The Financial Performance of SMEs in Australia-Free-Samples

Question: Effect of Corporate Social Responsibility (CSR) reporting on the Financial Performance of Small and Medium Enterprises (SMEs) in Australia. Answer: Literature review Introduction Reporting on sustainability is becoming a normal practice in business as it moves into the mainstream from the realm of early adopters and innovators. Failure of firms to actively engage in sustainability reporting can have adverse impacts on the companys image, financial performance, and even its ability to raise capital. In Australia, most large and/ or listed companies undertake sustainability reporting, mainly because of its benefits even though Australia does not have a legal requirement for firms to undertake sustainability reporting ( 'Parliament of Australia,' 2013). While it is commonplace for large and/ or multinational firms to make sustainability reports, especially in the past ten years, the practice is not as widespread among SMEs ('Global Reporting Initiative,' 2016). Yet SMEs play a crucial role in economic growth and development of any country, including Australia, accounting for about 90% of businesses (Zhou,Wu,Luo,2007). In 2005, just 10% of all sustainability repo rts were mad by SMEs, with large organizations and multinationals accounting for the remaining 90% yet sustainability is vital for both SMEs and large organizations ('Global Reporting Initiative,' 2016). This paper proposes to undertake research using secondary data, on the impact that sustainability reporting has on the financial performance of SMEs in Australia. This section undertakes a short literature review as well as discussing the method to be used for the research and the aim of the research. It will also list research questions that will narrow down the research aim; all in the context of the course of masters in Professional Accounting. Literature Review Sustainability reporting can have positive impacts on SMEs, such as improving risk management, help unlock new opportunities within global markets, and foster responsible business practices. Sustainability is among the biggest challenges for societies considered industrialized and it has become an important strategic goal for many organizations around the world. A range of stakeholders are interested in the transparency of an organizations activities; this implies organizations need to maintain a continuous dialogue with stakeholders (Medel, Garci?a, Enriquez Anido, 2011). CSR refers to a business approach that makes a contribution to sustainable development through the delivery of social, economic, and environmental benefits for all the stakeholders. Research shows that most Millenials have volunteered for charitable causes and this a trend that businesses must take cognizance of, especially to attract and retain this crucial market segment (Millenials) as given a choice between tw o firms, Millenials will most likely choose the firm with a greater CSR presence (Opedare, 2017). Economic Drivers for CSR CSR can result in improved financial performance in several ways when CSR is used in decision making; the drivers do not operate in an isolated manner with different drivers affecting companies differently and being different for companies in different sectors. CSR is increasingly becoming an important factor for organizations to attract and retain talent and diversity in the workplace. Firms that take cognizance of employee needs such as a good working environment achieve better employee output and performance. CSR can be a vehicle tat businesses use to foster innovation and learning; factors that are crucial for the long term growth and survival of organizations in the ever competitive business environment. Businesses can use CSR to respond to societal and environmental risks and convert them into business opportunities; for instance, cars that use electricity derived from renewable sources. Businesses and markets operate in an opinion market; the way customers, the society in gene ral, and suppliers judge businesses will have both direct and indirect impacts on the success and profitability of the company. CSR provides firms a means to influence and manage the perceptions and attitudes of their stakeholders; this way, firms can build trust with the stakeholders and this results in positive relationships delivering business performance advantages to the business. Using CSR, firms have a better shot at effectively managing their risks and this helps the organizations reduce or eliminate losses that are avoidable. With CSR, firms can also identify new emergent issues and use their leadership positions as a way of gaining competitive advantage; this also helps these businesses achieve better financial performance. Customers can be drawn to a business solely based on their CSR activities; by having a robust CSR policy and activities, a business can draw customers away from competitors with less CSR activities, thereby boosting its customer base. With a robust CSR profile, firms can significantly reduce present and future expenses and costs; this has the effect of increasing operational efficiency for these firms and hence, improving their financial performance. Investors and the wider investing community are increasingly looking at CSR in similar terms to good governance practices as well as long term risk management strategies. Analysts and investors place just as much importance to CSR and the reputation of an organization as they do on the firms financial performance. SMEs are usually organizations with high growth potential with Australia showing greater numbers of SMEs going public and issuing IPOs (Deloitte, 2016). apart from underlying risks to a companys stock, investors are increasingl y looking at the companys CSR as an important factor in determining whether to invest in it or provide other financial instruments such as loans (Werther Chandler, 2014). The risk of legal repercussions for firms that fail to fulfill CSR responsibilities such as environmental conservation is huge; such firms can loose their operating licenses, especially multinationals. Stakeholders such as governments must give authority to firms, such as those in the mining industry authority to do business; lack of, or a poor CSR framework can put this in jeopardy. This can have adverse impacts for an organization as they may cease operations and suffer huge losses. Past Research Research on the effects of CSR activities on the financial performance of industries in the hospitality sector have shown mixed (both positive and negative) relations and outcomes for organizations such as casinos, airlines, hotel, and restaurants. The effects contribute to different strategic decision making by these companies (Kang, Lee huh, 2010). There is a positive and strong correlation between CSR and firm value for firms that have a high awareness by customers as shown by advertising expenditures. So apart from engaging in CSR activities, customers must be aware of these activities, either through firm advertising and/ or sustainability reporting. Further, firms with a prior poor record as corporate citizens has the relation between firm value and CSR awareness reversed (Servaes Amayo, 2013). Entrepreneurial-ism is a major driver for business success; its the willingness and competitive instinct for people to seek innovation fro areas that are not traditional, such as in th e CSR agenda. Such opportunities include commercially viable activities that also serve the purpose of advancing social and environmental sustainability. So within CSR, there is CSO (Corporate Social Opportunity) where firms can innovate in services and products, building new models, and serving markets that are not yet served. SMEs are not usually entrepreneurial in the filed of CSO; however, it is an area that has huge potential and great promise for financial growth of SMEs and should be built into the SMEs systems (Jenkins, 2009). CSR activities and investments are more than just increased business costs/ expenses; they are absolutely essential for the continued survival of firms in a business world that is becoming ever more competitive. Research in the UK shows that firms that achieve all, or most of the GRI (Global Reporting Initiative) on sustainability reporting have a positive., albeit weak, relationship between CSR and EPS (earnings per share), implying that CSR activities benefit not only the business, but investors in the company (Sammy, Odemilin Bampton, 2010). in investigating the business case for CSR in SMEs, researchers have missed the point, perhaps by asking the wrong questions since the collective grandness of SMEs is usually underestimated in CSR policy making and research; SMEs engage in CSR in contexts that are different from large companies; hence there is a need, for example, to understand how SMEs undertake CSR activities and how they impact their financial performance (Morsing Perrini , 2009). compared to large firms, proactive CSR research in SMEs is considerably less; Proactive CSR refers to business practices and strategies that firms adopt voluntarily, beyond regulatory requirements to manage their responsibilities to the society and thereby contribute to society positively. In the Australia SME manufacturing sector, research shows that there is a positive and significant correlation between proactive CSR and capabilities (stakeholder management, shared vision, and strategic pro-activity) and financial performance. The findings are consistent with the RBV theory that adopting value creating activities that make the best use of the capabilities of a firm are essential to the firms financial success (Torugsa, O'Donohue Hecker, 2011). Research Aim The aim of this proposed research is to identify and undertake research on the effect that CSR reporting has on the financial performance of SMEs in Australia with a focus on profitability as a measure of financial performance. Research Questions What is the level of adoption of CSR reporting by Australian SMEs? What is the correlation between CSR reporting by Australian SMEs and their financial performance? Methodology This research will make use of secondary data on the financial reports of Australian SMEs; the target population is the SMEs in Australia and a sample size will be selected using simple randomization to give every possible member of the population an equal chance for being chosen. This will also ensure the reliability and validity of the research results. The data to be used will be obtained from the Small and medium Business Association of Australia (SME Australia, 2017) and from the Australian Taxation Office where the official results of the SMEs will be obtained. The research approach to be used is a descriptive analysis where secondary research methods and data will be predominantly used Analysis The data will be analyzed graphically to demonstration trends as well as through the use of statistics; the relation will be tested by establishing the correlation coefficient between SME reporting and financial performance through a regression analysis. The financial performance is the dependent variable while sustainability reporting is the dependent variable. References 'Global Reporting Initiative'. (2016, October 05). Making the case for SME Sustainability Reporting. Retrieved August 23, 2017, from https://www.globalreporting.org/information/news-and-press-center/Pages/Small-Business,- Big-Impact-Making-the-case-for-SME-Sustainability-Reporting.aspx Jenkins, H. (January 01, 2009). A business opportunity model of corporate social responsibility for small- and medium-sized enterprises. Business Ethics: a European Review, 18, 1, 21-36. Kang, K. H., Lee, S., Huh, C. (March 01, 2010). Impacts of positive and negative corporate social responsibility activities on company performance in the hospitality industry. International Journal of Hospitality Management, 29, 1, 72-82. Medel, F., Garci?a, L., Enriquez, S., Anido, M. (January 01, 2011). Reporting Models for Corporate Sustainability in SMEs. Journal of Information Technologies in Environmental Engineering, 3, 407-418 Morsing, M., Perrini, F. (January 01, 2009). CSR in SMEs: do SMEs matter for the CSR agenda?. Business Ethics: a European Review, 18, 1, 1-6. Opedare, A. (2017, June 16). Why Corporate Social Responsibility Is Becoming More Important To Organizations | Articles | Chief Strategy Officer. Retrieved August 23, 2017, from https://channels.theinnovationenterprise.com/articles/why-corporate-social-responsibility-is- becoming-more-important-to-organizations 'Parliament of Australia'. (2013, April 15). Chapter Seven - Sustainability reporting: Current legislative and market requirements. Retrieved August 23, 2017, from https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Ser vices/Completed_inquiries/2004-07/corporate_responsibility/report/c07 Samy, M., Odemilin, G., Bampton, R. (April 13, 2010). Corporate social responsibility: a strategy for sustainable business success. 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