Impact Of Corporate Social Responsibility Disclosure On Financial Performance Of Etihad Airways

Background of Corporate Social Responsibility

The Corporate Social Responsibility can be stated to be a management concept which is essentially concerned with ensuring that the different companies as present in the business environment integrate their social as well as environmental matters in order to ensure that they contribute to the society along with fulfilling the needs of the different stakeholder’s at large (Cochran & Wood, 1984). Through engaging in the different activities, an organization aims to strike a balance between their consumption activities and their re-imbursement activities with respect to the society. In addition to this, the firm also aims to ensure that there exists a balance with respect to shareholder as well as stakeholder expectations and experience (Weber & Wasieleski, 2018).  The main aim of the given report is to highlight the impact of the Corporate Social responsibility Disclosure on the financial performance of the firm. The methodology to achieve the objective will be to conduct a literature review on the same which will then be followed by analyzing the performance of a firm based in UAE named Etihad Airways through which the theoretical concepts can be measured with a practical example.

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According to Suliman, Al-Khatib and Thomas (2016), corporate social responsibility is known to have a positive impact on the operations of an organization and even on the financial side. This is because, a firm with a good scheme of CSR activities impresses the audience present at large and then improves the revenues and overall financial standings of the firm. The author in his paper conducted a correlation between the CSR and the financial performance and a considerable set of data to figure that there did exist a strong relationship between the two. Even the study conducted by Platonova et al. (2018), on the same topic reflected that there did seem to exist a strong and positive relation between the financial performance of the firm because it tends to improve the overall impression of the firm in the eyes of the investors and hence, the stock market positioning of the firm also undergoes a change which thereby causes a good end result for the respective firm at large (Carroll, 2015). 

In addition to this, the statement in regard to the stock market performance was confirmed by the paper of the authors Orlitzky, Schmidt and Rynes (2003), who stated that the performance of any firm financially is largely linked to the performance of the firm which is then in sync with the related CSR Activities. The authors analyzed the relationship between the firm`s csr activities and the financial performance and witnessed that the prior performance is closely linked to the CSR than the subsequent performance of the firm (Chen, Feldmann & Tang, 2015). This was measured by the stock market and accounting based measures. Hence it can be stated to be true that the financial performance is linked with the CSR activities a firm engages in.

Relationship between Corporate Social Responsibility and Financial Performance

Even authors like McGuire, Sundered and Schneeweis (1988), have agreed to the statement by analyzing the performance of the Islamic banks n Gulf corporation council hat there exists a significant and high relationship between the CSR disclosure which a firm engages in and the performance of these banks financially and this hints that if the firm engages in more corporate social responsibility activities, then it has a positive long term impact (Clapp & Rowlands, 2014). This study is also in line with the study was conducted by the authors, who examined the relationship between the two variables in the manufacturing industry and found that when they took financial performance figures like return on equity, cash flow, sales ratio and other related measures and then measured the CSR of the firm by measures like Labor conditions, Society and Product responsibility, they analyzed with the help of statistical tools that there exists a strong relation between them (Grinstein & Blekher, 2015). Hence, it can be stated that the financial performance is greatly affected by CSR disclosures and the reasons may be summarized as follows:

  • It improves the overall financial standing of the firm in the stock market
  • It increases revenues by arousing consumer interest
  • It improves the goodwill of the firm which helps in gaining consumer interest (Schwartz, 2017). 
  • Lastly, the effectivity of CSR activities often help in reducing the costs of the firm

The Etihad Airways is a prime airline company of the UAE and has been immensely popular for its holistic approach to the corporate social responsibility along with being responsible for the economic activities they are concerned with which is making the airlines one of the best in the world. According to Roy et al. (2015), a large number of the airlines activities are primarily concerned with ensuring that the company is able to add value to its people, the community and the planet. It is their aim to ensure that they engage in a set of cohesive program of initiatives which cover aspects of their operations as well as their business (Etihad.com , 2018).  The company has formed a set of framework which is popularly known as the Etihad`s Together framework and is largely concerned with ensuring the following objectives and their objectives:

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  • Growing together: The firm supports the Abu Dhabi 2030 vision and aims to provide support to the company
  • It has aimed for a greener together initiative and aims to minimize the environmental impact of their activities and commit to the best.
  • Etihad also aims to work together and develop a sense of wellbeing for the diverse set of employees (Tai & Chuang, 2014).
  • It aims to contribute to the different charities as well as humanitarian reliefs in case of epidemics and other calamities.

Moreover, over the years, Etihad has taken several initiatives to ensure that they attain success with the responsibility.

Etihad airways has engaged in a series of Corporate Social Responsibilities over the last few years irrespective of the fact that they have not been performing that well professionally. However, the continuous efforts as taken by the firm for the diverse employee base, environment and the overall community at large has resulted in the betterment of the financial performance of the firm. According to Etihad.com (2018), Etihad Airways has been able to improve its financial performance and its core operating income has increased by 22% despite its challenges like fuel charges and a reasonable amount of this success can be contributed to the CSR activities of the firm. In 2017, Etihad Airways engaged in a large number of activities which have then reflected well in the performance of the company. There has been a 7.3% reduction in unit costs along with considerable capacity reductions (Etihad.com, 2018). The employees of the company have contributed considerably and for this reason, the CSR activities have been stated to be a successful one. The firm has transformed itself and earned a sustainable financially stable growth for itself over the last few years and this can be largely contributed towards its indulgence in the Corporate Social Responsibility Activities.

Conclusion:

Hence, with the help of the above analysis, it can be rightfully stated that the Corporate Social Responsibility forms an important part of the organization and any firm which wants to attain success in the long run needs to see to it that they engage in social responsible activities which not only improves the overall welfare of the society but also the employees. The given report identified the manner in which the corporate social responsibility has an effect on the performance of the firm financially by analyzing the different literature available on the topic, which was then followed by the analysis of the case of Etihad Airways which helped in the understanding how the firm had improved its financial positioning by engaging in socially correct activities and other contributions.

References:

Carroll, A. B. (2015). Corporate social responsibility. Organizational dynamics, 44(2), 87-96.

Chen, L., Feldmann, A., & Tang, O. (2015). The relationship between disclosures of corporate social performance and financial performance: Evidences from GRI reports in manufacturing industry. International Journal of Production Economics, 170, 445-456.

Clapp, J., & Rowlands, I. H. (2014). Corporate social responsibility. Essential concepts of global environmental governance, 42.

Cochran, P. L., & Wood, R. A. (1984). Corporate social responsibility and financial performance. Academy of management Journal, 27(1), 42-56.

Etihad.com (2018) Etihad News [online]. Accessed from: https://www.etihad.com/en-us/about-us/etihad-news/archive/2018/etihad-reduces-losses-in-2017/  (Retrived on: 06 Nov. 2018).

Etihad.com (2018) Responsbility [online]. Accessed from: https://www.etihad.com/en-us/about-us/corporate-profile/responsibility/  (Retrived on: 06 Nov. 2018).

Grinstein, A., & Blekher, M. (2015). Corporate social responsibility. Wiley Encyclopedia of Management, 1-3.

McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of management Journal, 31(4), 854-872.

Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization studies, 24(3), 403-441.

Platonova, E., Asutay, M., Dixon, R., & Mohammad, S. (2018). The impact of corporate social responsibility disclosure on financial performance: Evidence from the GCC Islamic banking sector. Journal of Business Ethics, 151(2), 451-471.

Roy, S. K., Roy, S., Mubeen, R., Brindha, N., Abirami, A., Leve, S. L., … & Mahadevi, S. (2015). Corporate social responsibility. EduPedia Publications Pvt. Ltd..

Schwartz, M. S. (2017). Corporate social responsibility. Routledge.

Suliman, A. M., Al-Khatib, H. T., & Thomas, S. E. (2016). Corporate social responsibility. Corporate Social Performance: Reflecting on the Past and Investing in the Future, 15.

Tai, F. M., & Chuang, S. H. (2014). Corporate social responsibility. Ibusiness, 6(03), 117.

Weber, J., & Wasieleski, D. M. (Eds.). (2018). Corporate social responsibility. Emerald Group Publishing.