Effects of Corporate Social Responsibility on Financial Performance of Firms Listed in the Nairobi Securities Exchange

Abstract

Corporate social responsibility (CSR) is a significant notion that is progressively being deliberated and adopted worldwide. Various stake holders are demanding the incorporation of social activities in the organizations daily practices. Some of the reasons why companies adopt CSR are; compliance with the law, to enhance a competitive advantage, others do it because it is the right thing to do for the society. The study sought to establish the effect of CSR on financial performance of listed firms in the Nairobi Securities Exchange. Financial performance was measured using the return of assets. Investment in CSR was measured using monetary spending on social activity. Data was obtained from audited financial statement, websites publications and annual report. Secondary data was obtained from the year 2010 to 2014. The data was cleaned, pretested, validated, coded and analyzed using SPSS, Pearson correlation and ANOVA. The study adopted a descriptive research design to test, for the linear relationship between financial performance and CSR. The study applied multiple regression analysis model to assess the influence of CSR on financial performance. Financial performance was the dependent variable while corporate social responsibility, capital intensity and efficiency were used as the explanatory variables in the study. Target population comprised of 66 publicly listed companies of which, complete and necessary data available was for 14 companies. This data was collected for 5 years for each firm giving 70 observations. Most company’s analyzed, engaged in CSR but failed to disclose the actual cost incurred on CSR activities. Conclusions were derived based on 5% significance level. The study established that CSR had a positive but insignificant effect on financial performance. Study findings were that none of the variables were strongly correlated. The study concluded further that a positive but insignificant relation existed between CSR and financial performance. The study recommended that firms should be socially responsible so as to enhance the value of the firm for the shareholders. The study also recommends CSR not to be viewed as a voluntary undertaking but a compulsory practice for the firms. Lastly, policies among firms to ensure that the firm acts in ethical and socially responsible manner to all stakeholders should be formulated and implemented