Turning Social Responsibility into Financial Advantage: The Mediating Role of Customer Satisfaction and the Moderating Effect of Corporate Reputation in SMEs

Abstract

This research project analyzes the effect that corporate social responsibility (CSR) has on the financial performance of small and medium-sized enterprises (SMEs), focusing on customer satisfaction as the mediating variable and corporate reputation as the moderating variable. Integrating stakeholder theory, this research sheds light on the conditions under which, and the financial outcome improvements for SMEs that can be attributed to, their CSR activities. Data gathered from SMEs functioning within Pakistan were analyzed using the quantitative research design approach. Measurement scales were derived from literature and used to gauge the company's social responsibility (CSR), customer satisfaction, corporate reputation, and financial standing of SMEs. Bootstrapping approaches were integrated within the partial least squares structural equation modeling (PLS-SEM) method to analyze and evaluate the direct, mediation, and moderation variables within the proposed model. The results reinforce that CSR positively influences customer satisfaction which positively influences financial performance of SMEs hence customer satisfaction being a mediator. Additionally, corporate reputation further solidifies the connection between CSR and customer satisfaction indicating that reputational equity increases the efficacy of CSR. These findings illustrate the fact that CSR positively affects financial performance, directly and indirectly, through stakeholder-related mechanisms. This research adds to the literature by developing and substantiating the moderated mediation model concerning the mechanisms and conditions under which corporate social responsibility (CSR) positively influences the financial outcomes of SMES. The present research employs the mediation and moderation effects of corporate reputation and customer satisfaction, respectively, within the context of stakeholder theory to provide a more refined and sophisticated understanding of CSR value creation. The present research also builds on previous works by concentrating on the CSR of SMEs which is a context in an emerging economy and which has been previously ignored.