CORPORATE SOCIAL RESPONSIBILITY OUTLAY ON FINANCIAL PERFORMANCE

ASSESSING THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY OUTLAY ON FINANCIAL PERFORMANCE OF SELECTED MANUFACTURING COMPANIES IN NIGERIA, 2004 – 2013

ABSTRACT

This study explores the impact of Corporate Social Responsibility Outlay on Net Profit Margin, Return on Assets and Return on Equity of manufacturing companies quoted on the Nigerian Stock Exchange. The study embodies a survey in which data were generated from Annual Reports of selected manufacturing companies in Nigeria. The Annual Reports and the hypotheses were statistically analysed using simple regression analysis. It was found that CSR has a positive and significant impact on the Net Profit Margin (a = 0.008, p =0.005< 0.05), Return on Equity (a=0.004, p=0.01<0.05) and Return on Assets (a = 10.64, p = 0.03<0.05) of the manufacturing companies in Nigeria under study. This implies that, to an extent, CSR influences the Net Profit Margin, Return on Equity and Return on Assets of the manufacturing companies under study. The study concluded that, regardless of the harsh and unfriendly business environment in which the firms operate, companies that are socially responsible continue to flourish, partly as a result of CSR activities yielding its return. Finally, the study recommends that CSR should be given great attention and more commitment from manufacturing companies in that it brings about increase in financial performance.

TABLE OF CONTENTS

Title page        –           –           –           –           –           –           –           –           –           i

Declaration      –           –           –           –           –           –           –           –           –           ii

Approval page             –           –           –                  –           –           –           iii

Dedication      –           –           –           –           –           –           –           –           –           iv

Acknowledgements    –           –           –           –           –           –           –           v

Abstract          –           –           –           –           –           –          –           –           vii

Table of Contents-      –           –           –           –           –            –           –           viii

List of Tables  –           –           –           –           –           –           –           –           xi

List of Figures             –           –           –           –         –           –           –           xii

CHAPTER ONE:     INTRODUCTION

  1. Background of the study-       –           –           –           –               –           1
    1. Statement of the problem-      –           –           – –           –           –           2
    2. Objectives of the study-         –           –            –           –           –           3
    3. Research Questions-   –           –             –           –           –           3
    4. Research Hypotheses- –           –           –        –           –           –           4
    5. Significance of the study-       –           –            –           –           –           4
    6. Scope of the study      –           –           –         –           –           –           4
    7. Limitations of the study         –           –    –           –           –           5
    8. Definition of terms-    –           –            –     –           –           –           5

References      –           –           –           –           –           –           –           –           7

CHAPTER TWO: LITERATURE REVIEW

2.1       Introduction –  –           –           –           –           –           –           –           8         

2.2       Conceptual Framework           –           –           –           –           –           9

2.2.1    The Concept of CSR  –           –           –           –           –           –           –           9

2.1.2    History of Corporate Social Responsibility    –           –              –           11

2.1.3    Corporate Social Responsibility Disclosure    –           –             –           12

2.1.4    Importance of Corporate Social Responsibility Disclosure –             13

2.1.5    Measurement of CSR and Corporate Social Responsibility   –    –     13

2.1.6    Corporate Social Performance Disclosure      –    –              –           14

2.1.7    Measurement of Corporate Financial Performance              –           14

2.1.8    CSR in the 21st Century                          –           –           –           –           16

2.2       Theoretical Framework           –    –           –           –           –           –           18

2.2.1    Legitimacy Theory –           –           –                  –           –           – 19

2.2.2    Economic Agency Theory      –           –    –           –           –           –           20

2.2.3    Stakeholder Theory                   –           –           –           –           –           21

2.2.4    Trade-off Theory        –              –           –           –           –           –           23

2.3       Reviews of related literature   –           –       –           –           –           24

2.4       Review Summary        –           –           –             –           –           –           33

2.5       Gap in Literature         –           –           –                 –           –           –           33

References      –           –           –           –          –           –           –           34

CHAPTER THREE: METHODOLOGY

3.1       Introduction    –           –           –           –           –     –           –           –           39

3.2       Research Design         –           –           –                –           –           –           39

3.3       Area of the Study       –           –           –                –           –           –           39

3.4       Sources of Data          –           –           –           –    –           –           –           39

3.5       Population of the Study          –           –           –            –           –           40

3.6.      Sample size Determination     –           –               –           –           –           41

3.7       Sample Techniques     –           –           –                –           –           –           41

3.8       Description of Research Variables      –    –           –           –           –           41

3.9       Model Specification    –           –           –     –           –           –           –           42

3.10     Techniques of Analysis           –    –           –           –           –           –           43

 Reference        –           – –           –           –           –           –           –           45

CHAPTER FOUR:  PRESENTATION AND ANALYSES OF DATA

4.1       Data Presentation and Descriptive Statistics  –   –           –           –           46

4.1.1    Impact of CSR on Net Profit Margin –           –       –           –           –           49

4.1.2    Impact of CSR on Return on Equity  –                 –           –           –           51

4.1.3    Impact of CSR on Return on Asset    –               –           –           –           53

4.2       Test of Hypotheses     –           –           –           –                 –           –           54

4.2.1    Test of Hypothesis one           –           –         –           –           –           55

4.2.2    Test of Hypothesis two           –           –            –           –           –           56

4.2.3    Test of Hypothesis three         –           –               –           –           –           58

4.3       Discussion of Results              –           –          –           –           –           59

 References      –           –                     –           –           –           –           61

CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS           

5.0       Introduction    –           –           –           –              –           –           –           62

5.1       Summary of Findings             –           –               –           –           –           62

5.2       Conclusion of the Study         –           –           –           –           –           63

5.3       Recommendation        –           –            –           –           –           –           64

5.4       Contribution to Knowledge    –        –           –           –           –           65

5.5       Area for Further Studies         –            –           –           –           –           65

 Bibliography   –           –           –           –           –           –           –           66

 Appendix        –           –           –       –           –           –           –           73

LIST OF TABLES

3.1       List of manufacturing companies listed in the Nigerian Sock Exchange as at December, 2014     –           –           –           –           –           40

4.0       Average Values of the variables as computed from Microsoft Excel-           –           46

4.1       Average change CSR and Net Profit Margin  of the manufacturing companies         49

4.2       Average change CSR and Return on Equity of the manufacturing companies         51

4.3       Average change CSR and Return on Asset of the manufacturing companies           52

4.4       Descriptive Statistics              –                    –           –           –           54

LIST OF FIGURES

4.1       Graphical Analysis of Corporate Social Responsibility         –           47

4.2       Graphical Analysis of Net Profit Margin           –           –           –           47

4.3       Graphical Analysis of Return on Assets         –            –           –           48

4.3       Graphical Analysis of Return on Equity        –   –           –           –           49

4.4       Graphical Analysis of Average change in CSR and NPM     –     –       50

4.5       Graphical Analysis of Average change in CSR and ROE          –          51

4.6       Graphical Analysis of Average change in CSR and ROA               53 

CHAPTER ONE                                                     

INTRODUCTION

1.1       Background to the Study

The performance of business organisations is affected by their strategies and operations in market and non-market environments. Hence, there is a debate on the extent to which company directors and managers should consider social and environmental factors in making decisions. In essence, Corporate Social Responsibility (CSR) may be described as an approach to decision making which encompasses both social and environmental factors. It can, therefore, be inferred that CSR is a deliberate inclusion of public interest into corporate decision-making, and the honouring of a triple bottom line which are People, Planet and Profit (Harpreet, 2009). However, CSR has been defined in various ways. Majority of these definitions integrate the three dimensions: economic, environment and social (Mirfazli, 2008). According to him, the triple bottom line is considering that companies do not only have one objective-profitability but that they also have objectives of adding environmental and social values to society.

CSR has been defined as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (GreenPaper Promoting a European Framework for Corporate Social Responsibility, 2001). Helg (2007) also defined CSR as the set of standards to which a company subscribes in order to make its impact on society.

McWilliams and Siegel (2001) stated that the definition of CSR was not always clear, and they define CSR as actions that appear to further some social good, beyond the interests of the firm and what is required by law. A modern concept of CSR states that the business enterprises that are in their usual process of business decision making, should pay due attention to the social interests of the hosting community. A company is not only an economic entity but a social and political entity also. Most of the decisions taken by the companies not only affect the stockholders but also the creditors, debtors, employees and the society at large in one way or the other (Kapoor & Sandhu 2010 as cited in (Uadiale & Fagbemi, 2012).

A wide variety of definitions of firm’s performance have also been proposed in the literature. Both accounting and market definitions have been used to study the relationship between corporate social responsibility and firm performance (Orlitzky, Schmidt & Rynes  2003). However, since most social responsibility scholars seek to understand the ways that socially responsible corporate activities can create or destroy shareholder wealth, market definitions of firm performance seem likely to be more appropriate than accounting definitions of firm performance in this context (Margolis & Walsh, 2001). Today`s competitive and dynamic market environment has created new sets of challenges for any business which are not related to economics only. To survive and prosper, firms must bridge the gaps in economic as well as social systems. Maximizing shareholder`s wealth is an every time essential but fulfilling that condition alone is no more valid in measuring financial prosperity (Senarante & Wijesinghe, 2011).

This study was undertaken with a view to assessing the impact of CSR on the financial performance of manufacturing companies quoted on the Nigeria Stock Exchange.

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