Corporate Social Responsibility and Financial Performance of SME Suppliers and Contractors in the Mining Industry in Zambia: Direct and Mediating Effects of Entrepreneurial Leadership

Abstract

This study examines the influence of corporate social responsibility (CSR) on financial performance of SME suppliers and contractors in the mining industry in Zambia and tests the direct and mediating effects of entrepreneurial leadership on this relationship. Using primary data from 254 SMEs in the Copperbelt Province of Zambia, we conducted a regression analysis to evaluate the effect of CSR on financial performance and the mediating role of entrepreneurial leadership. The results indicate a positive relationship between CSR and financial performance and that this relationship was partially mediated by entrepreneurial leadership. This suggests that SMEs who embrace entrepreneurial leadership along with CSR initiatives are more likely to see improvements in their financial performance. Therefore, the study recommends that owner-managers of SMEs should embrace entrepreneurial leadership and integrate CSR activities to improve their financial performance. This study makes contribution to the literature in the domain of sustainable performance of SMEs. The study also contributes to our knowledge on how CSR practices can improve the financial performance of SMEs in developing countries. In addition, this study is different from others because it introduces entrepreneurial leadership as a mediating factor in the CSR–financial performance relationship.

1. Introduction

Small- and medium-sized businesses (SMEs) are widely recognized as a major engine of economic growth, particularly in developing economies where they contribute significantly to employment creation, poverty reduction, and economic diversification (Zada et al., 2021) [1]. In Zambia, SMEs constitute a substantial fraction of business activity and play a critical role in supporting national development. Yet, despite their economic importance, many SMEs frequently encounter persistent structural challenges, including limited access to funding, scarce resources, budgetary limitations, and restricted access to markets and technologies (World Bank, 2025) [2]. These limitations often hinder their ability to achieve sustained financial performance and long-term competitiveness. In this context, increasing scholarly attention has been directed toward the potential role that corporate social responsibility (CSR) plays in enhancing stakeholder relationships, strengthening organizational reputation and ultimately improving financial outcomes [3]. Although the literature on CSR has expanded considerably over the past decade, much of the existing literature has focused on large corporations, particularly multinational enterprises, where CSR practices are more visible and formally institutionalized [4,5]. Additionally, while the existing studies have contributed key insights on CSR practices and activities in SMEs, less attention has been given to how entrepreneurial leadership mediates the CSR–financial performance relationship. Identifying CSR activities in large organizations is relatively easy due to them being promoted by the organization, but this is not the case for SMEs [5,6]. Research on SMEs’ CSR in developing economies, including Zambia, remains relatively rare. More firms than ever before are making concerted efforts to define and integrate CSR into every facet of their operations [5]. Companies are being held accountable for a constantly evolving collection of CSR issues by an expanding number of shareholders, analysts, regulators, activists, labour unions, employees, and community organizations, as well as the media [3]. Transparency is in high demand, and businesses are expected to track, report, and constantly enhance their economic, social, and environmental performance. Moreover, while prior studies suggest that CSR can generate economic benefits through enhanced stakeholder engagement and improved organizational legitimacy, the internal mechanisms through which these benefits translate into financial performance for the firms remain insufficiently understood.

One organizational capability that may help explain this relationship is entrepreneurial leadership. This is because entrepreneurial leadership integrates opportunity-seeking behavior, uncertainty management, and resource orchestration under limited circumstances. Entrepreneurial leadership is different from other leadership styles in the sense that leadership styles like transformational leadership place more emphasis on vision articulation, inspiration, and follower development, while entrepreneurial leadership is not primarily motivation-driven but rather intrinsically action-oriented and opportunity-driven (Akbari et al., 2021) [7].

Entrepreneurial leaders are forward-thinking, daring, creative, and proactive people who propel their companies to gain long-term competitive advantages [8]. Authors such as Brown and Eistenhard (1998) [9] and Bettis and Hitt (1998) [10] have suggested that improving organizational effectiveness requires an entrepreneurial approach. Additionally, they advocate that entrepreneurial leadership can enhance organizational performance. Therefore, the adoption of entrepreneurial leadership is viewed as a solution to improving organization performance, especially financial performance (Rahim et al., 2015) [11]. Existing studies on entrepreneurial leadership focus on the attributes of entrepreneurial leadership (see Gupta, 2004; Flamholtz, 2011; Harrison et al., 2016; Pashiardis and Savvides, 2011; Ruvio et al., 2010; Surie and Ashley 2008) [12,13,14,15,16,17], organization renewal, creativity, and innovation (Yusof and Jain, 2009; Pihie and Bagheri, 2013; Pihie et al., 2014) [18,19,20], employee job satisfaction, motivation, commitment, and effectiveness (Papalexandris and Galanaki, 2009) [21], and the identification of business opportunities (Currie et al., 2008; Greenberg et al., 2013) [22,23]. However, there is a dearth of research on the mediating effect of entrepreneurial leadership on the CSR–financial performance relationship. In the case of Zambian SMEs, little research has been done on the potential mediating function of entrepreneurial leadership in the relationship between CSR and the financial performance of SME suppliers and contractors in the mining industry in Zambia. Thus, we focus on the following inquiry: Is there a connection between CSR and financial performance, and how can entrepreneurial leadership act as a mediator in this relationship? The purpose of this study is to examine the CSR–financial performance relationship among SMEs who are suppliers and contractors to mining firms and to test the direct and mediating effects of entrepreneurial leadership in this relationship. The remainder of the paper is organized in the following manner: the subsequent section provides a comprehensive examination of the existing literature on CSR and entrepreneurial leadership. It also discusses the relevant theories and the formulation of hypotheses. Following this, the methods employed in the study are described. The paper concludes with an analysis of the results, which is succeeded by a discussion of the findings and a conclusion.

2. Literature Review

2.1. An Overview of CSR

Organizations that voluntarily incorporate social and environmental activities into their business operations and relationships with stakeholders are said to be practicing CSR [5]. Carroll’s CSR pyramid states that there are four primary components to CSR: charitable, legal, ethical, and economic responsibilities [24]. The focus of economic responsibility is on a business’s duty to produce goods and services and turn a profit. The legal obligation places a strong emphasis on following the law and rules [25].

Sponsoring sports and education, providing healthcare, aiding low-income groups, and participating in community events are examples of charitable or society-oriented CSR initiatives [26,27]. According to Turyakira et al. (2012) [26], SMEs primarily engage in CSR initiatives that have an environmental or social focus. Examining the role of CSR in small- and medium-sized enterprises (SMEs) reveals several advantages to implementing CSR policies. First, by aligning their values with those of their target audience, SMEs that adopt CSR can build strong customer loyalty, which will eventually increase retention and promote good referrals. The reason for this is because buyers are growing increasingly aware of how their purchases affect society and the environment [28]. Furthermore, Rawdneam (2025) [29] asserts that entrepreneurial leaders that prioritize CSR activities create a meaningful work environment that inspires and retains talent, which has a positive effect on employee engagement and morale. Additionally, by attracting socially conscious investors that consider environmental, social, and governance (ESG) factors when making investment decisions, CSR can increase the availability of capital [5]. By adopting CSR, SMEs can effectively lower the risks connected to unethical behavior and regulatory non-compliance, ensuring a more sustainable and responsible business model [25]. On the other hand, there are arguments against CSR, particularly regarding SMEs, even though it is commonly promoted as a lucrative business strategy. Critics argue that CSR may not be relevant to contemporary business practices for several reasons. Firstly, it can be costly to implement CSR initiatives, as well as a detraction from crucial business operations and potentially preventing development and survival, especially for SMEs with thin profit margins [30]. Furthermore, the high cost of CSR may make it difficult for SMEs to compete with larger firms that have more substantial resources and specialized CSR teams, resulting in an unequal playing field [5]. Finally, the complex legal and regulatory frameworks that are associated with CSR can be difficult for SMEs to navigate, particularly due to the absence of dedicated legal and compliance departments, which increases administrative burden and operational stress [31].

2.2. Entrepreneurial Leadership

According to McWilliams and Siegel (2017) [6], entrepreneurial leadership is a concept that blends the traits of leadership with entrepreneurship, where people demonstrate entrepreneurial abilities and traits while holding a leadership position. Rawdneam (2025) [29] asserts that being an entrepreneurial leader means being proactive and showing initiative in spotting and seizing chances. It calls on people to use their imaginations, spot market or industry gaps, and come up with unique ways to fill them. They foster experimentation and a culture of learning and resilience by accepting risk [32]. In an entrepreneurial setting, this willingness to take risks is essential because it enables leaders to successfully negotiate unpredictable and unstable situations and seize new opportunities. Strong interpersonal and communication abilities enable entrepreneurial leaders to motivate and inspire their team members [28]. They create an atmosphere that values individuality, creativity, and teamwork so that people can share their special skills and ideas.

Since entrepreneurial leadership entails the capacity to see and grasp chances for social and environmental impact, it is important in CSR. Recognizing that their companies can be a force for good, entrepreneurs who embrace corporate social responsibility (CSR) are motivated by a purpose greater than making money [33]. They develop creative solutions to societal problems and take social and environmental factors into account when making decisions.

By adopting sustainable business practices, interacting with stakeholders, and cultivating a culture of social responsibility, entrepreneurial leaders can incorporate CSR into their companies [34]. They might actively look for chances to have a beneficial influence, including through partnerships with organizations, employee well-being programs, or environmental conservation activities. Entrepreneurial leaders can improve society and the company’s brand, draw in clients, and inspire staff by coordinating their business aims with social and environmental goals.

2.3. Stakeholder Theory and Ethics of Care

According to Freeman (1984) [35], “any group or individual that has the potential to influence or be impacted by the accomplishment of an organization’s goals is considered a stakeholder.” This study is grounded on stakeholder theory, which posits that businesses generate value through effective management of relationships with multiple stakeholders, such as employees, customers, communities and investors. Spence et al. (2001) [36] argues that the stakeholder theory is an alternative to shareholder theory. According to this idea, most businesses, if not all of them, have a sizable and cohesive group of stakeholders [37], to whom they owe duties and responsibilities [36]. Goodpaster (1991) [38] claims that the term “stakeholder” was created as a purposeful pun on the word “shareholder” to indicate that parties other than those with equity positions have a “stake” in the modern corporation’s decision-making process [39]. The conventional wisdom that shareholders have precedence over other stakeholders in a company is contested by stakeholder theory. By contending that shareholders are merely one of many stakeholders with valid claims, it challenges financial theories that only concentrate on increasing shareholder wealth. Instead of putting owners’ interests first, the stakeholder philosophy advocates balancing the interests of all stakeholders, including communities, workers, and customers. According to Kaler (2003) [40], the stakeholder approach aims to modify shareholder theory by encouraging better fairness and broader accountability rather than completely rejecting it. Stakeholder theory is a useful lens for comprehending corporate responsibility in situations like Zambia and other Sub-Saharan African countries, where social issues are substantial and institutional frameworks may be poor. Businesses are frequently ingrained in their communities, with goals that extend beyond making a profit, such as fostering social justice, local development, job creation, and environmental care.

When it comes to the influence of CSR on the financial performance of small- and medium-sized enterprises (SMEs), the shareholder theory suggests that the pursuit of CSR initiatives may not directly contribute to financial performance [41]. Furthermore, Zahra et al. (2019) [5] states that the relationship between CSR and financial performance is not necessarily straightforward. Thus, we argue that entrepreneurial leadership can serve as a mediator in this relationship. This is because entrepreneurial leadership offers a unique viewpoint by stressing opportunity awareness, innovation, and the strategic mobilization of resources in uncertain times, even though other leadership constructs have been studied in connection with firm performance. Moreover, the extent to which stakeholder relationships translate into financial outcomes depends on leadership capabilities. Entrepreneurial leadership facilitates this process by identifying opportunities emerging from stakeholder engagement. For example, to promote innovation and business success, entrepreneurial leaders can identify opportunities and take measured risks. By integrating CSR initiatives into their business strategies, SMEs under entrepreneurial leadership can create value by enhancing their reputation and building trust with various stakeholders, including customers, employees, and the community [42].

It is important to note that despite the study being centered around stakeholder theory, there are several theories that have been used in CSR studies including ethics of care. Ethics of care is a moral theory that places a strong emphasis on the value of caring, empathy, compassion, and interpersonal relationships in moral decision-making. It started out as a reaction against conventional ethical theories that are frequently viewed as being unduly abstract, rule-based, and centered on justice or rights, such as utilitarianism and deontology. Gilligan [43] first proposed this thesis in her seminal work “In a Different Voice” (1982), in which she critiqued the prevalent moral theories’ male-centeredness. According to Gilligan, women typically approach moral issues in a different way—through care, responsibility, and the context of relationships rather than via universal principles of justice. In disciplines like nursing, education, social work, and feminist ethics, the ethics of care has had a significant impact. It has been applied in corporate ethics to support stakeholder-focused strategies and socially conscious actions that prioritize the welfare of people over just profit.

In their study of the effects of various leadership philosophies on the development of fintech start-ups in Zambia, the authors of [44] found that transformational leadership was the most successful. Highlighting executives’ dedication to developing staff members and encouraging inclusive, ethical company practices connects to the ethics of caring in social responsibility. By incorporating the political and societal aspects of care, Tronto (1993) [45] developed the theory further in “Moral Boundaries: A political argument for an ethic of care,” contending that care ought to be viewed as a public value that upholds social fairness and democratic citizenship.

2.4. Conceptual Framework and Hypothesis Development

2.4.1. Conceptual Framework

Figure 1 illustrates the conceptual foundation of this study. The framework proposes that corporate social responsibility (CSR) directly influences SME financial performance (H1). Furthermore, CSR has a positive effect on entrepreneurial leadership (H2), which reflects the idea that socially conscious businesses frequently foster leadership philosophies that prioritizes creativity, initiative, and stakeholder responsiveness. Since entrepreneurial leaders are better at spotting possibilities, gathering resources, and turning ethical behavior into a competitive advantage, it is also anticipated that entrepreneurial leadership will have a positive effect on financial performance (H3). Lastly, the theory suggests that entrepreneurial leadership plays a mediating role in the relationship between financial performance and CSR (H4). CSR programs may indirectly boost financial outcomes by cultivating entrepreneurial leadership behaviors that allow SMEs to use socially responsible methods to improve performance. CSR programs may also indirectly boost financial outcomes. Thus, the model takes into account both direct and indirect ways that CSR affects the financial performance of SMEs.

Figure 1. Conceptual framework.

2.4.2. Hypothesis Development

The Link Between CSR and Financial Performance

The link between CSR and financial performance has been extensively studied in the academic literature. Some studies have found evidence of a positive relationship between CSR activities and financial performance. For instance, a study conducted by Margolis and Walsh (2018) [46] examined 300 companies’ CSR programs and discovered a favorable relationship between CSR and financial performance. According to the authors, businesses that prioritize CSR have a higher chance of drawing in socially conscious clients and investors, which enhances financial results. A meta-analysis of 52 studies was carried out in another study by Orlitzky et al. (2019) [30], which concluded that there is a slight but favorable correlation between CSR and financial performance. According to the authors, corporate social responsibility (CSR) initiatives improve a company’s reputation, which in turn boosts financial performance. Choongo (2017) [47] also found that CSR improves company performance; however, no mediating variable was included in this analysis.

Additionally, McWilliams and Siegel (2017) [6] investigated the connection between Fortune 500 businesses’ financial performance and CSR. Socially conscious businesses typically outperform non-conscious firms financially. Based on the above discussions, it is hypothesized that

H1: 

There is a positive relationship between CSR and financial performance.

The Link Between CSR and Entrepreneurial Leadership

The link between CSR and entrepreneurial leadership has been explored in various studies. A proactive and creative mentality, a willingness to take chances, and a strong dedication to generating value for stakeholders and society as a whole are all components of entrepreneurial leadership, as indicated by Khan et al. (2023) [33]. These traits align well with the principles of CSR, which emphasize the integration of social and environmental concerns into business strategies. Moreover, research by Maresch et al. (2016) [48] highlights that entrepreneurial executives are more likely to embrace CSR programs and see them as chances for strategic benefit rather than just compliance. They can spot business prospects that meet societal demands and promote sustainable innovation because of their entrepreneurial approach. Based on the above discussions, it is hypothesized that

H2: 

There is a positive relationship between CSR and entrepreneurial leadership.

The Link Between Entrepreneurial Leadership and Financial Performance

Numerous studies have shown a positive correlation between financial performance and entrepreneurial leadership, which has been a focus of research (e.g., [23,32,49,50]). For example, Rauch et al. (2019) [32] conducted a comprehensive examination of 213 SMEs and found a high positive link between financial performance and entrepreneurial leadership. Their research indicates that companies led by entrepreneurs are more likely to see successful financial outcomes. This study demonstrates how, under the guidance of entrepreneurial leadership, innovative thinking and flexible management strategies can accelerate financial success.

In a similar vein, Qasim et al. (2025) [49] examined how Chinese high-tech enterprises performed in relation to entrepreneurial leadership. By showing the positive effect of entrepreneurial leadership on financial performance, their findings provide credence to the notion that these leaders are essential in fostering financial success. The study highlights the significance of entrepreneurial leadership in enhancing corporate success, particularly in the high-tech sector where adaptation and innovation are essential. A different study by Djalil et al. (2023) [50] claims that innovative products and services, fresh concepts, and creative thinking can enhance bank performance. Additionally, a study by Hapsari et al. (2024) [51] found that SMEs’ financial performance is positively impacted by the entrepreneurial approach. Based on the above discussions, it is hypothesized that

H3: 

There is a positive relationship between entrepreneurial leadership and financial performance.

Mediation Role of Entrepreneurial Leadership on CSR and Financial Performance

The CSR–firm performance link has received a lot of attention in the literature, with some studies showing that CSR can have a positive effect on a firm’s financial and non-financial performance. Nonetheless, little is known about the part that entrepreneurial leadership plays in this relationship. Innovative methods and strategic vision are hallmarks of entrepreneurial leaders, and they may act as a mediator in the relationship between CSR and firm performance. Oiku et al. (2023) [52] asserts that CSR initiatives can boost staff happiness and customer loyalty, which in turn boosts productivity and sales growth. A study on Brazilian companies found that CSR activities in a number of areas, including community involvement and environmental stewardship, are influenced by financial performance [53]. By increasing the effectiveness of CSR initiatives through strategic vision and innovation, entrepreneurial leadership enhances the benefits of CSR on business performance. Based on the above discussions, it is hypothesized that

H4: 

The relationship between CSR and financial performance is mediated by entrepreneurial leadership.

3. Methodology

3.1. Approach, Sample, Data Collection and Analysis

This study takes a quantitative approach using survey data and statistical analysis. It focuses on the relationship between CSR and financial performance of 254 SMEs that are suppliers and contractors to the mining firms in Zambia. SME owners or owner managers who make operational and strategic decisions made up the target population. Owner managers who have an adequate understanding of CSR practices, leadership activities, and company performance within their companies were chosen using a purposive random sampling technique. Industry directories involved in the mining supply chain were used to create the sampling frame. The vital importance that mining plays in Zambia’s economy justifies the selection of the mining sample. Zambia’s main economic activity is mining, which makes a substantial contribution to the stability and expansion of the country’s finances. It makes up about 12% of GDP and 64.7% of all exports from the nation [47]. In 2022, mining accounted for 72% of the total export earnings and 44% of the government revenue. This industry is crucial for creating foreign income, drawing in foreign direct investment, and bringing in a sizable amount of money for the government through mining royalties and corporate taxes. Because of these characteristics, the sample accurately reflects the sector’s total economic influence and significance in forming Zambia’s financial landscape.

3.2. Control of Common Method Bias

Because the study relied on cross-sectional self-reported data, procedural and statistical remedies were used to address the possibility of common method bias. During the questionnaire design and data collecting phases, a number of procedures were put into place in accordance with the suggestions made by Podsakoff et al. (2003) [54]. In order to lessen evaluation anxiety and social desirability bias, the respondents were guaranteed anonymity and confidentiality. In order to minimize the respondents’ ability to deduce causal correlations between variables, items assessing various constructs were divided among different parts of the instrument, and the questionnaire items were carefully designed to improve clarity and eliminate ambiguity. Harman’s Single-Factor Test was used as a statistical diagnostic test to further evaluate the possible existence of common method bias. The first factor explained less than 50% of the total variation, according to the exploratory factor analysis results, indicating that common technique bias does not pose a significant risk to the validity of the findings. Additionally, as explained under Section 4.3, the variance inflation factor (VIF) values were analyzed and discovered to be below 10. This shows that common method bias is unlikely to have an impact on the study’s findings.

3.3. Measurement of Variables

Dependent variable—In CSR studies, financial performance has been measured using a subjective approach. Following Choongo et al. (2017), Sweeney (2009), Man (2011), and Burton and Goldsby (2009) [47,55,56,57], the study adopted the subjective approach of measuring financial performance, which consists of profit growth, sales growth, and leverage. Several studies (e.g., refs. [55,56,58]) have adopted this approach to measure the financial performance of SMEs. Due to the reluctance of SME owners and managers to provide such sensitive information and the fact that most SMEs do not maintain formal financial data, Ref. [56] argues that using scales rather than actual figures is a better way to assess the success of SMEs.

Independent variable—To guarantee content validity and comparability with prior studies, CSR was measured based on the items employed in [55]. Following the position of Sweeney (2009) [55], this study never sought to reinvent the wheel regarding the measurement of CSR; instead, each question within the section relating to these concepts were taken from previous research work. Carroll (1991) [59] cites five major groups that are recognized as priorities by most firms across different industries regardless of the firm size or location: owners (shareholders), employees, customers, local communities, and the society. Hence, our independent variables included CSR–Employee, CSR–Customer, CSR–Community and CSR–Environment.

Mediating variable—Entrepreneurial leadership was measured by adapting the scale developed in [60]. A five-point Likert scale, with 1 denoting “strongly disagree” and 5 denoting “strongly agree”, was used by the respondents to evaluate their firm’s CSR, financial performance and entrepreneurial leadership.

Control variables—Prior to conducting the regression analysis, gender and level of education were entered as control variables to check if the sample could be treated as homogenous or not.

3.4. Analysis

The Sobel test was used to determine the significance of the indirect effect, and a regression-based method based on Baron and Kenny’s (1986) [61] methodology was used to test mediation. Regression-based mediation analysis is still a legitimate and frequently used method in management and entrepreneurship research, especially when sample sizes are sufficient and normality assumptions are met, even though more modern methods like bootstrapping-based indirect effect estimation have gained popularity. The selected approach offers accurate and clear estimates of direct and indirect effects because the sample size of 254 firms is larger than the suggested threshold for regression-based mediation testing.

4. Results

4.1. Factor Analysis and Reliability Test

Exploratory factor analysis was carried out before the main analysis to look at the underlying structure of the measurement items and guarantee construct validity. Factors with adequate factor loadings and eigen values greater than one were kept. Cronbach’s alpha coefficients were used to evaluate the constructs’ reliability. Field (2005) [62] recommends looking at the Kaiser–Meyer–Olkin (KMO) measure of sample adequacy and Bartlett’s test of sphericity. The range of the KMO statistic is 0 to 1. The partial correlations’ sum is large in relation to when the value is 0. The total correlations show diffusion in the correlation pattern; consequently, factor analysis is probably not appropriate. When the value is 1, correlation patterns are comparatively compact; therefore, factor analysis ought to produce accurate and consistent outcomes. Bartlett’s test of sphericity is used to analyze the correlation matrix. Since all variables are assumed to be noncollinear, factor analysis is justified if the value is 0.05 or less. As shown in Table 1 below, all the factor loadings were greater than 0.6 except for one under environmental CSR, which was later deleted, showing that the factor loadings for each factor tested were satisfactory.

Table 1. Factor analysis and reliability test.

		Component
Item		1	2	3	4	5	6
Financial Performance (1)
We had a larger market share compared to the previous year		0.831
We were larger in size compared to the previous year		0.763
Our profit growth has been substantially better		0.754
Our sales growth has been substantially better		0.730
Our return on assets has been substantially better		0.708
Our return on investment has been substantially better		0.705
CSR–Employee (2)
To what extent does the wage rate of your firm relate to the average wage rate of the sector in which your firm operates?			0.939
To what extent does your organization encourage employees to develop real skills and long-term careers?			0.936
To what extent does your organization ensure that adequate steps are taken to prevent all forms of discrimination?			0.908
To what extent does your organization consult employees on important issues?			0.905
To what extent is your organization committed to the health and safety of employees?			0.895
To what extent does your firm ensure a work/life balance among employees?			0.880
To what extent are staff members involved in charity volunteer work on behalf of the firm?			0.607
CSR–Environment (3)
To what extent is your firm involved in waste reduction?				0.899
To what extent is your firm involved in recycling?				0.898
To what extent is your firm involved in energy conservation?				0.773
To what extent is your firm involved in reducing water consumption?				0.767
To what extent is your firm involved in reducing air pollutants?				0.705
CSR–Customer (4)
To what extent does your company supply clear and accurate information and labeling about products and services, including after sales service?					0.719
Does your company resolve stakeholder complaints in a timely manner?					0.716
To what extent is your firm involved in energy conservation?					0.712
To what extent are quality assurance criteria adhered to in production?					0.649
CSR–Community (5)
Does your firm donate to charity?						0.912
Is your company actively involved in project(s) with the local community?						0.877
Does your company have purchasing policies that favor the local communities in which it operates?						0.760
Does your company have recruitment policies that favor the local communities in which it operates?						0.649
Entrepreneurial Leadership (6)
Often comes up with radical improvement ideas for the products/services we are selling							0.954
Often comes up with ideas for completely new products/services that we could sell							0.949
Wants me to challenge the current way we do business							0.919
Takes risks							0.844
Has creative solutions to problems							0.890
Demonstrates passion for their work passionate about their work							0.916
Has a vision of the future of our business							0.928
Challenges and pushes me to act in a more innovative way							0.960
Eigen Value		4.131	5.358	3.565	2.049	4.209	2.656
Variance Explained		12.55	18.72	19.74	24.03	18.74	88.55

4.2. Analyses of Correlation Among All Variables

Table 2 presents the correlations, means and standard deviations for the responses to the dependent variable (financial performance), mediator variable (entrepreneurial leadership), independent variables (CSR–Environment, CSR–Employee, CSR–Customer and CSR–Community) and control variable (gender).

Table 2. Correlation among variables.

#	Variable	Mean	Std. Dev	N	1	2	3	4	5	6
1	Financial Performance	3.98	0.597	254	-
2	Gender	0.48	0.500	254	0.047	-
3	CSR Environment	3.07	0.588	254	0.335 **	0.099	-
4	CSR Employee	3.87	0.611	254	0.420 **	−0.058	0.443 **	-
5	CSR Customer	3.69	0.644	254	0.372 **	−0.097	0.208 **	0.366 **	-
6	CSR Community	3.91	0.688	254	0.408 **	0.048	0.148 *	0.122	0.477 **	-
7	Entrepreneur Leadership	4.59	0.624	254	0.343 **	0.028	0.290 **	0.401 **	0.325 **	0.378 **

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

The correlation coefficient between financial performance and CSR–Environment is r = 0.335 (p < 0.01), with a medium effect size. Thus, the significant positive correlations indicate that a firm with a moderate level of CSR towards the environment is more likely to have high financial performance. The correlation coefficient between financial performance and CSR–Employee is r = 0.420 (p < 0.01), with a medium effect size; similarly, the significant positive correlations indicate that a firm with a moderate level of CSR towards employees will be more likely to have employees that will perform to the satisfaction of the business and hence, the financial performance is expected to be high. Furthermore, the correlation coefficient between financial performance and CSR–Customer is r = 0.372 (p < 0.01), with a medium effect size. In the same way, the significant positive correlations indicate that a firm with a moderate level of CSR towards customers will be more likely to have high financial performance. The correlation coefficient between financial performance and CSR–Community is r = 0.408 (p < 0.01), with a medium effect size; thus, the significant positive correlations indicate that a firm with a moderate level of CSR towards the community in which the firm operates in will be more likely to see their financial performance increase. Finally, the correlation coefficient between financial performance and entrepreneurial leadership is r = 0.343 (p < 0.01), with a medium effect size. Thus, the significant positive correlations indicate that a firm with a moderate level of entrepreneurial leadership in the organization will be more likely to see improved financial performance.

4.3. Regression Analysis

Gender and educational level were entered as control variables prior to the regression analysis, and neither showed a significant impact. Therefore, the sample could be considered homogeneous.

The idea that CSR is multidimensional has been widely acknowledged by researchers [59], who have also integrated the different dimensions used to quantify the concept into a single aggregate measure (Sharfman, 1996) [63]. In accordance with earlier studies, we considered each of the distinct CSR dimensions to be an indicator of CSR [55,64,65], the total of which serves as a measure for CSR. So, when conducting the regression analysis, we calculated a composite score for CSR. This is also supported by (McWilliams and Siegel, 2001; Carroll, 1991) [6,24].

According to Baron and Kenny (1986) [61], full mediation occurs when the direct effect of the independent variable X (i.e., CSR) becomes insignificant (p > 0.05) once the mediating variable M (i.e., entrepreneurial leadership) is introduced. On the other hand, a partial mediation is deemed to have occurred if the relationship between the independent variable X and the dependent variable Y is still significant after controlling for the effects of the mediating variable M (that is, both CSR and entrepreneurial leadership significantly predict financial performance). Furthermore, a variable can be regarded as a mediator if it transfers the impact of a particular independent variable (IV) to a certain dependent variable (DV). Generally, mediation can be said to occur when the IV significantly affects the DV in the absence of the mediator (slope c) (step 1); the IV significantly affects the mediator (slope a) (step 2); the mediator has a significant unique effect on the DV (step 3); and the effect of the IV on the DV (slope c’) decreases upon the introduction of the mediator (slope b) to the model (step 4). These criteria can be used to indicate whether mediation is occurring. In this study, to test the mediation effect of entrepreneurial leadership [48], a four-step regression method (Figure 2) is used plus the Sobel test.

Figure 2. Illustration of mediation. a, b, and c’ are path coefficients.

The results in Table 3, Table 4, Table 5, Table 6 and Table 7 show a positive linear relationship between entrepreneurial leadership and financial performance as well as a positive relationship between CSR and financial performance and finally between CSR and entrepreneurial leadership. The coefficient table shows that the VIF and the tolerance values are less than 10, indicating no multicollinearity within the data. The collinearity diagnostics results indicate an eigen value of 1.988 and condition index of 1.000 as well, all indicating that the model fits and that there is no collinearity between CSR, entrepreneurial leadership and financial performance. The regression analyses found low VIF (Variance Inflation Factor) values (<10) for all variables. This indicates that the regression models are not prone to the econometric problem of multicollinearity [66].

The model also found a Durban–Watson statistic value of 1.499. The Durbin–Watson statistic ranges from 0 and 4, with a value close to 2 indicating no first-order autocorrelation, values substantially below 2 suggesting positive autocorrelation, and values above 2 indicating negative autocorrelation (Field, 2024) [67]. In this study, the value of 1.499 suggests a mild presence of autocorrelation; however, it remains within the acceptable range for cross-sectional data.

In step 1, as shown in Table 3, CSR yields an R = 40.5% (medium effect size) and R-squared of 16.4%, which are statistically significant. The results indicate a good fit for the model and the adjusted R squared is significantly different from zero. The implication is that 16.4% of the variation in financial performance is explained by CSR. The results in Table 3 show a positive linear relationship between CSR and financial performance.

Table 3. Step 1: regression analysis with financial performance as the outcome variable (c) and CSR as an independent variable.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	2.97	0.237		12.55	0.000 ***
Gender	0.056	0.074	0.045	0.75	0.454	1.062
Qualification	0.016	0.033	0.029	0.485	0.628	1.065
Corporate Social Responsibility	0.858	0.070	0.401	6.901	0.000 ***	1.012
R	0.405
R Squared	0.164
R Squared Adjusted	0.154
R Square Change	0.164
Durbin Watson	1.499
F (df1 = 3, df2 = 250)	16.377 ***

*** Significant at 1% i.e., p < 0.01.

Table 3. Step 1: regression analysis with financial performance as the outcome variable (c) and CSR as an independent variable.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	2.97	0.237		12.55	0.000 ***
Gender	0.056	0.074	0.045	0.75	0.454	1.062
Qualification	0.016	0.033	0.029	0.485	0.628	1.065
Corporate Social Responsibility	0.858	0.070	0.401	6.901	0.000 ***	1.012
R	0.405
R Squared	0.164
R Squared Adjusted	0.154
R Square Change	0.164
Durbin Watson	1.499
F (df1 = 3, df2 = 250)	16.377 ***

*** Significant at 1% i.e., p < 0.01.

In step 2, a simple regression analysis was run for CSR prediction. The results show a positive linear relationship between CSR and entrepreneurial leadership. As shown in Table 4 below, CSR yields an R = 43.1% (medium effect size) and R-squared of 18.6%, which are statistically significant. The results indicate a good fit for the model and the adjusted R squared is significantly different from zero. The implication is that 18.6% of the variation in entrepreneurial leadership is explained by CSR, as shown in Table 4 below.

Table 4. Step 2: Regression analysis with entrepreneurial leadership as the outcome (a) and CSR as an independent variable.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	2.344	0.223		10.492	0.000 ***
Gender	0.065	0.070	0.055	0.931	0.353	1.061
Qualification	0.037	0.031	0.070	1.181	0.239	1.063
Corporate Social Responsibility	0.408	0.056	0.418	7.277	0.000 ***	1.011
R	0.431
R Squared	0.186
R Squared Adjusted	0.176
R Square Change	0.186
Durbin Watson	1.531
F (df1=3, df2=250)	19.024 ***

*** Significant at 1% i.e., p < 0.01.

Table 4. Step 2: Regression analysis with entrepreneurial leadership as the outcome (a) and CSR as an independent variable.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	2.344	0.223		10.492	0.000 ***
Gender	0.065	0.070	0.055	0.931	0.353	1.061
Qualification	0.037	0.031	0.070	1.181	0.239	1.063
Corporate Social Responsibility	0.408	0.056	0.418	7.277	0.000 ***	1.011
R	0.431
R Squared	0.186
R Squared Adjusted	0.176
R Square Change	0.186
Durbin Watson	1.531
F (df1=3, df2=250)	19.024 ***

*** Significant at 1% i.e., p < 0.01.

Table 5. Step 3: Regression analysis with financial performance as the outcome (b) and entrepreneurial leadership as an independent variable.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	2.461	0.264		9.340	0.000 ***
Gender	0.021	0.073	0.017	0.284	0.777	1.056
Qualification	0.046	0.032	0.086	1.420	0.157	1.060
Entrepreneurial Leadership	0.322	0.057	0.337	5.680	0.000 ***	1.005
R	0.355
R Squared	0.126
R Squared Adjusted	0.116
R Square Change	0.126
Durbin Watson	1.468
F (df1 = 3, df2 = 250)	12.034 ***

*** Significant at 1% i.e., p < 0.01.

Table 5. Step 3: Regression analysis with financial performance as the outcome (b) and entrepreneurial leadership as an independent variable.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	2.461	0.264		9.340	0.000 ***
Gender	0.021	0.073	0.017	0.284	0.777	1.056
Qualification	0.046	0.032	0.086	1.420	0.157	1.060
Entrepreneurial Leadership	0.322	0.057	0.337	5.680	0.000 ***	1.005
R	0.355
R Squared	0.126
R Squared Adjusted	0.116
R Square Change	0.126
Durbin Watson	1.468
F (df1 = 3, df2 = 250)	12.034 ***

*** Significant at 1% i.e., p < 0.01.

In step 3, a simple regression analysis was run to predict the effect of entrepreneurial leadership on financial performance. The results show a positive linear relationship between financial performance and entrepreneurial leadership. Table 5 above shows that entrepreneurial leadership yields an R = 35.5% (medium effect size) and R-squared of 12.6%, which are statistically significant. The results indicate a good fit for the model and the adjusted R squared is significantly different from zero. The implication is that 12.6% of the variation in financial performance is explained by entrepreneurial leadership.

The purpose of steps 1 to 3 was to establish that zero-order relationships among the variables exist. If one or more of these relationships are non-significant, researchers usually conclude that mediation is not possible or likely, although this is not always true. The significant relationships from steps 1 to 3 led to step four being performed. In the model for step 4, there was a need to ascertain if full or partial mediation occurred. According to Baron and Kenny (1986) [61], full mediation occurs if the effect of the mediating variable (entrepreneurial leadership in this context) remains significant after controlling for the independent variable (CSR).

In step 4, two independent variables are introduced (CSR and entrepreneurial leadership), yielding a combined R = 46.9% (medium effect size) and R-squared of 22.0%, which are statistically significant (Table 6). The results indicate a good fit for the model and the adjusted R squared is significantly different from zero. The implication is that 22.0% of the variation in financial performance is explained by the combined effect of CSR and entrepreneurial leadership.

Table 6. Step 4: Regression analysis with financial performance as the outcome (c’ and b) and CSR and entrepreneurial leadership as independent variables.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	1.768	0.28		6.323	0.000 ***
Gender	0.055	0.069	0.046	0.792	0.429	1.065
Qualification	0.034	0.03	0.064	1.102	0.272	1.066
Corporate Social Responsibility	0.194	0.059	0.203	3.309	0.000 ***	1.197
Entrepreneurial Leadership	0.329	0.06	0.336	5.477	0.000 ***	1.205
R	0.469
R Squared	0.22
R Squared Adjusted	0.208
R Square Change	0.22
Durbin Watson	1.55
F (df1 = 3, df2 = 249)	17.572 ***

*** Significant at 1% i.e., p < 0.01.

Table 6. Step 4: Regression analysis with financial performance as the outcome (c’ and b) and CSR and entrepreneurial leadership as independent variables.

Variable	Unstandardized Coefficients	Std. Error	Standardized Coefficients	t-Score	Sig.	VIF
	Beta		Beta
(Constant)	1.768	0.28		6.323	0.000 ***
Gender	0.055	0.069	0.046	0.792	0.429	1.065
Qualification	0.034	0.03	0.064	1.102	0.272	1.066
Corporate Social Responsibility	0.194	0.059	0.203	3.309	0.000 ***	1.197
Entrepreneurial Leadership	0.329	0.06	0.336	5.477	0.000 ***	1.205
R	0.469
R Squared	0.22
R Squared Adjusted	0.208
R Square Change	0.22
Durbin Watson	1.55
F (df1 = 3, df2 = 249)	17.572 ***

*** Significant at 1% i.e., p < 0.01.

To test whether the mediator (entrepreneurial leadership) has an effect on the association between CSR and financial performance, a Sobel test was performed. Using an online program, the critical ratio was calculated as a test of whether the indirect effect of the IV (CSR) on the DV (financial performance) occurs via the mediator (entrepreneurial leadership) (critical ratio is significantly different from zero); the results are shown in Table 7 below.

Table 7. Sobel test results for statistical mediation.

	Input		Test Statistic	Std. Error	p-Value
a	0.41	Sobel test	2.97220273	0.026761	0.00295671
b	0.194	Aroian test	2.94737293	0.026987	0.00320486
sa	0.059	Goodma test	2.99767083	0.026534	0.00272051
sb	0.059	Reset all		Calculate

Table 7. Sobel test results for statistical mediation.

	Input		Test Statistic	Std. Error	p-Value
a	0.41	Sobel test	2.97220273	0.026761	0.00295671
b	0.194	Aroian test	2.94737293	0.026987	0.00320486
sa	0.059	Goodma test	2.99767083	0.026534	0.00272051
sb	0.059	Reset all		Calculate

Sobel Test

The Sobel test was used to investigate the mediating impact. The reported p-values (rounded to 8 decimal places) are drawn from the unit normal distribution under the assumption of a two-tailed z-test of the hypothesis that the mediated effect equals zero in the population. +/− 1.96 are the critical values for the test ratio, which contains the central 95% of the unit normal distribution. This study notes that there are three principal versions of the “Sobel test”—one that adds the third denominator term (Aroian, 1947) [68], which is the version popularized by Baron and Kenny, one that subtracts the third denominator term [69], and one that does not include it at all. The Sobel test equation omits the third term of the variance estimate in the denominator. Thus, this research uses the Aroian version of the Sobel test suggested in Baron and Kenny (1986) [61] because it does not make the unnecessary assumption that the product of S_a and S_b is vanishingly small. The Sobel test findings show that the indirect impact is statistically significant (Z = 2.97, p < 0.01), indicating that the mediator contributes significantly to the transmission of the independent variable’s effect on the dependent variable. The strength of the mediation effect is confirmed by the consistent results of the Aroian (Z = 2.95, p < 0.01) and Goodman (Z = 2.99, p < 0.01) tests. Both the direct effect and the indirect effect (p < 0.01) are still statistically significant, indicating partial mediation. These findings provide strong evidence that the suggested mediating mechanism underlies the link between the independent and dependent variables. In particular, the results suggest that the association between CSR and financial performance is significantly mediated by entrepreneurial leadership, suggesting that CSR initiatives indirectly influence firm performance through this mechanism.

5. Discussion

The question set out at the beginning of the study was, Does CSR influence the financial performance of SMEs, and how can entrepreneurial leadership act as mediating variable in this relationship? The findings indicate a significant and positive relationship between CSR and financial performance in small- and medium-sized enterprises (SMEs). This suggests that CSR activities can serve as an important mechanism through which SMEs enhance organizational legitimacy, strengthen stakeholder relationships, and subsequently improve financial outcomes. Additionally, the study reveals that CSR is significantly and positively linked to entrepreneurial leadership, which serves as a significant and positive mediator in the relationship with financial performance. This demonstrates that leadership capabilities are critical in translating socially responsible practices into tangible organizational benefits. These findings are broadly consistent with prior research that reported a positive relationship between CSR and firm performance. For example, these results on entrepreneurial leadership are consistent with those in [44], which found that good leadership from an entrepreneur leads to improved firm performance. Additionally, our results are in line with those of Licandro et al. (2024) [70] who found a strong and favorable correlation between CSR and financial performance in a sample of SMEs. Likewise, Bahta et al. (2021) [71] reported that CSR practices positively influenced the financial performance of SMEs. However, Brown and Jones’ (2018) [72] study indicated no significant relationship between CSR and financial performance in SMEs. Additionally, Davis and Williams (2021) [73] found that the impact of CSR on financial performance varied across different industries, suggesting that the relationship may be contingent upon contextual factors.

The present study extends the existing knowledge by demonstrating that entrepreneurial leadership may act as an important mechanism through which CSR initiatives influence firm performance [10]. This suggests that CSR alone may not automatically translate into improved financial outcomes unless it is effectively supported by leadership capabilities that enable firms to strategically integrate social responsibility into their business operations. From a contextual perspective, these results are particularly important for SMEs that operate in developing economies like Zambia, where businesses frequently encounter institutional difficulties, resource limitations, and rising stakeholder demands regarding ethical business practices. The sustainability and competitiveness of SMEs could be improved in such circumstances by CSR programs that fortify linkages with local communities, authorities, and commercial partners. Practically, the findings imply that SME managers should see CSR as a strategic instrument that, when backed by good entrepreneurial leadership, may improve organizational performance rather than seeing CSR as just a compliance or charitable endeavor. To assist the long-term performance and growth of SMEs, policymakers and industry stakeholders could also think about encouraging CSR awareness and leadership development programs.

6. Conclusions

The study aimed to examine the effect of CSR on financial performance in small and medium enterprises (SMEs) in Zambia while also exploring the mediating role of entrepreneurial leadership. Based on the analysis of the data collected and the statistical tests conducted, we can conclude that there is a positive relationship between CSR and financial performance in SMEs in Zambia. This suggests that SMEs that engage in CSR activities tend to experience better financial performance. By actively addressing social and environmental concerns, SMEs can enhance their reputation, build customer loyalty, and attract new business opportunities, ultimately leading to improved financial outcomes. We recommend that SMEs should prioritize the integration of CSR into their core business strategies. Additionally, SMEs should share their successful CSR practices and experiences with other SMEs in Zambia. This can be done through industry associations, conferences, or online platforms.

Our study also revealed that entrepreneurial leadership plays a mediating role in the relationship between CSR and financial performance in SMEs. Entrepreneurial leaders who prioritize and promote CSR initiatives within their organizations can positively influence financial performance. Their vision, values, and ability to inspire and mobilize employees towards CSR goals can lead to the effective implementation of CSR practices, which in turn enhance financial performance. It is therefore crucial for SMEs to invest in the development of entrepreneurial leadership skills and competencies among their leaders. The most significant contribution of this study is the introduction of the new variable (entrepreneurial leadership) in understanding the CSR–financial performance relationship.

Finally, this study is not without limitations. Firstly, the data was collected at a single point in time using a cross-sectional research design, which makes it difficult to determine if the results would be consistent if collected again from the same respondents and it also limits the ability to establish causal relationships among variables. In this regard, a similar study but longitudinal in nature may be conducted in the future. Secondly, the constructs in the study were measured through survey questions, which may be subject to social desirability bias, where respondents overestimate their CSR activities; future research can attempt to use objective measures. Thirdly, although this study used regression-based mediation analysis in accordance with established procedures (e.g., Baron and Kenny, 1986), this method has recognized limitations. In particular, it assumes linear relationships and may have less statistical power than more sophisticated methods like bootstrapping or structural equation modeling (SEM), which enable simultaneous measurement and structural model estimation and yield more reliable indirect effect estimates (Hayes, 2022) [74]. As a result, care should be taken while interpreting the mediation results. In order to provide a more reliable evaluation of mediation effects, future research could consider using bootstrapping techniques. Furthermore, while traditional methods like Harman’s Single-Factor Test and procedural remedies were used to evaluate common method bias, these methods have been criticized for their low sensitivity in identifying method variance. Therefore, it is impossible to completely rule out the possibility of residual common method bias. To further allay this worry, future studies are urged to use more rigorous techniques, such as marker variables or longitudinal and multi-source data designs, as suggested by (Podsakoff et al., 2003; Wall et al., 2022) [54,75].