ABSTRACT
This research project investigated the impact of corporate social responsibility on the financial performance of quoted companies in Nigeria. In order to achieve the objectives of the study, four hypotheses were proposed and data collected through secondary sources from the annual financial reports of five quoted companies. The data which was collected using the content analyses method was analyzed using multiple regression analyses. in the course of analyses, the study revealed the following findings: There is a negative relationship between environmental management system and return on asset. Our findings also showed a positive relationship between employee relations and return on assets. Environmental management systems has a positive relationship with return on equity. Finally, employee relation has a negative relationship with return on equity of quoted companies in Nigeria. Our findings also showed that none of variables were statistically significant in explaining the financial performance of the sample firms. Given the findings, it is concluded that: Environmental management systems related costs and expenses are not an important consideration or factor in the financial performance of quoted companies in Nigeria. Costs related to employee relations are not an important factor in the financial performance of quoted companies in Nigeria. Finally, it was concluded that Corporate Social Responsibility (CSR) activities of quoted companies in Nigeria is inadequate to yield the desired fruit of contributing to the financial performance of the companies. Based on the findings and conclusions, we make the following conclusions: It is recommended that quoted companies should get more involved in environmental management activities in order to reap the resultant benefits of growth in return on equity. It is also recommended that standard setting organizations should set up environmental management and employee welfare reporting framework, in order to improve the level of financial and non-financial environmental disclosures among the listed firms. Finally, we recommend that the relevant governmental agencies in whose purview corporate social responsibility falls should organize enlightenment campaigns to educate quoted companies in the benefit derivable from implementing CSR activities within the appropriate stakeholder units.
60 Pages
Project Reference Code: C055
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CHAPTER ONE
INTRODUCTION
1.1 Background of Study
Corporate social
responsibility is the initiative of businesses to invest part of their profit
for the welfare of the society in order to portray a positive public image and
create an educated customer base. The business dictionary defines corporate
social responsibility as a company’s sense of responsibility towards the
community and environment (both ecological and social) in which it operates.
They express this citizenship – through waste pollution reduction process – by
contributing educational and social programs - and by earning adequate returns
on the employed resources. Mohr, Webb
and Harris (2001) also described corporate social responsibility as a firm’s
commitment to minimizing or eliminating any harmful influence and maximizing
its long run beneficial impact on the society.
It is becoming
increasingly apparent that corporate firms are constantly looking for new
strategies to gain a positional advantage over their competitors in order to
increase their customer base and enhance their financial performance. One of
these strategies is the adoption of corporate social responsibilities
practices. Corporate social responsibilities (CSR) could be viewed as a
symbolic relationship that exists between a firm and all its stakeholders.
According to Buchholz, and Magnum and Ferrell(are cited Alex. A, Joseph. A et
al 2014) there are five main categories of stakeholders; organizational
(customers, employees, suppliers, creditors and shareholders’), community
(local residents and lobby groups), regulatory bodies at all levels of
government, media and the natural environment. These stake holders are
requesting that firms act responsibly and behave ethically and are therefore
expected to respond to the changing believes and values of their target
audience. In the modern business world, CSR has been emphasized by stakeholders
as a driving tool for success to be accomplished (Basil .U. Onwe 2014)
CSR has been an
increasingly evident and crucial component of overall business organization.
Conscious of this concept, ordinary citizens, potential investors, pressure
groups, politicians, insurance companies and a wide range of other stakeholders
are increasingly demanding organizations to account for their social/natural
environment and economic impact that they have on every community in which they
operate, Nwachukwu (2012) as cited in Onwe (2014). Firms commit huge amount of
money in undertaking CSR activities especially in their host communities. The
major reason of going into CSR activities is to bring back returns to them from
people in the society that their actions have affected positively. Wiston
Churchhill says “we make a living by what we get but we make a life by what we
give”. The result therefore, reflects on the firm’s financial statement (Return
on Investments, Return on Assets, Net Profit Margin, and Return on Equity etc)
which in turn serves as a medium to measuring the firm’s financial performance.
CSR is about how
businesses align their values and behaviors with the expectation and needs of
stakeholders. It also describes a company’s commitment to be accountable to its
stakeholders; and demands that businesses manage the economic, social and
environmental impact of their operations to maximize benefits and minimize the
down sides. Mahajan (2011) as cited in Fontaine (2013) suggested that there is growing
perception among enterprises that sustainable business success and shareholder
value cannot be achieved solely through maximizing short term profit but
instead through market oriented yet responsible behavior, companies are aware
that they can contribute to sustainable development by managing their operations in such a way as
to enhance economic growth and increase competitiveness whilst ensuring
environmental protection and promoting social responsibility including customer
interest. Some scholars J. Ivancevich, P. Lorenzi, S. Skinner and P. Crosby (1997)
(as cited in Michael Fontaine PhD 2013) suggested that CSR is social
obligation, corporations engage in socially responsible behavior when it
pursues profit only within the constraints of the aw. This is because the
society supports the business by allowing them to exist, the business is
therefore obligated to repay the society by making profit. Thus, according to
this view, legal behavior in pursuit of profit is socially responsible behavior
and behavior that is illegal or not in pursuit of profit is socially
irresponsible.
Over the years, quite a
number of research efforts have been devoted to CSR. There have also been some
existing arguments/ lack of consensus as to whether CSR has a positive or
negative impact on financial performance. This research seeks to contribute to
the existing body of knowledge by examining the impact of the adoption of CSR
on the financial performance of corporate entities in Nigeria.
1.2 Statement of problem
Organizations have come to
the realization that in today’s competitive market every investment ought to
deliver returns either in the short run or in the long run. The allocation of
resources to project that benefit the community constitute CSR. The benefits
that are accrued from such investments are usually expected to be in line of
the overall purpose of the existence of the firm (mission) that is expressed in
a plan of action for allocating resources effectively (strategy). As earlier
stated, several studies have been conducted to establish a link between CSR and
financial performance. McWilliams and Siegel and others have studied the effect
of CSR on corporate performance. In the analysis, there have been mixed results
on the financial impact of CSR on short and long term profitability of the
organization. Berrone, Surroca and Tribo (as cited in Alex. A. Joseph.A. et al)
suggested that CSR practices enhance overall profitability of firms.
Determining how CSR and financial performance are connected is complicated due
to lack of consensus in various literatures with regards to the effect of CSR
on financial performance.
The above mentioned
empirical studies have suggested that there is a link between CSR and financial
performance of an entity. However, most firms invest in CSR programs due to
agitation from government and civil society. This research there will
investigate the following; the motives behind a firms adoption on CSR programs,
if the adoption of CSR has worsened or enhanced financial performance. Finding
answers to these attracted the researchers interest to investigate or examine
the impact of CSR on the financial performance of cooperate entities in
Nigeria.
1.3 Objectives of Study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Significance of Study
1.7 Scope of Study
1.8 Limitations of Study
1.9 Operation Definition
of Terms
1.10 Organization of Study
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter reviews some
previous studies and theories aimed at providing an analytical framework for
the study on corporate social responsibility and financial performance of
corporate entities in Nigeria. Empirical works done on how to measure CSR and
financial performance and its impact are all considered here.
2.2 Concepts of Corporate
Social Responsibility
Corporate social
responsibility is a social concept that highlights the importance attached to
the need to bridge the expectation gaps of the major stake holders in the
affairs of an entity whether natural or artificial. It is anchored on the
philosophy that businesses as a natural or artificial person should take
decisions that are considered indeed to be in the interest and benefit of a
large number of persons hence have respect for the fundamental rights of the
public of the organization. The world business council for sustainable development
(WBCSD) 1999 are cited in Idowu, Abiola 2014 defines CSR as the continuing
commitment by businesses to behave ethically and contribute to the economic
development while improving the quality of life of the workforce and there
families as well as that of the local community and society at large. Mc
Williams and Siegels 2001 describes CSR as actions that appear to further some
social good beyond the interest of the firm. Business dictionary also defines
CSR as a company’s sense of responsibility towards the community and the
environment (both ecological and social) in which it operates. They express
this citizenship – through waste and pollution reduction process – by
contributing educational and social programs – and by earning adequate returns
on the employed resources.
In emphasizing the
ecological conceptualization of social responsibility Buchhlos 1991 as cited in
Idowu , Abiola 2014 noted that any good definition of CSR must contain if not
all must of the following responsibilities that ;
·
Goes beyond the production of goods and services at a profit.
·
Helps in solving important social problems, those the
organization are especially responsible for.
·
Make corporation have great impact that goes beyond market
place transaction.
·
Make operation serve a wide range of human values that can be
captured by sole focus on values.
Four elements identified
by Carroll 1996 as cited in Dr. James and Zachariah 2013 that needs to be
present in order for a firm to claim social responsibility are legal, ethical,
economic and philanthropic responsibilities. Over the years, the growing
responsibilities of CSR from firms has risen from the pressure of various stake
holders placed on these firms to engage in additional CSR investments (Mc
Williams and Siegels 2000).
The concept of CSR is
closely linked to the principle of sustainability which urges that enterprises
should make decisions based not only on financial factors such as profit and
dividend but also based on the immediate and long term social and environmental
consequences of their activities Tilt 2009 as cited in Abdulraham 2015.
2.2.1 Historical
Background
2.2.2 Principles of CSR
2.2.3 Economic Drivers of
Corporate Social Responsibility (CSR)
Management Reputation
Qualitative Workforce
Investor Relations and
Access to Capital
Risk Profile and Risk
Management.
Learning and Innovation
Competitiveness and Market
Positioning/ Brand differentiation
Operational Efficiency
License to Operate
Laws and Regulations
2.2.4 List of Corporate
Stakeholders
2.2.5 Mode of CSR Delivery
in Nigeria
2.2.6 Benefits of
Corporate Social Responsibility
2.3 Financial Performance
2.3.1 Guiding Principles
Of Financial Analysis
2.3.2 Measures of Corporate Social Responsibility (CSR) And
Corporate Financial Performance (CFP).
2.4 Theoretical Framework
2.5 Empirical Analysis
2.6 Chapter Summary
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This
chapter deals with the methodology of the study. It explains the research
design, the population and sampling design adopted by the study. The chapter
also explains the sources ofdata collection and the analysis techniques
employed by the study couple with their justifications.
3.2 Research
Design
The research design
adopted by the study is correlational and it involves investigating
relationship between two or more variables with the hope of establishing
whether effect or lack of effect exist between the variables under study. The
rationale behind adopting the design is because the study is after finding
whether as a result of expenditure incurrence on employees and environment,
financial performance of the corporate entities significantly improves or
not.
3.3
Population and Sampling Design
3.4 Sources
and Methods of Data Collection
3.5 Technique of Data
Analysis
CHAPTER FOUR
DATA
PRESENTATION, ANALYSES AND DISCUSSION
4.0 INTRODUCTION
In this chapter, we carry out an analysis of the data collected from secondary
sources from the Annual Financial Reports of the companies used in the study.
The data which were collected through the content analyses method focused on
CSR disclusyre issues - five employee relationship and five environmental
management issues (these are shown in table 4.1 below).
For the purpose of clarity and easy understanding of the analysis, this
chapter is divided into three sections. The first section deals with the
presentation of the data, the second is on the analysis of the data and section
three deals with the discussion of findings.
4.1
DATA PRESENTATION
4.2 DATA ANALYSES AND INTERPRETATION
4.3 HYPOTHESES TESTING
Hypothesis One
Hypothesis Two
Hypothesis Four
4.3 DISCUSSION
OF FINDINGS
This project investigated the impact of corporate
social responsibility on the financial performance of quoted companies in Nigeria.
The findings of the project showed that there is negative relationship between Environmental
Management System and Return on Asset of quoted companies in Nigeria. This
finding imply that increased spending on environmental management system will
ead to decrease in the return on asset of quoted companies in Nigeria. Our
findings also show that the finding is not statistically significant implying
that effect of environmental management system costs cannot be relied on to
predict the performance of quoted companies in Nigeria.
Furthermore, the findings
show that there is positive relationship between employee relations and the
return on assets of quoted companies in Nigeria. The implication of this
finding is that increased spending on employee relations will help to boost the
return on asset of quoted companies in Nigeria. However, like in the previous
case, the result is not statistically significant implying that the effect of
employee relations on financial performance is very weak and hence cannot be relied
on to significantly improve firm earnings in Nigeria.
Environmental management system registered a positive
but statistically insignificant relationship with return on equity. This
finding means that increased spending on environmental management system will
lead to improved return on equity. However, the fact that the finding was
statistically not significant imply that the effect environmental management
system on return on equity is very weak.
Finally, employee relations reported a negative and statistically
non-significant relationship with return on equity. This means that increasing
costs related to employee relations will lead to reduced return on equity.
The findings above show that there is mixed
relationship between Corporate Social Responsibility as measured by employee
relations and environmental management system and financial performance as
measured by return on asset and return on equity.
CHAPTER FIVE
SUMMARY OF
FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
From the data analyses and discussion of findings in
chapter four above, we summarize our findings thus:
1. There is a negative
relationship between environmental management system and return on asset of
quoted companies in Nigeria. Thus, hypothesis one was also statistically
non-significant.
2. Our findings also showed a
positive relationship between employee relations and return on assets of quoted
companies in Nigeria. Hypothesis was also showed that employee relations does
not significantly impact the return on asset of quoted companies in Nigeria
3. Environmental management systems
has a positive relationship with return on equity of quoted companies in
Nigeria. However, the finding was statistically insignificant as shown in the
hypothesis.
4. Finally, an employee
relation has a negative relationship with return on equity of quoted companies
in Nigeria. But, the result was not statistically significant and it was
concluded that employee relations does not significantly affect return on
equity of quoted companies in Nigeria.
5.2 CONCLUSIONS
5.3 RECOMMENDATIONS
BIBLIOGRAPHY
Project Reference Code: C055
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