Effect of Corporate Social Responsibility on Financial Performance of Listed Manufacturing Firms at Nairobi Security Exchange

Abstract

CSR is an expense to the firm, where the firm is not under any obligation to incur the expense. However, there is an implied expectations from the public that firms should not only undertake their mission to achieve their vision, but they are expected to participate in making the community a better place to live in. Therefore, the society expects that firms will get involved in solving social problems and therefore engage in CSR. There is a higher bar of expectation for manufacturing firms as in most cases they are the most pollutants from water pollution, noise pollution and air pollution. They also emit carbon compounds that disintegrate the ozone layer leading to climate change. The society therefore expects that these firms should make it up for the ‘evils’ brought to the society. This study was therefore undertaken with the intention of identifying how CSR would influence financial performance in particular for the firms that were listed at Nairobi Securities Exchange. The study sought to determine and describe relationship between the study variables and therefore descriptive design was adopted. The use of multiple regression analysis was also preferred by the study. The coefficient of determination indicates that the model explained 29.9% of the changes in FP and therefore the model was relatively strong in explaining changes in FP. The findings also indicate that there is a significant effect of CSR on financial performance of manufacturing firms in Kenya as the p value was less than 0.05 and hence the null hypothesis was rejected. The study therefore recommends that manufacturing firms should ensure that they involve in CSR as it helps the firm improve on financial performance. This may not be explained directly through the costs incurred, but the nature of CSR and how such CSR boosts the image of the company in public and also provides an opportunity for the company to undertake promotional campaign.