Corporate Social Responsibility And Firms Performance

This study is to investigate the impact of voluntary disclosure responsibility (CSR) on the overall performance of firms with emphasis on the top highly market capitalized firms listed on the Nigerian Stock Exchange. It examines CSR disclosure practices in the annual reports of companies across different industry groups to determine how CSR affects the overall performance of the companies.

Our analysis entails regression model test for the year 2009, showing the relation between CSR report and from performance. Our findings from the results show that the companies size, leverage, Earnings Per Share (EPS) and capital intensity have a significant impact on the Corporate Social Responsibility of the top 20 companies by market capitalization on the Nigerian Stock Exchange.

Introduction

1.1 Background of the Study

The nature and scope of responsibility has changed over time. The concept of Corporate Social Responsibility is a relatively new one. The phrase has only been used since the 1960s. But, while the economic, legal, ethical and discretionary expectations placed on organizations may differ, it is probably accurate to say that all societies at all points in time have had some degree of expectations that organizations would act responsibly by some definitions. (Achua, 2008).

In the eighteenth century, the great economist and philosopher, Adam Smith expressed the traditional or classical economic model of business. In essence, this model suggested that the needs and desires of the society could best be met by the unfettered interaction of individuals and organizations in the market place. By acting in a self interested manner< individuals would produce and deliver goods and services that would earn them a profit, but also meet the needs of others. The view point expressed by Adam Smith over 200years ago, still forms the basis for free market economies in the twenty first century. However, even Smith recognized that the free market did not always perform perfectly and he stated that the free market place participants must be just and honest towards each other if the ideals of the free market are to be achieved. (Savage, 1994)

In the 1960s and 1970s, the civil rights movement, consumerism and environmentalism affected society"s expectation of business. Based on the general idea that those with greater power have great responsibilities, many called to the business world to be more productive in (1) ceasing to cause societal problems and (2) starting to participate in societal problems. Many mandates were placed on business related to equal employment opportunity, product safety, workers" safety and the environment. Furthermore, society began to expect business to further participate in solving societal problems wither they had caused the problems or not. This was based on the view that corporations should go beyond their economic and legal responsibilities and accept responsibilities related to the betterment of the society. This view of Corporate Social Responsibility is the prevailing view in much of the world today.

1.2 Statement of Research Problem

Recent research shows that when investors finance a firm, they face the risks and near certainty that the returns on their investment will never materialize because the controlling shareholders or managers expropriate them by stealing profits, selling the firms" output and assets, installing possible unqualified family members in managerial positions or overpaying executives as well as shouldering the responsibilities of the community. This tends to reduce the performance of the firms.

This study tends to find solutions to the following problems:

If extensive community responsibilities undermine the functioning of a and reducing its value how can it be limited?

To what extent can a firm improve its market value by upgrading Corporate Social Responsibility practices?

Through what channels do shareholders influence the management and consequently the firm"s performance?

Whether the pattern of ownership structure of other companies affect the Social Responsibility of that company.

1.3 Research Objectives

The aim of the study is to investigate the influence of Corporate Social Responsibility on organization"s overall performance in order to analyze whether it can contribute to increasing the firm"s profitability, value, etc. In order to obtain the information in the study, the following objectives should be considered:

Examining the existing definitions of CSR and their use within the organizational framework.

Identifying the purpose of CSR in every organization and external functions of organizations.

Considering the various tools through which CSR is being integrated and developed, including standards and guidelines, market incentives and investment indices.

Offering a synopsis of corporate objectives and goals in developing CSR within organizations.

Measuring the long term impact of CSR in every organization.

1.4 Research Questions

Having studied the aim and objectives of this research, the main questions on which this work is built are the following:

Does the corporate framework recognize a higher return on investments or a risk mitigation and higher potential leverage measured by the relative performances to socially responsible firms?

How does CSR really affect the firm"s performance?

How can the specific characteristics of firms (corporate governance systems, relations with trade unions, regulations, etc) affect the relation between CSR and firm"s performance?

1.5 Research Hypothesis

The hypotheses to be tested in this study are as follows:

HA: The corporate framework recognizes a higher return on investments (or a risk mitigation and higher potential leverage), measured by the relative performances to socially responsible firms.
HO: The corporate framework does not recognize a higher return on investments (or a risk mitigation, and higher potential leverage), measured by the relative performances to socially responsible firms.

HA: CSR really affects the firm"s performance.
HO: CSR does not really affect the firm"s performance.

HA: The specific characteristics of firms (corporate governance system, relation with trade union, regulations, etc) affect the relation between CSR and the firm"s performance.
HO: The specific characteristics of firms (corporate governance system, relation with trade union, regulations, etc) do not affect the relation between CSR and the firm"s performance.

1.6 Methodology

The method to be applied in this research is the use of comparative case studies that span across governmental and non-governmental ones. The ideas regarding the corporate social responsibility are obviously already implemented among organizations across the world. In order to determine the approach of the organizations regarding Corporate Social Responsibility in relation to performance, it will be better to focus the study on the strategy of the firm in the implementation of CSR and then establish a relationship between the corporate disclosure and firm performance. This is because organizations have the responsibility of ensuring their internal and external effectiveness.

Population Sample

Agbonifoh and Yomere (1999:81) defined population as the group about whom we want to be able to draw conclusion. It is the totality of the objects or elements being studied and which the conclusions or generalization of our results will apply. Tha population of this study comprises of all firms quoted in the Nigerian Stock Exchange.

Great care was exercised to get a representation of the population. The researcher used a sample size of top 20 companies by market capitalization in the Nigerian Stock Exchange for the year 2009.

Sources Of Data

Data used for this research work were drawn from mainly secondary sources. The secondary data used includes NSE Fact Books, text books, journals and the internet.

The researcher adopted content validity which ensured that every item being measured were calculated appropriately, ensuring a good degree of relationship between the measuring instruments and practical results

1.7 Scope of the Study

The scope of the study includes the time horizon, sample size and geographical location.

i. Time Horizon

The research focuses on the impact of Corporate Social Responsibility on the performances of the top 20 companies by market capitalization quoted on the Nigerian Stock Exchange for the year 2009.

ii. Sample Size

The sample will include top 20 companies quoted in the Nigerian Stock Exchange by market capitalization.

Method Of Data Analysis And Statistical Tools

Data analysis is the breaking down and ordering of data into groups and the searching for pattern of relationship among the variables sets of data. Thus, the statistical tools adopted in this research work is the regression technique.

1.8 Definition of Terms

Corporate Social Responsibility:

CSR is concerned with treating the key stakeholders of a firm or institution ethnically or in a responsible manner. "Ethnically responsible" means treating stakeholders in a manner deemed acceptable in civilized societies.

Accountability:

Is a process standard to assist an organization in the definition of goals and targets, the measurement of progress made against these targets, the auditing and reporting of performance, and feedback mechanisms.

Corporate Citizenship (CC):

Is about business taking greater account of its social and environmental - as well as its financial footprints. Source: Simon Zadek The Civil Corporation.

Corporate Governance (CG):

Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals.

Corporate Social Investment (CSI):

Is the investment in development projects in emerging markets by companies that may, or may not be, directly relevant to the company"s bottom line.

Corporate Sustainability:

It aligns an organizaton"s products and services with stakeholder expectations, thereby adding economic, environmental and social value. (Price Waterhouse Coopers).

Public Private Partnerships (PPP):

Partnerships between private companies and public bodies in a joint venture to perform projects and programmes for the public good.

Social Accountability:

An international students for human rights in the industrial setting set up by CEPAA in the USA. MHCi provided comments and suggestions in the early days of SA8000.

Social Reporting:

Non-financial data covering staff issues, community economic developments, stakeholders involvement and can include voluntarism and environmental performance.

Social Responsibility Investment (SRI):

Investment is socially responsible activities normally by an investment fund.

Summary, Conclusion and Recommendations

5.1 Summary of Findings

The data obtained from the field indicated that all responses were given by married category of staff . Most of the respondents who majorly constituted both the top level and middle level management staff falls between the age distribution of thirty-five (35) and fifty (50) years.

It was also observed that most of the respondents have spent more than three (3) years in the industry. This it is believed would have made them gained experience and understanding of the companies" policy relating to the key issue being investigated - Corporate Social Responsibility impact on their performances.

As earlier pointed out, the data gathered were majorly directed and gotten from both top level and middle level management constituting ninety-seven percent (97%) of the entire respondents by managerial level distribution.

The harvest of the instrument after administered resulted in an almost even distribution from the four sample industries.

Furthermore, the educational qualification criterion for distribution showed that a high percentage of the respondents have had their highest qualification within HND/B.Sc. and M.Sc. / MBA, making the level of validity and reliability placed on the data so high.

The year of establishment of the industries that have been considered also characterized the benchmark for measuring the relevancy of the data to the research work.

Finally, responses to items in the operational section of the questionnaire was presented and interpreted and the three formulated research hypothesis were tested. The use Rank Order Correlation Coefficient were adopted for the test of these hypotheses.

5.2 Conclusion

There is no doubt given the findings of this study, that corporate social responsibility performance plays significant role in improving the performance of manufacturing companies as a whole. After subjecting the data collected to thorough test, the results showed that corporate social responsibility performance should be incorporated into every organization"s long-term goal/plan which invariably helps in ensuring growth, survival and continuity.

Also, from the findings of the study, conclusion can be reached that corporate financial performance, in greater dimension, will rest on a company"s perspective and attitude towards social responsibility programmes it intended and have been embarking upon. Data gathered suggested that manufacturing firms will enjoy good and healthy relationship with financial institutions and creditors given that they prioritize and implement, in the environment, worth-while social responsibility projects. Consequently, investment portfolio of manufacturing corporations will witness an upward movement as a result of the benefit that would be accruable to them when corporate social responsibility is observed. Growth and development would seem inevitable as constituting the long-term impact of the phenomenon studied. Summarily here, corporate social responsibility expenditure impact positively on the performance of manufacturing firms.

The manufacturing industries / companies, through their voluntary performance of social responsibility over the years, has proved that investment in social responsibility activities do not cause the demise of the business since it would make it to establish that social responsibility may not conflict with other business operations, neither does it impoverish the provider of fund. Instead, it is found to be supportive to business interest.

It should however be noted that for the company to be more responsive in assisting the society in the provision of viable social services, management must step up its more basic mission of maximizing profits. With social responsibility obligation in view, management team will step up their drive towards making better profit day-in-day-out with which other objectives can be met conveniently.

Finally, it can be concluded that since the greater portion of the populace, together with the government, places more importance and expectation on businesses to be responsible towards their immediate environment, corporations have no choice than to incorporate its exercise as a core programme of theirs in order to keep on existing; ensure customers" retention; improve the industry image; create goodwill; and to attract potential investors.

5.3 Recommendations

Despite all efforts that may have been given by manufacturing industries in the performance or discharge of social responsible activities, certain steps still need to be taken to improve socially responsibility programmes and improving the operational performance of the manufacturing corporations indirectly. Some suggestions are therefore offered which, if followed, would improve the implementation of the programmes and enhance both the status and profitability of the company.

Since manufacturing industries considers investment in social responsibility as beneficial to the society and its own business operation, it will be necessary for the company/industry to earmark more funds as social responsibility investment fund so as to meet the increasing demands from members of the public for its social assistance. To meet these increasing public demands, the company should maintain a fixed percentage of its after tax profit which would be spent each year. For instance, the company should invest more in Education and Training centre in order to ensure a qualitative manpower base from which it can recruit its qualified employees.

To effectively and efficiently meet the companies" social responsibility objectives, the determination of social needs should not be concentrated exclusively in the hands of management staff. Rather, this study suggests the inclusion of other employee in planning process of the company"s social responsibility programmes with probably an outside consultant.

The outside consultant, who should be an expert in social relations, will introduce valuable and workable ideas which together would help ensure a more objective analysis of social needs of its environment and at the same time, benefiting the industry.

Manufacturing industries all across the nation should be compelled to include among their long-term objectives, if not in the short-term, corporate social responsibility programmes. This will go a long way in guiding their decisions almost every time their objectives are examined. It should be documented with proper control put in place to ensure their attainment.

Government can and should also help at making social responsibility exercise competitive. This will be achieved by public commendation spelt out in recognition of any project executed by any manufacturing corporation. This will invariably improve the image of the organization and indirectly promote its product, metamorphosizing into increased productivity and improved profitability.

Additionally, other firm would be moved to discharge social responsive programme, hence ensuring continued growth and development of the community at large.

In term of embarking on project that requires huge capital investment and of which the funds earmarked are inadequate. The researcher recommends here that the company should collaborate with allied organizations, which engage in voluntary social responsibility activities. This will enable the company and one or two related organizations, to pool their capital and manpower resources together to embark on, say a Dam construction project which is highly capital intensive. When the dam is built, energy may be generated to solve part of acute energy shortage problem experienced by some communities in Nigeria, aside from using it for irrigation purposes.

In a bid to also create an enabling and secured environment for the industries to operate, so that they can carryout the social responsibility, financial institution, headed by the Central Bank of Nigeria, should initiate financial support to the manufacturing industries in form of soft loans with low interest. This will enable manufacturing companies to be able to carry out some social responsibility projects in their host communities.

Finally, business organizations should make periodic assessment of their performance in social responsibility functions. This entails the conduct of regular social audits. Some audit will help the company to know what it needs to do to help the society, and also to appraise performance in selected social responsibility areas. This will also help the organization to set its priorities right, to enable it to concentrate efforts and scarce resources on worthwhile projects that are of benefit to society and consequently beneficial to it.

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