Impact Of Corporate Social Responsibility On The Growth And Expansion Of Firms
(A Case Study Of 5 Selected Companies In Nigeria)
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Corporate social responsibility (CSR) is a significant notion that is progressively being deliberated and adopted worldwide. Various stakeholders are demanding the incorporation of social activities in the organizations daily practices. Some of the reasons why companies adopt CSR are; compliance with the law, to enhance a competitive advantage, others do it because it is the right thing to do for the society. The study sought to establish the effect of CSR on financial performance of listed firms in the Nigeria Stock Exchange (NSE). Growth and Expansion (Financial performance) was measured using profitability (Profit after Interest and Tax). Investment in CSR was measured using monetary spending on social activities. Data was obtained from audited financial statements, websites publications and annual reports of 5 companies selected at random. Secondary data was obtained from the year 2014 to 2018. The data was cleaned, pre-tested, validated, coded and analyzed using SPSS. The study adopted a descriptive research design to test the existence of any linear relationship between financial performance and CSR. The study applied multiple regression analysis models to assess the influence of CSR on the growth and expansion of companies in Nigeria. Growth and expansion propensity was the dependent variable while corporate social responsibility was used as the explanatory variables in the study. Target population comprised of publicly listed companies in the NSE of which complete and necessary data available was for 5 companies. Conclusions were derived based on 5% significance level. The study established that CSR had a sufficiently high positive significant effect on growth and expansion of firms in Nigeria. Study findings were that the variables were strongly correlated. The study concluded further that a positive and a significant relation existed between CSR and Growth and Expansion – Profitability. The study recommended that firms should be socially responsible so as to enhance the value of the firm for the shareholders. The study also recommends CSR not to be viewed as a voluntary undertaking but a compulsory practice for the firms. Also, policies among firms to ensure that the firms act in ethical and socially responsible manner to all stakeholders should be formulated and implemented. Lastly, government should cook up certain measures to ensure that defined parts of corporations’ tax liabilities are channelled to public use or a provision tax holidays for CSR compliant companies as an incentive to spur others into active participation in social responsibility.
Title Page
Certification
Declaration
Dedication
Acknowledgment
Table of Contents
Abstract
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study 1
1.1.2 Financial Performance – Indicators of Growth and Expansion 2
1.2 Statement of the Problem 3
1.3 Research Questions 4
1.4 Objectives of the Study 4
1.5 Statement of the Research Hypotheses 4
1.6 Significance of the Study 4
1.7 Scope of the Study 4
1.8 Operational Definition of Terms 5
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction 6
2.1 Conceptual Framework 11
2.1.2 Motivation and Impacts of Implementing CSR 13
2.1.3 The Relationship between CSR and Profitability – Growth 15
2.1.4 CSR – Profitability Relationship 16
2.1.5 Profitability-CSR Relationship 18
2.1.6 Understanding the Relationship 18
2.2 The Financial Impacts from CSR 19
2.2 Theoretical Review 20
2.2.1 Stakeholder Theory 20
2.2.2 Slack Resource Theory 21
2.2.3 Agency Theory 22
2.7 Empirical Studies of CSR and Financial Performance 23
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction 25
3.2 Research Design 25
3.3 Population and Sample Size 25
3.4 Sources and Data Collection Techniques 26
3.5 Validity and Reliability 26
3.6 Model Specification 27
3.7 Method of Data Analysis 27
3.7.1 Criteria for Decision Making 28
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION4.1 Introduction 30
1.2 Data Presentation 30
4.3 Data Analysis 31
4.4 Discussion of Results 31
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS5.1 Summary 34
5.2 Conclusion 34
5.3 Recommendations 34
5.4 Suggestion for Further Studies 35
5.5 Limitations of the Study 36
References 37
Appendix 42
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nothing in life is instant or constant. All things are subject to gradual or sequential changes and ultimately, their ends are the justification of their means. Business in times past have existed with no other interests or concern than to efficiently and effectively allocate scarce resources for profit maximization and cost minimization. This is justified by the opinion of a School of Thought on Social Integrity and Responsibility – “Classic view: this school of thought believes that management’s sole responsibility of running a business is to maximize profit and nothing more or less†(Ikhu-Omoregbe, 2017).
Some frantically believe that businesses are no charitable organizations, that value must be given for money or goods, no such thing as free lunch in free town and that business men are no Father Christmas. They are of the opinion that all expenses must be qualitatively and quantitatively expended or incurred toward the practical achievement of organizational goals, not minding other things with no seeming face value but are invaluable intrinsically.
Contrary to the Classic’s view of social responsibility, the Socio-Economic view opined that the business of businesses must not only be restricted to business alone. Business corporations should consider the social welfare of their staff and the environment from which they generate their economic benefits and not just the profit.
According to Wikipedia, since the 1960s, corporate social responsibility has attracted attention from a range of businesses and stakeholders. A wide variety of definitions have been developed but with little consensus. Part of the problem with definitions has arisen because of different interests represented. A business person may define Corporate Social Responsibility (CSR) as a business strategy, an NGO activist may see it as “green wash†while a government may see it as voluntary regulation. Corporate social responsibility has been defined by Sheehy, 2014 as “International private business self-regulationâ€.
As evident above, academicians and practitioners have been striving to establish and agree upon definitions of the concept of corporate social responsibility for over 30 years. Davis (1960) suggested that social responsibility refers to businesses’ decisions and actions taken for reasons, at least, partially beyond the firms’ direct economic or technical interests.
In today’s dynamic business world, corporate organisations are faced with the need to impact positively on their hosts – business communities, by taking upon themselves certain responsibilities in order to increase their societal and environmental influence so as to ensure consumers’ loyalty (brand loyalty), continual patronage, good legislations from the government, communal ambience and serenity, security of assets, profitability, healthy liquidity, public support and guaranteed going concern; all these are factors that determine the growth, expansion or success of a company i.e. indicators of growth.
A sick business environment is most likely to infect an emerging business regardless of its capital base, hence, the need to examine the benefits and prospects of CSR to any organization in Nigeria. In fact, the concept of corporations have an obligation to consider the interests of customers, employees, shareholder, stakeholders, communities as well as the ecological “footprints†in all aspects of their operations.
1.1.2 FINANCIAL PERFORMANCE – INDICATORS OF GROWTH AND EXPANSION
Selecting firms that are performing well can be a difficult task. An organization can be making profit and at the same time be having low levels of liquidity. As a result, the term financial performance is interpreted differently by the various stakeholders. Managers believe that an organization is performing well if it is making profit. For the shareholders and other aspiring investors, they are interested in receiving dividends and wealth maximization, customers are in need of quality goods and they like buying from profit making companies among others. Thus, financial performance refers to how well organizations’ are managed and satisfying the interest of their stakeholders. It also involves determining how effectively an organization has applied its assets to generate revenue in its key kind of business (Harber and Reichel, 2005).It is important for firms to manage the limited resources within the company or corporation. This will ensure efficiency and at the same time deliver quality goods and services required in order to achieve effectiveness. Most businesses fail due to poor financial planning and management. Firms are required to measure their financial performance to determine their financial well-being over a given period.
There exist both financial and nonfinancial indicators of performance. Ratios such as profitability, liquidity, solvency and efficiency are used as financial indicators. Economic value added and market value added are nonfinancial indicators. Maditinos (2005) divided performance measures into traditional accounting measures and modern value based measures. The commonly used accounting measures include Return on Equity (ROE), Return on sales (ROS) and Return on Assets (ROA). The most widely used measure of financial performance is ROA (McGuire, 1988) and it tells what earnings were generated from invested capital. The main demerit of using ROA is that it only measures the historical performance. Tobins Q can be used as a marketing measure. It’s described as the ratio between market value and replacement value. A ratio greater than one signifies a greater market value of assets than what is recorded thus encouraging the company to invest more in capital.
1.9 STATEMENT OF THE PROBLEM
In spite of the huge attention and awareness given to corporate social responsibility in Nigeria, it is still burdening and unreasonable to see certain corporations turn deaf ears to the campaign and its invaluable benefits, seeing no reason to accept the CSR policy and those other coy that reluctantly accepted and adopted the practice do so with strings attached.
It is against this that this study seeks to find out how great an additive a planned and strategic CSR policy can be to the growth and expansion of organisations. The “growth†factor here encapsulates increased profitability, improved turnovers, revenue mopping, viral goodwill, wide acceptability of products and business-friendly environments.
1.10 RESEARCH QUESTION
As a guide to the efficiency of this work and prevention of unnecessary circumlocution, a specific question has been coined from the problem stated above and that is:
• How does Corporate Social Responsibility impact on the growth and expansion of companies in Nigeria?
1.11 OBJECTIVE OF THE STUDY
The main aim of this study is to investigate, examine and verify the impact of corporate social responsibility on the growth and expansion of companies in Nigeria
1.12 STATEMENT OF THE RESEARCH HYPOTHESIS
To provide empirical answers to the research question stated in 1.3 above, the below hypothesis was raised tentatively:
H0: Corporate Social Responsibility does not in any way impact the growth and
expansion of companies in Nigeria.
1.13 SIGNIFICANCE OF THE STUDY
The importance of this study is not just to analyse the practice of corporate social responsibility or pass a course but to understand the current trend and provide an update on knowledge and experience that could be invaluable.
This work will also help to explore the impact of CSR on employees’ commitment to the organisation. What part do the employees play in CSR? Can they influence the decision making process? What are their expectations from companies? All these are what this study intends to vilify.
1.14 SCOPE OF THE STUDY
The focus of this work is to depict to various users of this research work, regardless of where you belong in the cadre of stakeholders how CSR can help to fuel and speed up the growth and expansion of firms or vice-versa. It is a general fact that the Nigeria industry has diverse categories and sub-divisions of companies in relation to their products’ and services’ area of specialization e.g. manufacturing, services, agro-allied, food and beverages, etc. All things being equal, universally, businesses deal with their outside world of humans of which invariably, their responses can be predicted.
1.15 OPERATIONAL DEFINITION OF TERMS
This portion seeks to intimate users with seeming technical jargons or terms for clarity purposes, to avoid the problem of ambiguity.
• Commitment: As used in this work, it is the pledging of loyalty to an organisation by the employees or the customers.
• Social Responsibility: This connotes a demonstration of certain responsible behaviours on the part of public and private sectors toward the society and environment.
• Community: This refers to a group of people living in an area where an organization operates. They are group persons with religions, races, professions and other particular activities.
• Performance: This explains the thriving and wellness of an organization, how it functions, operates and behaves in the society.
• Stakeholders: These are persons or groups with interests, involvement or investment in a business organisation e.g. the employees, shareholders, government and customers of a business organization.
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