The relationship between corporate social investment and financial performance of companies listed at the Nairobi Securities Exchange

Abstract

This study visualizes that companies seem to have, for far too long, relied on crude business analytical methods that only consider direct investment with its subsequent occasioned income. The companies have continued to operate under the long held slogan that the main purpose of business is to make profits, which in this case is a short-term view. The study postulates that by companies getting interested in the society and associating with it to participate and assist is a long-term view. There is clear need to expand the purpose of business by considering the effect of other stakeholders to not only sustain the business but also if the society is to consistently prosper and grow. This study sought to establish the effect of corporate social investment on financial performance of 64 firms listed at the Nairobi securities exchange. The entire 64 firms formed the population of the study with share earnings as a measure of financial performance. The 2010 to 2019 quantitative secondary data was extracted from the firm’s websites. Using linear regression analysis and Pearson correlation, the study found that corporate social investment is a significant predictor of firm financial performance. As a contribution to theory, the study reveals that as much as stakeholder theory advocates for other interested parties in the company, through brand building and loyalty to the company by other interested groups, benefits shareholders as opposed to reduction of shareholder’s net worth by paying to other stakeholders. Moreover, stakeholder theory assumptions encompass various identities of interested parties, that is the third parties and how these interested third parties affect company’s financial performance. The study recommends companies to engage in corporate social investment as a brand building image that garners loyalty from new and existing clients to foster healthy consumer preferences as a way of promoting a prosperous future in the economy. Further research using different attributes for corporate social investment can be initiated to widen the findings.