Corporate Social And Environmental Engagement And Efficiency Of Nigerian Banks

ABSTRACT

The rising cost of running business organizations in Nigeria and the lack of basic infrastructure, as well as divergent views in the literature regarding the type of relationship that exists between CSR and Corporate performance have necessitated this paper that examined the relationship between corporate social responsibility and profitability in the Nigerian banking industry using First Bank of Nigeria (FBN) Plc as the case study. Annual reports formed the secondary source of data collection where the CSR expenditure and profit after tax for the period of 2001-2010 was used for the computational experiment. The data collected for this study were analyzed using correlation and regression analysis. The hypothesis formulated was tested. The results of the regression analysis as showed the impact of corporate social and environmental responsibility expenditure on profitability in Nigeria banks which revealed (Beta= 0.945, p<.01). This means that for every unit change increment in the CSR expenditure will lead to 0.945 or 95% increase in the profit after tax of the company. The R-square was 0.893 which shows that CSR accounted for 89.3% of the variation in the profit after tax of First Bank Plc. The study concluded that there is positive relationship between banks CSR activities and efficiency. The implications of this study include the need for banks to demonstrate high level of commitment to corporate social responsibility based on stakeholder theory in order to enhance their profitability or efficiency in the long run.

TABLE OF CONTENT

TITLE PAGE

APPROVAL PAGE

DEDICATION

ACKNOWLEDGEMENT

ABSTRACT.

TABLE OF CONTENT

CHAPTER ONE

INTRODUCTION

• • BACKGROUND OF THE STUDY

• • STATEMENT OF THE PROBLEM

• • OBJECTIVE OF THE STUDY

• • RESEARCH QUESTIONS

• • RESEARCH HYPOTHESIS

• • SIGNIFICANCE OF THE STUDY

• • SCOPE OF THE STUDY

• • DEFINITION OF TERMS.

CHAPTER TWO

REVIEW OF RELATED LITERATURE

• • DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY CSR

• • PRINCIPLES OF CORPORATE SOCIAL RESPONSIBILITY

• • BENEFITS AND COST FOR COMPANIES WHICH BEHAVE SOCIAL RESPONSIBLE

• • RELATED STUDIES ON CORPORATE SOCIAL PERFORMANCE AND CORPORATE FINANCIAL PERFORMANCE

• • THEORETICAL FRAMEWORK

CHAPTER THREE

METHODOLOGY

• • INTRODUCTION

• • RESEARCH DESIGN

• • SOURCES OF DATA

• • DATA ANALYSIS

CHAPTER FOUR

RESULT ANALYSIS

4.1. DATA PRESENTATION, ANALYSIS AND DISCUSSION

4.2 DISCUSSION OF FINDINGS

CHPATER FIVE

CONCLUSION AND RECOMMENDATION

• • CONCLUSION

• • RECOMMENDATION

• • REFERENCES

CHAPTER ONE

1.0                                        INTRODUCTION

1.1                           BACKGROUND OF THE STUDY

Banking operations all over the world are technological driven, right from the door that customer passes through to enter the banking hall to the recording of the transactions between the customer and the bank or with third party (ies) requires one technology or the other which must be powered with electricity. Due to epileptic power supply in Nigeria, most organizations have to provide alternative power supply rather the relatively cheaper National grid (PHCN). This and some other environmental factors have been militating against efficient running of business organization in Nigeria. As they have to factor the cost of fueling the alternative source of power which is always costly among others (like LPFO/Black oil, AGO/diesel and GAS) into their factors of production or operations as in the case of banks.

However, in the face of the above challenges for banks in Nigeria, the practise of corporate social responsibility as a concept entails the practice whereby corporate entities voluntarily integrate both social and environment upliftment in their business philosophy and operations. A business enterprise is primarily established to create value by producing goods and services which society demands. It therefore seems that the practices of CSR will further pose a burden on the financial performance of banks. This has made most observers perceive Nigeria business environment has been hostile.

Following the series of banking reforms undergone during the Soludo (2006) recapitalization exercise and the current reform going on by Sanusi Lamido Sanusi led CBN in (2009), Nigerian banks has always been at receiving end of these reforms, in terms of improving the quality of services delivery to the customer. This does not come without it cost. Although, with the new “competent and competitive players,” the Nigerian banking system is now driven by advanced competition brought about by banking reforms, globalization, deregulation of financial services, recent replacement of some banks’ Chief Executives, astronomical development in Information and Communication Technology (ICT), among others, to render services according to cost-benefit criteria. This has affected banks customers’ habits as well, while the increasing demands for clear and hard facts about the social and environmental performance of banks by an increasingly well-informed breed of stakeholders have made corporate social responsibility (CSR) the vogue. All of these, in a country with epileptic power supply. Banks are concerned by this because, with the modern day banking hardly could any bank operates without power supply. At least to operate its technological gadget that aids the effective and efficient.

In the light of the above problems faced by most banks, there is the need to evaluate the impact of CSR on the profitability of the banking sector in Nigeria.

1.2                    STATEMENT OF RESEARCH PROBLEM

The Nigerian economy today is faced with multiplicity of challenges ranging from high unemployment rate, high poverty (which stood at 69 percent of the 163 million population of Nigeria) corruption, youth restiveness, political crises, security challenges (which has a great effect on investment and economic growth among others). These problems are generally seen as social issues, thus the more social improvements relates to a company’s business, the more it leads to economic benefits as well.

Since the role of banks is to enhance economic growth and with all these challenges facing the economy thereby threatening economic growth at this critical time that the Nigerian banks want to be the financial hub of Africa in year 2020 and the nation is prepared to be one among the top 20 largest economies in the world by year 2020. Even if the banks are socially responsible to an extent, there is need for the Nigerian banks to rethink both where (that is sector(s) and location) they focus their CSR and how they go about their CSR as no business can thrive in chaos environment.

Banking operations all over the world are technological driven, right from the door that customer passes through to enter the banking hall to the recording of transactions between the customer and bank or with third party (ies) requires one technology or the other which must be powered with electricity. Due to epileptic power supply in Nigeria, most organization have to provide alternative power supply rather the relatively cheaper National grid (PHCN). This and some others factors have been militating against efficient running of business organization in Nigeria. As they have to factor the cost of fueling the alternative source of power which is always costly among others (like LPFO/Black, AGO/diesel and GAS) into their factors of production of operations as in the case of banks.

However, in the face of above challenges for banks in Nigeria, the practice of corporate social responsibility as a concept entails the practice whereby corporate entities voluntarily integrate both social and environment upliftment in their business philosophy and operations. A business enterprise is primarily established to create value by producing goods and services which society demands. It therefore seems that the practices of CSR will further pose a burden on the financial performance of banks. This has made most observers perceive Nigeria business environment has been hostile. In the light of the above faced by most banks, there is the need to evaluate the impact of CSR on the profitability of banking sector in Nigeria.

1.3                      RESEARCH OBJECTIVES

The main objective of this research work is to examine the impact of corporate social responsibility on bank performance, a case study of some selected commercial banks in Nigeria. The specific objectives of this study therefore, are;

1. 1. To examine the impact of disclosure of CSR on community development and its implications to both economic and environmental bottom line;

1. 1. To examine the impact of corporate social responsibility on the employee’s commitment.

1.4                            RESEARCH QUESTIONS

This research will attempt to provide answers to the following questions:

1. 1. Does corporate social responsibility have any economic and environment impact?

1. 1. Does the practice of corporate social responsibility impacts on financial performance of and organization?

1. 1. How does corporate social responsibility influence employee’s performance?

1. 1. Is there any relationship between Corporate Social Responsibility and banks profitability?

1. 1. What impact does Corporate Social Responsibility have on the bank’s profitability?

1. 1. The rationale of this study is to examine relationship as well as the impact of Corporate Social Responsibility on banks profitability.

1.5                            HYPOTHESES OF THE STUDY

H₀:     there is no significant relationship between corporate social responsibility expenditure Bank profitability

H₁:     there is significant relationship between corporate social responsibility expenditure Bank profitability

1.6                    SIGNIFICANCE OF THE STUDY

It is expected that this study will provide an indication of the corporate social responsibility landscape looks like in Nigeria’s banking system since there are no significant differences in the structural and operational models in the various banks in Nigeria. More so, this study is important because it will add to existing literature of banks in addressing the challenges and enhancing the economic growth of Nigeria, which is one of the key sector that can drive the economic growth of any nation.

The result of this research work will aid the Nigeria banking system to evaluate their level of commitment to their corporate social responsibility objectives and functions in the light of their dependency on the environment as source of inputs and market for corporate outputs. It will also highlight the degree of neglect of government as a regulatory agent in the execution of its social responsibility duties.

1.7                                 SCOPE OF THE STUDY

The study basically seeks to examine the impact of corporate social responsibility on bank performance. This study is limited in the scope to the banking industry in Nigeria from 2003-2013

1.8                                 DEFINITION OF TERMS

For the purpose of this research, the under-listed terms are defined thus:

1. 1. Corporate Social Responsibility (CSR): is a business process that a company adopts beyond its legal obligations in order to create added economic, social and environmental value to the society and to minimize potential adverse effects from business activities, which includes interactions with suppliers, employees, consumers and community in general. It also describes a company’s obligation to be accountable to all its stakeholders in all its operations and activities. It is a concept describing a company’s obligations to be accountable to all of its stakeholders in all of its operations and activities on a voluntary basis.

1. 1. Social responsibility disclosure refers to the disclosure of information about companies interactions with society (Brancoand Rodrigues, 2006). Due to information is imperative as it brings general gains in economic efficiency (Hossian and Reaz, 2007), and it is an important instrument in the dialog between business and society (Branco and Rodrigues, 2006). Generally transparency is an important aspect of good corporate governance practice and in relation to banking sector.

1. 1. Corporate performance is a vital concept that relates to the way and manner with which the financial resources at the disposal of the organization are judiciously put into usage to achieve the corporate objectives of such organization (kajolA 2008). The corporate performance of organization would disclosure to the various stakeholders of the organization the continuous ability for such organization to remain business

1. 1. Bank: is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links customers that have capital deficits and customers with capital surpluses.

CHAPTER ONE

2.1                                 LITERATURE REVIEW

2.2 DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY CSR

In the literature on CSR different authors described it in different ways. There is no universal definition of CSR, organizations have framed different definitions and there are several perceptions of the term according to the context locally and among the countries.

According to Egels (2005), the area defined by advocates of CSR increasingly covers a wide range of issues such as plant closures, employee relations, human rights, corporate ethics, community relations and the environment. According to Ruggie (2002), CSR is a strategy for demonstrating good faith, social legitimacy, and a commitment that goes beyond the financial bottom line. Baker (2005), states that CSR is about how companies manage the business processes to produce an overall positive impact on society, in accordance with, the World Business Council for Sustainable Development (WBCSD) that states, “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”