Corporate Social Responsibility and Financial Performane of Quoted Manufacturing Companies in Nigeria

Corporate Social Responsibility and Financial Performane of Quoted Manufacturing Companies in Nigeria


Corporate Social Responsibility and Financial Performane of Quoted Manufacturing Companies in Nigeria


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Abstract on Corporate Social Responsibility and Financial Performane of Quoted Manufacturing Companies in Nigeria

This study investigated the effect of corporate social responsibility on financial performance of quoted manufacturing companies in Nigeria between the period of 2011 to 2015 (5years). Specifically, the study assessed the effect of corporate social responsibility on the financial performance (return on assets, earnings per share, dividend per share and return on equity) of listed companies in Nigeria. The study used secondary data obtained from the company’s annual reports for the period of 5years (2011 to 2015).

The independent variable is corporate social responsibility (CSR). The dependent variable used by the model to represent the financial performance of manufacturing companies are return on assets (ROA), earnings per share (EPS), dividend per share (DPS0, and return on equity (ROE). By means of regression analysis the study found that corporate social responsibilities have a positive and significant impact on all dependent variables tested.

Hypothesis one states that, there is no significant relationship between corporate social responsibility and return on assets. This was confirmed with a R-squared value of 0.74, (i.e. 74.3%), adjusted r-squared value of 0.63 (i.e. 63.3%), which is significant at 0.004 significance level; Hypothesis two states that, there is no significant relationship between corporate social responsibility and earnings per shares. The regression table in chapter four states that, r-squared value of 0.61 (i.e. 61.3%), and adjusted r-squared value of 0.50 (i.e. 50.5%), and significant at 0.0000 significance level; Hypothesis three states that, there is no significance effect of corporate social responsibility on divided by per share of quoted manufacturing companies in Nigeria. This was confirmed in the regression table with a r-squared value of 0.61 (i.e. 61.3%), and adjusted r-squared value of 0.50 (i.e. 50.5%), and significant at 0.0000 significance level; Finally, hypothesis four states that, there is no significant effect of corporate social responsibility on return on equity of quoted manufacturing companies in Nigeria. This was however confirmed with a r-squared value of 0.56, (i.e. 56.6%), adjusted r-squared value of 0.45 (i.e. 45.3%), which is significant at 0.000 significance level.

In conclusion, corporate social responsibility played a significant role in enhancing the financial performance of quoted manufacturing firms. This study thereby concludes that, manufacturing firms should give enough attention to their corporate social responsibility in order to enhance their overall financial performance. the study hereby concluded that; Government needs to put machinery in place to monitor firms’ investment in CSR so as to serve as motivation for their involvement in social responsibility activities, particularly in their immediate environment; CSR projects should be well structured and implemented for maximum effect. This would enhance the well being of the beneficiaries; Companies should liaise with community head to identify areas or opportunities available to them to better the lives of the people through the provision of social amenities. The government should come up with clearly defined regulation on how to go about social responsibility issues of the companies and should ensure its full implementation

Chapter One of Corporate Social Responsibility and Financial Performane of Quoted Manufacturing Companies in Nigeria


Background to the study

Corporate Social Responsibility (CSR) is seen as a duty of every corporate body to protect or guard the interest of the society at large as well as serving as a self-regulating business model that helps a company to be socially accountable to itself, stakeholders and the public. Corporate Social Responsibility (CSR) as a concept has attracted worldwide attention and acquired a new significance in the global economy (Akinyomi,2013). Therefore, “Corporate Social Responsibility is defined as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”( by Lord Holme and Richard Watts). CSR is concerned with treating the stakeholders of the firm ethically or in a socially responsible manner. Stakeholders exist both within a firm and outside. The aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for its stakeholders both within and outside the corporation. (Hopkins, 2003)  From this definition we see that ethical behavior is in the eye of the beholder and, like beauty, we know it when we see it because they are the accepted principles of right and wrong and are more or less morally approvable. On the other hand, the stakeholders of a company are those who have legitimate interest in the company and they include those within the company: the board of directors, shareholders, investors, managers and employees; and outside the company: suppliers, customers, the natural environment, government, and local community. It is believed that a strong CSR makes a company to be conscious of the kind of impact it is having on the society including economic, social and environmental thereby helping us to know the performance of manufacturing companies. In today’s economic and social environment, issues related to social responsibility and sustainability are gaining more and more importance, especially in the business and manufacturing sector. Business goals are inseparable from the societies and environments within which they operate.

The need for manufacturing companies cannot be overestimated because we are surrounded with a lot of raw materials and it cannot be utilized in their raw state and thereby the manufacturing companies help us to be able to process the raw materials into valuable finished products so therefore corporate social responsibility is needed. Example of this companies include Dangote Group, Nigerian Breweries, Nestle Nigeria, Unilever Nigeria, Nexans Nigeria, Cadbury Nigeria, PZ Cussons, Flour Mills Nigeria, DUFIL Prima Foods, Lafarge Cement, etc.

McWilliams and Siegel (2001:117) describe CSR as “actions that appear to further some social good, beyond the interest of the firm and that which is required by law.” A point worth noticing is that CSR is more than just following the law (McWilliams & Siegel, 2001). Every organization should take a step forward and adopt policies and business practices that go beyond the minimum legal requirements and contribute to the welfare of its key stakeholders. Each company differs in how it implements corporate social responsibility, if at all it does and that affects the performance of the business. The differences depend on such factors as the specific company’s size, the particular industry involved, the firm’s business culture, stakeholder demands, and how historically progressive the company is in engaging CSR. Some companies focus on a single area, which is regarded as the most important for them or where they have the highest impact or vulnerability let’s say human rights, for example, or the environment, while others aim to integrate CSR in all aspects of their operations. For successful implementation, it is crucial that the CSR principles are part of the corporations values and strategic planning, and that both management and employees are committed to them. Furthermore, it is important that the CSR strategy is aligned with the company’s specific corporate objectives and core competencies. However, previous studies have observed that although the concept of CSR has been recognized as an important ingredient for business success, the relationship between CSR and companies’ financial performance has been inconclusive, controversial and open to further research (Lee and Park, 2010; Wijesinghe and Senaratne, 2011). According to Friedman (1970:100), in a free society, “there is one and only one social responsibility of business that is to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game (i.e. ethical standards), which is to say, engages in open and free competition without deception or fraud.” These and more are seen as necessary activities for growth in the business. Corporate Social Responsibility (CSR) can therefore be understood as a management concept and a process whereby companies integrate social and environmental concerns in their business operations and in their interactions with the full range of their stakeholders on a voluntary basis. (European Commission, 2001) Promoters of CSR have argue that organizations should integrate economic, social and environmental concerns into their business strategies, their management tools and their activities, going beyond compliance and investing more on human, social and environmental capital (Belal and Momin, 2009; Perrini, 2006 )

Statement of the Problem

The field of corporate social responsibility (CSR) has grown quite well over the last decade although there are different views of the role of the firm in society and disagreement as to whether wealth maximization should be the only goal of a corporation. Through corporate social responsibility we have seen that economic power has shifted to the corporations, that is should have an increasing role in and responsibility for addressing social problems. Acknowledging the fact that the government sets the regulations and the minimum standards for the workplace, but a company can further improve the work environment and the quality of living of its employees which is where social responsibility comes in as an important factor. A firm cannot ignore the problems of the environment in which it operates.  The poverty of a nation state’s citizens, political unrest, and the exhaustion of natural resources can have destructive and negative effects for a corporation.  Let’s take for instance as a manufacturing company resources that are inputs in the production process and which, at the beginning of the industrial revolution, were abundant, are now in many regions of the planet scarce, polluted, or diminishing.  Naturally, this imposes an extra cost to the corporations and may force them to relocate or to cease operations.  Researchers perspective differ in the sense that from one perspective we can see that companies may be poorly equipped to address some of the social or environmental problems, but from another perspective, no matter how poorly equipped, companies may still be best positioned to solve the problems posed for them.

Adoption of the CSR principles involves costs. These costs might be short term in nature or continuous outflows that is long term. These costs might involve the purchase of new environmentally friendly equipment, the change of management structures, or the implementation of stricter quality controls. Since being socially responsible involves costs, it should generate benefits as well in order to be a sustainable business practice. A corporation could not continue a policy that constantly generates negative cash flows or loss. The shareholders invest their money in a corporation, expecting the highest possible risk adjusted returns. Therefore, being socially responsible should have positive returns or benefits in order to be sustainable.

Companies which seem to have a strong CSR commitment often have an increased ability to attract and to retain employees (Turban & Greening 1997), which leads to reduced turnover, recruitment, and training costs. There are some other issues that are to be considered under CSR and they include the firm’s commitment to act correctly so that its actions may work with the development of the society. Another issue is referred to meeting the stakeholder’s (owners) needs. The third is to move a step forward from what is established by law. Companies that better their working conditions and labor practices also experience an increase in productivity and reduced error rates.  Regular controls in the production facilities throughout the world ensure that all the employees work under good conditions and earn living wages as well. These practices are costly, but the increased productivity of the workers and improved quality of the products generate positive cash flows that cover the associated costs.  Thus, firms may actually benefit from socially responsible actions in terms of employee morale and productivity (Moskowitz, 1972; Parket & Eibert, 1975; Soloman & Hansen, 1985). Most firms are too busy going after short-term financial benefits thereby tend to ignore the strategic value of CSR to them. The issue at hand is therefore, to make corporate organizations understand how social responsibility impact on business performance at various levels of the organization.

Objective of the Study

The main objective of this research is to evaluate the relationship between Corporate Social Responsibility and the financial performance of quoted manufacturing companies in Nigeria.

The specific objectives are to:

      I.         To ascertain to what extent corporate social responsibility affect the financial performance of Quoted manufacturing Companies in Nigeria.

    II.         To assess how expenditure for corporate social responsibility  affect the financial performance of Quoted manufacturing Companies in Nigeria.

  III.         To determine the extent to which corporate social responsibility affects the financial performance of Quoted manufacturing Companies in Nigeria.

  IV.         To ascertain the influence of corporate social responsibility on the financial performance of Quoted manufacturing Companies in Nigeria.

Research Questions

The following are the questions which this research will answer:

      I.          To what extent do corporate social responsibility affect the financial performance of Quoted manufacturing Companies in Nigeria?

    II.         In what way does expenditure for  corporate social responsibility  affect the financial performance of Quoted manufacturing Companies in Nigeria?

  III.         How does corporate social responsibility  affect the financial performance of Quoted manufacturing Companies in Nigeria?

  IV.         What impact does corporate social responsibility  have on the financial performance of Quoted manufacturing Companies in Nigeria?

Research Hypothesis

Hypothesis 1:H0= Corporate social responsibility does not have any significant relationship with the financial performance of Quoted manufacturing Companies in Nigeria?

Hypothesis 2:H0= There is no significant relationship between corporate social responsibility and the financial performance of Quoted manufacturing Companies in Nigeria?

Hypothesis 3:H0=  Corporate social responsibility  has no significant relationship with the financial performance of Quoted manufacturing Companies in Nigeria?

Hypothesis 4:H0= There is no strong relationship between  corporate social responsibility and the financial performance of Quoted manufacturing Companies in Nigeria?  

Scope of the Study

The research work which is on the evaluation of the impact of Corporate Social Responsibility to the financial performance of Quoted companies in Nigeria has the scope as explained thus:

  1. Population: The population for this study reviewed a total of 5 quoted companies in the Nigerian stock exchange for a period of 2011-2015 although there are I69 listed companies as at May 31,2018 
  2. Sample Representative: The sample size was limited to only 5 companies from different sectors quoted in the Nigerian Stock Exchange which is the CONSUMER GOODS sector and CONGLOMERATES. The companies selected under the sectors mentioned above were due to the availability of updated information on financial statement with the Nigerian Stock Exchange. The companies include: Cadbury Nigeria Plc., Dangote Flour Mill, Honeywell Flour Mills, Nestle Foods Nigeria Plc. and Unilever Nig. Plc.
  3. Sample Technique: In determining the sample size of the study we would use Judgmental sampling which is based on the opinion of the expert and Convenience because of the convenient accessibility of information by the researcher, also companies are chosen from various industries in Nigeria which shows adequate coverage. Another reason for these sampling techniques is because these companies are old in operations and adequate data can be obtained which results obtained will represent the whole economy.
  4. Geographical Coverage: The Headquarters of the quoted companies are in Lagos for data collection. In other words the research work will cover Lagos.
  5. Time Horizon: This study covers a period of five years operations of the sampled population.
  6. Research Center: The data analysis and interpretation of the work will be carried out in Babcock University, Ilishan-Remo.     

Limitations of the Study

  1. Time Constraints: The time frame for the conception of this study is very short because of some school activities involved especially as a final year student. However effective time management will be employed to give priority to the research work to meet the deadline for submission and defense.
  2. Financial Constraints: The study requires money to research the work online and retrieve the information needed for analysis. However to ensure the work does not fail and for early completion and defense of the work, as a student expenses would be cut down so as to accommodate the expenses for the work.

 Significance of the study

The study of the analysis of corporate social responsibility and the financial performance on manufacturing companies would be essentially beneficial to the following groups:

The Society which is the most beneficial of this research: Corporate social responsibility is a mutual way for companies to benefit the society while benefiting them in the process. Businesses deal with humans so you can only connect with them through human language by showing some humanity. CSR initiatives can be the best way to contribute to the society and its people. Through local or national charitable contributions businesses can help the society as well as its improvement. Businesses can get involved in the society and help it to progress by taking social initiatives on behalf of the company such as investing in education programs for the poor and street children and homeless care activities for homeless people or refugees. They can support a local charity making financial contributions in effective charitable projects. If you are a restaurant owner you may provide food to local homeless groups or to orphanages free of cost. Businesses can pay attention to material recyclability, develop better product durability and functionality and use more renewable resources at lesser costs to keep the environment as clean as possible and contribute to the ecology of the country. When businesses decide to make positive contributions to the society they are actually benefitting the company in the process. The companies benefit through lower operating costs, increased sales and customer loyalty, greater productivity, gaining ability to attract and keep skilled employees, getting access to more capital through more willing investors etc. CSR is the thoughtful and practical way to give back to the society.

The other essential beneficiary of this research is the Government: The best way for corporations to show social responsibility to the government is to provide strict compliance to the regulations which is, in fact, the primary expectation of the government from companies. When it comes to laws, nothing much can be done but to offer cooperation with the law enforcers. Another advantage is that companies are recognized for complying with the rules by providing incentives and grants to those who are compliant enough. For example, when a company has certain requests in terms of their operations and business activities, they may have greater chances of being permitted to conduct them. Lastly, the government provides protection to the interests of the stakeholders and the investors. Stakeholders are guarded from unfair business practices while shareholders are principled by corporate governance.

Business individuals also benefit greatly from this research: If you’re a business owner, the days of operating only for profit are gone. Whilst this is obviously still important, many companies now focus largely on corporate social responsibility because of the benefits to it which includes:

Improved public image: This is important, as consumers assess your public image when deciding whether to buy from you or not. Something simple, like employees volunteering an hour a week at a charity, shows that you’re a brand committed to helping others. As a result, you’ll appear much more favourable to consumers.

Increased brand awareness and recognition: If you’re committed to ethical practices, this news will spread. More people will therefore hear about your brand, which creates increased brand awareness for the business. An advantage over competitors: By embracing CSR, you stand out from competitors in your industry. You establish yourself as a company committed to going one step further by considering social and environmental factors.

 Employees on the other hand tend to benefit from Corporate Social Responsibility in various ways which include:

Greater employee engagement: Similar to customer engagement, you also need to ensure that your employees know your CSR strategies. It’s proven that employees enjoy working more for a company that has a good public image than one that doesn’t. Furthermore, by showing that you’re committed to things like human rights, you’re much more likely to attract and retain the top candidates.

More benefits for employeesThere are also a range of benefits for your employees when you embrace CSR. Your workplace will be a more positive and productive place to work, and by promoting things like volunteering, you encourage personal and professional growth.

Operationalization of variables


Y=Dependent variable

X=Independent variable

Y will represent Financial Performance of Quoted Manufacturing Companies (FPQMC) which is the dependent variable.

X will represent Corporate Social Responsibility (CSR) which is the independent variable.

Which means FPQMC is a function of CSR i.e. FPQMC will either increase or decrease depending on the CSR.

We represent it mathematically like this:


CSR is sub-divided into some variables, i.e.


X1= Corporate social responsibilities

Y=f(x1, x2, x3, x4)

 y1= return on assets                                                                           

y2= earnings per share                                                                             

y3= dividend per share                                                                           

y4= return on equity                                                                         

This mathematical model shows that all the dependent variables will correlate positively or negatively to affect the CSR.

Operational definition of terms.

  1. 1.     Commitment: Commitment as defined in this study means when an employee pledges his loyalty to an organization. It is an application, dedication or pledge to an engagement or obligation that restricts freedom of action.
  2. Stakeholder: A stakeholder is a party that has an interest in a company and can either affect or be affected by the business of an organization. The primary stakeholders in a typical corporation are its investors, employees, customers and suppliers. However, the modern theory of the idea goes beyond this original notion and has included additional stakeholders such as a community, government or trade association.
  3. Shareholders: A shareholder, commonly referred to as a stockholder, is any person, company, or institution that owns at least one share of a company’s stock. Shareholders are seen as company’s owners, and they reap the benefits of the company’s successes in the form of increased stock valuation. However, if the company does poorly and the price of its stock declines, however, shareholders can lose money.
  4. Social Responsibility: Social responsibility as described in this study is a demonstration of certain responsible behavior on the part of public and the private (government and business) sectors toward society and the environment.
  5. Hypothesis: A hypothesis refers to a tentative statement about relationships that exist between two or among many variables. It is a conjectural statement about relationships and need to be tested and subsequently accepted or rejected.
  6. Quoted Manufacturing Company: a company (a public joint-stock company) whose shares can be bought or sold on the Stock Exchange or related secondary markets such as the unlisted securities market.
  7. A stock exchange, securities exchange or bourse: It  is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges also provides for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds.
  8. Expenses in Environment: They are also the environmental costs which are those incurred by companies, directly or through third parties, to prevent, reduce or repair damage to the environment arising from their operating activities.
  9. Expenditure for Training and manpower development: It builds a team that is effective, efficient and well motivating, thereby enhancing the confidence and self-esteem of employees. The employees’ knowledge and skills are thus developed to adapt to new technologies and other changes in the organization.
  10. Taxation: It is defined as a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain decisions in the economy.
  11. Donation: Corporate social responsibility (CSR) is a broad term used to describe a company’s efforts to improve society in some way and this is where donation comes in. These efforts can range from donating money to nonprofits to implementing environmentally-friendly policies in the workplace and in turn motivates people to work.
  12. Environment in CSR: One primary focus of CSR is the environment. Caring about the environment can increase revenue too. Many customers prefer to buy from responsible companies.
  13. Equity: In the trading world, equity simply means stock. In the accounting and corporate lending world, equity (or more commonly known as shareholders’ equity) refers to the amount of capital contributed by the owners or the difference between a company’s total assets and its total liabilities
  14. Dividend: It is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders.
  15. Financial Performance: It refers to the act of performing financial activity. In broader sense, financial performance refers to the degree to which financial objectives being or has been accomplished. It is the process of measuring the results of a firm’s policies and operations in monetary terms
  16. Corporate Governance: It is the system of rules, practices and processes by which a firm is directed and controlled
  17. Return on assets: Return on assets is a profitability ratio that provides how much profit a company is able to generate from its assets. In other words, return on assets (ROA) measures how efficient a company’s management is in generating earnings from their economic resources or assets on their balance sheet. ROA is shown as a percentage, and the higher the number, the more efficient a company’s management is at managing its balance sheet to generate profits. Mathematically,



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