The relationship between Corporate Social Responsibility and financial performance: a case of publicly quoted companies in Kenya.

Abstract

During the past decade, the relentless pace of liberalization and privatization along with advances in communications and computer technologies have spawned an enormous transformation of contemporary society. This transformation has created tremendous opportunities for business while presenting numerous challenges as well. One of the most fundamental challenges a business faces in coming years involves understanding and responding to society's rising expectations. In addition to the competitive pressure they face from globalization, businesses today face pressure from many diverse constituents - shareholders, employees, customers, consumers, and civil society - to do more than just fulfill their legal obligations by contributing towards the resolutions of larger societal problems. In this paper, 32 companies listed at the Nairobi stock exchange were examined using a questionnaire for their levels of corporate social responsibility in areas of corporate governance, employee engagement, community service, customer service and environmental conservation as well as reporting of corporate social activities in their -. annual reports. The purpose of this study was to establish whether there was any relationship between corporate social responsibility and financial performance and determine the effects of industry sector, firm size and ownership structure on corporate social responsibility. All the firms that were interviewed indicated that they use corporate social responsibility either as a competitive strategy or a marketing tool and none admitted as engaging in corporate social responsibility due to their healthy cash flOWS!Also using information from the questionnaire and publicly available financial data, a correlation analysis was done to determine whether there is any linkage between corporate social responsibility and firm performance. The results indicated that there was no relationship between corporate responsibility and financial performance. On the effects of the industry sector, all finns showed a level of engagement in CSR but to a varying degree with firms in the Industrial and Allied having the highest mean score of 0.66 and those in the Finance and investments sector with the lowest score of 0.54. All firms whether foreign or local owned had the same mean CSR score of 0.61 and therefore there was no effect on ownership structure. On the effects of firm size, there was a relationship between the firm size and the level of corporate social responsibility, which was significant and positive supporting the view that the bigger the firm, the more visible it is.