The Role of Entrepreneurial Finance in Corporate Social Responsibility and New Venture Performance in an Emerging Market

 - The Journal of Entrepreneurship

Recent studies in the fields of environmental science and business management describe how environmental and social activities can and should be understood as obligatory rather than voluntary (Carroll, 2008; Khan et al., 2020). Irrespective of their size, age and nature of their business, firms have shown a strong interest in social and environmental initiatives and how they significantly improve reputation and profitability (Ilyas et al., 2020; Min et al., 2017).



In other words, a growing number of top managers, owners and corporate executives have been earmarking a considerable amount of resources and time for corporate social responsibility (CSR) and environmental practices (Benlemlih & Cai, 2020). But with this being said, newly established ventures do not always voluntarily participate in social and environmental activities unless they receive adequate support to do so. Smallness, limited resources, poor support and lack of finances hinder new ventures from practicing CSR (Wang & Bansal, 2012).

The literature has discussed several programs and policies initiated by governments across the globe to promote CSR and environmental activities among new and established ventures. These include efforts in technological capabilities (Malaquias et al., 2016), entrepreneurial orientation (Zhuang et al., 2020), dynamic capabilities (Gruchmann & Seuring, 2018), leadership strategies (Yamak et al., 2019), intellectual capital (Aras et al., 2011), top management commitment (Ilyas et al., 2020) and institutional pressure (Yin, 2017). Despite extensive debate and literature, what is not yet known is the role of entrepreneurial finance in the environmental, financial and innovative performance of new ventures with a mediating CSR role. More precisely, studies have not yet discussed how entrepreneurial finance directly influences the environmental, financial and innovative performance of newly born ventures. Entrepreneurial finance’s indirect effects also remain unclear, that is, what it achieves through CSR activities. This study aims to fill this gap.

The majority of strategic, business and environmental management studies have debated the relationship between financial capital and environmental practices in listed firms and corporations (Hasan & Habib, 2017; Lin et al., 2019), with newly founded small businesses otherwise receiving only minor attention—perhaps due to their limited financial and technology resources. Small firms have nevertheless now realised the potential benefits of CSR concerning profit, innovation, reputation and competitive advantages (Gallardo-Vázquez et al., 2019; Khan et al., 2019; Moneva-Abadía et al., 2019) and attempt to efficiently utilise financial resources to achieve their sustainability goals (Khattak, 2020).

This study has several objectives and implications. First, we present the importance of entrepreneurial finance in CSR and SMEs’ performance. In other words, we recognise that entrepreneurial finance either directly or indirectly contributes to the environmental, financial and innovative performance of newly born ventures. Second, this research encourages policymakers, banks and financial institutions to lend to the industrial sector, especially new ventures, in an effort to help establish their CSR practices and performance. As pointed out by the resource-based view (RBV) theory (Barney, 1991), firms with sufficient tangible (technology, land, finance, etc.) and intangible (intellectual capital, information, knowledge, etc.) resources outperform firms who have limited resources. In our research, entrepreneurial finance is understood as a tangible resource that boosts firms’ outcomes and performance.

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