Firm Characteristics, Corporate Social Responsibility, Operating Environment And Performance Of Financial Institutions In Kenya

Abstract

Organizational performance has been a key research issue for a majority of scholars in business research. Indeed, researchers and practitioners have attempted to unravel how firms can remain competitive by ensuring they keep their performance at peak year on year. Firms are thus making performance a key concern, which they grapple with often with all measures geared towards its improvement. Despite these efforts, it is still difficult to explain how two similar firms operating in the same environment have variations in their performance. The study conceptualized a relationship between firm characteristics, corporate social responsibility, operating environment and firm performance. It observed that there are factors which influence performance key among them being firm characteristics. Despite this observation, scholars remain skeptical on why performance is still a mirage. To address this challenge, this study proposed that there are key variables which when combined well with firm characteristics, would yield sustainable performance. The study observed that corporate social responsibility and operating environment play a greater role in enhancing the performance of the financial institutions in Kenya. The main objective of the study was to establish the influence of firm characteristics, corporate social responsibility and operating environment on the performance of financial institutions in Kenya. The study had the following specific objectives; effect of firm characteristics and firm performance, relation between firm characteristics and corporate social responsibility, effect of corporate social responsibility and firm performance, effect of corporate social responsibility in the relationship between firm characteristics and firm performance, effect of operating environment in the relationship between firm characteristics and firm performance and finally, joint effect of firm characteristics, corporate social responsibility and operating environment and performance of financial institutions in Kenya. The study had four hypotheses, which were tested at 95 percent confidence level. The study was conducted through cross-sectional descriptive survey. Data was gathered using semi-structured questionnaire delivered through drop and pick method as well as through email. A census of 382 financial institutions was reached, out of which, a response rate of 36.4 percent was achieved. The study further used multivariate and hierarchical linear regression analyses. The findings indicate a statistically significant relationship between firm characteristics and firm performance. The firm characteristics explained 99.5 percent of the performance of financial institutions in Kenya. Results of the intervening effects of corporate social responsibility on firm performance were statistically significant. The moderating effect of operating environment was equally statistically significant. The findings provide empirical support to contingency theory which calls for the firm to adapt to changes in the environment by supporting the postulation that strategy precedes structure. Theoretical linkage of stakeholders’ theory was eminent. Further, institutional theory was supported through the manifestation of culture as an enabler of firm performance. This study will benefit managers and scholars by offering direction in the managerial practice, policy and contributing to theoretical discourse. Financial institutions will find it possible to understand how to vary their firm characteristics to improve their performance. The study has further demonstrated that corporate social responsibility is a necessary responsibility, which needs to be embraced by financial institutions. In addition, operating environment is an essential feature when varying performance. The study has suggested the need to conduct similar research in nonfinancial institutions as well as replicating it in a different context as well as make use of other methodologies to see whether results will change.