The Relationship Between Corporate Social Responsibility and Financial Performance: Empirical Evidence from Vietnam

  • NGUYEN, Cuong (Faculty of Business and Law, the University of the West of England - UWE Bristol) ;
  • NGUYEN, Lan (Faculty of Accounting and Auditing, Van Lang University)
  • Received : 2021.04.10
  • Accepted : 2021.07.04
  • Published : 2021.08.30


For many years, many academics and practitioners have paid attention to the increasing popularity of corporate social responsibility (CSR) and its relationship with financial performance. They have shown that creating social and sustainable responsibility can strengthen the organization's financial performance as the organization can achieve its current needs without compromising the ability to meet future needs. While much theoretical and empirical evidence has been provided to support this argument in developed countries, this topic is under-researched, and the outcomes are controversial in developing countries. Therefore, this paper aims to examine and investigate the relationship between corporate social responsibility and financial performance in Vietnamese organizations. The dataset includes 27 firms listed on the stock market exchanges in Ho Chi Minh city (HOSE) and Hanoi (HNX) from 2015 to 2019. The disclosure approach is adopted to measure corporate social activities; four areas were developed: environment, community, employee and product, customer, and supplier practices. Return on average equity (ROE) and return on average assets (ROA) are two proxies for measuring financial performance. The research results confirm the existing literature with a strong correlation between employees and returns on average assets.


1. Introduction

In recent years, with the increasing popularity of Corporate Social Responsibility (CSR), many academics and practitioners have been paying their attention to this topic, making it even more prevalent (Chen et al., 2020). Corporate social responsibility encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time (Carroll, 1979). CSR is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. By practicing CSR, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental. (Blowfield & Murray, 2011, Amacha & Dastane, 2017). CSR is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental, and social imperatives (“Triple-Bottom- Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders (Backman, 1975). Steiner (1971) refers to CSR as economic, legal, and voluntary activities. Friedman (1962) – a foremost thinker on CSR in the 1960s – debates with a profit-oriented statement disputed by many other authors. He supposes in a free society, the corporation should focus only on making as much money for shareholders as possible and social aspects were in the government’s purview.

In the Vietnamese context, CSR is a new approach that has been introduced to Vietnam since 2002 (Hamm, 2012). This market has increased CSR awareness in recent years, realizing the need to balance economic progress, social improvement, and environmental sustainability. The nature of CSR in Vietnam, including CSR conceptualizations (CSR Thinking) and the implementation of CSR (CSR doing), is influenced by the individual level, organizational context, and external social context (Figure 1). All three factors are associated with tradition, modernity, and governance.

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Figure 1: Conceptual Framework in Vietnam

However, most Vietnamese companies misunderstand the nature and characteristics of CSR. They consider CSR with the meaning of philanthropy rather than a more comprehensive concept of CSR and its elements. Nearly 40% of the companies were not aware of the CSR concept, while less than 20% understood CSR (UNIDO, 2010). There are multiple social problems in Vietnam like terrorism, industrial crises, lack of health and educational infrastructure, and political and economic instability. For example, Coca-Cola avoided taxes in 2012 (Iyer, 2013); Formosa caused environmental pollution in 2016 (Ortmann, 2017); Nike paid low wages for long working hours and was involved in other abusive practices in 1997 (Greenhouse, 1997); and VN Pharma imported counterfeit medicine in 2017 (Tuoi Tre News, 2017). Therefore, the role of CSR should be acknowledged and further investigated.

Despite the rising concern for firms’ CSR practices, there have been few studies on CSR and financial performance in Vietnam. This research area had not been fully developed because of the differences in CSR disclosure practices between developed and developing economies. Therefore, this paper aims to investigate the nature of CSR and its practices in Vietnam. Then, we will test the relationship between CSR and the financial performance of some Vietnamese firms listed on the stock exchange market.

2. Literature Review

Many academics have been interested in the relation ship between CSR and Corporate Financial Performance (CFP). However, Dodd (1932) claimed that this linkage had been a controversial topic for more than half a century. The corporate social responsibility – financial performance relationship started to be analyzed intensely in the 1970s (Aldag, 1978).

Margolis and Walsh (2003) found that of 127 published articles during the year from 1972 to 2002, 55% (70 studies) reported having a positive relationship. These results suggest a significant value addition in firm performance by improving CSR performance; therefore, businesses should align the social goal with the business goal and consider CSR a strategic tool to promote their economic objectives (Ferrarini & Hinojales, 2019, HUSNAINI & BASUKI, 2020). CSR is considered a firm’s shield against negative information harming the organizational reputation, and therefore it protects organizational financial performance. However, some empirical evidence showed a negative relationship between CSR and CFP. Brammer et al. (2006) showed that the implementation of corporate social activities increases costs and therefore reduces organizational profitability.

In the context of emerging economies, Kao et al. (2018) showed that CSR negatively influences non- SOEs (state-owned enterprises) but is neutral with SOEs in China. In Malaysia, Arshad et al. (2012) showed a positive association between corporate social activities and financial performance for 17 Islamic banks in Malaysia from 2008 to 2010. In Vietnam, the study by Bich (2015) emphasized that financial performance is associated with CSR disclosure. Particularly, while employee disclosure is negatively correlated with firm value, environmental information disclosure positively influences firm value. Ngoc (2018) applied content analysis on annual reports from 31 commercial banks in Vietnam and found a negative linkage between CSR disclosure and financial performance.

While increasing attention to CSR has been fully recorded in recent years, most empirical studies about this topic focused on developed countries. There is no consolidated measurement standard for CSR and disclosure requirements over the world, especially in developing countries. This creates difficulties for researchers to diverge CSR theory and practice in the context of, particularly, cross country analyses. Furthermore, existing studies in Vietnam show an inconsistency in the relationship between CSR disclosure and financial performance. Thus, this paper will investigate the latest data to re-examine the CSR practices in Vietnamese firms.

H1: Corporate social responsibility is positively correlated with the financial performance.

3. Research Methodology

3.1. Data Collection and Analysis

Secondary data will be used in this paper. We select a sample of 27 companies listed on the Vietnamese stock exchange from 2015 to 2019. These companies are listed in Vietnam’s two largest stock exchanges, namely Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). There are 119 observations over five years. The details of the company list are shown in Appendix 1.

All data was collected from the annual reports of these companies. We use annual reports because annual reports can be compared with previous studies. These reports are carefully prepared by the company then reviewed by independent auditors, ensuring the reliability and validity of the data collected. Also, is the most comprehensive means of communication between a company and its stakeholders, representing information about organizational activities over the year.

Then we calculate the financial performance by evaluating the return on assets average (ROAA) and return on equity and average (ROEA) of these 119 observations. This is because ROAA and ROEA seem to be the best way to measure financial company performance (Hagel et al., 2010). After calculating these ratios, we compare these ratios with an independent source ( – one of the highly credible sources for Vietnamese investors. This step aims to ensure the accuracy of the data.

Next, we try to measure CSR by using a disclosure approach. In Vietnam, the implementation of a social index/rating approach is impossible because there is no social rating agency that rates the corporate social activities of Vietnamese firms. Krippendorff (1980) also claims that CSR disclosure plays an important role in social ratings or reputational indices. The single- dimension-based measure also shows some limitations in the Vietnamese context because it cannot portray the breadth of corporate social activities. According to Carroll (1979), the structure of corporate social activities captures multidimensional social aspects, so using a single-dimension-based measure will create a lack of validity of output. In contrast, the disclosure approach that uses a content analysis of annual reports is better for Vietnam as it accounts for the complexity of CSR.

Following the disclosure approach, we employ the “frequency of disclosure” as the unit of analysis to measure the CSR index. NVivo is applied to measure the level of CSR information disclosed by Vietnamese listed firms. Using Nvivo in measuring CSR will enhance the accuracy of CSR disclosure. This paper then classifies the CSR disclosure index into four areas: environment, community welfare, employees, and products, customers, and supplier practices (Bich et al., 2015; Ngoc, 2018). The description of dependent variables, independent variables, and moderating variables are briefly summarized in Table 1.

Table 1: Lists of Dependent and Independent Variables

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3.2. Research Models

To test the hypotheses constructed above, the following models were constructed with the dependent variables, independent variables, and control variables described in Table 1.

ROEAit = α + β1ENVit + β2COMit + β3EMWit + β4PCSit + β6SIZit + εit

ROAAit = α + β1ENVit + β2COMit + β3EMWit + β4PCSit + β6SIZit + εit

Where DEPit = ROEAit stands for the return on equity proxy, and DEPit = ROAAit stands for the return on assets proxy. ENV, COM, EMW, and PAS are the independent variables, while SIZ is the moderating variable. μit is an error term for firm i and year t.

4. Results

4.1. Descriptive Statistics

In this chapter, a series of analyses, including descriptive statistics and multiple regression, were used. Data processing techniques in this paper use computerized calculation Stata version 16.1. A summary statistic for the data from listed companies in HOSE and HNX (2015 to 2019) show positive earning from investments in assets and equity. Moreover, products, customers, and supplier practices among the independent variables show the highest score (540.65) while the contribution to the community shows the lowest score (105.9). There is also a large gap between the entire sample in the whole period, representing the unequal values in the CSR disclosure. Moreover, the mean of company size (of 119 selected observations) is 7.66 and its standard deviation is about 0.81. This means that all companies in this study have similar economic scales, reinforcing the efficiency and the reliability of this research.

Figure 2 compares the profitability and CSR disclosure activities of 27 listed companies in Vietnam from 2015 to 2019. The results show that the growth of ROEA is higher than ROAA for the entire sample. Furthermore, the figure also shows the mean value of CSR, suggesting that CSR activities increased slightly. It means that Vietnamese companies were disclosing more CSR activities in the annual report. This growth also shows an increasing awareness of CSR. Environment disclosure increased significantly (from 230 in 2015 to 316 in 2019), showing the focus of companies on environmental activities. Also, more information related to employees such as employee benefits, and learning and development of employees was provided in the annual report.

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Figure 2: Mean Values of Profitability and CSR

4.2. Multivariate Analysis

This section discusses the regression results of the impact of CSR on financial performance for 27 listed companies in HOSE and HNX. Multiple regression analysis was carried out for testing causality in research variables to determine whether there was a relationship between four dimensions of CSR and financial perfor- mance. Independent variables include environment activities (ENV), communities (COM), activities related to employees (EMV), and information related to products, customers, and supplier practices (PCS), while firm size (SIZ) is the moderating variable. Two proxies of financial performance consisting of return on average equity (ROEA) and return on average asset (ROAA) are our dependent variables.

The fixed-effects model and random-effect model will be applied to ROEA first. The fitted models to predict ROEA value are shown in Table 2. According to the result, ROEA value is not determined by CSR and firm size from 2015 to 2019. Moreover, the F value of these models is under 10%, which shows the reliable prediction of CSR and firm size to ROEA. The R-square values for this regression are 3.5% and 18.55% for fixed effect and random-effect respectively. The small values of R-square also show that the proportion of ROEA variation (financial performance) is not explained in the regression models.

Table 2: Fixed-Effects Regression to ROEA

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Second, the fixed fixed-effects model and random effect model will be applied to ROAA. The fitted models to predict ROAA value are shown in Table 3. The result reveals that ROAA is positively determined by the employee (EMW) activities in both the fixed-effect and random-effect models as the p-value is less than 0.1. Based on the equation, for one unit increase in EMW, the ROAA is expected to go up by 0.007 times in the fixed-effect model and 0.006 times in the random-effect model. The F value is also under 10%, which shows the reliable prediction of CSR and firm size to ROAA. The higher values of R-square show that the proportion of ROAA variation is explained in the regression models.

Table 3: Fixed-Effects Regression to ROAA

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Then, we use the Hausman test to differentiate between the fixed-effect model and the random-effect model. The Hausman test shows that the p-value of cross-section random for ROAA is less than 0.05. Hence, the result of the fixed-effect model is preferred to the random-effect model. The fixed-effect model in ROAA and CSR will be used in analyzing this study’s panel data. Based on the regression, there is a positive relationship between CSR and financial performance. The ROAA is determined by activities related to employees, that is, for one unit increase in EMW, the ROAA is expected to go up by 0.007 times. The equation is 95% sure that the interval from 0.002 to 0.013 covers this positive relationship. However, the R-square value for this regression at 15.8% also shows the low-level correlation in this regression.

5. Conclusion and Limitations

With the research gap in CSR literature in developing countries, this study aims to contribute to the existing literature by further investigating the CSR practices in Vietnam and examining the relationship between CSR disclosure and the financial performance with empirical evidence collected from annual reports of 27 listed Vietnamese firms over the 2015-2019 period.

In this research, the differences in CSR concepts and practices between Vietnam and developed countries are exposed clearly for several reasons. The statistical evidence displaying the disclosure of CSR was increasing over the 2015-2019 period. This increase shows that Vietnam firms have raised their awareness of CSR and have paid more attention to this topic. Especially actions related to the environment accounted for the largest growth, followed by the information related to employees. Based on the regression analysis, the result suggests a positive relationship between CSR and financial performance in the Vietnamese market. Accordingly, CSR significantly affects to return on average assets (ROAA). Among four areas of CSR disclosure, there is only information related to employees that correlate positively with financial performance.

In contrast with other developing countries, CSR disclosure is not compulsory in Vietnam. Though organizations need to pay the costs related to CSR, the results of this paper reveal substantial benefits for organizations committed to CSR activities. From investors’ perspective, they can have a broader view of the organizational performance through CSR reports. In particular, firms focusing on CSR improvement while running their businesses could have a better interest rate on their loan because of low risk and high reputation. From employers’ perspectives, this paper also displays the significant relationship between activities related to employees and organizational profitability. Hence, corporate managers should identify employee activities necessitating improvements. Although the cost of CSR is high, firms need to spend a certain amount of time and effort to improve CSR disclosure. From policymaker’s perspective, they should motivate firms to apply CSR initiatives to promote the overall development of CSR. The government should develop a labor code and reform the union law, while environmental protection and consumer rights also need improvement. These actions ensure the standard of CSR’s nature in Vietnam and create a fair, competitive environment for businesses.

Although this research contributed significantly to the current literature in terms of CSR practices in developing countries, it contains some methodological limitations. The first limitation is the lack of publicly available information related to CSR as CSR disclosure is not compulsory in Vietnam. Only 27 Vietnamese companies are analyzed over five years with a total of 119 observations, consequently, the findings may not have high accuracy beyond the data set. Second, the shortage of annual reports in English is a barrier to measuring the CSR index. Using Nvivo to test the “frequency of disclosure” also limits the number of firms; Nvivo requires pdf or word format for the input source, while some Vietnamese firms published annual reports in photo format. Moreover, Vietnam is an emerging market and firms started publishing annual reports only from 2005. As a result, there is no comprehensive structure of annual reports among different firms, resulting in difficulties in comparing CSR activities among these firms. Last, CSR disclosure practice is not popular in Vietnamese companies because there is no mandatory requirement for CSR disclosure. Therefore, the documentation of this approach was limited.


Appendix 1: Company Lists


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