ABSTRACT
The study investigated the effect of corporate social responsibility on the profitability of manufacturing firms in Nigeria. To achieve this objective, the study specifically investigated the effect of corporate social responsibility on Net profit margin (NPM) of manufacturing firms in Nigeria, effect of corporate social responsibility on Return on Asset (ROA) of manufacturing firms in Nigeria, effect of corporate social responsibility on Return on Equity (ROE) of manufacturing firms in Nigeria. The study restricted its scope to the period 2009-2018 and data used for the study was adopted from the Nigeria Breweries plc, Nestle Nigeria plc and 7up Bottling company. The simple regression method was employed as the analytical tool. Findings show that Net profit margin, Return on Asset and Return on Equity proxies for profitability as the dependent variable has a positive and significant relationship with corporate social responsibility, with social responsibility cost as the proxy for the independent variable. The study recommends that Company’s management should adopt good programs and scheme that helps to perform its social responsibility to the community, such as provision of social amenities needed by the communities for example, health centre, pipe-borne water, e.t.c. Also, it has been seen that social responsibility cost has significant and positive effect on the liquidity of the firm using current ratio which is a measure of liquidity as proxy, therefore based on the study, we recommend that investors should not be scared to invest its resource in the firm due to social responsibility costs as it has been proven to have a significant and positive effect on the firms profitability.
TABLE OF CONTENTS
Title
Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of
Contents vi
List of
Tables x
Abstract xi
CHAPTER ONE: INTRODUCTION
o
Background of the Study 1
o
Statement of the Problem 4
o
Objectives of the Study 6
o
Research Questions 6
o
Research Hypotheses 6
o
Significance of the Study 7
o
Scope of the Study 8
1.8 Operational
Definition of terms 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 9
2.1.1 Definition of Corporate Social
Responsibility 9
2.1.2 History of Corporate Social Responsibility 11
2.1.2.1 Benefits of Corporate Social Responsibility 13
2.1.2.2 Common Roles of CSR in Community Development 14
2.1.2.3 Branches/Types of CR 16
2.1.3 Argument For and Against CSR 17
2.1.4 Arguments against Corporate Social
Responsibility 17
2.1.5 Arguments for Corporate Social
Responsibility 18
2.1.6 Concept of profitability 19
2.1.6.1 Corporate Social Performance and Firm
Profitability 20
2.1.7 The Concept of CSR in the manufacturing
Sector 21
2.1.7 Corporate
Social Responsibility In Nestle Nigeria Plc, Nigerian Breweries plc and 7up
bottling Companies. 22
2.1.7.1 Brief
History of Nigerian Brewery 23
2.1.8 Principles of Corporate Social
Responsibility 24
2.2. Theoretical Framework 30
2.2.1 The Theory of Social Costs 30
2.2.2 Agency Theory 31
2.2.3 Stakeholder Theory 32
2.2.4 Relational Theory 34
2.3 Empirical
Framework 36
2.4.1 Gap in Literature 46
CHAPTER THREE: METHODOLOGY
3.1 Research
Design 47
3.2 Area
of study 47
3.3 Population
of the Study 48
3.4 Sample size and technique 48
3.5 Data
collection and source 49
3.6 Data
Analytical Technique 49
3.7 Model Specification 49
CHAPTER FOUR:
DATA PRESENTATION AND ANALYSIS
4.1
Data presentation 52
4.2
Test of hypotheses 53
4.2.1 Hypothesis
One 54
4.2.2 Hypothesis
Two 56
4.2.3 Hypothesis
Three 59
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 61
5.2
Conclusion 62
5.3
Recommendations 62
REFERENCES 64
APPENDIX 67
LIST OF TABLES
Table 2.1 Corporate social responsibility table 20
Table 2.2 Three dimension CSR 22
Table 4.1 Descriptive analysis variables 40
Table 4.3 Result of Hausman Test 42
Table 4.4 Result of Hausman Test II
Table 4.5 Regression of corporate social responsibility 47
Table 4.6 Result of Hausman test III 46
Table 4.7 Anova table 35
Table 4.8 Coefficient table 36
Table 4.9 Model summary hypothesis 38
Table 4.10 Anova table 38
Table 4.11 Coefficient table 38
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
The primary objective of a firm is to maximize shareholders
‘value by producing goods and services that meet the needs of the society. The
economic operations of firms have drawn significant attention of their
stakeholders, for example, employees, suppliers, unions, customers, investors,
creditors, regulators and directors. These stakeholders now demand more
transparency and accountability from firms by mounting considerable pressure on
them to carry the society along in their economic decisions. Corporate Social
Responsibility (CSR) refers to the practice whereby corporate entities
voluntarily integrate both social and environmental issues into their business
decision making and operations. However, CSR in recent times implies that
companies voluntarily integrate social and environmental concerns in their
operations and interaction with stakeholders. However, some arguments suggest
that CSR is just a reminder that the quest for profit should be considered
alongside social and environmental considerations (Manuel &Lúcia, 2007).
Branco and Rodrigues (2008) hold the view that CSR is analyzed as a source of
competitive advantage and not an end in itself.
In effect, the concept of CSR has evolved from being
regarded as detrimental to a company‘s profitability, to being considered as
somehow benefiting the company as a whole, at least in the long run. Corporate
managers have found a need that the environment in which they operate should be
catered for because their intermediate and macro environments have a direct
impact on the attainment of their corporate goals, objectives and mission
statements. Therefore, the purpose of profit-making organizations is to
maximize profit through optimal utilization of available resources. It is
important to note that profitability is an important factor to companies, because it is one of the major
purposes for which companies are established. In the emerging global economy,
where the Internet, the news media and the information revolution shed light on
business practices around the world, companies are now frequently assessed on
the basis of their environmental stewardship in addition to their ability to
make profit. Partners in business and consumers want to know what is inside a
company. This transparency of business practices means that for manufacturing
in Nigeria, CSR is no longer a luxury but a necessity.
Mazurkiewicz (2004) recognizes that the concept of CSR
has been developing since the early 1970s. Therefore, there is no single,
commonly accepted definition of CSR. There are different perceptions of the
concept among stakeholders. CSR in banking sector is aimed addressing the
peculiarity of the socio-economic development challenges of the country (e.g.
poverty alleviation, health care provision, infrastructure development,
education, etc.) and would be informed by socio-cultural influences (e.g.
communalism and charity). They might not necessarily reflect the popular
western standard or expectations of CSR (e.g. consumer protection, fair
practice, green marketing, climate change concerns, and social responsible
investments).
Companies
are assumed to be socially responsible because they anticipate a benefit from
their actions. Examples of such benefits might include reputation enhancement,
the ability to charge a premium price for its outputs, or the use of CSR to
recruit and retain high quality workers. These benefits are presumed to offset
the costs associated with CSR, since resources must be allocated to allow the
firm to achieve CSR status, while a key indicator to determine the true worth
and value of modern organizations is their ability to give back to the society
part of their income through some mutually beneficial initiatives
(Nkanbra&Okorite, 2007).
The
concept of shared value or Corporate Social Responsibility (CSR) has
exponentially attracted the attention of the business world as well as
researchers. The overall performance of an organization is greatly dependent on
the ethical business activities and activities related to social and
environmental benefits. These activities will help an organization to sustain
its reputation and goodwill. CSR is actually consists of all the practices of
corporate governance which are related to policies, procedures, practices the
focus of which is to improve social conditions, rights, protections,
environmental protections and protection of the interest of all the
stockholders of the business. It is the time not to confine business only for
profitability of the firm but associate those with the social benefit as
financial gain are actually associated with a social benefit of society. CSR is
not just investment but a strong link between the firm and its stakeholders.
According
to Ruben and Christopher (2009) CSR activities require a responsibility on the
part of corporations toward its stakeholders specifically its customers,
employees and community in addition to its profit maximization goals. These
activities include donations or commitments regarding environment protection;
social well-being projects and providing a healthy and safe working place for
its employees.
In
the literature on CSR, different authors described it in different ways. There is no universal definition of CSR,
organizations have trained different definitions and there are several
perception of the term according to the context locally and among the
countries.
According
to Egels (2005), the area defined by advocates of CSR increasingly covers a
wide range of issues such as plant closures, employee relations, human rights,
corporate ethics, community relations and the environment.
According
to Ruggie (2002), CSR is a strategy for demonstrating good faith, social
legitimacy, and a commitment that goes beyond the financial bottom line.
Corporate
social responsibility (CSR) is a business approach that contributes to
sustainable development by delivering economic, social and environmental
benefits for all stakeholders.
Corporate
Social Responsibility (CSR) refers to the practice whereby corporate entities
voluntarily integrate both social and environmental issues into their business
decision making and operations. However, CSR in recent times implies that
companies voluntarily integrate social and environmental concerns in their
operations and interaction with stakeholders.
CSR
truly began to take hold in the U.S. in 1970s, when the concept of the “social
contract” between business and society was declared by the committee for
economic development in 1971. The social contract is based on the idea that
business functions because of public “consent”, therefore business has an
obligation to constructively serve the needs of society. This is often referred
to today as “license to operate”- that is to contribute more to society than
solely their products for sale.The term CSR can further be seen as policy sets,
programs and practices within a business organization, which are wider in
scope. Based on this above, this study focused on the effects of corporate
social responsibility on profitability of public companies, a case study of
manufacturing firms in Nigeria.
1.2 STATEMENT OF THE PROBLEM
The
Nigerian economy today is faced with multiplicity of challenges ranging from
high unemployment rate, high poverty (which stood at 69 percent of the 163
million population of Nigeria (NBS, 2010), corruption, youth restiveness,
political cases, security challenges which has great effect on investment
(Aimurie, et al.,)and economic growth
among others. These problems are generally seen as social issues, thus the more
social improvements related to a company’s business, the more it leads to
economic benefits as well (Porter, and Kramic, 2002).
Since
the role of manufacturing companies is to enhance economic growth and with all
these challenges facing the economy thereby threatening economic growth at this
critical time that the Nigerian manufacturing want to be the financial hub of
Africa in the year 2020 and the nation is prepared to be one among the top 20
largest economic in the world by the year 2020. Even if the manufacturing companies
are socially responsible to an extent, there is need for the Nigerian
manufacturing companies to rethink both where (that is sector and location)
they focus their CSR and how they go about their CSR as no business can thrive
in chaos environment.
Manufacturing
companies operations all over the world are technological driven, right from
the door that customer passes through to enter the banking hall to the
recording of the transaction between the customer and the bank or with third
party requires one technology or the other which must be powered with
electricity. Due to epileptic power supply in Nigeria, most organizations have
to provide alternative power supply rather than relatively cheaper National
goal (EEDC).
This
and some other factors have been militating against efficient running of
business organization in Nigeria. As they have to factor the cost of fueling
the alternative sources of power which is always costly among others.
However,
in the face of the above challenges, for manufacturing in Nigeria, the practice
of aspirate social responsibility as a concept entails the practice whereby
corporate entities reluctantly integrate both social and environment uplifting
in the business philosophy and operations. A business enterprise is primarily
established to create valuable production of goods and services which society
demands. It therefore seems that the practices of CSR will further pose a
burden on the financial performance of manufacturing companies. This has made
most observers perceive Nigeria business environment as been hostile. In the
light of the above problems faced by most manufacturing, there is the need to
evaluate the effect of CSR on organizational performance.
1.3 OBJECTIVE OF THE
STUDY
The main objective of this study is to determine the
effect of corporate social responsibility on profitability of manufacturing
firms in Nigeria. The specific objectives of the study are to:
i.
Examine
the effect of corporate social responsibility on the net profit margin of
manufacturing firms in Nigeria.
ii.
Examine the effect of corporate social
responsibility on the return on asset of manufacturing firms in Nigeria.
iii.
Assess
the effect of corporate social responsibility on the return on equity of
manufacturing firms in Nigeria.
1.4
RESEARCH QUESTIONS
i.
To
what extent does corporate social responsibility affects the net profit margin of
manufacturing firms in Nigeria?
ii.
To
what extent does corporate social responsibility affects the return on asset of
manufacturing firms in Nigeria?
iii.
To
what extent does corporate social responsibility affects the return on equity of
manufacturing firms in Nigeria?
1.5 RESEARCH
HYPOTHESES
In
order to achieve the objectives of this research, the following null hypotheses
are stated:
i.
Corporate social responsibility has no significant effect on
the net profit margin of manufacturing firms in Nigeria.
ii.
Corporate social responsibility has no
significant effect on the return on asset of manufacturing firms in Nigeria.
iii.
Corporate social responsibility has no
significant effect on the return on equity of manufacturing firms in
Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
It
is expected that this study will provide an indication of how the corporate
social responsibility landscape looks like in Nigeria’s manufacturing system
since there are no significant differences in the structured and operational
models in the various firms in Nigeria.
More
so, this study is important because it will add to the existing literature of
manufacturing companies CSR in
particular on how socially responsible is the Nigerian firms in addressing the
challenges and enhancing the economic growth of Nigeria, which is one of the
key sector that can drive the economic growth of any nation.
1
The result of this work will aid
the manufacturing companies system 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 decree of neglect of government
as a regulatory agent in the executive of its social responsibility duties.
2. To
the government; it will also highlight the decree of neglect of government as a
regulatory agent in the executive of its social responsibility duties.
3. To other corporate entities; It will
help them determine their social responsibility towards the community which
goes a long way in their long term planning.
4. To the public: To know the relationship
between the community and the corporate entities and what they stand to gain
from them.
1.7 SCOPE OF THE STUDY
The
scope of this research would encompass the practice of corporate social
responsibility and its effects. The
effects of social services by corporation shall be examined in relations to
financial performance, employee commitment and community development. The study
which focuses on manufacturing firms in Nigeria, Such as Nigerian Brewery plc,
Nestle Nigeria Plc and 7up bottling company Aba branch from 2009-2018.
1.8 DEFINITION OF TERMS
Corporate: A corporate is a business entity whose operations are
recognized by law. It is often regarded as a separate and independent entity
and its vision and mission are profit oriented.
Social Responsibility: Social responsibility can be viewed as a part of the
social contract in that is the responsibility of each entity whether it is
state, Government Corporation, organization or individual that they are
contributing to society at large, or on a smaller scale.
Manufacturing
Firms performance: Manufacturing firm’s performance is simply the action, achievement,
accomplishment carried out by manufacturing firms
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