The Relationship between Corporate Social Responsibility (CSR) and profitability of listed companies in the Nairobi Securities Exchange (NSE)

Date
2014
Authors
Olang'o Josephine Adhiambo
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Publisher
Strathmore University
Abstract
This study explores the extent and components of corporate social responsibility disclosure by listed companies in the Nairobi Securities Exchange. The study also reveals that companies have been at the forefront of adopting voluntary corporate social responsibility disclosure in order to enhance firm performance and attract investors while guaranteeing the stake of existing stakeholders. To maximize on the benefits of corporate social responsibility disclosure and improve stability of the firm, shareholders, managers, policymakers and other stakeholders need to appreciate the gains made so far and understand what factors influence the same. A panel data set of listed companies' corporate social responsibility disclosure information was tabulated using an un-weighted corporate social responsibility disclosure index. The study applies the least squares regression technique in exploring the relationships between corporate social responsibility disclosure and financial performance as measured by return on equity. The study reveals that there has been a consistent growth in CSR disclosure practices by companies listed in the Nairobi Securities Exchange from a low average of 121 words in (2003) to a commendable average of 1,527 words in (2012). The quality of CSR disclosure also increased from a low average of 29% in (2003) to 89% in (2012). A similar trend was also observed in financial performance with a steady increase in profitability as measured by return on equity from a low average of -6% in (2003) to a commendable average of 21% in (20 11 ). The study further reveals that the following independent variables in the PROF model are positively related to PROF. These are; corporate social responsibility as measured by the number of words used in the annual reports to disclose CSR and corporate social responsibility as measured by the quality of disclosure with the components employees, environment, education, health, community involvement and sponsorship or donations. This result holds when panel data methodology is adopted because it combines time and cross-sectional or group data. However, when results are analysed individually as shown on Table 4.6 (page 61), we obtain mixed results where independent variables CSRQTTY and CSRQL TY give mixed results in their relationship with profitability as measured by return on equity (PROF). That there is a noted increase in corporate social responsibility disclosure and financial performance is an achievement to all stakeholders. The knowledge of the specific parameters where there is no disclosure forms a critical partt of what should now be the focus for improvement by the managers and regulators.
Description
A Thesis submitted in partial fulfillment of the requirements for the Degree of Master of Commerce at Strathmore University
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