Corporate Social Responsibility and Financial Performance in SMEs: A Structural Equation Modelling Approach

The aim of this study is to explore the relationship between corporate social responsibility (CSR) (defined through multi-stakeholder’s framework) and financial performance in the context of Rajasthan small and medium enterprises (SMEs). To achieve this objective, an exploratory study was conducted and data were collected using structured questionnaire based on pretested scale items from 384 SMEs and structural equation modelling (second order) was employed. The statistics shows the overall model fit, and the findings indicate a significant but a weak positive relationship between CSR and financial performance. The results are in conformance with previous research works (Weber, 2008). It is also evident from the findings that although SMEs are socially responsible towards their different stakeholders, CSR is not a part of their strategy; rather, it is more an informal and self-driven approach. For them, CSR is not meant for economic imperatives; rather, they associate it with religious spirit. Due to constraints that they face in terms of resource and personal that can be deployed for CSR activities, the notion of CSR among them is still philanthropic and non-institutionalized.