Assessing the effect of corporate social responsibility on financial performance of a company
Statistics from Nigerian quoted banks
Purpose – to research the effect of the corporate social responsibility (CSR) on the corporate financial performance (CFP) of quoted banks in Nigeria.
Design/Method/Research approach. Using data of corporate social responsibility expenditure as a proxy for CSR and the trio of return on assets (ROA), return on equity (ROE), and bank earnings per share (EPS) as a proxy for CFP, regression analysis was conducted. ROA, ROE, and EPS data were collected from the banks’ financial statements for the period 2012 – 2016.
Findings. In particular, our analysis and findings suggest that CSR expenditure had no significant effect on all the three proxies of CFP of quoted banks in Nigeria. It supports the arguments in the literature that financial performance alone does not justify expenditure on CSR activities by the quoted Nigerian banks.
Practical implications. Our results show that there is a need for banks to consider other factors to see if the case for CSR activities exists. If they do not, the banks should stop engaging in these activities to increase the banks’ profitability.
Paper type – empirical.
Adedipe, O. A., & Babalola, A. (2014). Corporate Social Responsibility: Panacea to Corporate Growth. Journal of Economics and Sustainable Development, 5(12), 29-39.
Bagnoli, M., & Watts, S. G. (2003). Selling to Socially Responsible Consumers: Competition and the Private Provision of Public Goods. Journal of Economics & Management Strategy, 12(3), 419–445. https://doi.org/10.1162/105864003322309536.
Barnett, M. L., & Salomon, R. M. (2006). Beyond dichotomy: the curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27(11), 1101–1122. https://doi.org/10.1002/smj.557
Bowen, H. R. (1953). Social Responsibilities of the Business Man. New York: Harper.
Chernev, A., & Blair, S. (2015). Doing Well by Doing Good: The Benevolent Halo of Corporate Social Responsibility. Journal of Consumer Research, 41(6), 1412–1425. https://doi.org/10.1086/680089.
Chetty, S., Naidoo, R., & Seetharam, Y. (2015). The Impact of Corporate Social Responsibility on Firms’ Financial Performance in South Africa. Contemporary Economics, 9(2), 193–214. https://doi.org/10.5709/ce.1897-9254.167.
Flammer, C. (2014). Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strategic Management Journal, 36(10), 1469–1485. https://doi.org/10.1002/smj.2307.
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman Publishing.
Freeman, R. E., & Reed, D. L. (1983). Stockholders and Stakeholders: A New Perspective on Corporate Governance. California Management Review, 25(3), 88–106. https://doi.org/10.2307/41165018.
Gtbank. (2019, May 28). GTBank Releases Q3 2019 Unaudited Results ... Reports Profit before tax of ₦170.7 Billion. Retrieved from https://bit.ly/3tSrhYI.
Hagel III, J., Brown, J. S., & Davison, L. (2010, March 4). Finance & Accounting. Retrieved from Harvard Business Review: https://hbr.org/2010/03/the-best-way-to-measure-compan.
Hopkins, M. (2003). The Planetary Bargain: Social Responsibility Matters. London: Earthscan Publications Ltd. https://doi.org/10.4324/9781849773201.
Ioannou, I., & Serafeim, G. (2015). The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics. Strategic Management Journal, 36(7), 1053-1081. https://doi.org/10.1002/smj.2268
Kang, C., Germann, F., & Grewal, R. (2016). Washing Away Your Sins? Corporate Social Responsibility, Corporate Social Irresponsibility, and Firm Performance. Journal of Marketing, 80(2), 59–79. https://doi.org/10.1509/jm.15.0324.
Lim, C. (2017). Relationship between Corporate Social Responsibility and Corporate Financial Performance. Walden Dissertations and Doctoral Studies.
Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2014). Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal, 36(1), 123–136. https://doi.org/10.1002/smj.2219.
Herrera Madueño, J., Larrán Jorge, M., Martínez Conesa, I., & Martínez-Martínez, D. (2016). Relationship between corporate social responsibility and competitive performance in Spanish SMEs: Empirical evidence from a stakeholders’ perspective. BRQ Business Research Quarterly, 19(1), 55–72. https://doi.org/10.1016/j.brq.2015.06.002.
McWilliams, A., & Siegal, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification? Strategic Management Journal, 21(5), 603-609. https://doi.org/10.1002/(sici)1097-0266(200005)21:5<603::aid-smj101>3.0.co;2-3.
McWilliams, A., & Siegel, D. (2001). Corporate Social Responsibility: a Theory of the Firm Perspective. Academy of Management Review, 26(1), 117–127. https://doi.org/10.5465/amr.2001.4011987.
Mkansi, M., & Acheampong, E. A. (2012). Research Philosophy Debates and Classifications: Students’ Dilemma. Electronic Journal of Business Research Methods, 10(2), 132-140.
Obi, J. N. (2011). Corporate Social Responsibility: How Socially Responsible are Business Organisations Today? International Journal of Social Science, 3(6), 1-10.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate Social and Financial Performance: A Meta-Analysis. Organization Studies, 24(3), 403–441. https://doi.org/10.1177/0170840603024003910.
Oh, W., & Park, S. (2015). The Relationship Between Corporate Social Responsibility and Corporate Financial Performance in Korea. Emerging Markets Finance and Trade, 51(sup3), 85–94. https://doi.org/10.1080/1540496x.2015.1039903.
Petrenko, O. V., Aime, F., Ridge, J., & Hill, A. (2015). Corporate social responsibility or CEO narcissism? CSR motivations and organizational performance. Strategic Management Journal, 37(2), 262–279. https://doi.org/10.1002/smj.2348.
Prior, D., Surroca, J., & Tribó, J. A. (2008). Are Socially Responsible Managers Really Ethical? Exploring the Relationship Between Earnings Management and Corporate Social Responsibility. Corporate Governance: An International Review, 16(3), 160–177. https://doi.org/10.1111/j.1467-8683.2008.00678.x.
Qiu, Y., Shaukat, A., & Tharyan, R. (2016). Environmental and social disclosures: Link with corporate financial performance. The British Accounting Review, 48(1), 102–116. https://doi.org/10.1016/j.bar.2014.10.007.
Rao, K., & Tilt, C. (2015). Board Composition and Corporate Social Responsibility: The Role of Diversity, Gender, Strategy and Decision Making. Journal of Business Ethics, 138(2), 327–347. https://doi.org/10.1007/s10551-015-2613-5.
Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role of good corporate governance. BRQ Business Research Quarterly, 19(2), 137–151. https://doi.org/10.1016/j.brq.2015.08.001.
Saeidi, S. P., Sofian, S., Saeidi, P., Saeidi, S. P., & Saaeidi, S. A. (2015). How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of Business Research, 68(2), 341–350. https://doi.org/10.1016/j.jbusres.2014.06.024.
Wang, D. H.-M., Chen, P.-H., Yu, T. H.-K., & Hsiao, C.-Y. (2015). The effects of corporate social responsibility on brand equity and firm performance. Journal of Business Research, 68(11), 2232–2236. https://doi.org/10.1016/j.jbusres.2015.06.003.
Wang, H., Tong, L., Takeuchi, R., & George, G. (2016). Corporate Social Responsibility: An Overview and New Research Directions. Academy of Management Journal, 59(2), 534–544. https://doi.org/10.5465/amj.2016.5001.
The authors agree with the following conditions:
1. Authors retain copyright and grant the journal right of first publication (Download agreement) with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
2. Authors have the right to complete individual additional agreements for the non-exclusive spreading of the journal’s published version of the work (for example, to post work in the electronic repository of the institution or to publish it as part of a monograph), with the reference to the first publication of the work in this journal.
3. Journal’s politics allows and encourages the placement on the Internet (for example, in the repositories of institutions, personal websites, SSRN, ResearchGate, MPRA, SSOAR, etc.) manuscript of the work by the authors, before and during the process of viewing it by this journal, because it can lead to a productive research discussion and positively affect the efficiency and dynamics of citing the published work (see The Effect of Open Access).