The effect of corporate social responsibility on the financial perfomance of commercial banks in Kenya
Perhaps the most commonly used sentence in the corporate world and specifically the banking sector today is “giving back to society”. This has come to be called Corporate Social Responsibility (CSR). CSR has been defined differently by different people but the denominator in all the definitions is the fact that a corporation should be mindful of the environment in which it operates and seek to make it better. Friedman (1970) however says the only social responsibility of business is its profits, meaning that a firm should only give to society if it will improve its financial returns. Instrumental theories have strengthened the arguments of Friedman by arguing that CSR can improve the financial perfomance of a firm. The purpose of this study was to determine the impact of CSR on financial perfomance of commercial banks in Kenya. In this study, longitudinal research design was used. Cooper and Schindler (2003) describe longitudinal study as a study that is carried out repeatedly over an extended period. CSR activities and financial perfomance of 28 commercial banks was studied between the year 2007 and 2008. CSR was measured by the amount spent on CSR activities while financial perfomance was measured using ROA, ROE and GII. Regression model was used to analyse data. CSR was the independent variable while the dependent variables comprised ROA, ROE and GII. The study found that CSR has a positive significant effect on the financial perfomance of all commercial banks studied. However, on classification based on size based on CBK criteria, the study found that CSR has a positive and significant effect on financial perfomance of large and medium size banks but no significant effect on financial perfomance of small banks. The study concludes that CSR is good for the financial health of large and medium size banks but not small banks.