ASSESSING THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY OUTLAY ON FINANCIAL PERFORMANCE OF SELECTED MANUFACTURING COMPANIES IN NIGERIA

ASSESSING THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY OUTLAY ON FINANCIAL PERFORMANCE OF SELECTED MANUFACTURING COMPANIES IN NIGERIA

ABSTRACT
 
This study explores the impact of Corporate Social Responsibility Outlay on Net Profit Margin, Return on Assets and Return on Equity of manufacturing companies quoted on the Nigerian Stock Exchange. The study embodies a survey in which data were generated from Annual Reports of selected manufacturing companies in Nigeria. The Annual Reports and the hypotheses were statistically analysed using simple regression analysis. It was found that CSR has a positive and significant impact on the Net Profit Margin (a = 0.008, p =0.005< 0.05), Return on Equity (a=0.004, p=0.01<0.05) and Return on Assets (a = 10.64, p = 0.03<0.05) of the manufacturing companies in Nigeria under study. This implies that, to an extent, CSR influences the Net Profit Margin, Return on Equity and Return on Assets of the manufacturing companies under study. The study concluded that, regardless of the harsh and unfriendly business environment in which the firms operate, companies that are socially responsible continue to flourish, partly as a result of CSR activities yielding its return. Finally, the study recommends that CSR should be given great attention and more commitment from manufacturing companies in that it brings about increase in financial performance.
CHAPTER ONE                                                     
INTRODUCTION
 
1.1       Background to the Study
The performance of business organisations is affected by their strategies and operations in market and non-market environments. Hence, there is a debate on the extent to which company directors and managers should consider social and environmental factors in making decisions. In essence, Corporate Social Responsibility (CSR) may be described as an approach to decision making which encompasses both social and environmental factors. It can, therefore, be inferred that CSR is a deliberate inclusion of public interest into corporate decision-making, and the honouring of a triple bottom line which are People, Planet and Profit (Harpreet, 2009). However, CSR has been defined in various ways. Majority of these definitions integrate the three dimensions: economic, environment and social (Mirfazli, 2008). According to him, the triple bottom line is considering that companies do not only have one objective-profitability but that they also have objectives of adding environmental and social values to society.
CSR has been defined as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (GreenPaper Promoting a European Framework for Corporate Social Responsibility, 2001). Helg (2007) also defined CSR as the set of standards to which a company subscribes in order to make its impact on society.
McWilliams and Siegel (2001) stated that the definition of CSR was not always clear, and they define CSR as actions that appear to further some social good, beyond the interests of the firm and what is required by law. A modern concept of CSR states that the business enterprises that are in their usual process of business decision making, should pay due attention to the social interests of the hosting community. A company is not only an economic entity but a social and political entity also. Most of the decisions taken by the companies not only affect the stockholders but also the creditors, debtors, employees and the society at large in one way or the other (Kapoor & Sandhu 2010 as cited in (Uadiale & Fagbemi, 2012).
 
A wide variety of definitions of firm’s performance have also been proposed in the literature. Both accounting and market definitions have been used to study the relationship between corporate social responsibility and firm performance (Orlitzky, Schmidt & Rynes  2003). However, since most social responsibility scholars seek to understand the ways that socially responsible corporate activities can create or destroy shareholder wealth, market definitions of firm performance seem likely to be more appropriate than accounting definitions of firm performance in this context (Margolis & Walsh, 2001). Today`s competitive and dynamic market environment has created new sets of challenges for any business which are not related to economics only. To survive and prosper, firms must bridge the gaps in economic as well as social systems. Maximizing shareholder`s wealth is an every time essential but fulfilling that condition alone is no more valid in measuring financial prosperity (Senarante & Wijesinghe, 2011).
 
This study was undertaken with a view to assessing the impact of CSR on the financial performance of manufacturing companies quoted on the Nigeria Stock Exchange.
1.2       Statement of the Problem
The past two decades have witnessed a remarkable change in the way businesses are operated and managed, with the quest for excellence and all-round growth. The pursuit of financial growth does not always lead to social advancement, and is often detrimental to the environment, resulting in unhealthy workplaces, exposure to toxic substances and urban decay and, sometimes, death of the populace due to inhalation of toxic waste (Shehu, 2013). Societal conflicts arise due to the concern of host community of manufacturing companies over negative and potentially negative effects which businesses bring to the community. Managers and practitioners are often criticized for being single-minded about value maximization. The turn of events has pressurized firms to put serious efforts into a wide range of Corporate Social Responsibility (CSR) activities. CSR has become a critical aspect in strategic decision-making of companies primarily due to pressures from host community and a drop in investors’ confidence.
 
 
Series of arguments based on researches are found in literature as to the relevance or otherwise of CSR on the host environment, as there is no unanimous agreement on the subject matter due to peculiarities of different sectors and the variation in methodologies adopted by the studies. Some of the studies argue in favour of CSR, as it leads to profitability increments, societal and environmental stabilities (Freeman, 1984) and Donaldson and Preston as cited in (Amole, Adebiyi, & Awolaja, 2012). Others argue that it is a waste and unnecessary leading to diversion of company’s resources to projects that have no explicit bearing on profit motive. (Friedman, 1970) and Balotti & Hanks 1999 as cited in (Amole et al 2012). This stimulated the need to undertake a study of a specific sector in order to ascertain the consequential effect of implementing CSR.
In view of the above, this study assesses the impact of CSR outlay on financial performance of companies in Nigeria with special reference to manufacturing companies.
1.3       Objectives of the Study
The broad objective of this research study is to assess the impact of CSR outlay on financial performance of manufacturing companies in Nigeria. The specific objectives are to:

1. Evaluate the impact of Corporate Social Responsibility outlay on the Net Profit Margin of manufacturing companies in Nigeria.
2. Determine the effect of CSR outlay on Return on Equity of manufacturing companies in Nigeria.

iii.  Ascertain the effect of CSR outlay on Return on Assets of manufacturing companies in Nigeria.
1.4       Research Questions
This study is designed to yield empirical evidence that would be used to answer the following research questions;

1. To what extent does CSR outlay impact Nigerian manufacturing companies’ Net Profit Margin?
2. What is the impact of CSR outlay on Return on Equity of manufacturing companies in Nigeria?

iii.        To what extent does CSR outlay impact on Return on Assets of manufacturing companies in Nigeria?
1.5       Research Hypotheses
The following Research Hypotheses were formulated for the study:
i There is no significant impact of Corporate Social Responsibility outlay on Net Profit Margin of manufacturing companies in Nigeria.
ii There is no significant impact of Corporate Social Responsibility outlay on Return on Equity of manufacturing companies in Nigeria.
iii There is no significant impact of Corporate Social Responsibility outlay on Return on Assets of manufacturing companies in Nigeria.
1.6       Significance of the Study
The study should be of significance in the following ways:
It would assist government in settling conflicts and disputes between companies and the hosting environment.
The study should serve as a reference point to those that want to research further into the area. It would enable them have more insight into the subject under study.
It would assist government in settling conflicts and disputes between companies and the hosting environment. This could be possible by coming up with an acceptable benchmark as to what should be expended for CRS to the hosting community
Finally, this study will add to the existing literature on the subject matter of Corporate Social Responsibility and financial performance and also compliment the work of other authors on this subject.
1.7       Scope of the Study
This study covers ten (10) selected manufacturing companies quoted on the Nigeria Stock Exchange (NSE), namely, Beta Glass Nigeria Plc, Nestle Nigeria Plc, Nigeria Breweries Plc, Unilever Nigeria Plc, Guinness Nigeria Plc, A. G. Leventis Plc, West Africa Portland Cement Nigeria Plc, Neimeth International Pharmaceuticals Plc, Vita Foam Nigeria Plc and Berger Paints Nigeria Plc. The impact of Corporate Social Responsibility outlay on the financial performance of these companies was assessed. The choice of manufacturing companies was informed by the fact that manufacturing companies have great pollution effect etc. on the environment. This study is limited to ten (10) year period from 2004-2013, the time frame is chosen due to availability of data. The indices consist of Net Profit Margin, Return on Equity and Return on Asset. Also, the study measured CSR based on CSR outlay (donations, community development and charitable gifts) of these companies as disclosed in their Annual Report. This is because firms perceive and practice CSR as corporate philanthropy (Adebayo, Oluwatosin & Olurin, 2012).
1.8.      Limitations of the Study
Collection of financial statements was difficult as some of the manufacturing companies under study were not easily accessed and some of them did not have the number of years required by the researcher on their website.
The researcher cob the limitation by visiting the Nigerian Stock Exchange and some of the selected companies used in this study to assess their Annual Reports.
1.9       Operational Definition of Terms
Accounting: The book-keeping methods involved in making a financial record of business transactions and in the preparation of statements concerning the assets, liabilities, and operating results of a business.
Corporate financial performance: This can be defined as measuring the results of a firm’s policies and operations in monetary terms. These results are reflected in the firm’s size, return on investment, return on assets, value added, etc.
Corporate Responsibility:  An umbrella term embracing theories and practices relating to how business manages its relationship with the society
Corporate Social Responsibility: A company’s sense of responsibility towards the community and environment (both social and ecological) in which it operates.
Corporate Social Performance: The accomplishment of a given task measured against standards of accuracy, completeness, cost and speed.
Corporate Social Responsibility Reporting: The report of corporate organisations on the impact of their activities on customers, suppliers, employees, shareholders, community and other stakeholders as well as the environment.
Financial Performance: This involves measuring the results of a firm’s policies and operations in monetary term
Profit Maximization: The ability for a company to achieve a maximum profit with low operating expenses.
Social Accounting:  This method utilizes the basic principles of accounting in social aspect of economics. The social aspects include environmental and medical accounting systems.
Social Responsibilities: The obligations of an organization’s management towards the welfare and interests of the society in which it operates.
Stakeholders: A person, group or organization that has direct or indirect stake in an organization because it can only affect or be affected by the organization’s actions.