Profit with purpose: How CSR fuels UK SMEs' success

Abstract

Corporate social responsibility (CSR) has become an essential strategy for firms, particularly small and medium-sized enterprises (SMEs), to enhance their social impact and secure long-term financial sustainability. This study explores the relationship between CSR investments and financial performance in UK listed SMEs from 2021 to 2024. Despite CSR's growing prominence, its financial benefits for SMEs remain underexplored, especially concerning factors such as managerial optimism and external stakeholder pressures. The study employs a resource dependence theory (RDT) framework, which posits that firms rely on external resources for growth and suggests that CSR investments help SMEs manage these dependencies, leading to better financial outcomes. Findings reveal a positive association between CSR investments and financial performance, with managerial optimism negatively influencing CSR investments, while regulatory pressure and financial risk play moderating roles. The study contributes to CSR literature by offering empirical evidence from UK SMEs and integrating managerial optimism as a moderating factor. The results provide practical insights for managers, policymakers, and investors on integrating CSR into business strategies to enhance both financial performance and stakeholder engagement.