CHAPTER ONEINTRODUCTIONBackground of studyAt an earlier point in history of man, societal expectations from business organizations did not go beyond efficient resource allocation and resource maximization. But today, it has changed and modern business must think above profit maximization toward being at least socially responsible to its society. Today’s heightened interest in the role of business in society has been promoted by increased sensitivity to the awareness of environmental and ethical issues.
It means our society has become increasingly concerned that greater progress by firms has not been accompanied by equal effort and desire in addressing important social issues including problems of poverty, drug abuse, crime, improper treatment of workers, faulty production output and environmental damage or pollution by the industries as it has overtime been reported in the media. It is therefore very important for all to realize that public cry for increased social responsibility will not disappear if business organizations fail to respond to the problem posed by these to the society.The concept of corporate social responsibility has received a great attention and support in various international communities.
While there is no accepted meaning of the social responsibility , there is an agreement that implies a demonstration of certain responsible behavior on the part of the government and corporate organizations toward society and the environment at large. According to Welford (2005) corporate social responsibilities is all about how companies manage the business operations to produce an overall positive impact on the society where they operate. Corporate social responsibility is a function of an organization to seek actions that protect and improve the welfare of the society along with its interest, which they believe can improve their financial performance Corporate social responsibility (CSR) is a fast growing concept in banking industry however, little attention has been paid to its linguistic. CSR is common in the literature but not in the practice. According to Carroll (1979), businesses encompass economic, legal, ethical and discretionary expectations that society has of organization at any given time. Businesses can use ethical decision making to secure their businesses by making decisions that allow for government agencies to minimize their involvement with the corporation. Despite the need for business to be morally conducted, one of the basic reasons in CSR is whether organizations pursue it for economic reasons or because of the advantages involve.
Unfortunately, there has been few or no empirical test conducted in support of the advantages and disadvantages involve in CSR. This makes CSR practice sustainable to the popular accusation of being a profitable public relations and marketing strategies (Adegboyega and Taiwo, 2011). Most corporate industries in Nigeria provided some certain charitable services to their host communities such as building of schools, healthcare center, award of scholarships, roads, water supply and among others to their operating environment, which the Nigerian listed deposit money banks were not left behind. Because they engaged themselves in providing some corporate social responsibilities to their operating environment as well as their staff which they believed can improve their financial performance positively. In order for corporate organization to be sustainable it must be financially secure, decrease its negative environmental impact and act in unity with the expectations of environment . Although the prime focus of business is generating profits, corporations can contribute to social and environmental goals by applying corporate social responsibility as a strategic line in their core business practices, corporate governance, and management instruments (Waddock and Graves, 1997).The concept of performance is used to describe the exploit of business that has the legal status of a company. Barbosa and Louri (2005) viewed performance as the time test of any strategy, that is to say the performance of a firm can be explained as the outcome of a firm’s strategy or an assessment of the firm’s ability to achieve its objectives.
Financial performance is explained as the ability of a company to measure its economic activities in monetary unit (Barbosa ; Louri, 2005). A firm’s performance is a broad term, Hansen & Wernerfelt (1989) affirms that in policy literature of business, there are two main streams of research about determinants of firm performance. The first one is primarily based on economic tradition while the second one is based on the behavioral and sociological paradigm. The first one emphasizes on the importance of the external factors of the market in determination of firm’s success. , The second one is in support of firm factors and their fit to the environment as the main determinants of firm’s success. Moreover, a number of implications can be drawn for scholars with respect to firm’s performance measurement. The term financial performance is a composite of an organization’s financial health, its ability and willingness to meet its long term financial obligations and its commitments to provide services in the foreseeable future.
Long-term objectives represent the results expected from pursuing certain strategies which represent actions to be taken to accomplish long-term objectives. The time frame for objectives and strategies should be consistent, usually from two to five years (Weber, 2008). Financial performance 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. Accounting based indicators such as Return on Assets (ROA), Return On Equity (ROE) and Return On Investment (ROI) capture a firm’s internal efficiency.
These indicators are used to measure firm’s overall financial health over a given period of time and can also be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. ROA is used to measure the efficiency of assets in producing income while ROE measures the performance of the firm relative to shareholder investment (Marshall, 1920). Some of the limitations of accounting measures are that they only capture historical aspects of the firm’s performance, are subject to bias from managerial manipulation and the differences in accounting procedures (McGuire, Schneeweis and Hill, 1986). Accounting measures are also inward looking since they largely reflect the efficiency of internal decisions and therefore do not reflect external market responses to organization (Branch, 1983). Despite the limitations of Accounting based measures, accounting based measures are better predictors for CSR than market based measures (Moore and Spence, 2006).Any action of an entrepreneur should always aim at betterment of the firm’s value whether in long or short run. Though arguments for corporate success are unending, there are innumerable factors that influence or drive the firm’s success without consideration of how they are measured (Faden, 2013).
Consequently, firm’s managers ought to be aware the relationship of the key drivers of the firm and how they affect the firm’s performance. Crowther (2002) states that the reason why shareholders are more interested and willing to tolerate nonprofit making activities which can significantly reduce the market performance of the stock because the factors that contribute to firms’ performance are different in terms of definition, dimensionality and measurement. Despite this, as a going on concern a firm should always seek to increase its value in either the short or the long term. On focus is the financial performance which is operationalize by key indicators. These include return of assets, return of investment, profitability, loan uptake, cash flow and also liquidity (Wintner, 2006).
Social responsibility advocates argue that organizations have a wide range of responsibilities that extend beyond production of goods and services at a profit. As members of society business should participate actively in the community and in the larger environment. Others contend that socially responsible actions have long-term advantages for organization. Organizations can improve their images and avoid unnecessary and costly regulation if they are perceived as socially responsible. Also, society’s problem can offer business opportunities and profits can be made from systematic and vigorous efforts to solve these problems.
In order words, it pays to be good. The establishment of companies in any society is a welcome development. This is because the environment is open to other economic activities indirectly and job creation directly as a result of the presents of the companies.
Various forms of companies are scattered here and there in any environment that has resources both natural and other attractions. The companies include extractive, manufacturing and services. All these have their own negative impact depending on the nature of business undertaken by the company.
The basic causes of our environmental problems are many and prone to change. They include the tendency to emphasize quantitative costs to the exclusion of intangible and social costs of environmental activities; a failure to perceive the environment in its totality; and a lack of understanding and recognition of the fundamental interdependence of all its parts, including man himself.The banking industry occupies a key position in the economic life of any nation. This industry supplies a wide varieties of products which are used across a wide spectrum of human activities. Some of these products, are however potentially dangerous while others corrosive.
In order to control environmental cost and the impact of the potential hazards presented by the operations of firms in the banking industry, such firms usually strive to act socially responsible ways. Social responsibility typically involves costs that firms bear which have some effect on their financial performance. Economic theory suggests that social responsibility cost is negatively associated with profitability. As such, attempting to act in a way that is socially responsible impacts negatively at least in the short run on the performance of the bank. The specific cost that is often identified in this regard includes those related to the provision of facilities that support the well-being of the firm’s communities or publics (social cost) and pollution costStatement of problemSince the emergence of corporate social responsibility in Nigeria, there is no legal backing put in place by Nigerian government in the area of corporate social responsibility.
Corporate social responsibility is still at the companies discretion to provide corporate social responsibility services to their operating community. There are several problems faced by corporate social responsibility in Nigeria, these includes the adherence to the conventional business principles which states that the business of a company is strictly to benefits its shareholders, meaning that business organizations’ major objectives and target is their ability to make profit, and maximize profits even at the expense of the environment of their operations Corporate Social Responsibility (CSR) concept is deepening among organizations and societies in Nigeria. It is regarded as the organization’s activity to make sustainable impact in society, and which in turn has the potential to create positive effect on the business organizations that engage in it. Business organizations incur huge expenditures on social responsibility because they regard Corporate Social Responsibility (CSR) as a public relations stunt used by large corporations to look good in front of customers and other stakeholders. For instance, it was reported that, in year 2011, the oil and gas sector spent N9.5 billion on CSR, followed by telecoms with N6.
4 billion. The banking industry came in third position with the report that a total of N1.869 billion was spent by eight Nigerian banks in 2012 on various community-related projects under corporate social responsibility to identify with the society in which they operate. The figure is about 70 percent of the total CSR expenditure of N3.4 billion by the banking industry in year 2011 with prediction that the figure would double in the next two years due to increased understanding of the concept of CSR (Obi, 2013).
However, the large percentage of the expenditure by the banks fall into donations and charity, it was further reported that Nigerian companies perceive and practice CSR as corporate charity aimed at posing solution to the socio-economic development challenges because CSR is still at an early stage in Nigeria(Obi, 2013).Having long term financial success can attract investment in long-term projects while allowing investors access to their savings at short-term notice (Levine, 1991). These institutions allow cross-sectional diversification across projects, allowing risky innovative activity while guaranteeing contracted interest rate to savers (King and Levine, 1993). Financial institutions can boost the rate of technological innovation by identifying the entrepreneurs with most promising technologies. Successful institutions can help reduce liquidity risk and enable long-term investment (Diamond and Dybvig, 1983). Banks with sound long term performance can offer job security to its employees, create new employment opportunities, assure government of continuous revenue apart from satisfying their shareholders’ expectations.
Goldsmith (1969) demonstrated empirically the positive correlation between sound long term financial performance and GDP per capita. Reduced control problems of investors, owners and managers of enterprises through improved corporate governance can also increase savings and capital accumulation.Even though the banking industry is one of the most profitable within the economy, Grant, (1991) opined that higher performance could be attained by engaging in social activities. There is no reason to believe that shareholders are willing to tolerate an amount of corporate non-profit activity which appreciably reduces either dividends or the market performance of the stock (Hetherington, 1973). Therefore, when a company increases its costs by improving CSR in order to increase competitive advantage, such CSR activities can enhance company reputation, thus, in the long run CFP can be improved by sacrificing the short term CFP (Balabanis, Philips and Lyall, 1998).
In a competitive market, customers associate themselves with products and services from organizations in accordance to their own perceptions towards such institution and institutions were becoming socially responsible to have good perceptions from their customers (Marcia, Otgontsetseg and Hassan, 2013). Largest institutions appeared to be rewarded for being socially responsible. Lorraine (2009) realized that a firm size was directly proportional to the firm’s CSR investment. The more a firm invested in CSR, the more profitable it become. A firm was considered socially responsible only if it took into account the social needs of its stakeholders. Implementation of CSR strategy and firm size are crucial in determining ROE of a firm (Carmen-Pilar, Rosa and Lisa, 2011). Kitzmuelery and Shimshack (2012) realized that firms could use CSR to maximize profits while not for profit firms could use CSR to satisfy its shareholders. Margolis, Elfenbein and Walsh (2007) found out that CSR has, indeed, an effect on firm financial performance.
The key finding from these studies is that CSR is important in achieving customer satisfaction and community appreciation Research QuestionThe study will seek to address the following questions:What are the socio-economic characteristics of bankers in the study area?What effect social cost has on the performance of banks?What amount is spent annually on social and environmental costObjectives of studyThe general objective is to analyze the impact of social and environmental responsibility on performance of deposit bank in Nigeria.The specific objectives are to:examine the socio-economic characteristics of bankers in the study area.analyze the amount spent annually on social and economic responsibility . analyze the relationship between corporate social responsibility and financial performanceScope of studyThe study will be limited to the impact of strategic decision on social and environmental performance of deposit banks in Nigeria using banks in Olabisi Onabanjo university permanent site as a case studyResearch hypothesesIn an attempt to answer the above stated problem these null research hypotheses are formulated:H0: Social and environmental responsibility cost have significantly influence performance of Nigerian banks.H1: Social and environmental responsibility cost does not significantly influence performance of Nigerian banksJustification of study In view of the huge expenditures incurred annually on CSR, it is generally held that corporate social responsibility (CSR) could increase company profits.
But few executives and managers are aware of the research on this important subject. Most executives believe that CSR can improve profits. They understand that CSR can promote respect for their company in the marketplace which can result in higher sales, enhance employee loyalty and attract better personnel to the firm. Also, CSR activities focusing on sustainability issues may lower costs and improve efficiencies as well.
An added advantage for public companies is that aggressive CSR activities may help them gain a possible listing in the stock exchange, or other similar listing. This may enhance the company?s stock price, making executives? stoc56k and stock options more profitable and shareholders happier (Robins, 2011). However, there is a crying need for an in-depth study into the quality, extent of corporate social responsibility disclosure and identification of areas for future improvement so that transparency can be ensured, especially in developing countries like Nigeria where CSR studies are limited. However, some studies have proved that there is positive association between profitability of firms and CSR expenditures (see Olayinka ; Temitope 2011; Amole, Adebiyi ; Awolaja, 2012), while some studies prove negative relationship (e.g Bessong ; Tapang, 2012).
By understanding the effect of corporate social responsibility activities on financial performance, investors will determine how to allocate their portfolio so as to maximize returns and thereafter change their assessment of companies’ performance and will be making decisions based on criteria that will include ethical concerns (Carroll, 1991). Furthermore, this study will add knowledge to previous studies on corporate social responsibility by adding the component of its effect on long term financial performance. Analysts will find this study helpful when trying to understand the effect that engaging in social activities has on a firm’s long term financial performance. This present study intends to look at the effect of corporate social and environmental responsibility activity on performance of Nigerian banks. CHAPTER 3 METHODOLOGYThis chapter discusses the procedure that is adopted in carrying out this study.
It focuses on the research design, area of the study, population of the study, sample and sampling technique, instrument for data collection, validation of the questionnaireResearch DesignThis research work will be basically a survey design. According to, it is a plan, blue print which specifies how data is collected analyzed and procedural outline for the conduct of any investigation given (Kothari, 2008, Nworgu (1991)).. Odo (1992) stated that design means outlining the name of the equipments and other materials the research intend using and applying same to successfully execute the practical aspect of the research. Survey research design as it allows a group or items to be studied by collecting and analyzing data from only a few people or item considered to be representative of the entire group. In addition, the study will be carried out over a specific period of time.
Levin (2006) opines that cross-sectional studies are carried out a specific time or over a short period of time. This study focused on effect of CSR activities on banks’ performance in financial perspective at a specific time Appropriate sample of bank workers therefore be drawn from the selected schools and test statistics performed accordingly. It will be conducted through the use of questionnaire.Study areaThe study will be carried out at the Olabisi Onabanjo university permanent site, Ago-iwoye, Ogun stateSample PopulationThe total population of this study comprises of all the staff of commercial banks in Nigeria. Hence, the population size is twenty-one (21) commercial banksSampling procedureIn view of the researcher’s inability to reach out to the entire population, and in order to gain the advantages of an in-depth study and effective coverage, samples will be drawn using purposive random sampling from the staffs of 21 commercial banks in Nigeria. Three of these commercial banks (Access bank Nigeria Plc, Guaranty Trust Bank Plc, and First City Monument Bank Plc) were randomly selected from the study population of 21. According to Balsely and Clover (1988), it is common in research studies to use 10 percent sample size, because sample size of 10 percent of the universe has been proved to be more than adequate in research projects.
Ogolo (1996) corroborates this when he posits that where a population is known, at least 10 percent of it constitutes a researchable sample. For this study five (3) commercial banks where selected, amounting to 14.29% of the population. At the first stage, three (3) banks will be randomly selected, at the second stage, ten(10) staffs of each bank would be sampled for this study making a total of thirty(30) staffs that will be sampled for this study. Instrument for Data CollectionThe instrument that will be used for the data collection will be through questionnaire. It will be a well structured questionnaire. The questionnaire will be designed to get information that provides answers to the research questions posed.Validation of Instrument The questionnaire will first be presented to the project supervisor who will make some corrections where necessary before they will be distributed to the people for completionSource of dataThe data for this study will basically be primary data collected from staffs of commercial banks in the permanent site of Olabisi Onabanjo university Agoiwoye, Ogun state, with the aid of interview schedule.
This will be supplemented by secondary data obtained from past projects, reviews, book, and other reference publication materialsMethod of Analysis3.8.1 Socio-economic characteristics of bank workers The data collected would be subjected to descriptive statistics such as mean, percentages and tables.3.8.2 The Amounts Spent Annually on Corporate Social and Environmental Responsibility The data collected will be subjected to descriptive statistics. The descriptive statistics such as mean and percentages, have form of frequency distribution3.
8.2 Relationship between Corporate Social Responsibility and Financial Performance.The economic model that will be used in the study (which is in line with what is mostly found in the literature) is given as:Y= ?0 + ?1Fit + ?2Fit + eit ……………………………..(1)Where, Y is the dependent variable, ?0 is a constant, ?1 is the coefficient of the explanatory variable, Fit is the explanatory variable, and eit the stochastic error term. By adopting the economic model as in equation (1) above specifically to this study, the regression model that will be used is based on Eyre (1982) stakeholder theory.PROF = ?0 + ?1SC+ ?2PC + eit …………………………………………(2)Where:PROF = ProfitabilitySC = Social CostPC = Pollution Cost?0 = a constant,?1 and ?2 = the coefficient of the explanatory variable,eit = the stochastic error termREFERENCEAdegboyega, O. and Taiwo, M.
(2011). Contributions of Corporate Social Responsibility to Agriculture and Rural Development in Nigeria. Journal of Sustainable Development in Africa, 13(4): 1-126 Amole, B. B., Adebiyi, S. O. ;Awolaja, A. M.
(2012). Corporate social responsibility and profitability of Nigeria banks A casual relationship. Research Journal of Finance and Accounting, 3(1),6-17.
Balabanis, G., Philips, H. ; Lyall, J. (1998).
Corporate Social Responsibility and Economic Performance in the Top British Companies: Are they Related? European Business Review, 98(1), 25-44.Balsely, H. C., ; Clover, V. T.
(1988). Research for business decisions: Business research method (4th ed.). Ohio:Horizons PublishersBarbosa, N and Louri, H (2005).
Corporate performance: Does ownership matter? A comparison of foreign and domestic-owned firms in Greece and Portugal. Review of Industrial Organization, 27, 73-102.Bessong, P.K. ;Tapang, A.
T.(2012).Social responsibility cost and its influence on the profitability of Nigerian banks.
International Journal of Financial Research,3(4),1-5. Branch, B. (1983). Misleading Accounting: The Danger and the Potential. Working paper. Amherst, USA: University of MassachusettsCarmen – Pilar, M.
B., Rosa, R. M.
; Lisa, G. J. D. (2011). Do the Best European Socially Responsible Companies Perform Better Financially? Unpublished project, University of BarcelonaCarroll, A. B.
(1979). A Three Dimensional Conceptual Model of Corporate Social Performance. Academy of Management Review, 4, 497505.Carroll, A.
B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 3948.Chetty, S.
, Naidoo, R., ; Seetharam, Y. (2014). The Impact of Corporate Social Responsibility on Firms’ Financial Performance in South Africa. Capetown: University of the Witwatersrand.Cooperative Bank.
(2016). Co-op Bank Foundation. Nairobi, Kenya.Crowther, D. (2002). A Social Critique of Corporate Reporting. Ashgate: AldershotDiamond, D. W.
& Dybvig, P. H. (1983).
Bank Runs, Deposit Insurance and Liquidity. Journal of Political Economy 91, 401419.Faden, C. (2013). Optimizing Firm Performance. Stuttgart: Springer Gabler.
Goldsmith, R. W. (1969). Financial Structure and Development. New Haven: Yale University Press.Grant, R. M. (1991).
The resource-based theory of competitive advantage: implications for strategy formulation. California Management Review, Spring, 114 135Hetherington, J. A. C.
(1973). Corporate Social Responsibility Audit: A Management Tool for Survival ; London; The Foundation for Business Responsibilities.King, R. G. & Levine, R. (1993). Finance, Entrepreneurship and Growth: Theory and Evidence. Journal of Monetary Economics 32, 513542.
Kitzmueller, M. & Shimshack, J. (2012).
Economic Perspectives on Corporate Social Responsibility. Journal of Economic Literature, 50(1), 5184.Kothari,C.R. (2004).
Research Methodology- Methods and Techniques. New Delhi:: New Age international (P) Ltd,.Levin, K.A.
(2006). Study design III: Cross-sectional studies. Evidence-Based Dentistry, 7, 24-25Levine, R. (1991). Stock Markets, Growth, and Tax Policy. Journal of Finance 46, 14451465Lorraine, S.
(2009). A Study of Current Practice of Corporate Social Responsibility and an Examination of the Relationship between CSR and Financial Performance using Structural Equation Modeling. Dublin Institute of Technology.Marcia M. C.
, Otgontsetseg, E. & Hassan T. (2013). Corporate Social Responsibility and its Impact on Financial Performance: Investigation of U.
S. Commercial Banks. Unpublished research paper, Department of Finance, Bentley University, Waltham, US.Margolis, J.
D., Elfenbein, H. A. & Walsh, J.
P. (2007). Does it pay to be good? A metaanalysis and redirection of research on the relationship between corporate social and financial performance.
Working paper, Harvard Business School, Cambridge.Marshall, A. (1920). Principles of Economics, (8th ed.
). London.McGuire, J., Schneeweis, T. & Hill, J. (1986).
An analysis of alternative measures of strategic performance. In Lamb, R. & Shrivastava, P. (1986). Advances in strategic management. Research annual,4, 107- 153.Moore, G.
& Spence, L. (2006). Editorial: Responsibility and Small Business.
Journal of Business Ethics, 67(3), 219-226.Nworgu, B.G (1991), Educational Research: Basic issues and methodology, Ibadan: Wisdom publishers Limited. Obi, D. (2013). CSR: 8 banks spend N1.
9bn to make social impact, This Business day News paper of July 9th, available at : www.businessdayonline.com.Odo, O.
M (1992), Guild to Proposal Writing a Social and Behavioral Sciences. Enugu Snaap Press LimitedOgolo, M. B. (1996).
Student guide to writing research and project proposals. Port Harcourt: City Circle PressOlayinka, M. U. &Temitope, O. F. (2011). Corporate social responsibility and financial performance in developing economies-The Nigerian experience. New Orleans, New Orleans International Academic Conference, 815-824.
Waddock, S. A. & Graves, S. B.
(1997). The corporate social performance financial performance link. Strategic Management Journal, 18 (4), 303-319.Weber, E. J.
(2008). A short history of derivative security markets. Crawley, W.A: University of Western Australia, Business School, Economics ProgramWelford, R (2005).
Corporate social responsibility in Europe, North America and Asia. University of Hong Kong, China.Wintner, S. L.
(2006). Financial Management: 10 key performance indicators