The Relationship Between Corporate Social Responsibility and Financial Performance of Firms in the Manufacturing, Construction and Allied Sector of the Nairobi Securities Exchange

Abstract

Manufacturing, construction and allied category of companies listed in NSE has some companies which have recorded progressive growth in terms of profitability, net sales share price as shown by their financial statements over the years. To remain and portray an image of corporate responsible citizens, companies engage in to CSR to cater for the needs of shareholders, customers‟ local community and other stake holders. Theoretically the companies expect that CSR engage would benefit the companies in the long run through customer loyalty building and maintaining brand name. However, the relationship between involvement in CSR activities and financial performance is not accurately known. This study was motivated by the need to establish the relationship between CSR and financial performance of the manufacturing, construction and allied companies listed at NSE.The study used secondary data collected from the Company annual reports for a period between 2010 and 2014. The study employed correlation and regression test to ascertain the relationship between the variables. In addition Capital intensity and efficiency were included in the study as moderating factors. The study found that Companies engaged and reported their CSR activities in their annual reports .some of the main CSR activities identified were on community development and environmental conservation. The study found that there was insignificant positive relationship between capital adequacy (r=0.091, p=0.778) and CSR (r=0.456, p=0.137) with financial performance of the companies while efficiency showed an indirect relationship (r= -0.827, p=0.001with financial performance of the companies. This was because efficiency was calculated by dividing the cost of sales by sales. Thus increase in sales would lead to decrease in the value of efficiency although the financial performance of the company was growing. Although the engagement in CSR activities does not guarantee financial performance, it is recommended that companies engage in CSR activities as responsible corporate citizens. This could help build some image and loyalty of the customers which may make some impact in the long run.