CORPORATE SOCIAL RESPONSIBILITY AND FIRM’S PERFORMANCE

ABSTRACT

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.

CHAPTER ONE

INTRODUCTION

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.

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.

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?

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.

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

1.9 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.

1.11 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.