The Impact Of Corporate Social Responsibility On Profitability Of Commercial Banks In Nigeria

Project and Seminar Topics with material for Banking and Finance

The Impact Of Corporate Social Responsibility On Profitability Of Commercial Banks In Nigeria


Abstract


This research work seeks to examine the impact of corporate social responsibility on bank performance on the commercial banks in Nigeria. Time series data from 2004 to 2013 were computed from the financial statements of the samples studied. The period was assumed long enough to account for corporate social responsibility on five commercial banks in Nigeria. Annual reports from the secondary source of data collection where the CSR expenditure and return on assets (ROA) for the period of 2004-2013was used for the computational experiment. The data collected for this study were analyzed using correlation and regression analysis. The hypothesis formulated was tested. The study concluded that there is positive relationship between banks CSR activities and bank performance.

The study reveals that corporate social responsibility has a great impact on the society by adding to the infrastructures and development of the society and concludes that a company has to give back to the society in which it operates and also provide infrastructural facilities to the society as a way of giving back and developing the society. It was recommended that corporate social responsibilities should be seen by the firm as social obligations business concerns owe their shareholders, the local (host) community, general public, customers, employees and the government in the course of operating their legitimate businesses, such that CSR should be included in the law and enforced on the firms accordingly and that Government should fix a minimum percentage of profit corporate firm should expend on corporate social responsibility activities.


Chapter One


Introduction

1.1 Background of the Study

The issue of corporate social responsibility (CSR) and banks in Nigeria has become worthy of notice since the disclosure of expenditures on them is always on the front page of banks annual reports. It has drawn such attention that someone may want to know how much banks’ financial performance affects the said CSR. The proper disclosure of all social cost incurred within a year is really commendable because the stakeholders and other accounting information users may want to use it in decision making process. Therefore, communicating this information is one aspect banks in Nigeria have not neglected. However, the need for the banking sector to improve on what they are already doing has become necessary since businesses exist not only for the owners but basically for all stakeholders. Universal definition of CSR has not been established, therefore organizations have different definitions which is in accordance with their understanding and practice of CSR within their local environment and countries at large. Corporate Social Responsibility has always been referred to as corporate responsibility, corporate citizenship, social enterprise, sustainability, sustainable development, triple-bottom line, and corporate ethics in so many studies and, in some cases, corporate governance is used to describe it (Bassen et al., 2006). Divergence CSR definition among scholars and practitioners, has resulted into different definition by different researchers in different ways over time.

McWilliams and Siegel (2001) see Corporate Social Responsibility as “doing all those activities which are not forced by law of those countries in which they are running their business and which are not for the primary benefit of the business but for the benefit of the society”. According to Schoemaker and Jonker (2006), the basic normative premise of CSR is that organizations should exceed the normal business boundaries of maximizing profits for shareholders but endeavor to care for the host community and the business environment they are operating in. Companies’ contribution to improve the society and preserve the environment will go a long way to boost their profitability. Firms’ economic perception determine their extent of involvement in CSR activities.

Some organizations believe in maximizing the shareholders’ value, while some other believe in maximizing profits according to (Friedman, 1962). Albinger and Freeman (2000) stated that CSR is a factor of profitability and which has the ability to motivate, attract and retain the desired workforce and improve financial performance. Several studies have been carried out on the relationship between CSR and FP resulting in diverse conclusions. Ponnu and Okoth (2009) did a study on CSR disclosure in Kenya. They discovered that Kenyan companies are relatively smaller when measured by the international standards. Therefore, the participation of firms in social activities may not depend on their financial ability rather, their readiness and desire to strategically position their business within the society for future economic and competitive advantages. A study by Mutuku (2005) established that there was no relationship between CSR and financial performance while, a study by Wanjala (2011) found that banks that are profitably engaged in corporate social responsibility.

Globally, organizations are concerned with value re-investment to the society in appreciation of the contributions of the society to their growth, sustenance and survival. Hence attention is further directed to the potential consumers as well as non consumers of corporate offers as marketing concept philosophies are integrated into societal marketing concept as means of achieving desired level of social responsibility. Given this as the thrust of operations, corporate attention is increasingly being given to issues like equal employment opportunity, thus it is easier for corporation to be re-oriented to corporate social responsibility philosophies. But in the developing economies represented by Nigeria; consumers are unwilling to sacrifice convenience and pay potentially higher prices to protect the environment as they lack knowledge to make informed decisions dealing with their purchase, use and disposition of product; pollution control; energy and natural resources conservation and consumers’ and workers’ protection –Preston and Post (1975). Businesses thus operate on the philosophy of maximization of positive effects of their activities on the society as the negative impacts of these activities are minimized-Farrell and Fraedrich (2007). This is the thrust of corporate social responsibility as considered an obligation among businesses in the advanced societies of the globe. At an earlier point in history, societal expectations from business organizations did not go beyond efficient resource allocation and its maximization. But today, it has changed and modern business must think beyond profit maximization toward being at least socially responsible to its society.

Corporate social responsibility (CSR) is a fast growing concept in banking industry with little attention paid to its linguistic. CSR is common in the literature but not in the practice. Despite the need for business to be morally conducted, one of the primary reasons in CSR is whether organisations pursue it for economic reasons or because of the advantages involve. Unfortunately, there has been few or no empirical test conducted in support of the advantages and disadvantages involve in CSR. This makes CSR practice sustainable to the popular accusation of being a profitable public relations and marketing strategies (Adegboyega and Taiwo, 2011). Today’s heightened interest in the role of business in society has been promoted by increased sensitivity to the awareness of environmental and ethical issues. It means our society has become increasingly concerned that greater influence and progress by firms has not been accompanied by equal effort and desire in addressing important social issues including problems of poverty, drug abuse, crime, improper treatment of workers, faulty production output and environmental damage or pollution by the industries as it has overtime been reported in the media. It is therefore very essential for all to realize that public outcry for increased social responsibility will not disappear if business organizations fail to respond to the challenges these had posed for the society (Amaechi, 2009).In modern business world, corporate social responsibility has been emphasized by stakeholders as a driving tool for success to be accomplished. It has become an increasing evident and crucial component of overall performance of business organizations generally. Conscious of this concept, ordinary citizen, potential investors, pressure groups, politicians, insurance companies and a wide range of other stakeholders are increasingly demanding organizations to account for the social, natural environment and economic impacts that they have on every community in which they operate (Nwachukwu, 2006).CSR has today become imperative, due to the goodwill it generates and the belief that the overall health of both the corporate entities and the environment where they operate are mutually dependent.Corporate bodies in their desire to achieve sustainable development and improve the quality of life, execute operations in such manners that ensure the protection of natural environmentwithout however relegating to the background the desire to make economic progress Rondinelhi and Vastag (2006) and Berkowitz, Kerin, Hartley and Rudelius (2000). This is irrespective of whether or not consumers are socially responsibly in their purchases, use of product and unwilling to sacrifice convenience and pay potentially higher prices to protect the environment as they lack knowledge to make informed decisions dealing with the purchase, use and disposition of environmentally sensitive products-Speer (2007), hence, consumers are accountable for unethical and socially irresponsible corporate behavior unlike in the developed societies where marketers and consumers are accountable for ethical and social responsible behavior-Berkowitz, Kerin, Hartley and Rudeluis (2000). Thus, the de-emphasis for profit and stakeholders’ responsibilities in favour of societal responsibility at best the optimization of both is a pre-requisite for the needed macro economic development of Nigeria as firms in the petroleum industry begin to show inclination for social audit.


1.2 Statement of the Problems

Corporate social responsibility in act and deed enhances corporate images, reputations and market share as it attracts more employers and employees, and creates relationship between public relations and publicity, given that organizations are perceived to be honest and fair when mistakes are admitted, apologies are quickly, genuinely and sincerely made and activities are performed to make up for mistakes-Handy (2006) and Turban and Greening (2007). Advocates of corporate social responsibility stress the fact that business opportunities and profit are generated based on systematic and vigorous efforts of organizations at finding solutions to social problems-O’Toole (2001). It also saves organizations from illegalities and convictions that have the ability of reducing corporate sales growth and accounting returns over a period of time-Baucus and Baucus (2007). Based on the foregoing, it is discernable that corporate social responsibility is an integral part of corporate strategic management and marketing philosophies. some of the problems that necessitated this research work include;High rate of poverty in some of the area were these brewery firms are operating. High level of unemployment which shows that some of the companies in the country are not meeting up to their expectations. This study aims at findings solutions to the problems identified above.


1.3 Objective of the Study

The broad objective of this research work is to evaluate the impact of corporate social responsibility on profitability of commercial banks in Nigeria banking sector with particular reference to GT Bank, Access Bank and Zenith bank Plc.

Specific objectives of this research work includes the following;

  1. To examine the effect of social responsibility expenditure on the Return on asset of Nigerian financial institutions.
  2. To ascertain the relationship between social responsibility expenditure and Return on Equity of Nigerian financial institutions.
  3. To evaluate the effect of social responsibility expenditure on the Earning per share of Nigerian financial institutions.

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

  1. H0: Social responsibility expenditure does not influence the Return on asset of Nigerian financial institutions.
    H1: Social responsibility expenditure does influence the Return on asset of Nigerian financial institutions.
  2. H02: There is no relationship between social responsibility expenditure and Return on Equity of Nigerian financial institutions.
    H2: There is relationship between social responsibility expenditure and Return on Equity of Nigerian financial institutions.

1.5 Significance of the Study

The result of this exercise will aid the concessionaire (Government of Nigeria) and trans multinational corporations 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. The harmonizations of the above quality environment management programmes will catalyze the environment and Nigeria to high height in its quest for economic development. The study will also be of significant to Nigerian banks as it will serve as an eye opener to them in the area of their social responsibilities to the environment were they operates. This research work will also be of great importance to the land owners and those in the urban and rural areas were the banks and companies are operating as it will help them know more on responsibilities of their tenant banks or companies operating in their lands.


1.6 Scope and Limitation of the Study

This research work is central on impact of corporate social responsibility on profitability of commercial banks in Nigeria and will endeavor to show all relevant information that will enhance the actualization of the research objectives put into place. The researcher would have carried out research work into all known companies in Nigeria but for the constraints that confronted her, she limited her research works to only three banks which are GTBank, Access Bank and Zenith bank Plc all in Enugu metropolis. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities


1.7 Definition of Terms

Corporate:

Relating to a large company or group.

Social Responsibility:

Social responsibility is an ethical framework and suggests that an entity, be it an organization or individual, has an obligation to act for the benefit of society at large. Social responsibility is a duty every individual has to perform so as to maintain a balance between the economy and the ecosystems

Financial Performance:

Financial performance refers to the act of performing financial activity. In broader sense, financial performance refers to the degree to which financial objectives being or has been accomplished. It is the process of measuring the results of a firm’s policies and operations in monetary terms.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was the impact of corporate social responsibility profitability of commercial banks in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of corporate social responsibility reporting on financial performance of Nigerian banking sector


5.2 Summary

This study was on the effect of corporate social responsibility reporting on financial performance of Nigerian banking sector. Three objectives were raised which included: To examine the effect of social responsibility expenditure on the Return on asset of Nigerian financial institutions, to ascertain the relationship between social responsibility expenditure and Return on Equity of Nigerian financial institutions, to evaluate the effect of social responsibility expenditure on the Earning per share of Nigerian financial institutions. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of GTB, Enugu state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, accountants, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.4 Conclusion

Bank leaders need to practice CSR to be strong, healthy, and profitable. Nigeria is a developing nation that has a lot of potential and is in the process of making advancements in power, infrastructure, health care, and education. These sectors rely on Nigerian banks to be stable. Nigerian bankers are satisfied and feel overall that CSR is strong. However, there are areas that need addressing, including transparency and insider abuse. These factors can be detrimental to the Nigerian banking sector if not properly addressed. Based on the literature review and the results of this study, I believe that leaders of Nigerian banks will address their shortfalls because the banking sector has made great strides


5.4 Recommendation

Therefore, it is recommended that more CSR activities that will lead to public awareness of banks interest in the wellbeing of the entire social environment be carried out. CSR has the power to enhance profitability of businesses within an environment. Good name cannot be bought, it is earned by actions people can sight


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