Exploring the Mediating Role of Intellectual Capital and Competitive Advantage on the Relation between CSR and Financial Performance in SMEs

Purpose - The relationship between corporate social responsibility (CSR) and financial performance (FP) is a much researched topic in academic arena. Recent researches disclosed that intellectual capital (IC) significantly impact the success and survival of the organizations. Moreover, theoretical assertions confirm that competitive advantage (CA) mediates the association between intellectual capital (IC) and FP. This has opened up new dimensions for the study. Therefore, a theoretical model was developed first, to specify these relations, and second to explore the mediating role of IC and CA on the relation between CSR and FP in the context of small to medium-sized enterprises (SMEs). Design/methodology/approach - Hypotheses are tested through a survey conducted on 384 SMEs in Rajasthan state. A structured questionnaire having 38 variables was used and collected data is subjected to confirmatory factor analysis. Structural equation modelling was used to validate the measurement model and to test the mediating effect. Findings - The findings indicate a weak positive relation between CSR and FP. The empirical data provides supportive evidence that IC has a profound impact on CSR and FP relationship. Specifically it was noticed that the mediating role of CA on this relationship was not as reflective as described in literature. Research limitations/implications - The limitation of this study is that it is limited to one country more specific to one geographical area of a country; therefore findings of the study cannot be generalized in terms of its implications to other regions and countries. Originality/value - Very few empirical researches have analyzed the mediating role of IC and CA on the relationship between CSR and FP. This study is expected to enable scholars and practitioners to have a more definite and direct understanding of the implication of IC and CA in association between CSR and FP.