The Effect of Corporate Social Responsibility on Financial Performance of Commercial Banks in Kenya

Abstract

The study intended to determine the effect of corporate social responsibility on financial performance of commercial banks in Kenya. Financial performance was measured by use of net profits before taxes obtained from audited statements of comprehensive income. For uniformity purposes, net profits before taxes was chosen since some commercial banks had treated expenses on CSR as tax exempt while others had not. Investments were measured by considering loans to customers (except to other banks and corporations), investment in treasury bonds and government securities, investment in shares for trading purposes and investment in subsidiaries. Investment in CSR was measured using monetary spending on social activities. Data was obtained from commercial banks audited financial statements, websites, publications and annual reports. Commercial institutions that did not participate in CSR activities or that had not kept data pertaining to CSR were excluded. Secondary data from the year 2009 to 2013 was used for analysis. Using descriptive research design, the study tested for linear relationship between financial performance and corporate social responsibility. The study used multiple regression analysis and the five years secondary data to analyze the effect of corporate social involvement on financial performance. Financial performance was the dependent variable while corporate social responsibility and investments were the independent variables in the multi linear regression. The study revealed that not all commercial banks report their CSR involvement. Out of the 44 commercial banks studied, only eight provided the necessary and complete data that was appropriate for the study. The study findings were that expenses on social course have an effect on financial performance of commercial banks in Kenya.