ABSTRACT
This study examined the effect of corporate social responsibility costs on financial performance of listed companies in Nigeria. The study made use of ex-post facto research design and the data collected from secondary sources were analysed using the ordinary least square technique. The panel regression estimation was employed. The results revealed that corporate social responsibility cost (corporate social responsibility donation) has a significant effect on return on equity, return on asset and tubin Q after controlling for firm size and age. The study concludes that corporate social responsibility cost significantly affects the performance of listed companies in Nigeria. It is recommended that corporate entities in Nigeria should invest in CSR activities in its entire ramification in order to boost their image/reputation thereby increasing their returns. Additionally, government needs to adopt a measure that monitors corporate organizations fair investment in social responsibility so as to discourage some management who records high costs on their financial report for CSR to evade tax and without giving anything back to the society. Corporate entities needs to adopt a measure that monitors corporate organizations fair investment in social responsibility so as to discourage some management who records high costs on their financial report for CSR against net profit to evade tax and without giving anything back to the society.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables vii
Abstract viii
CHAPTER 1: INTRODUCTION
1.1 Background to the
Study
1
1.2 Statement of the Problem
4
1.3
Objectives
of the Study
5
1.4
Research
Questions
5
1.5
Hypotheses
of the Study 6
1.6 Scope/Limitation of the Study
6
1.7
Significance
of the study
6
1.8
Operational definition of terms
8
CHAPTER 2: REVIEW OF RELATED
LITERATURE
2.1 Conceptual
Framework
9
2.1.1
Concept of
corporate social responsibility 9
2.1.2
Historical origin of corporate social responsibility 14
2.1.3 Corporate
social responsibility development in Nigeria 15
2.1.4. The Scope of corporate social
responsibility
18
2.1.5 Characteristics
of corporate social responsibility 19
2.1.6 Responsibilities of
corporate social responsibility 20
2.1.6.1 Responsibilities towards firm itself
21
2.1.6.2 Social
responsibility towards employees 23
2.1.6.3 Social responsibility towards shareholders 23
2.1.6.4
Social responsibility towards customers 24
2.1..6.5 Social responsibility towards
environment
24
2.1.7
The effects of implementing Corporate Social Responsibility 25
2.1.8
Corporate social responsibility and sustainability development
in
Nigerian firms 27
2.1.9
Corporate social Responsibility and accounting information
discourse 30
2.1.10
Determinates of corporate social
responsibility
31
2.1.10.1Financial
performance and economic environment 31
2.1.10.2Competition 32
2.1.10.3
Legal environment
32
2.1.10.4 Private regulation and the presence of independent
organization 33
2.1.10.5 Business Education environment
34
2.1.10.6 Employer-employee relations
34
2.1.11 Economic Drivers of corporate social responsibility 34
2.1.12 Measurements of corporate social responsibility and corporate
financial
performance 37
2.1.12.1 Measurement of corporate social responsibility and
cooperate (CSR) 37
2.1.12.2 KLD Index (Kinder, Lydenberg, Domini) 38
2.1.12.3 Corporate social
performance Disclosure 38
2.1.12.4 Reputational indices
39
2.1.12.5 Social audit or corporate responsibility index (CRI) 39
2.1.12.6 Measurement of corporate financial performance (CFP) 39
2.2 Theoretical Framework 40
2.2.1 Agency theory 40
2.2.2 Stakeholder theory 41
2.2.4 Legitimate theory 43
2.3 Empirical Review 43
2.4 Summary of Empirical Review 74
CHAPTER
3: RESEARCH METHODOLOGY
3.1 Research
Design 79
3.2 Population of the
Study 79
3.3 Sample and Sampling
Technique 79
3.4 Data Sources 80
3.5 Model Specification 80
3.6 Techniques
of Data Treatment 82
CHAPTER 4: DATA PRESENTATION, ANALYSIS AND DISCUSSION
OF FINDINGS
4.1 Data Presentation 83
4.2 Data analysis 83
4.2.1 Descriptive statistics 83
4.2.2 Correlation analysis 85
4.2.3 Unit root test 86
4.2.3.1 Panel unit root test for department and
independent variables 86
4.2.4 Co-integration test 88
4.2.4.1
Co-integration test for the series RESTOE FSIZE FAGE and LCSRD 88
4.2.4.2
Co-integration test for series RESTOE FSIZE FAGE and LCSRD 89
4.2.4.3
Co-integration test for series TUBINQ FSIZE FAGE and LCSRD 89
4.2.5 Test of
constant variance (Heteroskedasticity) 90
4.2.5.1 Test of
constant variance for Model 1 90
4.2.5.2 Test of
constant variance for Model 2 91
4.2.5.3 Test of constant variance for Model 3 91
4.3 Test
of constant variance for Model 3 91
4.4 Discussion of Findings 94
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings 96
5.2 Conclusion 96
5.3 Recommendation 97
5.4 Contribution to knowledge 97
5.5 Suggestion for Further Studies 97
References 98
Appendixes 106
LIST OF TABLES
Table 2.1: Summary of empirical review 73
Table 3.1: Summary of independent and dependent variables 80
Table 4.2: Descriptive statistics 83
Table 4.3: Correlation retoe tobinq fsize fage lcsrd (obs = 720) 84
Table 4.4: Result of panel unit root test for the variables 86
Table 4.5: Cointegration test- Engle Granger 87
Table 4.6: Cointegration test- Engle Granger 88
Table 4.7: Cointegration test- Engle Granger 88
Table 4.8: Model 1 Heteroskedasticity test: white 89
Table 4.4.2: Heteroskedasticity test: White 89
Table 4.4.3: Heteroskedasticity test: White 90
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Over the past few years, the role of corporations towards the social
context within which it operates has changed.
This is not unconnected to the rapid globalization and ever changing
pressing economic, social and ecological issues arising from business. The new
development trends of economics, the use of technologies and economic
globalization presents new challenges not only to the business community but
also to mankind as a whole. There is therefore no doubt that, it has become an
inevitable necessity for firms to be socially responsible. Consequently, due to
the shift from merely profit to profit with social responsibility many firms
have come to embrace the concept of social responsibility (Pradhan &
Ranjan, 2010).
In our contemporary society, corporate social responsibility is
treated as a matter of strategic importance how the environmental and social
aspects of the human life should be integrated into the business strategy and
everyday practice. CSR is conceived as an activity policy and practice of
organizations (and individuals) when the companies voluntarily integrate social
and environmental matters into their business and combine them harmoniously
with economic interests and the relationships with all stakeholders are based
on the valuable principles of respect for the individual, society and the
environment.
Corporate social responsibility is centered on the concept of
stewardship accounting. Stewardship to the those who can affect the business or
to whom the business can affect (stakeholders). This concept lies at the root
of financial reporting. The concept of stewardship accounting provides the link
which unites financial accounting and social responsibility accounting in an
unbroken chain of historical development. Accordingly, this concept should be
interpreted to mean that the managers of business corporations have a
responsibility to society as stewards of the social assets entrusted to them.
Social stewardship implies an obligation to disclose information which will
allow informed judgments to be made about the quality of the social management
of these assets, which we may define as the management of assets for the
benefit of society.
Corporate social responsibility extends the debate
about financial reporting which is being examined, by widening the context in
which the problem of financial reporting should be considered. Before now,
corporate organizations have ranked business considerations based on
profitability and earnings per share. Companies have also recognized all
indirect expenditures as overheads without paying attention to the environment
and social cost. Conventional accounting practice has not recognized
environmental and social cost accounting except for materials, water, energy
and other natural resource usage. Besides, conventional accounting has not
provided for such practice and particularly for accounting for social cost
disclosure and its impact on performance.
The issue of social responsibility (CSR) and sustainable development
have attracted extensive attention both at local and international levels
especially in the media and in the academia. Modern business organizations
expectations have moved beyond making and maximizing profits to being socially
responsible to the society even at a cost. It is news that business
organizations do not exist in isolation but exist within a society, therefore
business organizations need to contribute positively to the development of the
society in which they operate. It has become a necessity for companies to deal
with issues that concern all stakeholders, either internal or market-related
who perceive CSR as the company’s commitment to behave socially and
environmentally responsible while striving to meet its economic goal (Isaksson
and Steimle, 2009).
In today society businesses
operate in an environment where consumers are becoming more discerning, where
businesses are in the obligation to adopt a mode of management more
participatory and take into account the concerns of a multitude of
stakeholders. In effect the shareholder model, which proclaimed the
maximisation of shareholder value, considered that the purpose of any
profit-making organisation is to ensure the interests of the introducers of
financial resources is fast eroding and the more wider and all-encompassing
stakeholder theory has gained sufficient grounds.
The role of firms and their contribution to the society continues to
attract attention worldwide and has been a subject of various studies. This is
predominantly because of the central role the activities of firms play in
developing society and the resultant externality due to its negative impacts
like environmental degradation and hazards, violation of safety rules and
regulations. There is a growing body of research on the area of accounting and
society giving rise to what is known as social responsibility accounting. This
body of research and essays bring to limelight the lack of consensus and
conflicts in CSR theories, operations, research methodology and results thus
creating gaps for further studies. The terminologies in CSR is flexible and
dynamics and concepts such as society and business, social issues
management, public policy and business, stakeholder management, corporate accountability
are but a few of the terms used to capture the phenomenon embedded in corporate
responsibility to society.
The growing demand for corporations
to be socially responsible has brought to lime light the implications of the
cost of being socially responsible and how that correlates with the performance
of the corporation involved. According to Ofurum, Ogunyemi , Amobi and Okonya
(2019) the
effect of corporate social responsibility costs on financial performance is
becoming all the time more crucial to a broad range of corporate stakeholders;
notwithstanding the fact that companies investment in social responsibility
activities have not been easy to manage. It is believed to be one the tools that
organizations must implement to ensure and main a peaceful business
environment. This therefore suggests that the corporate social responsibilities
of the firm is not limited to internal stakeholders such as the employees,
managers, the board of directors, investors but are also covers individuals not
inside a business itself but who are interested in or are impacted by its
performance such as: regulators, consumers, investors, suppliers, communities
etc. In Nigeria, corporate social responsibility is basically carried out by
Deposit money banks, manufacturing firms, oil & gas industries and so on.
The CSR activities of these industries include provision of pipe borne water,
provision of electricity poles and transformers, expansion of school buildings
and construction of new ones, road maintenance, health care services, sponsoring
of tournaments, quiz and debates, issuing of scholarships to the less
privileged and down-syndrome and many others. Whereas social responsibility
cost has been on the increase from year to year, there is no consensus from
results of previous empirical studies on the nature of relationship social
responsibility cost has with profitability. Some argued that CSR has a positive
and significant impact on financial performance of firms, while others argued
that a negative and significant relationship exist between CSR and financial
performance. Based on these discrepancies, this study wish to empirically
examine the relationship between the two variables using manufacturing
companies listed in Nigeria stock exchange.
1.2 STATEMENT OF THE PROBLEM
Despite the fact
that CSR is being discussed more and more both by businesses and stakeholders
alike, it is no doubt still accompanied by numerous uncertainties such as the
social responsibility activity itself, the cost, the disclosure and the
presentation of its information to the users of financial statement. These
different aspects of the social responsibility studies however depends on the
country in context and the regulations guiding its operations. Because of this,
the problem has been that different studies continue to turn in mixed results
about the nature, scope of social information on theories on corporate social
information disclosure behavior and how CSR impacts company’s reputation and
financial performance. There is no consensus on the impact of corporate social
responsibility cost and financial performance of companies in Nigeria. This
study therefore sought to provide empirical evidence on the relation between
corporate social responsibility cost and financial performance of listed firms
in Nigeria with a focus on selected listed firms.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to determine the effect of corporate
social responsibility cost on financial performance of quoted companies in
Nigeria.
The specific objectives of the study are as follows:
1)
To determine the effect of corporate
social responsibility cost (corporate social responsibility donation) on return
on equity.
2)
To examine the effect of corporate
social responsibility cost (corporate social responsibility donation) on return
on asset.
3)
To ascertain the effect of corporate
social responsibility cost (corporate social responsibility donation) on net
profit margin.
1.4 RESEARCH QUESTIONS
The research questions for the study are as follows:
1)
What is the effect of corporate
social responsibility cost (corporate social responsibility donation) on return
on equity?
2)
What effect does corporate
social responsibility cost (corporate social responsibility donation) have on return
on assets?
3)
What is the effect of corporate
social responsibility cost (corporate social responsibility donation) on net
profit margin?
1.5 RESEARCH
HYPOTHESES
In order to achieve the objectives of this research, the following
null hypotheses were formulated:
1)
Corporate social responsibility
cost (corporate social responsibility donation) has no significant effect on
return on equity.
2)
Corporate social responsibility
cost (corporate social responsibility donation) has no significant effect on
return on asset.
3)
Corporate social responsibility
cost (corporate social responsibility donation) has no significant effect on net
profit margin.
1.6
SCOPE OF THE STUDY
The study
focused on the effect of corporate social responsibility cost on financial
performance of quoted companies in Nigeria. The study covered a period of ten
(10) years ranging from 2010 to 2019. The independent variable corporate social
responsibility cost measured with corporate social responsibility donation (LogCSRD)
controlling for firm size (FSIZE) and firm age (FAGE) while the dependent
variable financial performance was proxy by return on assets (RETOE), return on
equity (RETOA), and net profit margin (NPM).
1.7 SIGNIFICANCE OF THE
STUDY
It has been identified that several groups of people have vested interest in a business enterprise (Glautier
& Underdown (1998). The study is significant to government, investors,
business management, regulatory bodies, educators, researchers, accountants,
auditors and scholars particularly in the field of accounting. This research seeks to make theoretical and practical contributions
to the field of accounting in the area of responsibility accounting. It will
particularly enhance the quality of literature in the field of accounting in
Nigeria. Researchers in this field
would benefit from the study because it can serve as a bench mark for future
research on corporate social responsibility.
With the outcome of this research, the
regulatory authorities, such as the Financial Reporting Council of Nigeria
(FRCN), Nigerian Stock Exchange (NSE) and Securities
and Exchange Commission (SEC) would be able to ascertain the extent of voluntary
compliance corporate social responsibility. This will help them to issue out
necessary compliance directives and improve the compliance mechanisms to ensure
a reasonable level of compliance by all companies’ in future through standards.
Finally, the study will have practical importance to governments at
all levels as it will help in formulating policies that will enhance corporate
social responsibility in the country.
1.8
OPERATIONAL DEFINITION
OF TERMS
Corporate social responsibility: It is a commitment to improve community well-being through
discretionary business practices and contributions of corporate resources.
Financial performance: This refers to return on equity, return on asset
and net profit margin.
Responsibility accounting: Is a system
for collecting and reporting revenue and cost information by areas of
responsibility.
Social benefits: Are those gains
accruable to the environment from corporate organization in exchange for the
effect of the environment.
Social cost: This is the cost to the
society resulting from the operations of an enterprise in its particular
circumstances (Social donation).
Social reporting: Is the disclosure of
information of the effect that the operations of an entity has on the society
or environment.
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