Corporate Social Responsibility And Sustainable Development
The need to improve involvement of corporate organizations in the Socio-economic development of the nation has been of paramount Concern. With the increased concentration on the corporate social responsibility, firms are not only required to focus narrowly on generating profit returns for shareholders, but also asked to take responsibility for firms‘ other stakeholders. Hence, both having a decent social responsibility performance and adding profitability is significant for companies to achieve sustainable success in the long-term. This study therefore examines the effect of corporate social responsibility on the profitability of financial institutions in Nigeria. It uses panel data from 14 financial institutions over a period of 10 years (2006-2015) and tests for statistical significance using analysis of variance and multiple regression analysis. The results show that corporate social responsibility has significant and positive effect on net profit margin, return on total assets and return on equity, which were used to proxy for profitability. The study concludes that corporate social responsibility has positive and significant influence on profitability. The study recommends that banks should continue to invest in corporate social activities as much as practicable because they result into long run increase in profitability. Also, bank managers should leverage on social responsibility expenditures by ensuring that they are linked to profitable operations.
Table Of Contents
- Title Page
- Table of Content
- 1.1 Background to the Study
- 1.2 Statement of the Problem
- 1.3 Research Questions
- 1.4 Objective of the Study
- 1.5 Research Hypotheses
- 1.6 Scope of the Study
- 1.7 Significance of the Study
- 2.1 Introduction
- 2.2 Conceptual Framework
- 2.3 Theoretical Review
- 2.4 Empirical Literature Review
- 3.1 Introduction
- 3.2 Population and Sample Size of the Study
- 3.3 Model Specification
- 3.4 Variables Definition and Measurement
- 3.5 Methods of Data Collection
- 3.6 Data Analysis Techniques
- 3.7 Diagnostic/Post Estimation Tests
Data Analysis And Interpretation
- 4.1 Introduction
- 4.2 Descriptive Statistics
- 4.3 Diagnostic Tests Results
- 4.4 Regression Results
- 4.5 Testing of Hypotheses
- 4.6 Summary of Findings
Summary, Conclusion And Recommendations
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendations
- 5.4 Suggestions for Further Research
- 5.5 Contributions to Knowledge
1.1 Background to the Study
An organization has been viewed by management practitioners as a social system that its inputs i.e raw materials, money, machine, man and information from the operating environment and subsequently transformed such inputs into finished products that provide satisfaction for the people in the environment. It is a well known fact that corporations are established to achieve certain goals of which profit maximization is said to be imperative.
Lately, the need for corporate social responsibility (CSR) to their host communities has become a major concern for governments and business organizations. Reason for this argument is borne out of the fact that companies are not established for their owners alone. It is generally noted that the activities of corporations have both negative and positive impacts on the environment.
Henderson (2001), observed that corporate social responsibility (CSR), the set of standards to which a company subscribes in order to make its impact on society, has the potential to make positive contributions to the development of society and businesses. More and more organizations are beginning to see the benefits from setting up strategic CSR agendas. The CSR movement is spreading over the world and in recent years a large number of methods and frameworks have been developed, the majority being developed in the west. This research work, though, will take its focus on Africa in general, and on Nigeria specifically. The purpose is to investigate and analyse the concept of CSR from a Nigerian perspective.
According to Maignan and Ralston (2002) a wide range of behaviours are classified under CSR including cause-related marketing, sponsoring charitable events, offering employee volunteerism programs, making charitable donations, utilising environmental initiatives and demonstrating a commitment to health and safety issues in the host community.
The foregoing implies that as corporations enjoy outstanding performances in terms of profit making and organisational development they should positively impact on the country of operation. This according to Wikipedia (2008) report is synonymous to corporate responsibility.
In the light of the above, the company is responsible to those who invest in it. Shareholders should enjoy adequate returns on money invested on its operations. In the same vein, the workers who are responsible for the organisation’s profit generation deserve proper welfare packages. On the other hand, suppliers of raw materials should be catered for, while the customers that purchase the goods and services offered by the company have the right to maximum satisfactions derivable from using it products at affordable prices.
Ironically, several views have been espoused by critics for and against the need for companies to engage in corporate social responsibility. It is against this backdrop that this study is embarked upon to evaluate organizational performances and CSR in Nigeria.
1.2 Statement of the problem
The drivers for CSR in the west are to be found within areas such as increased brand value, greater access to finance, a healthier and safer workforce, stronger risk management and corporate governance, motivated people, customer loyalty, enhanced confidence and trust of stakeholders as well as enhanced public image. These drivers may not necessarily be applicable to Nigerian companies. Most indigenous companies in Nigeria are seen as, privately held, family owned and operated as such. Local consumer and civil society pressures are almost non-existent and law enforcement mechanisms are weak (Amaeshi, Adi, Ogbechie& Amao, 2006).Financial institutions with good operating results and strategies can reduce screening and monitoring costs and diversify risk across different projects and overcome liquidity risks which ultimately provide savers with high return. Having long term financial success can attract investment in long-term projects while allowing investors access to their savings at short-term notice (Levine, 1991).
These institutions allow cross-sectional diversification across projects, allowing risky innovative activity while guaranteeing contracted interest rate to savers (King and Levine, 1993). Financial institutions can boost the rate of technological innovation by identifying the entrepreneurs with most promising technologies. Successful institutions can help reduce liquidity risk and enable long-term investment (Diamond and Dybvig, 1983). Banks with sound long term performance can offer job security to its employees, create new employment opportunities, assure government of continuous revenue apart from satisfying their shareholders’ expectations. These problems necessitates the need to carry out a study on corporate social responsibility and sustainable development.
1.3 Research Questions
In the light of the foregoing, the research questions of this study are articulated as follows:
- What effect does corporate social responsibility has on the net profit margin of financial institutions in Nigeria?
- How does corporate social responsibility affects the return on assets of financial institutions in Nigeria?
- Does corporate social responsibility affects the return on equity of financial institutions in Nigeria?
1.4 Objective of the Study
The general objective of this study is to carry out a study on corporate social responsibility and sustainable development on financial performance of the banking institution. The specific objectives of the study are to:
- Examine the effect of corporate social responsibility on the net profit margin of financial institutions in Nigeria.
- Examine the effect of corporate social responsibility on the return on total assets of financial institutions in Nigeria.
- Assess the effect of corporate social responsibility on the return on equity of financial institutions in Nigeria.
1.5 Research Hypotheses
In order to achieve the specific objectives of this research, the following research hypotheses have been formulated to be tested in the study:
H1: Corporate social responsibility has no significant effect on the net profit margin of financial institutions in Nigeria.
H2: Corporate social responsibility has no significant effect on the return on total assets of financial institutions in Nigeria.
H3: Corporate social responsibility has no significant effect on the return on equity of financial institutions in Nigeria.
1.6 Scope of the Study
The study focuses on corporate social responsibility and sustainable development. It covers a period of ten years (2006-2015) for the 15 financial institutions in Nigeria. The period of investigation is significant in many respects: first, the period witnesses the global financial crisis of 2007/2008 and therefore it will be interesting to investigate whether the crisis affected corporate social responsibility activities of financial institutions in Nigeria; second, since the 2015 financial data of the banks are published, 20062015 represent the most recent data in respect of the financial performance of financial institutions in Nigeria.
1.7 Significance of the Study
The study is expected to make contributions to knowledge in a number of ways. The outcome of this research will provide information about CSR in relation to corporate institutions especially the financial institutions in Nigeria. It is also expected that the results of this study would produce relevant material for scholarly discourse in management science relating to corporate social responsibility and profitability. Another benefit is that in a truly global economy, deposit money banks in Nigeria would be more responsible and become citizens. Banks would more easily and willingly respond to the social needs of the societies where they operate.
The findings generated in this study are useful in testing the existing theories under extreme conditions not present in developed economies where most of the prior studies were carried out. Current and potential investors are supplied with information to help them make good investment decisions. The findings and conclusion may enable the regulators to know the nature of demand placed on deposit money banks in Nigeria and ways banks have responded to them.
The work is important to the government, host communities and non-governmental organizations involved in development programmes. This study fills literature gap by investigating the effects of CSR on profitability of deposit money banks. The results provide useful evidence to other emerging sectors such as insurance, which is closely related to deposit money banking sector.
Summary, Conclusion And Recommendations
The overall objective was to examine corporate social responsibility and sustainable development. The findings indeed supported the overall relationship with an explanation of 72.25 per cent with regard to NPM and 95 per cent with regard to ROTA and 91% with regard to ROE. NPM, ROTA and ROE models were found to be significant at 5% level of significance too. The study employed both causal and explanatory research designs with a census of 14 firms or 93.33 per cent % of target population.
Diagnostic tests such as multicollinearity, serial correlation, stationarity, heteroskedasticity, normality and hausman specification were performed in support of the application of the Random Effects Models used to analyze the nature and the degree of the relationships. Conclusions on the statistical significance between CSR and profitability measured by NPM, ROTA and ROE were drawn. The moderating effect of firm size and interest rate on the effect of CSR on profitability was also looked. The summary of each is itemized based on the specific objectives of the study.
On the effect of CSR on NPM of financial institutions in Nigeria, the study finds that CSR had significant positive effect. A unit increase in CSR leads to 0.0553 increase in NPM. Similarly, CSR has significant positive effects on ROTA and ROE. A unit increase in CSR leads to increases of 0.03 in ROTA and 0.009 in ROE. On the moderating effects of firm size and interest rate on the effect of CSR on profitability of listed DMBS in Nigeria, both were positive and significant when profitability is measured by ROTA. However, when profitability was measured by ROE, only firm size was found to be significant.
Based on the findings of the study, the following conclusions are drawn:
- CSR influences the profitability of financial institutions in Nigeria. Overall, there exist a strong effect of CSR on NPM, ROTA and ROE. These effects were also found to be positive and significant at 5% level of significance. In addition, results on the effect of CSR on NPM, ROTA and ROE suggest that stakeholders theory is applicable based on the investors return on investment.
- On the moderating effect of corporate social responsibility on profitability by firm size, the study concludes that indeed firm size had significant positive moderating effect. This is realistic since as expected the size of a firm measured by natural logarithm of total assets dictates a lot on the availability of resources to use to fund corporate social responsibility activities.
From the findings and conclusions, the following recommendations are made:
- Financial institutions should continue to invest in corporate social activities as much as practicable because they result into increase in profitability.
- Financial institutions should leverage on their social responsibility
expenditures by ensuring that they are linked or connected to profitable operations.
5.4 Suggestions for Further Research
This study focuses on financial institutions on the floor of the Nigerian Stock Exchange. It is therefore the view of the study that further research can be done on listed non-banking financial services firms and compares their results with those of this study. It is also imperative to undertake similar studies on larger scope like all the listed firms and compare their findings with the current findings. Also, ROTA and ROE models may be extended to include more moderating variables from firm characteristics such as age, growth, liquidity, diversification and asset utilization. The addition of these variables may improve the adjusted R2 of each of the three models.
5.5 Contributions to Knowledge
This study contributes to knowledge particularly in the area of the nexus between corporate social responsibility and profitability. The study uses three models to proxy profitability (net profit margin, return on total assets and return on equity), which is novel to the best of the knowledge of the researcher at this level. Most empirical studies at this level use two models or single model to model profitability.
This study uses interest rate to mirror economic conditions, in addition to firm size, and firm leverage to control the models so that the true effect of corporate social responsibility on profitability can be properly estimated for financial institutions of Nigeria. Again, this is unique, as most empirical studies use only firm-specific attributes as control (moderating) variables.
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