Effects of Corporate Social Responsibility on Financial Performance of Smes in Kenya

Abstract

The dynamic business environment has triggered the corporate social responsibility among Small and Medium enterprises (SMEs). SMEs have fundamental role in economic progress. Despite the immense cornerstone of SMEs in the economic prosperity, it has received minimal attention from the researchers. Therefore, the gaps in research motivated the researcher to analyze the effect of corporate social responsibility on the financial performance in Kenya. The study utilized descriptive research design to blueprint the existing association. Moreover, it created holistic platform for the analysis of top 100 SMEs for the year 2014-2019. The research utilized the diagnostic tests such as; linearity, autocorrelation and multicollinearity to ensure the data adhered to standard and fit for the far-reaching findings. As a consequence, the descriptive analysis of CSR, SME’s size and the sector, it denounced a standard deviation of 0.6385, 0.75611 and 0.780 respectively. Moreover, the multiple correlation coefficient was figured at 0.726. This portray the measure of goodness of fit of the regression model thus 72.6% means a perfect positive linear relationship. The R-Square resulted in 0.527. As a result, this postulates that 52.7% of the deviations in the regressed variable are driven by size, sector and corporate social responsibility. Adjusted R Square is at 51.2%. From the results computed, it emphasize that if the predictor variables such as CSR, Size and Sector are maintained constant, the financial performance (ROA) autonomous value was pegged at 0.221. Additionally, a unitary growth of CSR translates to 54.5% substantial reduction in ROA (r=-0.545; p=0.000<0.05). As a consequence, an addition of one unit to the SME’ size reflects 6.1% insignificant expansion of ROA (r=0.061; p=0.197>0.05). On the other side, an increment of single unit of SME’ sector causes 3% insubstantial increase in ROA (r=0.030, p=0.474>0.05). The significance test was computed and concluded on the research test of less than 0.05 as coined by T-Test and F-Test. The research advocated for a comparative research between the SMEs implementing CSR and those who did not factored in. The research concluded on the pivotal steps undertaken by SMEs through the incorporation of CSR.