Received: 5 May 2018 Revised: 3 August 2018 Accepted: 18 August 2018

DOI: 10.1002/csr.1678

RESEARCH ARTICLE

Investment in intangible resources and capabilities spurs

sustainable competitive advantage and firm performance
Sher Zaman Khan | Qing Yang | Abdul Waheed

School of Economics and Management,

University of Science and Technology Beijing,
Beijing 100083, China
Correspondence
Qing Yang, School of Economics and
Management, University of Science and
Technology Beijing, Beijing 100083, China.
Email: yangqing@manage.ustb.edu.cn
Funding information
National Natural Science Foundation of China,
Grant/Award Numbers: 71472013, 71872011
and 71528005
Abstract
This study investigates the influence of investment in key intangible resources and capa-
bilities of firms, including intellectual capital (IC), financial capability (FC), and corporate
social responsibility (CSR) on sustainable competitive advantage (SCA) and firm perfor-
mance (FP) in an emerging country, Pakistan. The research model and its pertinent
hypotheses are tested on a sample of 329 Pakistani small and medium enterprises (SMEs)
by a structural equation model (SEM). The results exhibited a significant influence of the
aforesaid factors on FP. However, SCA fully mediates the relationship between FC and
FP and between CSR and FP, whereas SCA partially mediates the relationship between
IC and FP. Taken together, the findings suggest the role of CSR and FC in indirectly
spurring FP through SCA. Despite the limitations of this study, the results have several
practical and theoretical implications for owners, managers, and policymakers.

KEY W ORDS

corporate social responsibility, financial capability, firm performance, intangible resources,

intellectual capital, sustainable competitive advantage

1 | I N T RO D U CT I O N
The conventional approaches of operation are commutated vigorously
by impending intangible resources and capabilities (Surroca, Tribo, &
Waddock, 2010; Tandon, Purohit, & Tandon, 2016). Firms concurrently
accentuate investment in intangible resources over tangible and physical
assets (Monteiro, Soares, & Rua, 2017) and focus on meeting the expec-
tations of multiple stakeholders (Vallaster, 2017; Khan, 2018) rather
than shareholders only (Javed, Rashid, & Hussain, 2017). For instance,
firms nurtured substantial fascination in corporate social responsibility
(CSR; Khan, 2018) and intellectual capital (IC; Tandon et al., 2016) and
strengthened their financial capability (FC; Fonseka, Yang, & Tian,
2013). This study builds upon the perspectives of resource‐based view
(RBV) and stakeholders theory (Yadav, Han, & Kim, 2017) and
understands the views of scholars, who envisage the investment in
CSR, IC, and FC as intangible resources and capabilities (Branco &
Rodrigues, 2006; Fonseka et al., 2013; López‐Gamero, Zaragoza‐Sáez,
Claver‐Cortés, & Molina‐Azorín, 2011; Surroca et al., 2010).
Nonetheless, investment in CSR activities assists firms in
developing and conveying firms' positive messages and reputations
(Anbarasan & Sushil, 2018) through creating a distinctive brand
recognition (Bai & Chang, 2015), attracting the public's opinion and
ensuring the constructive participation of stakeholders in firms'
activities (Boccia & Sarnacchiaro, 2018; Surroca et al., 2010) that drive
the firms toward successful operation and competitiveness (Bai &
Chang, 2015). CSR refers to the firms' strategic posture that tends to
facilitate the social, economic, cultural, and environmental aspects of
sustainability and growth (Ayuso & Navarrete‐Báez, 2018).
Similarly, IC is envisioned as an intangible asset consisting of
goodwill, technology, brand name, organizational culture, and cus-
tomers' knowledge that guides the firms toward competitiveness.
Effectively accumulated IC enhances overall firm performance (FP)
because of developing an integrated atmosphere for managers,
owners, customers, suppliers, and financiers through mutual trust,
innovation, and broader networking (Liu, 2017). However, recent liter-
ature has augmented the immense scope of IC in three major dimen-
sions: human capital, social capital, and structural capital (Ling, 2013;
López‐Gamero et al., 2011). IC as an intangible asset works for the
achievement of sustainable competitive advantage (SCA) and higher
FP (Kianto, Andreeva, & Pavlov, 2013; Ling, 2013).
Furthermore, this study conceptualizes FC as a firm's capability to
manage the financial system efficiently rather than holding an excessive

Corp Soc Resp Env Ma. 2018;1–11. wileyonlinelibrary.com/journal/csr © 2018 John Wiley & Sons, Ltd and ERP Environment 1
2 KHAN
cash balance and other physical financial assets. Henceforth, FC refers
to the firm's ability to raise funds through internal and external sources,
issuing shares and bonds and getting access to bank financing at more
relaxed terms and lower costs, that creating an efficient working capital
management and rational investment decision hereby envisaged as
valuable intangible asset (Fonseka et al., 2013). A firm possessing this
asset to a plentiful extent enjoys multiple returns, yields better results,
and explores other productive resources from its market posture
(Fonseka et al., 2013; Zou & Xiao, 2006).
Prior studies documented the significant contribution of CSR
(Javed et al., 2017; Rivera, Muñoz, & Moneva, 2017), IC and FC (Čater
& Čater, 2009; Ling, 2013; Monteiro et al., 2017) to SCA and FP
(Branco & Rodrigues, 2006; Fonseka et al., 2013; Surroca et al.,
2010). Nonetheless, the role of the aforementioned factors is debated
extensively in large firms mainly in developed and Western countries
(Ayuso & Navarrete‐Báez, 2018; Jain, Vyas, & Roy, 2017; Kim, Kim,
& Qian, 2018), but SMEs in the emerging economies seldom are artic-
ulated despite their dominant role in these markets (Bai & Chang,
2015; Khalique, Bontis, Abdul Nassir bin Shaari, & Hassan Md. Isa,
2015; Lee, Kwak, & Park, 2017). Similarly, the majority of the prior
studies concentrated on their effect on firms' financial performance
rather than nonfinancial performance (Kim, 2011). Because this paper
extends the existing study from Surroca et al. (2010) and fills the
research gap recommended by existing studies (Jain et al., 2017; Yu,
Kuo, & Kao, 2017; Zhu, Sun, & Leung, 2014) by concentrating on
firms' multiple stakeholders in an emerging country, Pakistan, through
a model based on investigating the influence of IC, FC, and CSR on
SCA and firms' financial and nonfinancial performance.
Pakistan is located at the best trade route between Europe and
Asia and merges Central Asia, South Asia, West Asia, and Western
China (Shaikh, Ji, & Fan, 2016). SMEs in Pakistan pertain 99% of the
all business firms while contributing more than 80% employment
opportunities and a 40% share of gross domestic product (Khalique
et al., 2015). Many firms in Pakistan participate in philanthropic and
charity activities, but the concept of CSR in Pakistan still is in a cres-
cent and transition stage (Khan, 2018).
This paper answers the following questions: Do IC, FC, and CSR
impact SCA and FP in the emerging economies such as Pakistan? Does
SCA mediate the relationship between firms' investment in intangible
assets and FP (Bai & Chang, 2015; Monteiro et al., 2017; Saeidi,
Sofian, Saeidi, Saeidi, & Saaeidi, 2015)? The findings of this paper
encourage managers to adopt a stakeholder engagement strategy
through utilizing emerging and less risky resources, because SMEs
encounter a challenging series of financial, human, technological, and
networking constraints (Ayuso & Navarrete‐Báez, 2018; Lee et al.,
2017). To assess the perseverance of superior FP, this study supple-
ments the literature by connecting stakeholder theory with the RBV
perspective as part of corporate strategy and concentrates on firms'
financial and nonfinancial performance (Yadav et al., 2017).
2 | T HE O R E T I CA L B A CK GR O U N D
Beyond the classical perspectives of RBV, this study contemplates
the influence of investment in firms' intangible resources and
ET AL.
capabilities on SCA and superior FP. For instance, RBV advocates
that firms have resources and capabilities (which are rare, valuable,
inimitable, and nonsubstitutable) through which they gain SCA and
superior performance (Ayuso & Navarrete‐Báez, 2018; Barney,
1991; Yadav et al., 2017). Simultaneously, this study follows stake-
holder theory, where Freeman (1984) posits that substantial values
to be created for firms' multiple stakeholders, which include
employees, shareholders, creditors, customers, suppliers, community
members, and environment to gain SCA and successful operation
and survival (Parmar et al., 2010).
Based on RBV and stakeholder theory, a considerable investment
in CSR activities captivates the loyalty of multiple stakeholders that
boosts firms' internal intangible resources (employees morale, knowl-
edge, innovation, and corporate culture) and external intangible
resources (firm reputation, good public relations, goodwill, and image;
Branco & Rodrigues, 2006; Briones Peñalver, Bernal Conesa, & de
Nieves Nieto, 2018). In line with Surroca et al. (2010), the investment
in CSR activities is treated as an intangible resource in this study and a
considerable execution of CSR activities assists firms' managerial strat-
egies in creating substantial value and develops a win–win approach
among multiple stakeholders (Gagalyuk, Valentinov, & Schaft, 2018;
Javed et al., 2017).
Building on the annals of RBV, IC is envisioned as a key intan-
gible antecedent of SCA and referred as all valuable allusive things
obtained through a process of knowledge and experience and fur-
ther create wealth (Marr & Moustaghfir, 2005) by transforming
firms' resources into a viable position (Marzo & Scarpino, 2016).
Prior studies have documented IC as an intangible resource,
achieves competitiveness, and a superior FP (Kianto et al., 2013;
Ling, 2013). Following the concept of stakeholders' theory, IC
mainly concerns how internal and external stakeholders of firms
are given significant consideration to improve firms' efficiency and
productivity (Freeman, 1984; Molina‐Azorin, Claver‐Cortes, Pereira‐
Moliner, & Tari, 2009).
In the context of RBV, FC is a firm's capability of acquiring, man-
aging, and controlling the financial needs of the firm and a higher FC
promotes SCA as well as financial and nonfinancial performance
(Fonseka et al., 2013). In the context of stakeholder theory, a well‐
managed FC assists firms in raising adequate funds from either inter-
nal or external sources in order to manage their operational and
investment costs and satisfy the diverse expectations of multiple
stakeholders including employees, shareholders, creditors, suppliers,
and the environment (Fonseka et al., 2013; Freeman, 1984; Zou,
Chen, & Ghauri, 2010). Based on stakeholder theory, this study
focuses on exploring the role of FC that is directly related to finan-
ciers, creditors, and suppliers (stakeholders). IC mainly is concerned
with employees, owners, and customers (stakeholders), and CSR
keenly focuses on the comfort of employees, customers, financiers,
and owners and even on the well‐being of overall society (stake-
holders; Javed et al., 2017; Molina‐Azorin et al., 2009; Parmar
et al., 2010). Based on the chronicles of RBV and stakeholder theo-
ries, this paper amalgamates the key intangible antecedents of FP
and aims to measure the influence of CSR, IC, and FC (hereby envis-
aged as rare, valuable, inimitable, and unique resources) on FP in the
mediation of SCA.
KHAN ET AL.
3 | H Y P O T HE S E S D E V EL O P M E NT
3.1 | CSR, SCA, and FP
Firms currently stretch considerable value to sponsor CSR activities
because it enhances firms' financial and social performance (Vallaster,
2017). Subsequently, a considerable investment in CSR activities and
its proper disclosure creates internal fundamental intangible resources
(corporate culture, employees' morale, and knowledge; Gagalyuk et al.,
2018; Khan, 2018). The external reflection of CSR activities comes in
the form of good public relations, positive image, superior goodwill,
better reputation, and attractive public opinion referred to as firms'
valuable intangible assets (Anbarasan & Sushil, 2018; Saeidi et al.,
2015). Building on the basic concepts of RBV and stakeholder theory,
firms with improved CSR activities build a higher reputation in the
market and are well positioned in the eyes of internal and external
stakeholders (Agyemang & Ansong, 2017; Branco & Rodrigues,
2006; Vallaster, 2017).
Firms develop unique CSR models to exploit potential opportuni-
ties, which cannot be easily copied by their competitors. Existing
studies on the role of CSR in spurring FP have revealed controversial
and inconsistent results (Marín, Rubio, & de Maya, 2012). For
instance, some studies have reported a positive influence of CSR on
FP (Javed et al., 2017; Rivera et al., 2017; Zhu et al., 2014), whereas
others have documented no link (Heyder & Theuvsen, 2012) or even
a negative relationship between CSR‐FP (Yu et al., 2017). This contra-
diction develops conflicts among managers and owners in deciding
whether or not to invest in CSR activities and thus creates a gap
for potential researchers to conduct empirical studies for developing
and developed countries to explore the comprehensive results of this
association (Marín et al., 2012; Zhu et al., 2014). We propose the fol-
lowing hypotheses by linking the arguments of RBV and stakeholder
theory with empirical studies conducted by numerous researchers
that show that CSR has a dominant influence on SCA (Jain et al.,
2017; Marín et al., 2012), FP (Rivera et al., 2017), and representing
SCA as a mediator in the relationship between CSR and FP (Kim
et al., 2018; Saeidi et al., 2015):
H1a. There is a positive association between CSR and
firms' SCA.
H1b. There is a positive association between CSR and
FP.
H1c. SCA mediates the relationship between CSR and
firms' performance.
3.2 | IC, SCA, and FP
IC represents the majority of firms' intangible assets (Čater & Čater,
2009). Among the key intangible antecedents of SCA, all the valuable
resources and capabilities obtained through knowledge and experi-
ence and used for further creation of wealth constitute IC (Marr &
Moustaghfir, 2005). IC significantly and positively contributes to firms'
value creation and SCA (Cleary & Quinn, 2016; Ling, 2013), and well‐
managed IC assists access to the different resources and capabilities
required for firms' growth, success, and positioning in dynamic
3
markets (Tandon et al., 2016; Zakery & Afrazeh, 2017). IC is envisaged
as a major constituent of SCA and value creation explicitly for SMEs
due to limited resources (Ayuso & Navarrete‐Báez, 2018; Ling, 2013).
IC encapsulates talents, intellect, knowledge and skills, patents and
patterns, goodwill and brand image, competency, and social interaction
with other stakeholders (Ayuso & Navarrete‐Báez, 2018; Djuric &
Filipovic, 2015) and has a significant positive influence on SMEs' oper-
ations in emerging economies (Cleary & Quinn, 2016). SMEs operating
in emerging markets such as Pakistan obtain significant returns from IC
(Khalique et al., 2015). Existing studies have noted that subdimensions
of IC have a significant positive influence on firms' SCA (Ling, 2013;
Zakery & Afrazeh, 2017); the prime theme of RBV also elucidated a sig-
nificant positive impact of IC on SCA and FP (Ling, 2013; Tandon et al.,
2016). Moreover, the empirical studies argued that firms' SCA signifi-
cantly mediates the relationship between IC and FP (Jain et al., 2017;
Kianto et al., 2013). We thus posit the following hypotheses:
H2a. There is a positive association between IC and
firms' SCA.
H2b. There is a positive association between IC and
firms' performance.
H2c. SCA mediates the relationship between IC and
firms' performance.
3.3 | FC, SCA, and FP
Firms strive to have pacifying access to financial resources in the turbu-
lent environment to gain SCA (Pergelova & Angulo‐Ruiz, 2014). FC
favors or hinders the firms in competitive financial decisions, managing
debt and identifying the suitable products and services, timing and effi-
cient utilization of financial resources during investment, growth, and
development (Zou et al., 2010). Firms need financial support to make
transactions on time, arrange daily financial undertakings, and exploit
new opportunities, which ultimately influences SCA and FP (Huang,
Zhou, & Zhu, 2012). FC builds upon either internal or external sources
is a dynamic element for firms' SCA and superior performance despite
the size of firms and nature of the industry (Fonseka et al., 2013).
According to stakeholder theory, the satisfaction of financiers,
including owners and creditors (internal and external stakeholders),
drives the firms toward easier access to FC, which in turn plays a signif-
icant role in FP (Čater & Čater, 2009; Freeman, 1984; Molina‐Azorin
et al., 2009). In addition, firms with effective financial management
practices ensure SCA and enjoy superior performance compared with
firms with none or insufficient formal financial management practices
(Fonseka et al., 2013). Networking persistently facilitates firm's FC via
financial institutions and successful firm in this mission, directly creat-
ing SCA and indirectly enhancing venture's performance (Li & Zhou,
2010; Pergelova & Angulo‐Ruiz, 2014). Moreover, the existing litera-
ture has shown a significant positive contribution of FC to SCA (Huang
et al., 2012; Pergelova & Ruiz, 2014) and FP as well as the mediating
role of SCA in the relationship between FC and FP (Čater & Čater,
2009; Li & Zhou, 2010). We thus posit the following hypotheses:
H3a. There is a positive association between FC and
firms' SCA.
4 KHAN
H3b. There is a positive association between FC and
firms' performance.
H3c. SCA mediates the relationship between FC and
firms' performance.
3.4 | SCA and FP
SCA has received considerable attention from strategic management
scholars in this age of turbulence because it significantly contributes
to firms' financial and nonfinancial performance (Barney, 1991). Porter
(1980) suggested two types of competitive strategies: differentiation
strategy and cost‐leadership strategy. In differentiation strategy, the
firm needs to differentiate its products by offering the latest product
and a unique quality that could not be offered by competitors, or it
can change the features and structure of existing products. The firm
needs to shrink different kinds of costs in cost‐leadership strategy:
operational cost, material cost, supply cost, wages and marketing cost,
etc. Cost reduction decreases the cost of product development and
also contributes to firms' profitability (Porter, 1980). Firms with a
stronger and more effective competitive advantage yield higher pro-
ductivity. Empirical studies have argued that differentiation‐based
and cost‐based SCA significantly positively contributes to FP (Lechner
& Gudmundsson, 2014; Saeidi et al., 2015; Walsh & Dodds, 2017).
Based on the founding theme of RBV (Barney, 1991), we posit the
following hypothesis:
H4. There is a positive association between SCA and
firms' performance.
4 | METHODOLOGY
4.1 | Sample and data
This study focuses on the operation of SMEs in an emerging country,
Pakistan. We collected data through a structured questionnaire from
owners and managers of SMEs in three major cities of Pakistan:
Islamabad, Karachi, and Lahore. Pakistan defines SME as a firm with
20 to 250 employees and maximum annual sales of Rs.800 million.
The lists of registered SMEs were obtained from the Chambers of
Commerce and Industry of the sampled cities. We used a convenient
sampling technique and personally approached owners and managers
to participate in the survey. We distributed questionnaires in 1,000
firms in the target cities; out of which, we received 341 responses
back. Twelve questionnaires were eliminated because of missing
values; only 329 questionnaires, with a 32.9% response rate, were
finalized for analysis.
4.2 | Measurement of variables
This study consists of three independent variables (CSR, IC, and FC),
one dependent variable (FP), and one mediator (SCA). We adopted
the measures used by (Bai & Chang, 2015) to assess CSR. For measur-
ing IC, we adopted the measures of (Kianto et al., 2013). Similarly, we
adopted measures for FC from a study of (Zamberi Ahmad & Xavier,
2012) and made some minor modifications in the wordings. In line
ET AL.
with Su, Guo, and Sun (2017), we used Porter's competitive strategy
measures as a proxy for assessing SCA. Furthermore, although the
measurement of FP by either objective or subjective measures is a
challenge for researchers, prior studies have recommended self‐
reported measures for FP in cases involving SMEs (Shirokova,
Bogatyreva, Beliaeva, & Puffer, 2016). We thus relied on self‐reported
measurements used by (Stam & Elfring, 2008; see Appendix A for
details). Likewise, we used the age and size of firm as a control variable
to reduce spuriousness in the results (Shirokova et al., 2016).
5 | DATA ANALYSIS AND RESULTS
The structural equation model (SEM) is used extensively in social sci-
ence research to obtain precise and persistent results (Boccia &
Sarnacchiaro, 2018). We thus used SEM in AMOS.21 for statistical
analysis of the data gleaned from 329 SMEs. Figure 1 sketched the
structural model of the study. Table 1 depicts demographic data from
the respondents.
Table 2 indicated the normality of data, assessed through skewness
and kurtosis; the values are found to be in the accepted range +2
(George & Mallery, 2010). Moreover, Table 2 shows the factor loadings
for the items to be above 0.70, expressively loaded on their respective
constructs (p < 0.001). Therefore, the model fitness is confirmed. The
results showed the convergent validity (average variance extracted
[AVE]) to be above 0.50 for all constructs, and thus in an acceptable
range (Briones Peñalver et al., 2018; Hair, Black, Babin, & Anderson,
2010; Hu & Bentler, 1999). Similarly, the discriminate validity (√AVE)
is calculated by taking the square root of convergent validity, and the
results are observed to be above 0.70 for all constructs thus remaining
within the accepted range (Briones Peñalver et al., 2018;Hair et al.,
2010 ; Hu & Bentler, 1999). We archived this criterion as all the corre-
lation values for the constructs are lower than the √AVE.
5.1 | Confirmatory factor analysis
The CFA results obtained from Table 3 depict good model fitness after
dropping a few items and considering covariance among redundant
items. We found acceptable values for χ2/df = 2.146, GFI = 0.84,
AGFI = 0.82, CFI = 0.92, TLI = 0.91, and NFI = 0.86, as recommended
in past studies (Hair et al., 2010; Hu & Bentler, 1999). RMR = 0.013
and RMSEA = 0.059 are also in the accepted range recommended pre-
viously (Hair et al., 2010; Hu & Bentler, 1999).
5.2 | Common method bias (CMB)
CMB is encountered, if data are collected from the same respondents
at the same time through a single source. We conducted Harmon's
one‐factor test to check for CMB by using AFA in SPSS and observed
that only 28.70% of the variance was explained by the first factor with
six factors having eigenvalues above 1. The CMB problem does not
exist in our data, as none of the factors explains as major amount of
variance (Hair et al., 2010). Moreover, the impact of a common latent
factor is also checked in measurement models, whereas its results
reported no CMB issue in our sample.
KHAN ET AL. 5

FIGURE 1 Structural model [Colour figure can be viewed at wileyonlinelibrary.com]

TABLE 1 Profile of the firms 5.3 | Structural model

Frequency Percentage The results inTable 5 exhibited a significant influence of all the indepen-
Owners/managers dent variables (FC, IC, and CSR) on the mediator (SCA) and the depen-
Owners 140 42.6 dent variable (FP), as well as a significant positive relationship of the
Managers 189 57.4 mediator with the dependent variable (FP). Nonetheless, Hayes (2009)
Nature of industry argued that the significance of all these relationships is no more restric-
Manufacturing 123 37.4 tion for mediation. Moreover, the results in Table 5 revealed a good
Trading 129 39.2 model fit.
Services 77 23.4
Size of Pakistani firms 5.4 | Hypotheses testing
10–50 employees 98 29.8
Table 6 depicts that SCA either fully or partially mediates the
51–100 employees 66 20.0
FC_FP < IC_FP and CSR_FP relationships. The results revealed a sig-
101–150 employees 60 18.2
nificant indirect impact of FC on FP (β = 0.08, p < 0.01), although its
150–200 employees 92 28.0
direct impact turned into insignificant (β = 0.05, p < 0.05). This result
200–250 employees 13 04.0
indicates that SCA fully mediates the relationship between FC and
Age of firms
FP in Pakistan's SMEs. The indirect impact of IC on FP is significant
10 years and less 169 51.4
(β = 0.06, p < 0.05), and the direct impact of IC on FP also remained
11–20 years 106 32.2
significant (β = 0.58, p < 0.000), which can be interpreted as SCA par-
21 and above years 54 16.4
tially mediating the relationship between IC and FP in Pakistani SMEs.
N 329 100
The indirect impact of CSR is significant and positive (β = 0.06,
p < 0.000) whereas the direct impact of CSR on FP is insignificant
(β = 0.08, p > 0.05). This finding depicts the full mediating role of
SCA in the relationship between CSR and FP in Pakistani firms. The
Table 4 indicated a significant positive correlation among inde-
R square of the main model indicated that FC, IC, and CSR explain
pendent variables (IC, FC, and CSR), the mediator (SCA), and the
22% and 49% of the change in SCA and FP, respectively.
dependent variable (FP). The variance inflation factor (VIF) in each
sample is observed as lesser than 3 for every construct that
denotes the absence of a multicollinearity problem (Neter, 6 | DISCUSSION AND IMPLICATION
Wasserman, & Kutner, 1983). Nonetheless, the tolerance value is
above 0.10, endorses the nonexistence of a multicollinearity issue The overall results of the study indicated the influential role of firms'
(Hair et al., 2010). intangible resources and capabilities (FC, IC, and CSR) in enhancing
6 KHAN ET AL.

TABLE 2 Factor loading

Estimate AVE √AVE Mean SD Skewness Kurtosis

Financial capability 0.58 0.76 3.41 0.346 −0.977 −0.605

Fc6 0.778
Fc5 0.899
Fc4 0.539
Fc3 0.835
Fc2 0.690
Fc1 —
Intellectual capital 0.69 0.83 3.34 0.413 0.296 −0.371
Ic6 0.812
Ic5 0.892
Ic4 0.845
Ic3 0.786
Ic2 0.823
Ic1
CSR 0.68 0.82 3.77 0.425 −0.390 0.144
Csr11 0.899
Csr10 —
Csr9 0.894
Csr8 0.685
Csr7 —
Csr6 —
Csr5 0.883
Csr4 0.625
Csr3 0.907
Csr2 0.746
CSR1 0.899
Competitive advantage 0.58 0.76 2.91 0.313 −0.376 0.153
Cs8 0.714
Cs7 0.388
Cs6 0.878
Cs5 —
Cs4 0.900
Cs3 0.764
Cs2 0.605
Cs1 0.929
Firm performance 0.55 0.74 3.57 0.322 0.455 1.419
Fp10 0.714
Fp9 0.797
Fp8 0.669
Fp7 0.772
Fp6 0.666
Fp5 0.785
Fp4 0.718
Fp3 0.744
Fp2 0.779
Fp1 0.756

SCA and FP in the context of Pakistani firms. For instance, the results
determined a significant positive impact of CSR on SCA and FP in our
sample. H1a and H1b of the study thus are supported. Our results
favored the findings of prior research such as Bai and Chang (2015)
and Rivera et al. (2017) endorsing the arguments of RBV that CSR is
a crucial factor of SCA and FP in emerging markets (Fatima, 2017).
Henceforth, SMEs in emerging nations need to be more CSR oriented
to achieve a higher position and sustainability in the market. Nonethe-
less, SCA fully mediates the relationship between CSR and FP in
Pakistan's SMEs. H1c of the study is thus supported fully. Existing
KHAN ET AL. 7

TABLE 3 Model fits

χ2 df χ2/df GFI AGFI CFI TLI NFI RMR RMSEA

1. Measurement 1098.974 512 2.146 0.84 0.82 0.92 0.91 0.86 0.013 0.059
2. Strctural 1 748.474 369 2.028 0.87 0.84 0.93 0.92 0.87 0.022 0.056
3. Structural 2 836.920 316 2.648 0.84 0.81 0.91 0.91 0.87 0.025 0.071
4. Strurctural 3 423.518 164 2.582 0.90 0.86 0.92 0.90 0.87 0.024 0.069
5. Strucutural 4 1212.259 579 2.094 0.83 0.81 0.91 0.91 0.85 0.022 0.058

TABLE 4 Correlation coefficients

1 2 3 4 5 6 7

1. Size 1
2. Age 0.197** 1
3. Financial capability 0.130* 0.103 1
4. Intellectual capital 0.071 0.070 0.152** 1
5. CSR 0.157** −0.042 0.151** 0.154** 1
6. Competitive adv. 0.170** 0.100 0.405** 0.316** 0.335** 1
7. Firm performance 0.081 0.053 0.244** 0.713** 0.256** 0.497** 1

Note. CSR: corporate social responsibility.

*p < 0.05, **p < 0.01.

TABLE 5 Regression weights

Zakery and Afrazeh (2017) clarified that IC helps firms obtain access
Structural Model 1 Estimate p to valuable resources that may be required for growth, product devel-
Firm performance ← Financial capability 0.126 0.007 opment, and market penetration. We observed that SCA partially
Firm performance ← Intellectual capital 0.493 *** mediates the relationship between IC and FP in Pakistani firms. H2c
Firm performance ← CSR 0.107 0.005 of the study is thus partially supported. In addition, we argue that
Firm performance ← Age −0.001 0.966 Pakistani firms might promote IC in the workplace to gain a competi-
Firm performance ← Size −0.002 0.881 tive position in the markets and to build SCA.
Structural Model 2 We observed a significant positive influence of FC on SCA and FP in
Competitive adv. ← Financial capability 0.298 *** Pakistan, which supported H3a and H3b of our study, respectively. The
Competitive adv. ← Intellectual capital 0.159 *** results are consistent with prior studies, as Fonseka et al. (2013) endors-
Competitive adv. ← CSR 0.176 *** ing that FC is an important element of SCA and higher performance
Competitive adv. ← Size 0.024 0.280 regardless of the firm's size and nature in the emerging markets. The
Competitive adv. ← Age 0.018 0.161 results revealed that SCA fully mediates the relationship between FC
Structural Model 3 and FP in Pakistan's SMEs. H3c of the study is thus supported. In line with
Firm performance ← Competitive advantage 0.501 *** a prior study of Li and Zhou (2010), FC promotes firms' SCA which in turn
Firm performance ← Size 0.000 0.987 leads to superior performance (Čater & Čater, 2009; Huang et al., 2012).
Firm performance ← Age −0.001 0.961 The findings of this paper revealed that SCA has a significant pos-
Note. CSR: corporate social responsibility. itive relationship with FP in our sample, which supported H4. Our
***p < 0.001. results supported the background of RBV and aligned with prior stud-
ies, where Lechner and Gudmundsson (2014) noted that SCA (differ-
studies provided the similar results, such as Saeidi et al. (2015) and entiation and cost leadership) has a significant positive influence on
Kim et al. (2018) positing that CSR does not directly improve profit- firms' performance (Walsh & Dodds, 2017). According to the findings
ability of firms but it first generates SCA, which in turn results in better of the study, well‐managed CSR, FC, and IC cultivate SCA which in
FP. In line with Molina‐Azorin et al. (2009), this study argued that CSR turn enhances FP in diverse markets (Saeidi et al., 2015).
activities satisfy the expectations of multiple stakeholders and convey This research makes several theoretical and managerial contribu-
a positive message and attractive image in the market which in turn tions. Its findings supplement the existing literature on the key intangible
promote SCA and superior FP (Anbarasan & Sushil, 2018). antecedents of SCA and FP. Ergo, this study supported RBV within the
We found a significant positive relationship between IC and SCA context of stakeholders' engagement and confirmed the significance of
and between IC and FP. H2a and H2b of the study thus are supported. intangible resources and capabilities as the drivers of SCA and FP (Ayuso
As aligned with prior studies from Khalique et al. (2015), firms operat- & Navarrete‐Báez, 2018). In this study, we corroborated the investment
ing in emerging markets like Pakistan acquire substantial benefits from in FC, IC, and CSR as intangible assets of firms (Branco & Rodrigues,
IC to compete in the market and amplify the overall performance. 2006; Fonseka et al., 2013; López‐Gamero et al., 2011) and extended
8 KHAN ET AL.

TABLE 6 Major results

Direct p Indirect p Total p

Financial capability to firm performance 0.05 0.398 0.085 0.001 0.132 0.015
Intellectual capital to firm performance 0.586 0.000 0.055 0.001 0.632 0.000
CSR to firm performance 0.08 0.158 0.063 0.000 0.140 0.021
Age to firm performance −0.02 0.769 0.014 0.264 −0.001 1
Size to firm performance −0.03 0.596 0.019 0.134 −0.007 0.852
Financial capability to competitive advantage 0.33 0.001 0.33 0.001
Intellectual capital to competitive advantage 0.22 0.003 0.22 0.003
CSR to competitive advantage 0.24 0.001 0.24 0.001
Age to competitive advantage 0.05 0.317 0.05 0.317
Size to competitive advantage 0.07 0.179 0.07 0.179
CA to firm performance 0.26 0.001 0.26 0.001

Note. CSR: corporate social responsibility.

the scope of study to measure their influence on firms' financial and non- intangible resources' influence on SCA and FP should be conducted
financial performance, whereas the majority of existing studies have in the future.
targeted the influence of these factors merely regarding the financial
performance of firms. Remarkably, this study supplemented the litera-
ture by connecting stakeholder theory with RBV perspectives as a strate- 7 | CO NC LUSIO N
gic posture for SMEs (Yadav et al., 2017) regarding the importance of
This paper theoretically and empirically examined the impact of
firms' intangible resources and capabilities that directly or indirectly
intangible assets on FP by using SCA as a mediating factor. A total
indoctrinate internal and external stakeholders' interest toward firms'
of 1,000 firms (Pakistani SMEs) were targeted for data collection,
SCA and performance (Ayuso & Navarrete‐Báez, 2018).
out of which, we received usable responses from 329 firms. The pro-
Simultaneously, this study has multifaceted practical implications
posed research model and its hypotheses were tested by SEM in
for owners, managers, and other stakeholders of SMEs. For instance,
AMOS.21 by interconnecting the concept of stakeholder theory with
this study argued that firms' investment in intangible resources and
RBV perspectives. The results designated IC, FC, and CSR as the
capabilities spurs SCA and FP in an emerging country, Pakistan. Owners
influencing factors of SCA and FP in Pakistan. Moreover, the full
and managers of SMEs thus might dispense ample fascination to these
mediating role of SCA in the relationship between FC and FP and
issues thus to achieve a competitive position in the market. This study
between CSR and FP encourages managers to prioritize investment
suggests unconventional cradles, deemed to be less expensive and jus-
in the firms' intangible resources and capabilities to boost SCA, which
tifiable while focusing on enhancing SMEs' performance. Moreover, the
in turn enhances FP. Furthermore, the relationship between IC and
findings of this study indicated that the owners and managers of SMEs
FP is partially mediated by SCA in Pakistani firms. In the light of
might stretch plentiful consideration to FC and CSR if they applaud SCA
stakeholder theory, IC, FC, and CSR, mainly concerned with internal
in a turbulent market. Likewise, the managers might strengthen IC to
and external stakeholders of firms (employees, shareholders, finan-
bolster FP. Nevertheless, all key intangible resources and capabilities
ciers, customers, suppliers, and communities), might be considered
of firms exhibited conclusive intensification in SCA and FP in the con-
for improving firms' image and morale, customer loyalty, and
text of Pakistan's SMEs. Furthermore, the findings of this study incul-
employee loyalty, efficiency, and productivity, which may in turn
cate the managers to ensure the stakeholders' engagement in firms'
enhance SCA and FP in a turbulent market.
decision making by strengthening IC, FC, and CSR. Based on the results
of the study, the local governments and policymakers can implement
ACKNOWLEDGEMENT
community and environment‐friendly strategies in collaboration with
firms' managers and multiple stakeholders. This study was supported by the National Natural Science Foundation
This study is not free of limitations despite its key contributions, of China (No. 71472013, No. 71872011 and No. 71528005).
which are presented for future research. A small sample size and
targeting only the three large cities in Pakistan hinder the generaliza- ORCID
tion of the findings of this study (Briones Peñalver et al., 2018), Sher Zaman Khan http://orcid.org/0000-0002-8658-489X
although our results are aligned with prior studies' results in different Qing Yang http://orcid.org/0000-0002-7529-9065
regions of emerging countries. Nonetheless, it is also arguable to eval- Abdul Waheed http://orcid.org/0000-0002-6667-4660
uate several variables in this research based on the perception of one
participant per firm may cause inaccurate reflection of the reality of RE FE RE NC ES
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ment in intangible resources and capabilities spurs sustainable
competitive advantage and firm performance. Corp Soc Resp
Env Ma. 2018;1–11. https://doi.org/10.1002/csr.1678

APPENDIX
QUESTIONNAIRE ITEMS
These questions intend to assess your firm's status. Please circle the number best represents your answer where 1 = strongly disagree, 2 = disagree,
3 = neutral, 4 = agree, 5 = strongly agree

1 2 3 4 5
Financial capability
Our firm has a capability to efficiently manage funds through
Owners
Debt financing
Government subsidies
Private investors/creditors
Venture capitalists
Internal sources of financing
Intellectual capital
Our firm has a clear view of
Core knowledge
What knowledge and competences are more relevant for objectives
Proper evaluation of knowledge and competences
Benchmarking strategy knowledge against that of competitors
Explicit recognition of knowledge as a key factor of strategic planning
Clear strategy for developing knowledge
Corporate social responsibility
Our Firm focuses on
Implementing special programs to minimize its negative impact on natural environment
KHAN ET AL. 11

(Continued)

1 2 3 4 5
Taking part in activities which aim to protect and improve the quality of natural environment
Targeting sustainable growth with considers future generation
Emphasizing the importance of its social responsibilities to the society
Providing full and accurate information to our customers
Respecting the consumer rights beyond the legal requirements
Customer satisfaction
Supporting employees who want to acquire additional knowledge
Encouraging the employees to develop their skills and careers
Implementing flexible policies to provide a good work and life balance
Fulfilling the employees needs and wants
Competitive advantage
Differentiation strategy
As compared with our competitors' products, our products have superior benefits to customers
Our products are unique and nobody but our company can offer them
We take great efforts in building a strong brand name, and nobody can easily copy that
We successfully differentiate ourselves from others through effective advertising and promotion campaigns
Cost‐leadership strategy
Our manufacturing costs are lower than our competitors'
Our efficient internal operation system decreases the cost of our products
Our economy of scale enabled us to achieve a cost advantage
We achieved a cost‐leadership position in our industry
Firm performance
Our firm performs well relative to our key competitors in
Sales growth
Employment growth
Market share
Gross Profit
Net Profit Margin
Innovation in products
Speed in developing new products
Quality of products
Cost control
Customer satisfaction