loading 0.70) in the event of society such as free health check-up, blood donation camp and programme of social awareness. It has been observed that they are actively associated with community-related CSR activities. The SME entrepreneurs believe that CSR is viable investment. Majority of them replied that the benefit of CSR activities has been seen in long run (factor loading 0.84). It has been observed from the replies directly there is no increase in the profitability of the company (factor loading 0.91). Apart from that, changes in sales revenue of firm (factor loading 0.88) have been also reported.

Conclusion

The result revealed the notion that all stakeholders are most important for SMEs, but priority becomes different. Some managers or owners give priority to the customer-related CSR activities, whereas some prioritize other stakeholder-related CSR activities. Small businesses are not generally concerned with CSR because of its small size and peculiar characteristics. However, SMEs are contributing in CSR and associated with economic, environmental and social development. Hence, it is inside the CSR movement (Spence, 1999; Spence & Schmidpeter, 2003). In current study, it revealed that customer-related CSR has significant effect on FP, whereas other stakeholder-related CSR has insignificant effect on FP. The analysis of the SMEs operating in Delhi NCR shows that there is weak positive relationship between CSR and FP on the lens of stakeholders.

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