THE INFLUENCE OF STRATEGIC CORPORATE SOCIAL RESPONSIBILITY ON OPERATING PERFORMANCE: AN INVESTIGATION USING DATA ENVELOPMENT ANALYSIS IN INDONESIA - Binus e-Thesis

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BINUS INTERNATIONAL BINUS UNIVERSITY

Accounting

Minor in Information Systems

Sarjana Ekonomi thesis

Even Semester year 2012

THE INFLUENCE OF STRATEGIC CORPORATE SOCIAL RESPONSIBILITY ON OPERATING PERFORMANCE: AN INVESTIGATION USING DATA

ENVELOPMENT ANALYSIS IN INDONESIA

Annisa Kusumawardhani Sabran 1200961666

Abstract

Objectives The purpose of this thesis is to investigate the relationship between strategic Corporate Social Responsibility (CSR) and operating performance as well as the individual elements of strategic CSR affecting operating performance. Method Annual reports were analyzed using content analysis using Global Reporting Index framework and to calculate the aggregate score for CSR, Data Envelopment Analysis is conducted. The test included in the study was descriptive test, correlation test and multiple regression test.

Results From the correlation and multiple regression tests, no significant relationship was found between strategic CSR and operating performance. However, when the elements of strategic CSR were investigated individually, different results were obtained. For financial companies, in correlation testing Environment and Product Responsibility is positively associated and Labour Practice is negative; while in regression test the positive relationship is observed in Human Rights and Product Responsibility element. For non-financial companies, in both test no elements were found to have a significant relationship with operating performance.

Conclusion There is no significant relationship between strategic CSR and operating performance in Indonesian publicly listed companies. For the individual elements, Human Rights, Product Responsibility and Environment is shown to affect operating performance in financial companies. While in non-financial companies none of the elements of CSR has an affect on the operating performance of the company.

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PREFACE

This thesis entitled: “THE INFLUENCE OF STRATEGIC CORPORATE SOCIAL

RESPONSIBILITY ON OPERATING PERFORMANCE: AN INVESTIGATION USING DATA ENVELOPMENT ANALYSIS IN INDONESIA” was prepared to fulfil the requirements of Binus International, Accounting program. Upon the

completion of the thesis, the author would like to express gratitude to Allah swt for

giving endless blessings and strength to make the completion of the thesis possible. The

author would also like to express appreciation, gratitude and acknowledgement to:

1. Mr. Dominique Razafindrambinina, M.A, M.Sc., as the thesis supervisor for the

support, time, patience, excellent guidance, meaningful inputs for completion of

the thesis.

2. Mr. Dr. Junius Tirok, PhD, for his valuable input in understanding Data

Envelopment Analysis topic.

3. Mr. Dezie L. Warganegara, PhD, for his valuable suggestion in improving the

thesis during predefense and defense.

4. Ms. Pinky Rusli, MBA, for her valuable suggestion in improving the thesis

during predefense and defense.

5. Mr. Ahmad Seiichi Ramadhan, SE., MM, for his help in understanding the

statistical analysis output.

6. Mr. Dian Triasurya, MBA, as the Head of Accounting School for his

understanding and support during the preparation of the thesis.

7. Mr. Ari Barkah Djamil, S.E., M.Sc, as the Head of Programme for Accounting

School, for his support during the preparation of the thesis.

8. Ms. Ir. Yanthi Rumbina Ianova Hutagaol, M.Acc., Ph.D, for her informative

lectures that were helpful in writing the thesis.

9. All the lecturers of Binus International who taught the author who shared their

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10.My mother and father, for always having faith in me even when I lost faith in

myself. Also, for their numerous attempts to make jokes to cheer me up. Thank

you for being the two best role models in my life.

11.My part-time sisters and full-time friends: Nadya and Tami, for the endless

laughter, encouragement and moral support.

12.Renny, Rissa, Fina, Citra, Denny, Bismo and Nada for being the awesome

friends you are.

13.Accounting students 2012 for being there through thick and thin: Maureen,

Angel, Monic, Yully, Lita, Michelle, Arvi, Daniel, Sato, Valin, Yaya.

14.Binus International Pool of English Debaters (BIPEDS), for improving my

critical thinking and public speaking, especially to our brilliant coach Bong.

From intensive training to tournament euphoria: Invi, Eunike, Steven, Raj, Jaran,

Ravina, Andrew, Astrio, Chris, Ian, Ric, Caroline, Felice, Nouzar, Mutia, Sergio,

Tjoe, Dave, Shellen, Henri, Irene, Andree.

15.Linkin Park, for being an inspiration and an epitome of how perseverance and

hard work will pay off and their concern on humanitarian issues.

16.Adam Young, for helping me stay optimistic and sane throughout university and

writing the thesis.

17.Everyone else the author could not mention by name but have supported the

author in completing the degree.

The author believes without the support of the people mentioned, the thesis and the

completion of the undergraduate programme could not have been possible. The author

also acknowledges that the thesis is not perfect, but hopefully the result and findings

could contribute to current knowledge of the subject and generate ideas for further

research.

Jakarta, 11 June 2012

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CHAPTER 2 THEORETICAL FOUNDATION

2.1 Definition of Corporate Social Responsibility 16

2.2 Rationality Behind Conducting Corporate Social

Responsibility 18

2.2.1 Stakeholder Theory 18

2.2.2 Legitimacy Theory 24

2.2.3 Institutional Theory 27

2.3 Corporate Social Responsibility Issues 28

2.4 Corporate Social Responsibility Elements 32

2.5 Approaches to Corporate Social Responsibility 33

2.6 Corporate Social Responsibility Rating 34

2.6.1 Kinder Lydenburg Domini 36

2.6.2 Sustainable Investment Research International

Company Ltd.

36

2.6.3 CoreRatings 37

2.6.4 Sustainable Asset Management 37

2.7 Corporate Social Responsibility Framework 37

2.7.1 SA8000 38

2.7.2 AA1000 39

2.7.3 Global Reporting Initiative 40

2.8 Definition of Operating Performance 42

2.9 Measurement of Operating Performance 43

2.9.1 Stock Price 43

2.9.2 Economic Value Added 45

2.9.3 Return on Asset 47

2.10 Determinants of Operating Performance 49

CHAPTER 3 RESEARCH METHODOLOGY

3.1 Research Aim and Hypotheses 51

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3.2 Research Hypotheses 51

3.2 The Time and Place Where Research is Conducted 52

3.3 Research Design 53

3.3.1 Purpose of the Study 53

3.3.2 Type of Investigation 53

3.3.3 Extent of Researcher Interference 54

3.3.4 Study Setting 54

3.3.5 Unit of Analysis 54

3.3.6 Time Horizon 54

3.3.7 Sampling Design 54

3.3.8 Research Flowchart 56

3.4 Type of Data Used in Research 57

3.5 Research Variables 57

3.5.1 Independent Variable 60

3.5.2 Dependent Variable 64

3.5.3 Control Variables 64

3.5.4 Model for Research 66

3.6 Data Collection Method 67

3.6.1 Statistical Method Used in Research 68

3.6.1.1 Descriptive Characteristics 68

3.6.1.2 Correlation Analysis 68

3.6.1.3 Multiple Regression Analysis 69

3.7 Data Interpretation 70

3.7.1 Statistical Software For Data Interpretation 70

CHAPTER 4 FINDINGS AND ANALYSIS

4.1 Descriptive Statistics 71

4.2 Correlation Test 76

4.2.1 Hypothesis 1: Financial Companies 76

4.2.2 Hypothesis 1: Non-financial Companies 78

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4.3 Multiple Regression Test 86

4.3.1 Multicollinearity Test 86

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusion 103

5.2 Limitation 104

5.3 Recommendation 104

5.4 Suggestion for Further Research 106

REFERENCE 107

APPENDICES 120

CURRICULUM VITAE 129

LIST OF TABLES

Table 2.1 Strength and Weakness of EVA 44

Table 3.3 Control Variables 63

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LIST OF FIGURES

Figure 3.1 Conceptual Map of Research 54 Figure 3.2 Research Process Flowchart 56 Figure 3.3 Research Design Scheme 57 Figure 3.4 Research Variables 55

LIST OF APPENDICES