TABLE OF CONTENTS
Dedication v
Acknowledgements vi
Abstract vii
CHAPTER
ONE: INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement of the Problem 3
1.3 Objectives of
the study 4
1.4 Research
Questions 4
1.5 Research
Hypotheses 5
1.6 Significance of
the study 5
1.7 Scope of the
study 6
1.8 Limitations of the study 6
1.9 Definition of terms 6
CHAPTER TWO: REVIEW OF RELATED
LITERATURE
2.1 Conceptual Framework 8
2.1.1 Concept of social accounting 8
2.1.2 Concept of environmental accounting 9
2.1.3 Social and environmental
accounting 10
2.1.4
Benefits of implementing social accounting practices by companies 11
2.1.5 Definition
of social responsibility costs (CSR) 12
2.1.6 Principles of corporate social
responsibility 15
2.1.7 Can
Firms Sacrifice Profits in the Social Interest? 16
2.1.8 Benefits
and cost for companies which behave social responsible 18
2.1.10 Environmental investments/waste management 21
2.1.11 Social and environmental performance reduces cost: 22
2.2 Theoretical Framework 22
2.2.1 Legitimacy
theory: 22
2.2.2 Stakeholders theory 23
2.2.3 Positive accounting theory 24
2.2.4 Social contract theory 25
2.2.5 Instrumental stakeholders
theory 25
2.3
Empirical Review 25
2.4
Summary/Gap in literature 29
CHAPTER THREE: METHODOLOGY 3.1 Research Design 30
3.2 Area of the Study 30
3.3 Population of the study 30
3.4 Sample size determination and Sample size 31
3.5 Method of Data Collection and Data Sources
31
3.6 Method
of Data Analysis 31
3.7 Model Specification 31
CHAPTER FOUR: DATA PRESENTATION AND
ANALYSIS 33
4.1 Data Presentation
33
4.2 Data analysis/ hypothesis
testing
35
CHAPTER
FIVE: SUMMARY AND CONCLUSION 38
5.1 Summary
38
5.2 Conclusion
38
5.3 Recommendation 38
REFERENCES
41
List of Tables
4.1 Time series data collection of major variables
4.2 Cumulative time series data collection
4.3 Regression results of the effect of social and
environmental cost on earning per share
4.4 Regression results on the effect of social and
environmental cost on net profit margin
4.5 Regression results on the effect of social and
environmental cost on return on asset
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
The
state of the world’s environment and the effect of mankind on the ecology of
the world at large have led to the increased public concern and scrutiny of the
operations and performances of companies. Companies are now expected to be able
to demonstrate that they are aware and addressing the impact of their
operations on the environment and society in general. The rapid growth in
business activities has brought the need for companies to disclose their’
environmental and social activities in the annual report and accounts under
corporate social responsibility. In this regards, businesses are expected to
take into cognizance a wide array of social interests and expenditure on
environmental activities.
At no time in, at least the last 20
years has matters relating to an organization interaction with the society being
so widely accepted as centrál, even both crucial to the future
wellbeing of both the business and those who are affected by it. Whether for
moral, economic, legal or pragmatic
reasons, every organization has to make an
increasingly explicit assessment of its sociál impact and
to attempt to reposition itself as the terms of social contract between business and society under
increasing scrutiny. By redefining success in terms of sociál impact, social accounting can strengthen the business case for investment in social ventures (Auka ,2006).
In
the light of increasing deleterious effects of environmental pollution, great
importance is attached not only to the financial aspects (profitability) of companies
but also to its environmental and social impact. The understanding of Corporate
Social Responsibility (CSR) and its wide coverage made it easier to emphasize
on responsibility towards the company’s employees, local community, society and
the future generation, Malgorzata & Agnieszka (2013).
Mgbame
(2013), observed that increasing emphasis on the role of corporations in
ensuring environmental sustainability has necessitated the need for a
multidisciplinary approach to issues of environmental protection. While it is
observed that environmental practices have often been perceived as the
opportunity cost of economic growth, the ideology of sustainable development is
beginning to dominate the sphere of public policy. The implication on corporate
entities in this regard is to reconfigure their corporate objectives to reflect
the same levels of environmental accountability. However, environmental
disclosures are discretionary, suggesting that corporations exert unimaginable
control over the preparation and disclosure of social and environmental
information. Consequently, a disturbing effect is that in most cases, firms’
claims of being environmentally responsible may simply reflect an attempt at
corporate branding (Adams, 2002; Al-Tuwarijri; Theodare., Christensen &
Hughes, 2004; Artiach., Lee., Nelson & Walko, 2010; Karamba & Joseph,
2016; Malarvizhi & RanJani, 2016).
According
to Field (2002), little was recognized of the environmental depletion and
degradation to the environment until a few well-meaning people in the developed
countries realized that it was not good having great corporate profits without
considering the cost of managing large scale of the ecosystem by which we are
nourished. It became obvious that degradation, pollution and accelerated
destruction of the ecosystem and the depletion of non-renewable environment
biodiversity have serious impact on the financial performance of firms.
Dimowo
(2010), observed that companies in pursuit of profits can do great social harm
and the environment suffers, thus, there is an emphasis for a meeting point
between corporate objective of profit maximization and the need for
environmental management. In this regard, the need for environmental cost has
become the concern and focus of nations and responsible corporate managements
(Okoye & Ngwakwe, 2004). Environmental Management Systems (EMS) have
emerged as a means to systematically apply business management to environmental
costs to enhance a firm’s long-run financial performance by developing
processes and products that simultaneously improve competitive and environmental
performance.
However
within the developing nations, the understanding is somewhat different mainly
because of weak government regulations and lack of organized pressure groups
and consumer awareness to influence corporate behavior. Environmental expenditures
in terms of effective organizational cost reduction are a highly viable
approach toward managerial justification of environmental management system in
enhancing profitability. With the present regulations on environmental
management in Nigeria, manufacturing companies are subjected to comply with the
environmental regulation.
Thus,
environmental cost provides a framework to environmental responsibility and
corporate financial performance. The extent to which the environmental costs
influence financial performance of firms is determined by some variables, such
s community development costs, waste management costs and environmental taxes
and fines. The impact of these variables on financial performance, represented
here by return on total assets, return on capital employed and earning per
share would be examined in this work. Since environmental protection has now
become a global issue; managers have to focus their attention on creating
biodegradable products that can be recycled.
By
incurring environmental and social costs, whether this cost improve or reduce
financial performance is the central question that will be explored by this research.
1.2 Statement of the Problem
The establishment of
companies in any society is a welcome development.
This is because the environment is open to other economic activities indirectly
and job creation directly as a result of the presence of the companies. Various
forms of companies are scattered here and there in any environment that has
resources both natural and other attractions. The companies include extractive,
manufacturing and services. All these have their own negative impact depending
on the nature of business undertaken by the company.
In order to control social
costs and the impact of the potential hazards presented by the operations of
firms in the manufacturing industry, such firms usually strive to act socially
responsible ways. Social responsibility typically involves costs that firms
bear which have some effect on their financial performance. As such, attempting
to act in a way that is socially responsible impacts negatively at least in the
short run on the performance of a firm. The specific costs that are often
identified in this regard include those related to waste management, pollution
abatement, community development (social costs) and environmental taxes and
fines. Determination of the effect of these costs on the financial performance of
listed firms in Nigeria is the major problem of this research.
1.3 Objectives of
the study
The main objective of this
study is to determine the effect of social and environmental cost on financial
performance of listed firms in Nigeria. Specifically, the study intends to:
1. Find out the effect of
social cost (SC) and environmental cost (EC) on Return on asset (ROA) of listed
firms in Nigeria
2. Evaluate the effect of
social cost (SC) and environmental cost (EC) on Net profit margin (PM) of
listed firms in Nigeria
3. Determine the effect of
social cost (SC) and environmental cost (EC) on Earnings per share (EPS) of
listed firms in Nigeria
1.4 Research
Questions
The following questions
will be answered by the study;
1. To what extent does social
cost and environmental cost affect return on asset of listed firms in Nigeria?
2. How does social cost and
environmental cost affect net profit margin of listed firms in Nigeria?
3. What is the effect of
social cost and environmental cost on earnings per share of listed firms in
Nigeria?
1.5 Research
Hypotheses
The hypotheses to be
tested in the study in null form are as follows:
Ho1: There is no significant
effect of social cost and environmental cost on return on asset of listed firms
in Nigeria
Ho2: The effect of social cost
and environmental cost on net profit margin of listed firms in Nigeria is not
significant
Ho3: Social cost and environmental
cost does not have any significant effect on earnings per share of listed firms
in Nigeria
1.6 Significance of
the study
This research work will be
beneficial to the following set of people.
1. Management of Businesses: Top management of businesses charged with the responsibility
of strategy formulation, set goal and objectives and approving budgets made by
lower managers will be enlightened through this work about the reason of
affecting the lives of people in the environment where they are situated and
not just to maximize profit and pay dividend to shareholders. The study will
open their eyes to that benefit that will accrue from including public interest
in the goals and objectives of their firm.
ii. Stakeholders: The
stakeholders of firms will learn from this study that a business should not
only be concerned with profit maximization but should be concerned with
affecting the locality where they are situated as it will help the firm in
achieving the main objective which is to make profit.
iii. Community leaders: The concept of corporate social responsibility
will be brought to the notice of community leaders as the knowledge of it will
help reduce unemployment rate, alleviate poverty, reduce illiteracy, and raise
the standard of living of people living in their community and possibly neighboring
communities too.
iv. Government: It
is the primary role of the government to the masses is the provision of social
amenities that will make live much easier for them. This study will educate the
government on how useful firms can be in their various localities in terms of
bringing development to the locality where they are situated. Their
contributions will help the government in the development and growth of the
economy.
v. Academia: This work will be
beneficial to lecturers and students as it will serve as an educational
material for corporate social responsibility and its importance to the public
and the firms too. This work will also be beneficial to researchers as it will
serve as a reference material for further study on this same topic and related
topics.
1.7 Scope of the
study
The study focused on the effect of social and environmental cost on the financial performance of listed firms in Nigeria. For a proper research to be
conducted and to be effective, this project will limit its investigations on
the impact of social and environmental cost on listed manufacturing firms in
Nigeria. Firms performance proxies (ROA, NPM and EPS) are the dependent
variables while the independent variables consist
of social costs and environmental costs. The time frame of
the study is a 10-year period from 2008-2017 and ten
(10) randomly selected manufacturing firms listed during the time period would
be considered for this study.
1.8 Limitations of the study
i) Time was a limiting factor in
this research work. This is due to the fact that the research was carried along with normal academic
programme making it difficult to devote time
to this research work. Most information needed for this study is not within the reach of the researcher, especially
annual reports.
ii) Financial constraint is another limitation to this study;
this is due to the fact that all the
information needed for this study is not within costless reach. The above mentioned constraints notwithstanding, a
balanced and scientific study will be ultimately
conducted.
1.9 Definition of terms
Financial performance: A measure of how well a firm can use
assets from its primary mode of business and generate revenues.
Responsibility accounting:
Is
a system for collecting and reporting revenue and cost information by areas of
responsibility.
Social cost: This is the cost to the society resulting from the
operations of an enterprise in its particular circumstances.
Social benefits: Are those gains accruable to the environment from
corporate organization in exchange for the effect of the environment.
Social reporting: Is the disclosure of
information of the effect that the operations of an entity has on the society.
Environmental cost: Costs
connected with the actual or potential deterioration of natural assets due to
economic activities.
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