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 have
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 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.
61
Pages
Project
Reference Code: C041
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 and Joseph, 2001)
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 literature 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 Hypotheses
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 and 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. McWilliams
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 and 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.
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
- Stakeholders theory
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 incurred 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 disclosures issues – relating to 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: CSR
Disclosure Index
|
CSR Disclosure Index
|
Default score
|
|
|
ITEM
|
EMPLOYEE RELATIONSHIP
|
|
|
1
|
Employee training
|
1
|
|
2
|
Employee promotion and remuneration
|
1
|
|
3
|
Employee programmes and policies
|
1
|
|
4
|
Employee halth and social insurance
|
1
|
|
5
|
Awards and recognitions related to employee
|
1
|
|
Total
|
5
|
|
|
ITEM
|
ENVIRONMENT MANAGEMENT
|
Default score
|
|
1
|
Training on the environment
|
1
|
|
2
|
Environmental management system
|
1
|
|
3
|
Environmental programmes and policies
|
1
|
|
4
|
Environment realted awards and
|
1
|
|
5
|
Environmental investments/capital expenditures
|
1
|
|
Total
|
5
|
Source: Eljayash, K.M. (2015)
4.1
DATA PRESENTATION
The data presented in this section are those relating to the
characteristics and trends of the data involved in this study. The information
generated in this section gives a clear indication of the trends and characteristics in the CSR Disclosure
Index (Employee Relationship and Environment Management) and financial
performance (Return on Equity and Return on Assets).
4.2 DATA ANALYSES AND INTERPRETATION
4.3 HYPOTHESES TESTING
Hypothesis One
Hypothesis Two
Hypothesis Three
Hypothesis Four
4.3 DISCUSSION
OF FINDINGS
CHAPTER FIVE
SUMMARY OF
FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
5.2 CONCLUSIONS
5.3 RECOMMENDATIONS
REFERENCES
Eljayash, K.M. (2015)
Documentation of Environmental Disclosure Practices in the Oil Companies in the
Countries of the Arab Spring – Some Evidences from Egypt, Libya and Tunisia.
Journal of Economics, Business and Management, Vol. 3, No. 10
Project Reference Code: C041
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