The relationship between corporate social responsibility and financial performance of companies listed at the Nairobi Stock Exchange

Abstract

In recent years, firms have greatly increased the amount of resources allocated to activities classified as Corporate Social Responsibility (CSR). While the CSR activities may be consistent with the firm value maximization, should managers maximize the present value of their firms cash flow in making strategic choices favouring the shareholders or sometimes abandon wealth maximizing interests of firms shareholders for the good other firm's stakeholders? The question was addressed through a research study that investigated whether these activities addressing the plight of other stakeholders will improve, have no impact or deteriorate on firm's corporate performance.

The researcher sampled companies listed at the Nairobi Stock Exchange (NSE) Main Market segment over a five year period interval. According to the major findings of the study, CSR has a positive relationship to the fmancial performance of firms. The major significance is noted in the Return on assets (ROA) and Return on sales (ROS).

The study concluded that there is a positive relationship between CSR and fmancial performance of companies listed at the Nairobi Stock exchange and companies should focus more CSR in order to achieve greater financial performance. As recommendations for improvement all stakeholders should embrace the importance of CSR in order to achieve the greater performance efficiency. The government should develop a CSR index for all companies and annually published in order to promote this emerging phenomenon.