Effect of Corporate Social Responsibility on Profitability Among Commercial Banks in Kenya

Abstract

This study sought to assess the effect of CSR on profitability among Commercial banks in Kenya. To achieve this objective, a descriptive research design was adopted. This study relied on secondary data of fourty three (43) Commercial banks in Kenya. Data on the fourty-three commercial banks were sourced from respective banks annual report. Data relating to the CSR included the following; annual costs of Economic, Legal, Ethical and Philanthropic responsibilities as ratio of total assets. The data collected covered a period of 5 years, that is, 2015 - 2019. Information collected was subjected to diagnostic tests namely: normality test, multi-collinearity test and homoscedasticity. Descriptive statistics and inferential statistics approach was used to analyze the data. Findings from the descriptive statistics indicated that CSR had a mean of 0.044 and a standard deviation of 0.713. Bank size (total assets) had a mean of 17.726 and a standard deviation of 1.3658. Liquidity ratio had a mean of 0.077 and the standard deviation of 0.0537. Return on assets had a mean of -0.005 and the standard deviation of 0.0308. From the mean and standard deviations, the study established that CSR, liquidity, bank size and ROA came from data sets in which the data points were clustered around the mean. From the regression analysis, the study established that R Square for the model was 0.098. This put forward that 9.8% of the variation in the return on assets was accounted for by the regression model. Findings from the Anova table indicated that the model was statistically significant to predict return on assets based on CSR, bank size and liquidity. Further analysis revealed that liquidity and bank size had significant positive impact on return on assets while CSR had a positive but not statistically significant influence. Bank size had a positive effect on return on assets as indicated by the coefficient value of 0.007. Liquidity ratio had a positive impact on return on assets as shown by the coefficient value of 0.095. The study recommended that commercial banks in Kenya should continue engaging in CSR activities such as economic, legal, ethical and philanthropic. This is because the role of business is rapidly changing in the 21st century. Although many businesses have a primary responsibility to their stakeholders it is increasing coming to light that a business ability to respond to social and community needs of the location it operates in is important as well. Based on the findings, the study also recommends that policy makers and management of the commercial banks should come up with better strategies to deal with bank size as it has a positive impact on the profitability of the banks. The study also recommends that the central bank of Kenya should also come up with better policies to deal with illiquidity issues that the commercial banks experience.