Effects of Corporate Social Investment on Firm Performance for Public Listed Firms in Kenya

Abstract

In recent years, firms have greatly increased the amount of resources allocated to activities classified as Corporate Social Investment (CSI). While the CSI activities may be consistent with the firm value maximization, should managers maximize the present value of their firms’ cash flow in making strategic decisions that favor the shareholders or sometimes choose to abandon wealth maximizing interests of firms’ shareholders for the good of the other firm's stakeholders? The question was addressed through a research study that investigated whether the activities addressing the issues of other stakeholders will improve, have no impact or decrease the firm's financial performance. The researcher compiled data from companies listed at the Nairobi Stock Exchange (NSE) over a period of four years. According to the major findings of the study, CSI has a positive and significant relationship to the firms’ financial performance based on Return on assets (ROA) of the firm. The study concluded that there is a positive relationship between CSI and financial performance of companies listed at the Nairobi Stock exchange and firms should focus more CSI in order to improve its financial performance and hence increasing the shareholders’ wealth. As recommendations for improvement all stakeholders should embrace the importance of CSI in order to achieve the greater performance efficiency. The government through legislation should develop a CSI index for all companies and annually published in order to promote this emerging phenomenon