**1. Introduction**

The link between Corporate Social Responsibility (CSR) and Firm Financial Performance (FFP) remains one of the most controversial issues during the past fifty years. Despite the extensive research, both theoretical and empirical carried out in different contexts; it seems that no consensus has been reached on causality, sign and even less on its shape. On a theoretical level, the arguments in favor of a positive relationship are mainly found in the social impact hypothesis defended by the stakeholder approach according to which good stakeholder management would generate better performance. In contrast, the trade-off hypothesis stemming from a liberal view postulates that CSR would divert the company from its main mission of profit maximization Friedman [1]. Regarding the causality of the relationship, two hypotheses are also theoretically defensible: on the one hand, it is the Available Fund Hypothesis [2, 3] that would play an initiating element in CSR practices. This hypothesis is based on Slack Resource Theory [4, 5], maintaining that availability of financial resources would encourage

companies to get involved in CSR activities, [6, 7]. On the other hand, according to the Managerial Opportunism Hypothesis [8], good financial performance would push managers to reduce their commitment to CSR actions to increase short-term profitability as well as their personal remuneration. Conversely, poor financial performance would lead to an increase in social spending in order to divert attention and justify their poor performance [8, 9]. On an empirical level, the researches carried out to date do not seem to have been sufficient either to draw a definitive conclusion as to the relationship between CSR and financial performance. Indeed, these investigations do not allow us to rule on a general and stable relationship between CSR and performance given many contingent factors that affect this relationship. In recent Meta-analysis, [10, 11] conclude that even if empirical research on the CSR-FFP relationship favors a positive link, the latter would be affected by several contingent variables (moderators and mediators). Thus, several variables are likely to influence this relationship such us firm size [12], firm' origin country [13], Competition intensity within the industry [14], Industry [15, 16], earning management [17], ownership concentration [18], R and D expenditures [19], leadership styles [20], cultural differences and the crucial role that owner-managers could play when dealing with CSR agenda [21].

Furthermore, others arguments have been put forward to justify the lack of consensus on the nature of this relationship, such as the difficulties and biases related to the operationalization of CSR, the performance measurement indicators retained as well as the delay effects necessary to be able to judge the interaction between the two variables [22]. At last, some other recent empirical research questions the linearity of the relationship - when it exists - evoking cubic, or quadratic forms [23, 24]. Thus, specifying the nature of the relationship between CSP and FFP is a very "challenging task". According to legitimacy theory [25], a firm needs to appropriate certain legitimacy granted by the stakeholders. Indeed, Stakeholders tend to pay more attention, surveillance and exert more intense pressure on the most visible companies by their size, their industry, their presence in the media …. The response to these different pressures depends on the firm's Corporate Social Responsiveness as firms may tend to manage their legitimacy according to the intensity of the pressures to which they are subject. Thus, CSR commitment would be a way of responding to various pressures whose intensity depends on the degree of visibility of the company. The main arguments put forward to justify the impact of organizational visibility on social performance relate to the fact that large companies are supposed to be more visible would be subject to greater pressure from stakeholders to encourage them to consolidate their legitimacy. Much more, firm visibility has been identified as a factor impacting the social performance by recent empirical work [26, 27]. On the other hand, by reducing information asymmetry, firm visibility is supposed to attract more investor's attention. Investors could better assess the company's financial performance and make predictions on firm prospects. Firm visibility could also be affected by its sustainable innovation commitment. Cillo et *al.*, [28], conducted a systematic literature review on this subject emphasizing the need for companies to adopt a collaborative approach with different stakeholders to implement new products and processes suggesting that firms should develop organizational and individual capabilities by integrating external sources of information while adopting sustainable innovation strategies. Previous studies have also indicated that organizational visibility could reduce the cost of equity, which can improve a company's financial performance [29]. Additionally, under tighter control from external stakeholders, visibility decrease agency costs and increase financial performance by reducing free cash flow to managers. Given the reduction in the cost of equity and agency cost and easy access to greater financial and political resources, visibility could improve the financial performance of the company.

*The Moderating Effect of Firm Visibility on the Corporate Social Responsibility-Firm Financial… DOI: http://dx.doi.org/10.5772/intechopen.95861*

In other words, visibility is probably going to increase the company's exposure to implied claims. Thus, when these complaints are ignored by management, they might impact the performance of the company and compromise its legitimacy since as the firm visibility increases, the involvement of the general public in a company increases, initiatives will become more and more necessary leading to more social involvement.

However, if firm visibility is liable to affect CSR on one hand and financial performance on the other hand, it will probably be a moderating variable in the CSR-FFP relationship. Hence, our research aims to test the impact of CSR on FFP and to highlight the moderating effect of firm visibility on this relationship on a sample of large French companies. This study makes three contributions to the literature. First, it provides proof of the significant impact of visibility on CSR. Then, it contributes to the literature on CSR by presenting visibility as a predictor of CSR initiatives. Third, this study demonstrates that visibility has a moderating effect on the link between CSR and FFP.

The remainder of this study will be organized as follows: Section 2 represents the research hypothesis, Section 3 describes the methodology, Section 4 provides the results and discussion of results and Section 5 presents the conclusion and recommendations.

## **2. Theoretical framework and hypotheses**

CSR can be defined as the commitment to an improvement process in which companies integrate social, environmental, and economic considerations into management in a voluntary, systematic, and consistent manner with their stakeholders. Two theories are likely to shed light on the behavior of the company in society. Firstly, stakeholder theory [30] suggests that the success of the company depends on its ability to develop and maintain exchanges and transactions involving several resources with the various stakeholders [31]. It also recognizes that the expectations and interests of stakeholders are varied and sometimes contradictory [32]; it would therefore be called upon to take care of a real dialog to reply to its conflicting expectations and continually seek their support. From this angle, CSR is considered as a form of a dialog between the company and the various stakeholders. Secondly, legitimacy theory postulates that organizations continually seek to confirm that they operate within the bounds and in step with the standards of their respective Societies. According to Chiu and Sharfman [33], any institution – firms in particular - operates in society through an explicit or implicit contract. This continuous look for legitimacy could depend upon the degree of exposure of the firm to the assorted stakeholders and so, on the degree of its visibility. Indeed, visibility increases the company's exposure to implicit claims, media, and the general public and can therefore lead to higher CSR; visibility is more consistent and a more powerful predictor of CSR initiatives than other factors previously studied [34].

#### **2.1 Direct relationship between CSR and firm financial performance**

Stakeholder theory [30], has marked the literature on the relationship between CSR and company performance [11, 35]. It states that if a company satisfies its stakeholders, by carrying out social projects, for instance, it will improve its image and reputation, and thereby it's financial performance [4]. However, if the company fails to achieve a positive social impact, this will create fears among its stakeholders about its image which will increase costs and decrease profits [36]. A company that seeks to reduce its implicit costs (environmental costs, product quality costs, etc.)

#### *Corporate Social Responsibility*

through irresponsible social actions should face higher explicit cost (reputation, payment of penalties, etc.). This will have a negative effect on its profitability and competitiveness. Therefore, authors who support this view predicting a positive correlation between CSR and FFP. This assumption is called "positive social impact" or "good management". According to Cristache et al*.* [37], integration of social responsibility dimensions into companies' strategies, would help to increase their long-term performance.

According to the legitimacy theory, CSR legitimizes firm's businesses and guaranteed their existence [38]. Thus, the disclosure of the assorted CSR activities expected and desired by Society, make it possible to legitimize their commercial activities and failure to go with this instruction compromises overall profitability.

Resource Based View approach [39] suggests that by satisfying the expectations of stakeholders, the company develops inimitable and non-substitutable resources and skills. These resources can be intangible assets [40] such as innovation, human capital, leadership, etc. If the company manages to create and exploit these new resources, it will be able to develop sustainable competitive advantages [41].

Signaling theory [42] also provided an argument for the positive impact of CSR on financial performance. Thus, through their social achievements and especially through their disclosure, companies will try to send a positive signal in order to obtain a positive response from the market.

On an empirical level, several researchers have concluded a positive link between CSR and financial performance. Laskar [43] detected a positive relationship between CSR scores (based on content analysis) and Market-to-Book Value (MBV) on a sample of 119 large Southeast Asian companies over the period 2009–2014. By adopting the same approach, Nguyen [44] established a positive link between CSR scores and ROA on a sample of 31 Vietnamese commercial banks. Choi et al. [45] were also able to conclude that there is a positive link between philanthropic commitment (as an indicator for measuring CSR) and ROA; their research focused on 11,000 observations over the period 2002–2014 in Korea.

In Europe, Rodríguez-Fernández [46] constructed a social behavior index to show the existence of a positive relationship between this index and financial performance apprehended by both ROA, ROE and Tobin's Q; their study focused on a sample of 107 companies listed on the Madrid stock exchange. Adeneye and Ahmed [47] also found a positive link between CSR scores and market to book value (MBV) on a sample of 500 British companies. More recently, in a recent second-order Meta analysis, covering 25 primary Meta analyzes, 1274 empirical researches, or nearly one million observations, Busch and Fried [10] concluded that a positive and highly significant relationship between CSR and financial performance.

Based on theoretical justifications, empirical literature and our research questions, we make the following central hypothesis (H1):

**H1:** CSR is positively related to firm financial performance.

#### **2.2 Moderating effect of firm visibility**

Firm visibility describes the extent to which companies are observed by their stakeholders. It can be viewed as a unique attribute that reflects the exposure and attractiveness of a firm [48]. Visibility is a concept close to reputation. However, it is necessary to make a distinction: if the reputation reflects the image stakeholders have of the firm (good or bad), visibility mainly reflects the presence and 'observability' within the community and it is related to the level of 'stakeholder recognition' [49].

#### *The Moderating Effect of Firm Visibility on the Corporate Social Responsibility-Firm Financial… DOI: http://dx.doi.org/10.5772/intechopen.95861*

Such presence can be affected by size, brand, impact on the natural environment, employability, presence in the media but also by various scandals within which firm may well be involved. Firm visibility could be the source of an "excess" of pressure and oversight on the part of stakeholders, since they have more information on corporate social responsibility. Thus, companies with high visibility are more likely to obtain more positive responses from their external stakeholders prompting them to improve their social performance, with more effort in terms of innovation. On the other hand, companies with high visibility can attract more attention from investors. Additionally, visibility may be a recognizable attribute that can help customers differentiate them from other businesses [50]. In keeping with Pfeffer and Salancik [51], external stakeholders are more curious about visible firms which affect the intensity of the pressures they are subjected to. Visible firms would be under more public scrutiny. Hörisch et al. [52, 53] noted that the more exposed position lead to higher public pressure and more CSR activities.

Firm visibility also can reduce information asymmetry degree between companies and their stakeholders and amplify the information disclosed by companies [54]. Thus, companies with higher visibility are more likely to elicit adverse reactions from their stakeholders. For example, within the case of high firm visibility of companies, violations of environmental regulations are going to be particularly pronounced [55], to which investors react strongly negatively. Additionally, a high firm visibility can even allow customers to understand their environmental irresponsibility [56]. Wu et *al.* [57] underlines the existence of a correlation between positive stakeholder's responses and firm's level visibility. Visible companies are likely to attract and gain support of community stakeholders as well as favorable evaluations from regulatory stakeholders. Likewise, CSR practices are expected to increase firm visibility which might help talented workers attraction as an effective knowledge management spillover [58]. The authors showed empirically the positive effect of a firm's CSR practices, operating in knowledge-based industries, on attracting highly skilled workers, thus enhancing the company's competitiveness.

Finally, the active CSR behaviors of companies are much easier to know by governments allowing them to access preferential policies, like access to bank loans, tax deductions and market access that stimulate social innovation [33]. Therefore, we make the subsequent assumption:

**H2:** Firm visibility strengthen the positive effect of CSR on Firm Financial performance

**Figure 1.**

*The research design is presented in Figure 1.*
