Economic Research-Ekonomska Istraživanja

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The impact of corporate social responsibility on

organizational performance with the mediating
role of employee engagement and green
innovation: evidence from the Malaysian banking
sector

Xu Meng & Muhammad Imran

To cite this article: Xu Meng & Muhammad Imran (2024) The impact of corporate social
responsibility on organizational performance with the mediating role of employee engagement
and green innovation: evidence from the Malaysian banking sector, Economic Research-
Ekonomska Istraživanja, 37:1, 2264945, DOI: 10.1080/1331677X.2023.2264945

To link to this article: https://doi.org/10.1080/1331677X.2023.2264945

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ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA
2024, VOL. 37, NO. 1, 2264945
https://doi.org/10.1080/1331677X.2023.2264945

The impact of corporate social responsibility on

organizational performance with the mediating role of
employee engagement and green innovation: evidence
from the Malaysian banking sector
Xu Menga,� and Muhammad Imranb
a
School of Education, UCSI University, UCSI Heights, Jalan Puncak Menara Gading, Taman
Connaught, Cheras, Kuala Lumpur, Malaysia; bFaculty of Technology management and Business,
Universiti Tun Hussein Onn Malaysia, Johor, Malaysia

ABSTRACT ARTICLE HISTORY

This study aims to examine the direct and indirect effects of cor­ Received 6 May 2023
porate social responsibility (CSR) on organizational performance Accepted 24 September 2023
(OP) through the mediating role of employee engagement (EE) and
KEYWORDS
green innovation (GI) in the Malaysian banking sector. Moreover,
CSR; employee
this study was conducted to empirically investigate a sample of engagement; green
550 employees affiliated with eight banks in Kuala Lumpur, innovation; organizational
Malaysia. The research employed the Partial Least Squares Path performance; banking
Modelling (PLS-SEM) technique to obtain the intended results. The sector
findings of this research demonstrate that CSR has a positive and
significant impact on OP, EE, and GI. Furthermore, EE is also signifi­ JEL CODES
cantly correlated with OP, while GI is not significantly correlated E58; M14; O31; J21; L23
with OP. On the other hand, EE mediates the relationship between
CSR and OP, while the mediating role of GI was not found. This
study highlights the importance of CSR programs in promoting EE
and encouraging GI. Ultimately, these initiatives affect organiza­
tional performance within the banking sector. This study makes a
theoretical contribution by investigating the mediating impacts of
EE and GI on the relationship between CSR and OP within the
banking sector. Moreover, these findings benefit future researchers
interested in exploring the banking sector’s performance.

1. Introduction
Corporate social responsibility (CSR) initiatives enable banks to maintain a positive
public image by demonstrating their dedication to addressing societal and environ­
mental issues. Similarly, adopting CSR practices has the potential to alleviate specific
risks, such as reputational risks stemming from unethical conduct or environmental

CONTACT Xu Meng [email protected]

�Present address: School of Tourism Management, Tianjin Vocational Institute, Haihe Education Park, Tianjin, China
� 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial License (http://
creativecommons.org/licenses/by-nc/4.0/), which permits unrestricted non-commercial use, distribution, and reproduction in any
medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the
Accepted Manuscript in a repository by the author(s) or with their consent.
2 X. MENG AND M. IMRAN

obligations. The implementation of responsible banking practices has the potential to

bolster the durability of financial institutions. In addition, CSR initiatives play a sig­
nificant role in fostering a favorable organizational environment, bolstering employee
morale and higher employee engagement levels. Employees actively involved and
committed to their work tend to exhibit higher productivity levels, contributing to
enhanced organizational performance on a broader scale. Furthermore, as Imran
et al. (2022) stated, CSR catalysis banks to engage in innovation and embrace sustain­
able practices. These technological advancements have the potential to result in finan­
cial savings and enhance operational effectiveness, thereby positively impacting the
bank’s financial performance. The correlation between CSR and organizational per­
formance (OP) has been extensively explored by scholars on a global scale (Shafique
& Ahmad, 2022). Nevertheless, the results lack consistency and clarity (Platonova
et al., 2018). Several studies have indicated a positive correlation between CSR and
OP (Singh & Misra, 2021; Hou, 2019), whereas alternative research findings have sug­
gested a negative link (Petrenko et al., 2016).
Additionally, several studies indicate a lack of correlation between these variables
(Sameer, 2021). Despite the considerable scholarly focus on CSR and its influence on
OP, as evidenced by the work of Javed et al. (2020), studies examining the direct rela­
tionship between these two constructs have produced conflicting findings, as indi­
cated by the research conducted by Platonova et al. (2018) and Martinez-Conesa
et al. (2017). Some studies have provided evidence regarding the relationship between
CSR and OP. Singh and Misra (2021) have suggested a relationship between CSR and
OP, whereas Abbas (2020) has indicated a negative association. Additionally, Sameer
(2021) has found no significant correlation between the two variables. Nevertheless, it
is important to acknowledge that various research studies have certain limitations,
specifically excluding employee engagement and green innovation as potential media­
ting factors that could influence the relationship between CSR and OP.
It is important to remember that CSR has been investigated in various fields, such
as business ethics, marketing, and management research (He & Harris, 2020). In add­
ition, the emphasis on CSR in most of the extant studies written has primarily
addressed concerns such as performance (Bai & Chang, 2015), strategy (Rao & Tilt,
2016), and consumer characteristics (Park et al., 2017), with little attention given to the
relevance of human resource management in this context. Although this lack of work
extended toward CSR and human resource management, evidence shows that
employee engagement with CSR is a critical aspect when it comes to achieving the
desired performance (Ferreira & de Oliveira, 2014). Moreover, CSR initiatives are being
pursued while research indicates positive relationships between CSR and many individ­
ual outcomes, including, but not limited to, employee engagement (Memon et al.,
2020). This research, therefore, is significant in this regard since employee engagement
has been highlighted as the key area of issue for many businesses. Employees who were
physically, mentally, and emotionally engaged in their job tasks were considered
actively engaged in the organization by the management (Sharma & Kumra, 2020).
According to a Gallup poll conducted in the year 2017, only 15% of the employees
working around the globe were organically engaged. This, therefore, has frequently led
to significant organizational and economic losses due to the loss of productivity due to
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 3

disengaged employees. The United States performs better than the rest of the world
regarding EE, with 34% of the employees believed to be actively engaged. However,
this leaves 66% of the residue employees who are not involved. According to the
Gallup Organization (2017), disconnected personnel cost the United States economy
between $483 billion and $605 billion per year—a time when that has been lost to a
lack of productivity. Increased EE, according to the research, can have a positive
impact on OP due to more employee engagement is related to significant consequences
such as increased efficiency, more customer satisfaction, low level of employee turnover
and absence, and fewer safety occurrences and superiority issues (Jiang & Luo, 2020).
Researchers have examined financial performance with the help of CSR initiatives
for several decades (Bruna & Lahouel, 2022). Furthermore, a few studies have also
shown that CSR considerably improves OP (Petrenko et al., 2016). Regardless, CSR
has not been shown to impact OP significantly (Kraus et al., 2020). Although differ­
ent research has established a firm’s performance in corporate social responsibility,
scholars have recently concentrated on this association due to the ambiguous findings
that have surfaced. According to the extant literature, CSR and OP also have no sig­
nificant correlation (Gupta & Sharma, 2016).
Over the past several years, there has been an increase in the worldwide banking
sector’s recognition of the importance of CSR (Belasri et al., 2020) and the responsi­
bility that the banking sector plays in society and the environment. Academics have
been more interested in banks’ disclosure of CSR information (Xie et al., 2019),
bringing up many important considerations. It has been affirmed that to evaluate
socially conscious efforts, ensure the confidence of stakeholders, and protect CSR and
sustainability principles, global research with CSR in the banking industry is now of
paramount significance. Numerous research studies in the past have analyzed banks’
CSR efforts. In the same context, according to Aggarwal and Saxena (2023), the bank­
ing industry is crucial to the economy. Furthermore, Khan et al. (2020) have argued
that despite the benefits to banks from implementing fundamental CSR standards in
HR policy and public participation, banks’ contributions to CSR disclosure through
regions are not a devastating and uniform concept.
�
According to Ubeda-Garc� ıa et al. (2021), existing literature highlights the signifi­
cance of employee engagement and green innovation as crucial factors that mediate
the association between CSR and OP. According to Imran et al. (2021), there is a
strong association between green innovation and organizational performance.
Additionally, Kim and Kim (2020) emphasize the importance of employees in evalu­
ating the relationship between CSR and performance. The implementation of CSR
within the banking sector, specifically emphasizing green innovation, holds the poten­
tial to exert a positive influence on performance outcomes. Green innovation refers
to implementing environmentally conscious practices within the banking sector to
minimize costs, waste generation, and pollution. Engaging in CSR initiatives enables
banks to introduce environmentally friendly innovations, thereby establishing their
environmental credibility and attaining a competitive edge (Achi et al., 2022). These
are consistent with the theoretical framework of the dynamic capabilities approach,
which underscores the importance of the external environment in shaping organiza­
tional capabilities and influencing bank performance (Fukuyama & Tan, 2022). Prior
4 X. MENG AND M. IMRAN

research has demonstrated the significance of green innovation in ensuring long-term

effectiveness, operational efficiency, and sustainability (El-Kassar & Singh, 2019).
Nevertheless, there is currently a lack of comprehensive attention from scholars
toward assessing organizational performance with green innovation.
This study’s primary objective is to evaluate how CSR affects OP in Malaysia’s
banking sector. Another objective of this research is to examine how organizational
performance is related to CSR, EE, and GI. The primary reason for conducting this
survey study is the shortage of prior studies examining the significance of CSR in
establishing OP in the Malaysian banking sector. Furthermore, there is a knowledge
gap concerning the impacts of EE and GI on CSR and its interaction with OP, even
though their mediation functions have been identified. This research aims to fill this
gap and add to the existing body of knowledge by investigating the role of EE and GI
as mediators in the link between CSR and OP. Uniquely including EE and GI as
mediating factors, the proposed model sheds light on the relationship between CSR,
EE, and GI and how they affect organizational performance.

2. Literature review and hypothesis development

According to the literature on the banking sector, there has been a clear growth in
banks’ focus on CSR and their role in economic development. Fatma and Rahman
(2016) state that banks concentrate on CSR for several reasons directly tied to their
day-to-day operations. The motivations behind their CSR activities become more
transparent when these factors are understood. Concerns and misunderstandings
about CSR exist inside the banking sector, such as allegations of hypocrisy and using
CSR as a cover for unethical practices (Norberg, 2018). In order to dispute miscon­
ceptions and shine a light on genuine CSR activities in the banking business, it is
important to address these issues and provide supporting references or real-world
instances. The relevance and ramifications of CSR in the banking sector can only be
fully grasped if all of these factors are considered. Since banks’ activities affect society
and the environment, CSR has received more attention recently (Sarfraz et al., 2018).
They understand the need to contribute to economic growth and sustainable practi­
ces; thus, they’ve merged their corporate and social aims. According to Bugandwa
et al. (2021), CSR is important to banks for several reasons, including improving their
image, luring new clients who share their values, meeting regulatory benchmarks, and
satisfying stakeholders. However, other researchers, such as Ahmad et al. (2021), have
claimed that certain financial institutions participate in CSR for PR and brand build­
ing rather than out of any real concern for the communities in which they operate or
the environment. In order to distinguish between actual and superficial projects,
addressing these issues and emphasizing genuine CSR efforts is important.
Due to the growing public anxiety regarding the environment, industries have
grown sensitive towards implementing eco-friendly ways (e.g., CSR, GI), thus improv­
ing the OP. While the institution’s primary purpose is not to maximize profits, it
achieves long-term viability through continual development and outstanding achieve­
ment. According to Barauskaite and Streimikiene (2021), CSR has been around for
more than semi-centennial, although no commonly agreed definition exists. In the
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 5

authors’ opinion, the core concept of this system is that communally liable businesses
take into close consideration of their actions, reunite their preferences through the
benefit of stockholders, workforces, and the environment, in addition to their society,
then further interested parties, and accept responsibility for their effect upon the
environment. They also believe that socially responsible organizations should be
transparent about their operations.
Concerns about CSR have now attracted the attention of banks. They function as
financial intermediaries, keep track of borrowers, handle financial risk, set up pay­
ment systems, price and evaluate financial assets, and greatly impact economic devel­
opments, thus making them crucial players in economic development (Forgione
et al., 2020). In addition, they primarily use social capital to take on this challenge;
thus, they must provide the community with more input than the other sectors.
Therefore, to describe how they contribute back to society, practically all banks have
included a part of CSR in their financial statements. However, the banking sector pri­
oritizes CSR mostly to enhance its image (Shen et al., 2016). Such a sector is plagued
by pre-existing misconceptions about the banks’ hypocrisy (Hur & Kim, 2020), avar­
ice Caruana et al. (2018), and immoral deals tactics of their personnel Tosun (2020).
In light of the significance of CSR in the banking sector, we have developed the fol­
lowing hypotheses concerning the banking sector in Malaysia.

2.1. CSR and organizational performance within the banking sector

Previous research on the relationship between CSR and OP shows a weak correlation
between financial and non-financial outcomes (Cheffi et al., 2021; Safi et al., 2023).
Several review studies have portrayed this to be the actual situation. Moreover, many
studies have demonstrated a positive association between CSR along with financial
efficiency, including those of, Siueia et al. (2019), the banking sector of Sub-Sahara
Africa, Matuszak and R� oz_ a�
nska (2017), the Polish banking sector, Galdeano et al.
(2019), and the banking sector of Bahrain. Moreover, the authors have examined sev­
eral articles studying the correlation between CSR and bank performance. However,
regarding the banking sector’s performance, these positive associations have yet to be
confirmed (Gangi et al., 2018). Specifically, in Malaysia’s banking industry, relation­
ship with CSR and performance is even more unclear than in the other sectors
(Platonova et al., 2018). Only a few studies have suggested a positive association
between CSR and organizational performance, CSR, green innovation (Kraus et al.,
2020), and CSR with EE (Farrukh et al., 2020).
Some academics believe in a positive correlation, particularly with OP (Mehralian
et al., 2016). However, several scholars argue that this result should be taken with a
grain of salt. There are two different views on this issue: one argues that the connec­
tion between CSR and OP is weak or nonexistent (Kim & Thapa, 2018); the other
argues that there is no consensus on how to define CSR and that empirical studies
contain measurement errors. Moreover, there has also been a decrease in CSR’s posi­
tive impact on financial performance in recent years, according to Cho et al. (2019).
It must be noted that This might be an actual examination or a result of improved
research strategies.
6 X. MENG AND M. IMRAN

As a result, CSR is predicted to positively impact banking organizations’ perform­

ance (Belasri et al., 2020). Our study has found that defining OP is a shockingly
wide-open subject, with a few findings employing consistent measurements (Cheffi
et al., 2021). Consequently, researchers use a multi-item concept to assess OP based
on research in management control (Kaplan & Norton, 1996). Instead of focusing on
the non-financial measures, we have resorted to using the multi-item method to
evaluate the CSR’s impact on the overall organizational performance. Our model’s
construct covers all the aspects of organizational performance, from non-financial to
environmental. Thus, the study aims to show how CSR influences the banking indus­
try’s efficiency in Malaysia. The CSR and non-financial variables have been studied
recently in the banking sector (Tulcanaza-Prieto et al., 2020). This study may add to
the present CSR literature by giving more in-depth perceptions of the effects of CSR
on the performance of Malaysian banking organizations. As a result, the following
hypothesis has been suggested:

H1: CSR is positively and significantly related to organizational performance in the

banking sector.

2.2. CSR and employee engagement

In-depth research into the relationship between CSR and employee engagement is still
developing, but a few studies have shown a positive correlation with these constructs.
Following the same context, Glavas (2016) concluded that the significance of CSR to
employees increased the influence of better employee opinions of CSR on EE. There
was also a positive correlation between CSR and EE found by Tsourvakas and
Yfantidou (2018). In another instance, Glavas (2016) argued that the positive associ­
ation between CSR and engagement could be explained by employees finding more
purpose and value unity in their work environments. Additionally, organizations may
implement their beliefs by implementing CSR rather than just stating them in a mere
statement. According to certain studies, the organization’s values are communicated
to employees, thus showing a correlation between CSR and the expected value con­
gruence among potential employees (Im et al., 2016). While there has been little
research into the link between CSR and EE from the perspective of the Malaysian
banking sector, a few empirical studies have been performed in this field in the
higher education sector Hossen et al. (2020), SMEs Yeo and Carter (2018), and the
telecommunication sector Ramaditya (2019). Furthermore, Other research showed a
significant association among CSR with EE (Farrukh et al., 2020).
Organizations can also use CSR to navigate outside what is written down in their
corporate values and implement these in their business practices. This helps the
employees internalize the organization’s fundamental principles, as shown by earlier
research, which revealed a statistically significant and positive relationship between
CSR and potential employees’ recognition of the organization’s values (Asrar-Ul-Haq
et al., 2017). Furthermore, CSR initiatives can be utilized as a guideline to assist
employees in finding a deeper purpose in their jobs. For example, Flammer and Luo
(2017) suggested that organizations could utilize the concept of CSR as a strategy to
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 7

incentivize employees to work for a level deemed acceptable. Similarly, Lohana et al.
(2023) also asserted that when employees believe that they are making a positive con­
tribution to the benefit of the consumer, they feel better, enhancing their self-percep­
tion and boosting their understanding of the organization’s distinctiveness.
Despite the limited research that has been performed on the link between CSR
with EE, particularly in Malaysia, other studies that share a similar premise could
shed light on the relationship that has been mentioned above. Intrinsic motivation
and job satisfaction were highly correlated in a study based on EE (Nimon et al.,
2016). Moreover, CSR and job satisfaction have been shown to have a positive rela­
tionship in prior CSR-related research (Jie & Hasan, 2018). In addition, the existing
CSR research and literature reveal a link between CSR and EE. However, despite con­
ducting studies in the Malaysian banking sector, researchers could not unearth any
studies investigating EE mediators of the relationship between CSR and OP. As a
result, based on the arguments stated beyond, we have proposed the following
research hypothesis.

H2: CSR is positively and significantly related to employee engagement in the banking
sector.

2.3. CSR and green innovation

CSR policies and initiatives can affect organizational innovation (Santos-Ja�en et al.,
2021) by influencing organizations’ core strategies and business models (Szutowski &
Ratajczak, 2016). The extant literature has statistically indicated a constructive correl­
ation between CSR and innovation (Wu et al., 2018). A virtuous loop is therefore
generated between CSR and innovation in the banking sector. When CSR is more fre­
quent, banks tend to become more innovative in their approach (Birindelli et al.,
2015). This gives significant competitive benefits to the banking sector (Zameer et al.,
2015), allowing them to generate higher revenues by increasing their profitability
(Gangi et al., 2019). Thus, CSR is recognized as a key driving force that enables busi­
nesses to be innovative and efficient (Pathan et al., 2021). Zhou et al. (2021) state
that organizations prioritizing their CSR initiatives and policies generate more
innovative products and processes.
Organizations that engage in CSR must innovate because their conventional ways
of operating are no longer effective. Only through innovation will they eventually be
able to carry out these activities (Santos-Ja�en et al., 2021). Furthermore, stakeholders
expect higher social commitment, encouraging corporations to innovate communally
responsibly (Ali et al., 2022). Chang and Lee (2020) have also described how CSR has
reshaped organizational innovation to meet the customers’ changing needs, particu­
larly those more concerned with social ethics. Thus, business innovation is increas­
ingly directed toward socio-environmental advantages (Grayson & Hodges, 2017).
More importantly, CSR is adopted to meet consumer needs in those organizations
that match clients’ preferences with innovation, eventually producing intangible capa­
bilities that allow them to be more technologically adaptive (Raza et al., 2020).
Furthermore, studies have similarly highlighted the significance of innovation in CSR
8 X. MENG AND M. IMRAN

initiatives and OP (Zhu et al., 2019). However, there is currently a paucity of studies
on exactly how CSR is implemented intended for environmental preservation, par­
ticularly in the employment of GI in developing countries (Shahzad et al., 2020).
Therefore, researchers can investigate the significance of CSR in association with
green innovation as a mediator and OP in the Malaysian banking sector. We postu­
late the H3 considering the data presented above:

H3: CSR is positively and significantly related to green innovation in the banking
sector.

2.4. Employee engagement and organizational performance

The main objective of an EE in the organization is to improve the organization’s
overall performance (Ogbonnaya & Valizade, 2018). In recent times, the issue of EE
has gained popularity in human resource management research, with evidence dem­
onstrating that it is vital for modern cultural organizations to survive in the long
term. Some research in this regard has indicated that employee engagement is associ­
ated with employee outcomes, productivity, and OP (Bailey et al., 2017), with a par­
ticular emphasis also on organizational effectiveness (Ali et al., 2019) and OP (Tensay
& Singh, 2020). The extent to which an organization achieves its aim is explained by
its performance that is addressed. The performance of a corporation is described at
the same time as the ability to predict the attainment of its goals when the organiza­
tion’s objectives and strategies, organizational structure, processes, and human resour­
ces are all in line (Ginter et al., 2018). As a result, the findings reveal a significant
relationship between EE and OP. Therefore, in conclusion, we have formulated
the H4:

H4: EE is positively and significantly related to organizational performance in the

banking sector.

2.5. Green innovation and organizational performance

Green innovation is both physical as well as virtual innovation that improves prod­
ucts and processes over time (El-Kassar & Singh, 2019) by focusing specifically on
the technologies associated with energy saving, pollution control (Begum et al., 2022),
waste recycling, eco-friendly product design, the use of eco-wrapping, and organiza­
tional environmental management (Padilla-Lozano & Collazzo, 2022). According to
the discussions, there is a distinction between traditional innovation and GI, both
motivated by the need to comply with the environmental rules that market ecological
concerns (Zhang et al., 2020). In this regard, According to Hermundsdottir and
Aspelund (2021), the study of green innovation is still in its early stages, with only a
certain amount of literature focusing on its definition and concepts. Additionally, as
per Charmondusit et al. (2016), GI contributes by focusing on the business’s and cus­
tomers’ environmental concerns via processes or products. Moreover, green product
innovation applies creative concepts to the innovation, production, and strategic
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 9

communication of innovative products that outpace traditional products regarding

originality and their ecological design (Serrano-Garc�ıa et al., 2021). Moreover, green
process innovation is also associated with energy conservation, toxic waste avoidance,
and non-toxicity (Ma et al., 2017).
GI is an aspect that affects how well an organization is at being competitive (Li
et al., 2019). Innovation is expected to add value ultimately, and for that to occur, it
needs to reveal the productivity spikes that have contributed towards greater margins,
increased profits, more value for participants, more market value, an improved cor­
porate image, better environmental performance, or a combination of the above
which will eventually make the organization more competitive (Tu & Wu, 2021).
Businesses are more likely to participate in GI because they support growing the mar­
ket and give them the viable benefit of being seen as eco-friendly (Adam et al., 2022).
A green idea that works well enables organizations to become more efficient and
improve their image as an environmentally friendly organization, leading to more
profit (Li et al., 2017). Organizations that are early adopters of new technology are
likely to charge more for green products, enhance their overall image, offer more
environmentally friendly products and services, and ultimately find new marketplaces
to achieve a competitive edge. We, therefore, formulated our hypothesis based on the
above literature:

H5: Green innovation is positively and significantly related to organizational perform­

ance in the banking sector.

2.6. The mediating role of EE and GE

Employee engagement refers to employee commitment to the organization. Engaged,
committed, and motivated employees are valuable resources for the business wanting
to gain a viable edge in the marketplace (Ali et al., 2020). In this regard, EE deter­
mines an organization’s strength because an engaged employee understands their
obligations and performs well beyond the organization’s growth (Bilal et al., 2015).
According to CSR literature, organizational employees recognize their presence as
important in a collectively acknowledged and conscientious organization, thus moti­
vating them to go and achieve beyond their expected responsibilities. CSR activities at
the organization tend to recruit competent employees and increase their commitment
to the company and the causes that it is involved with (Ahmed et al., 2020). Scholars
such as Rupp et al. (2018) argued that CSR activities are also positively associated
with EE, and employees are more willing to work out for corporations that spend
their assets on society’s welfare and for organizational employees (Hosseini et al.,
2022). CSR initiatives boost the employees’ self-esteem, strengthening their affiliation
with the organization they work for, eventually leading to a higher level of engage­
ment (Hur et al., 2022).
However, EE is a strong indicator of an employee’s organization’s performance,
which eventually leads to organizational success (Al-Dalahmeh et al., 2018). Research
has supported these findings (Ali et al., 2020). This is primarily Because actively
engaged employees understand the importance of contributing to the organization’s
10 X. MENG AND M. IMRAN

overall performance and maintaining positive relationships with coworkers.

Moreover, they are more likely to go the extra mile and put in extra effort, resulting
in higher productivity and more employee satisfaction and commitment (Nazir &
Islam, 2017). It is also noteworthy that EE has previously been linked to CSR (an
exogenous variable) and organizational performance, as affirmed according to previ­
ous research (endogenous variable). Furthermore, Baron and Kenny (1986) state that
mediation will be established if there is a strong association between an exogenous
and an endogenous variable. As a result, we have proposed hypotheses H6 and H7.
Different empirical studies in this regard have considered green innovation as an
exogenous variable, a control variable, or a mediating variable (Padilla-Lozano &
Collazzo, 2022). A significant portion of the literature that has been written on green
innovation is theoretical, essentially aimed at its understanding of the concept and
development, largely because the significance and scope of green innovation are
undoubtedly still in the process of being clearly defined (Aron & Molina, 2020).
Figure 1 illustrates the study framework of the current survey research, the hypothe­
ses proposed in the present study, and the need for an empirical investigation. Our
research seeks to contribute to the previous literature by investigating the mediating
role of green innovation and EE, particularly regarding the relationship between CSR
and OP in the Malaysian banking sector. This will be accomplished through the
investigation of the subsequent research assumptions:

H6: Employee engagement mediates the relationship between CSR and organizational
performance.
H7: Green innovation mediates the relationship between CSR and organizational
performance.

3. Research methodology
3.1. Data collection and procedure
This study used structured questionnaires to collect data from the sample represent­
ing participants. The questionnaires were collected from the top eight banks in Kuala

Figure 1. Research framework.

Source: Created by the author’s based on previous literature.
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 11

Lumpur, Malaysia, which included Maybank, CIMB, Public Bank Bhd, RHB Bank,
Hong Leong Bank, AmBank, UOB Malaysia, and Bank Rakyat. These banks are con­
sidered the leading banks in Malaysia regarding their resources, deposits, finances,
market capitalization, number of employees, and the number of divisions, among
other factors (Hamid et al., 2017). Data has been collected in two waves with a 4-
week time frame to minimize the chances of common method bias. In recent years,
this approach has been used in several studies (Zhao et al., 2020). This method was
made smoother and error-free by assigning identifying numbers to different time
questionnaires. This allowed the researchers to quickly and readily compare question­
naires after data gathering. Respondents’ demographics and perceptions of CSR-meas­
ured items that occurred for the first time in the questionnaire were also determined.
However, the second visit included the EE, GI, and OP measurements, which were
then collected.
As per Comrey and Lee (1992), there are several sample size ranges in their cap­
acity. For example, a sample size below 50 is regarded as weaker, between 51 and 100
is regarded as weak, and between 101 and 200 is regarded as appropriate.
Furthermore, a sample size between 201 and 300 is considered good, while a sample
size between 500 and 1000 is considered excellent. As a result, the sample size for
this study was 581, which is deemed an excellent sample size. The researcher also dis­
tributed 800 questionnaires to the employees in the banking sector via a survey meth­
odology, of which 581 questions received completed answers, and 31 questionnaires
were deleted due to incompleteness, leading to a net response rate of around 69% for
the study.

3.2. Measures
Ranging from ‘strongly disagree’ to ‘strongly agree’, the researcher has employed a
Likert scale with five points Likert in the survey designed. Employee awareness of
CSR was assessed by considering a six-item formed by Cheema et al. (2020). The six
questions have been designed to assess an employee’s perspective of their organiza­
tion’s efforts in CSR, primarily by asking whether or not they are content with it and
appreciate the organization’s current CSR activities, among several other things
(Tsourvakas & Yfantidou, 2018). Meanwhile, employee engagement has also been
measured by using a nine-item survey that measures three subdimensions: physical,
emotional, and cognitive engagement (Rich et al., 2010). In this regard, four items
from prior research were used to assess the organization’s overall performance (Lin
et al., 2013). Furthermore, the development in the market standing, sales capacity,
profit ratio, as well as reputation have all been measured using these items. A total of
eight questions selected and modified from earlier research by El-Kassar and Singh
(2019) were also used to assess green innovation. Items that are non-toxic, simple to
reuse, with non-polluting have been considered to gauge the organization’s use of
environmentally friendly materials. The use of eco-labelling was also tracked
down and recorded. Table 1 comprises a list of the items of CSR, EE, GI, and OP
variables.
12 X. MENG AND M. IMRAN

Table 1. Variables with items.

S. No. Variable Items Source
1 Corporate social responsibility 6 Cheema et al. (2020)
2 Employee engagement 9 Rich e al. (2010)
3 Green innovation 8 El-Kassar and Singh (2019)
4 Organizational performance 4 Lin et al. (2013)
Source: Author’s Estimation

4. Results
The research model was analyzed using the partial least squares structural equation
modeling (PLS-SEM), SmartPLS Version 3.3.7. As per Hair et al. (2017), PLS-SEM is
the extensively used statistical software under consideration and used by researchers
today. PLS-SEM has been frequently employed in marketing and management
research (Imran et al., 2021; Imran & Jingzu, 2022). Furthermore, the PLS-SEM tech­
nique is advised where there is a lack of theoretical foundation for an issue.
Furthermore, Hair et al. (2014) indicated that PLS-SEM is a suitable approach to
carry out an exploratory analysis, as shown by their research. PLS-SEM is a two-stage
technique that includes the following steps: The measurement model is analyzed for
the validity and reliability of the proposed variables in the first step. Then, the struc­
tural model is evaluated for the path coefficients in the second stage. A further sec­
tion outlines these two stages in depth.

4.1. Measurement model

For this research, the SmartPLS 3.3.7 approach was used to test the developed
hypotheses with SEM. Furthermore, PLS is useful when the empirical data doesn’t
meet normality requirements (Dijkstra & Henseler, 2015). It is considered that the
results of the PLS model are much more reliable than the results of the ordinary least
square (OLS) model, particularly when there are problems with multicollinearity in
the data, missing data, or a small sample size. Therefore, the PLS method was
employed as a sample size in this study, which was not significantly large. Our study
has four reflective variables in it. The PLS-SEM comprises measurement models
(Figure 2) and structural models (Figure 3).
Internal consistency reliability, convergent, and discriminant validity are all aspects
of the measurement model. This is presented in Table 2 because the outer loading of
every item is more than 0.50 (Hair et al., 2014), thus indicating that the items meet
this threshold. Moreover, internal consistency reliability was investigated to determine
Cronbach’s alpha coefficient and composite reliability (CR) (Chin, 2010). In this
regard, Table 2 demonstrates that Cronbach’s alpha and CR for all constructs are
more than 0.70, indicating that the internal consistency reliability is acceptable. The
degree to which constructs items measure the constructs that are the same as each
other is known as convergent validity (Clark & Watson, 2019). The convergent valid­
ity is calculated using the constructs’ AVE, and research has proven that the AVE of
variables should be at least 0.50, as per Hair et al. (2021). Table 3 explains that the
AVE of the constructs is more than the threshold value of 0.50.
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 13

Figure 2. Reliability and validity.

Source: Author's Estimation

When considering the discriminant validity assessment, Fornell and Larcker (1981)
recommended a conventional measurement method that could be used in two separate
stages. The first stage could evaluate the value of the AVE square root with the values of
the measures of the correlational value. The second stage could compare the AVE value
to the square correlational values. Also, because the values on the diagonal are greater
than any of the values in their respective columns and rows, this is proven in the follow­
ing table (Table 3), shown below. Recently, researchers have introduced a unique way of
calculating discriminant validity. Furthermore, the investigators have concluded that the
standard metric is inappropriate for calculating discriminant validity in this context. In
this regard, Henseler et al. (2015) developed a unique method known as the Heterotrait-
Monotrait Ratio (HTMT) of correlation to calculate the discriminant validity.
As a conclusion of this research, according to our findings, both Fornell and
Larcker (Table 3) and HTMT (refer to Table 4) performed adequately. Generally,
while each indicator has outer loadings with the least difference, the factor loadings
are within 0.65 and 0.85 on the standard deviation scale. Moreover, According to
Henseler et al. (2015), the threshold value of HTMT should be less than 0.90 for the­
oretically similar variables and 0.85 for conceptually dissimilar constructs. While
Table 4 indicates that the variables have an HTMT value lower than 0.85.

4.2 Regression analysis

The assessments of the hypotheses are presented in this section of the study. Table 5
indicates the b-value, t-value, and p value employed to ascertain whether the
14 X. MENG AND M. IMRAN

Figure 3. Structural model.

Source: Author's Estimation

hypotheses are accepted or rejected. Moreover, this portion also contains a structural
model that can be used to evaluate the study-related proposed hypotheses. The
researchers have used the structural model to quantify the p and t-value to examine
the hypotheses proposed in the literature. It is possible to accept the hypotheses if the
t-value is more than 1.96 or the p value is less than 0.05. The direct and indirect
hypothesis relationships are therefore presented in Table 5. Moreover, the structural
model shown in Figure 3 shows that the p value and t-value of CSR with OP (p value
¼ 0.000; t-value ¼ 4.738), and CSR are positively and significantly associated with
Op. Therefore, hypothesis H1 is supported. At the same time, CSR is positively and
statistically significant with EE and DI (p value ¼ 0.000; t-value ¼ 3.660, p value ¼
0.000; t-value ¼ 11.199), where hypotheses H2 and H3 are supported. Furthermore,
the association between H4 is positive and statistically significant (p value ¼ 0.000; t-
value ¼ 6.887) and supported. Additionally, H5 GI does not have a statistically
significant association with OP but does have a positive relationship (p value ¼ 0.077;
t-value ¼ 1.771) with OP, and H5 supports the result.
Employee engagement was a significant mediator in the relationship with CSR and
OP (p value ¼ 0.000; t-value ¼ 3.729) and was found to have supported hypothesis
H6. Moreover, green innovation is also positive but not significantly mediated among
CSR and OP (p value ¼ 0.077; t-value ¼ 1.773), and the study findings do not
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 15

Table 2. Reliability and validity of the constructs.

Variables Items Factor loading a CR AVE R2
Corporate social responsibility CSR1 0.752 0.887 0.913 0.638
CSR2 0.897
CSR3 0.891
CSR4 0.780
CSR5 0.704
CSR6 0.750
Employee engagement EE1 0.811 0.911 0.923 0.571 0.037
EE2 0.708
EE3 0.712
EE4 0.730
EE5 0.842
EE6 0.744
EE7 0.723
EE8 0.783
EE9 0.733
Green innovation GI1 0.675 0.889 0.912 0.568 0.252
GI2 0.742
GI3 0.740
GI4 0.728
GI5 0.863
GI6 0.862
GI7 0.835
GI8 0.527
Organizational performance OP1 0.862 0.833 0.889 0.669 0.277
OP2 0.816
OP3 0.864
OP4 0.721
Source: Author’s Estimation

Table 3. Discriminant validity Fornell-Larcker criteria.

Variables CSR EE GI OP
Corporate social responsibility 0.799
Employee engagement 0.191 0.756
Green innovation 0.502 0.243 0.754
Organizational performance 0.401 0.398 0.334 0.818
Source: Author’s Estimation

Table 4. Discriminant validity HTMT criteria.

Variables CSR EE GI OP
Corporate social responsibility
Employee engagement 0.185
Green innovation 0.520 0.233
Organizational performance 0.448 0.401 0.356
Source: Author’s Estimation

Table 5. Hypothesis direct and indirect effects.

Hyp. Paths b-value STD T-value P-Value Remarks
H1 CSR -> OP 0.282 0.060 4.738 0.000 Supported
H2 CSR -> EE 0.191 0.052 3.660 0.000 Supported
H3 CSR -> GI 0.502 0.045 11.199 0.000 Supported
H4 EE -> OP 0.316 0.046 6.887 0.000 Supported
H5 GI -> OP 0.115 0.065 1.771 0.077 Not-supported
H6 CSR -> EE -> OP 0.061 0.016 3.729 0.000 Supported
H7 CSR -> GI -> OP 0.058 0.033 1.773 0.077 Not-supported
Source: Author’s Estimation
16 X. MENG AND M. IMRAN

support the conclusions drawn. Further use of the Variance Accounted For (VAF)
method was further used to examine the mediating influence of EE and GI on the
association between CSR and OP. Moreover, regarding the VAF, with values less than
20% (no mediation), between 20 and 80% (partial mediation), and higher than 80%
(full mediation), in that order, H6 is partially mediated, but H7 is not mediated.
The value of f2 specifies whether an exogenous construct influences an endogenous
construct (Ramayah et al., 2018). As indicated by Cohen (1988), there are three types
of f2 value ranges: the smaller effect (0.02), the medium effect (0.15), and the larger
effect (0.35). The outcomes of this analysis prove that the empirical value impacts the
OP. In fact, to the smaller influence of CSR on OP (f2 ¼ 082), the medium influence
of EE on OP (f2 ¼ 0.129). Furthermore, the value of GI also exerts a smaller effect on
the OP (f2 ¼ 0.013).
There have only been a Few studies that have adopted an alternative method for
determining the predictive accuracy of the model and thus obtaining Q2 value. When
utilizing the SmartPLS 3.3.7 tool, the Q2 is calculated using the blindfolding method.
In this regard, Chin (1998) indicated that the Q2 value should be larger than 0. Also,
as per Cohen et al. (2013), Q2 higher than 0.35, 0.15, and 0.02 implies large, medium,
and small predictive significance, respectively. The EE Q2 value (0.013) has a smaller
predictive relevance impact. In contrast, the OP Q2 value (0.178) has a medium pre­
dictive relevance effect, and the GI (0.136) also has a smaller predictive relevance
effect.

4.3. Discussion
According to Suttipun et al. (2021) research on CSR and the financial performance of
the listed firms in Thailand, there is a positive association between CSR and financial
performance. In addition, some academics have conducted research on the topic of
CSR and OP in the banking sector in Asia, such as in India (Deb et al., 2022),
Pakistan (Szegedi et al., 2020), and China (Zhou et al., 2021). They found that CSR
influences the performance of Banks. The increasing worldwide apprehension over
climate change and global warming has underscored the significance of banks in their
CSR and environmental initiatives. Nevertheless, it is worth noting that there has
been a shortage of academic research examining the correlation between CSR and
financial performance in developing countries such as Malaysia, as highlighted by Xu
et al. (2022). The results of this study demonstrate a significant association between
CSR and OP. This relationship exists directly and indirectly, with the indirect influ­
ence being mediated by EE and GI. These findings align with prior research by Ali
et al. (2020). The influence of CSR on EE is significant, indicating that CSR programs
positively impact employee engagement. Furthermore, our study provides empirical
evidence that the construction of EE serves as a crucial mediator in the association
between CSR and OP. These findings underscore the significance of EE in facilitating
the translation of CSR initiatives into improved performance outcomes. At the same
time, the role of green innovation (GI) in facilitating the link between CSR and OP
was shown to be statistically insignificant in this research. This suggests that, within
the particular context examined, green innovation may not directly impact OP. The
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 17

comparison of these findings with existing studies in academic literature provides

additional evidence for the importance of CSR and EE as crucial factors in mediating
the relationship with OP. Moreover, it highlights the contextual variations that can
impact the role of GI within diverse banking environments.

5. Conclusion, policy implications, limitation and future study

5.1. Conclusion
The study conducted by Tulcanaza-Prieto et al. (2020) in the banking sector supports
the concept that CSR has a positive and statistically significant effect on OP. The
observed consistency provides empirical evidence that CSR initiatives positively
impact organizational performance. The potential positive impacts of CSR, such as
the improvement of reputation, fostering customer loyalty, and strengthening stake­
holder relationships, are expected to play a role in the observed enhancements in OP.
The findings are additionally supported by the research carried out by Lu et al.
(2020) and Khan et al. (2021) in the manufacturing industry of Pakistan, which also
demonstrated a significant positive impact of CSR on the performance of SMEs. This
finding suggests that the positive correlation between CSR and OP is applicable across
various industries and regions, thereby enhancing the generalizability of the results.
The inconsistent findings observed in the study conducted by Cris� ostomo et al.
(2011), which indicated a negative correlation between CSR and OP, may be
explained by differences in the specific context of the banking sector, characteristics
of the sample used, or variations in the methods employed for measurement. A range
of cultural, social, and economic factors specific to different regions and industries
can influence the impact of CSR on OP. The results emphasize the significant impact
of CSR initiatives on the achievement of banks. Prior studies have established the
importance of CSR in attaining enduring sustainability and financial success within
the banking industry. Therefore, managers and owners must acknowledge the signifi­
cance of CSR due to its direct influence on organizational performance and its contri­
bution to the overall success of a bank. The findings of Obeidat (2016) support the
hypothesis that CSR and EE constraints play a significant role in shaping a corpora­
tion’s business model. This alignment is crucial for improving OP, as evidenced by
the inline noted in this study. The integration of CSR and EE limitations has the
potential to foster the adoption of more sustainable and responsible business practi­
ces, thereby exerting a positive influence on OP.
These findings contribute to the ongoing inconclusive debate surrounding the link
between CSR and innovation, especially in the context of developing nations.
However, it is important to note that CSR does have a significant impact on overall
bank performance. Nevertheless, the literature on the correlation between GI and
bank performance is limited (Khan et al., 2022). Our study explores this relationship,
which has been previously overlooked in research examining the link between CSR
and GI. Additionally, EE is shown to substantially impact overall organizational per­
formance, consistent with the findings of Kazimoto (2016) that EE significantly affects
organizational performance. On the other hand, Arslan and Roudaki (2019) conclude
that EE specifically impacts business performance assessment. Moreover, GI has been
18 X. MENG AND M. IMRAN

proven to enhance organizational performance, aligning with the findings of Tang

et al. (2018) and El-Kassar and Singh (2019) that GI contributes to achieving a com­
petitive advantage. Our research further identifies EE and GI as positive mediators in
the relationship between CSR and organizational performance. This study provides
novel insights into the impact of CSR initiatives on bank efficiency. As banks play a
crucial role in the global economic system, policymakers have a valid reason to focus
on increasing CSR activities in the banking sector to enhance bank performance and,
ultimately, have positive implications for the overall economy. The study’s findings
emphasize the importance of understanding the performance factors relevant to banks
to support their contribution to economic growth.

5.2. Policy implications

The policy implications of the findings of this study are as follows:

1. The research emphasizes that CSR exerts a positive and significant influence on
the performance of organizations. Hence, policymakers within the banking indus­
try must promote and provide incentives for banks to embrace and execute CSR
initiatives. The prioritization of responsible business practices and active engage­
ment in social and environmental contributions can potentially enhance the over­
all performance of banks.
2. The research findings suggest that CSR has a significant impact on the level of
EE. Policymakers can utilize this insight to formulate policies that promote the
development of a work environment conducive to employee engagement within
the banking sector. Employees actively involved and invested in their work dem­
onstrate higher commitment and productivity, ultimately leading to improved
organizational performance and increased customer satisfaction.
3. The findings indicate that CSR significantly and positively influences green
innovation. This implies that incorporating sustainable practices can result in
innovative advancements within the banking sector. It is essential for policy­
makers to actively endorse and facilitate green innovation initiatives, thereby
incentivizing banks to embrace ecologically sustainable practices and technologies
that effectively mitigate their environmental impact.
4. With the positive effect of employee engagement on OP, policymakers may direct
their attention toward implementing strategies that augment employee motivation
and satisfaction. Implementing employee development initiatives, work-life bal­
ance policies, and recognition programs can positively impact performance out­
comes within the banking industry.
5. Policymakers need to recognize the intermediary function of EE in the correl­
ation between CSR and OP. Implementing CSR initiatives can directly affect OP
and indirectly influence it by fostering heightened levels of EE. Establishing a
workplace culture that prioritizes the well-being of employees and encourages
their active participation in CSR initiatives can yield significant enhancements
in OP.
 ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 19

6. The study indicates that green innovation positively affects CSR, but it may not
directly impact OP within the specific context being examined. It is recom­
mended that policymakers consider this constraint and investigate supplementary
approaches to maximize the performance implications of green innovation,
potentially by integrating it with other measures to enhance performance.

5.3. Limitations and future study

The limitations of current research are similar to those of earlier investigations, which
emerging researchers in the future can address. In the first part, a cross-sectional
strategy has been referred to. Researchers are doubtful that CSR, EE, and green
innovation in the banking sector can provide the same results previously. Thus,
future researchers can apply the same study paradigm to determine whether results
improve over longer durations. Our study obtained data from the Malaysian banking
sector, and future researchers can collect data from SME’s to observe how the find­
ings have changed. Moreover, future studies can use green capacity as a mediating
factor with CSR and OP to determine whether it is statistically substantial. Lastly,
since the present research was organized in the Malaysian environment, which has its
unique culture, future scholars could perform a parallel study in other nations to dis­
cover how progress has been made.

Disclosure statement
No potential conflict of interest was reported by the author(s).

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