Discuss about the Responsibility and Corporate Financial Performance.
Corporate social responsibility abbreviated as “CSR” can be defined as an activity where an organization or company gives back to the society in terms meeting the cost of a project that benefits the whole community or society. This is usually undertaken by the company to show goodwill and selflessness to the society surrounding the company, therefore CSR activity is more of ethical question rather than an obligation to the companies. The act of CSR more often than not comes with financial commitment on the part of the company implementing the project. This research therefore seeks to understand extend and nature of the financial implications associated with the CSR activities. The research will utilize a number of research techniques to come up with the dependable and accurate findings to meet the purpose of carrying the research. The paper is structured in a logical and flowing manner that it makes it easy for the reader to grasp and understand the report. It states the problem being investigated by the research as well as highlighting the research aims and objectives. The report also contains conceptual framework where relevant literature relating to the topic under study will be discussed and analyzed to give background information regarding the topic of the research. The report contains methodology that explains how the actual research is going to be conducted. The paper will also show the project budgets and justification as well a Gantt charts to indicate timelines of the project. (Gond & Moon, 2012)
Over the last decade there has been increased funding towards CSR activities carried out by the organizations. The organizations which initially did not engage on CSR activities are now beginning to look for ways in which they can participate in it and spend a considerable chunk of money towards these activities. The budgetary allocation to CSR activities can be sometimes huge that it impacts on the financial performance of the companies. It is not common for companies to heavily invest in activities that do not directly contribute to its profitability. The reason behind this is that most of the companies are created for the purposes of making profit and not top generate funds for charity purposes. The company’s shareholders expect to earn maximum dividends possible from the capital contribution made for investment to the company. There is therefore need to fully understand the impact of CSR activities on the financial performances of the company given that CSR is in itself a cost which does not have direct benefits to the company regardless of the amount of money invested in the activity. There is a trade-off between shareholders profit and the value the other shareholders like the surrounding community gets in CSR activities. This therefore begs the question why would companies in business to make profit for shareholders invest in activities that take up the same profits they are pursuing? This is a fundamental question that needs careful answered to come up with a good link between CSR activities and financial performance of companies participating in them. (Hunnicutt, 2009)
The main aim of this research is to find out the impact CSR activities has on the financial performance of the companies participating in them. The following objectives will assist this research in achieving its aim.
The global economy today is run by business companies that generate revenues to the shareholders. The revenues generated are the basis of the profits the shareholders of the business get which can be further reinvested or used acquire other ventures as deemed fit by the investors. Organizations that do not make profits are usually closed down resulting to massive losses in employment opportunities, capital invested among other commercial loses. It is also a general observation that whereas CSR activities consume part of the profits companies make without apparent benefit it would receive in return, these companies continue to invest in them while at the same time looking successful. There is no evidence that companies that do not participate in CSR activities are more profitable than those that participate. (Eilenberger, 2010) This means that when companies participate in CSR activities there is some kind of benefit it receive although the venture itself is non-profit. In a bid therefore to ensure that all the companies in the world are profitable so that there is no any form of commercial loses associated with closed business, It is imperative that studies or researches are conducted to help companies or business entities in the world to remain afloat in the market and continue offering opportunities to the people and profits to the shareholders. (Belal, 2016) Therefore, if successful companies continue to invest heavily in CSR activities, a non-profits venture, could there be some benefits in CSR that other companies that are not doing the same are missing out? Or is CSR a preserve of successful companies only? Clearly, these questions need answers so that all the companies in the world doing business and contributing positively to the global economy can also benefit and continue being useful to all its stakeholders. There is need to clearly establish links between corporate social responsibilities and the financial performance of companies. All the companies in business only survive in the market for long period if they are bale to make profits and realizes their goals without which commercial loses would occur in terms of job loses and cost sunk. Therefore this study in establishing the impact CSR activities have on financial performance of companies is a step in the right direction in helping business ventures across the world to put together a viable and formidable business plans that will see them remain in business for long time in a sustainable way that would benefit all the stakeholders. (Corporate Social Responsibility, Corporate Restructuring and Firm’s Performance, 2010)
The objective of this research would help in resolving this problem by clearly establishing and highlighting any direct or indirect benefits that CSR activities have on the financial performance of organizations/companies. With this business ventures can therefore make informed decision regarding participation in CSR activities.
The study will benefit a number of stakeholders such as governments, companies/organizations as well the society in general. The expected outcomes can be used by the organizations that deal with agitation for more CSR activities to further reinforce their message to their target groups. The outcome can also be used by companies to find out how best they can implement CSR activities for the betterment of the company’s growth and development.
A study done to determine to whether direct CSR activities has direct impact on the financial performance of listed companies in terms of its stock performance. The study revealed that those companies which topped CSR activities according to Folksm’s CSR index, a Swedish insurance company that conduct studies on CSR, did not receive any gains on their stock returns whereas companies that ranked low on the index report experienced negative impact on their stock returns. This study points to some benefits to CSR activities in such a way that the company participating in CSR will actually have no financial gain but at the same time it will not receive any financial loses on their stock returns. On the other hand a company that has low rankings in the CSR index will lose on their stock returns. (Eilenberger, 2010)The difference therefore according to this research is that investing in CSR leads to maintaining of business while non-investment would lead to loses in business. The research also shows that CSR has an ability to influence investments that a company would receive depending on whether they participate in CSR activities or not. It is also imperative to note that CSR being an ethical question goes a long way in showing investors and the market how ethical is a company in the way it carries out its business. This is what could be leading to companies maintaining business if they engage in CSR and losing business if they don’t engage in CSR. (Schreck, 2009)
Another study done to determine impact of CSR activities in companies in Germany and USA reveals that CSR affects the financial performance of the companies. The study further shows that companies in Germany are more proactive in terms of CSR activities than those in USA, putting this differently, CSR activities is more pronounced among organizations in Germany than in USA. This however does not mean that companies in Germany are more profitable than companies in USA because of difference in CSR investments as there is no evidence to support this narrative. Analyzing this fact it suggest that CSR activities are more of a culture than an obligation bound by laws in all jurisdictions across the world. The study further notes although CSR have an effect on the financial returns of the companies the magnitude of this effect varies from company to company as there is no standard effect that CSR have on companies even when their respective budgets are matched. Therefore CSR alone can not entirely determine the profitability of a company because there are other relevant factors which also have a bearing on the financial position of the companies. (Kabir & Thai, 2017)
Another study done to compare the influence CSR has on corporate financial performance (CPF) verses the influence other factors such as employee, clients and shareholders have on CPF, reveals that CSR has little or zero influence on the CPF compared with clients/market, employees and/or shareholders. The study therefore postulates that since CSR has little or negligible influence on corporate financial performance compared to other important factors in corporate business then its makes more sense of companies would concentrate on those factors which have major bearing on profitability than those that add no or little value to the company’s profitability such as CSR. It further notes that whereas the finding of the research is logical there is an increase in CSR budgetary allocations in companies across the world. According to the research the increased budgetary allocations can be attributed to more on prestige purposes than investments for profitability. The more the world become connected through technological advancements, the more the transparency in company activities and the more companies would want to engage in CSR activities and announce these activities for the purposes of gaining respect and being viewed as ethical and transparent company that has all her activities open for scrutiny. (Hossain, Chowdhury, Evans & Lema, 2015)
In a study done to determine the importance of CRS to companies revealed that companies or organizations can take advantage of societal problems through corporate social responsibility to gain a standing in the society which latter translates in goodwill received from clients who buy the company’s products more than the competition. Therefore, companies need not look for direct financial benefits it will receive when they invest in CSR but rather indirect ones such as goodwill from the market which increase sales and profitability by extension. Therefore the research postulates that CSR no direct benefits but has indirect ones which have a bearing on the financial performance of the company. The study notes that customers like to associate themselves with companies that in the eyes of the public are reputable and are known to exercise the highest kind of ethical standards. The more the a company has a good standing in the society the higher the likelihood that many customers would want buy their products and associate themselves with the company. The study further reveals that CSR benefits can be financial but that is more of long term than short term. It takes time for the market to appreciate a company’s effort in CSR activities. (Martínez-Ferrero & Frías-Aceituno, 2013)
A research conducted to find out effects of CSR on various types of investments such as banks and Construction companies reveals variation in terms of CSR effect on the financial performances of these companies. Corporate such as banks realizes better returns in terms of CSR investments than other companies such as construction companies. This can be attributed to the facts that since banks are more sensitive in terms of their ethical standards in the eyes of the public compared to other companies which are less sensitive construction companies then, CSR, being an ethical question boost the confidences of bank’s depositors which then enable to bank to have huge deposits and bigger loan books for more profitability. (Fryzel, 2015) On other hand companies like construction companies who do not have public money will receive less scrutiny in terms of financial ethics as they pose no risk in terms of public money getting lost. Therefore depending on the sensitivity of an industry CSR can have huge or small financial benefit. (Miko?ajek-Gocejna, 2016)
The research will utilize both quantitative and qualitative methodology in line with meeting its objectives. The qualitatively research will help the research in determining the general findings of the research will quantitative methodology will help the research determine extend of this effect.
The research will utilize a number of data collection methods in order to get the most suitable data for drawing conclusion of the research. The participants or the sample of the research will be identified randomly to avoid biasness that will lead to collection of skewed data. Random collection of data will also ensure that the research will obtain reliable data which can draw meaningful conclusion for the research. The following data collection methods will be used by the research;
The data obtained will be analyzed by representing them on various forms of graphs and charts that will make it easy for the reader of the report to understand the report and relate them with explanations given.
The study will be organized in such a way that a project proposal will first be done, where it will contain brief introduction of the study in terms of its aim, objectives and knowledge gap in the research topic. This will then be followed by conceptual framework where literature reviews of the studies relevant the topic under research will be studied. Methodology of the study will then be discussed where the report will highlight how the research will be conducted in terms of qualitative, quantitative or mixed approaches. Data will then be analyzed followed by its discussion and graphical representation of the research outcomes. The report on its tail end will have its conclusion and the recommendation.
The research will need budgetary allocation on printing cost of all the questionnaires, cost of transport and other expenses for the research personnel who will assist in data collection from selected companies who will participate in the study. There should also be contingency budget for any unforeseen scenario that the study may run into.
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Projects name |
Research to determine the effect of CSR activities on company’s financial performance |
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Start date |
November 8th, 2017 |
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Finish date |
December 8th, 2017 |
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Task/week |
Week 1 |
Week 2 |
Week 3 |
Week4 |
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Project proposal |
P |
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Conceptual framework And methodology |
P |
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Data analysis and discussion |
P |
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Conclusion and recommendation |
P |
Conclusion
In conclusion, the literature reviewed shows some inconclusiveness that need to be addressed. Majority of them postulates positive relationship between CRS activities and the financial performance but does not show extend of this positive relationship between these two variables. It is therefore imperative that the relationship between CSR activities and financial performance of the companies is quantified to determine extend for the purposes of making clear and informed decisions.
The research personnel should ensure that the timelines contained in the proposal are adhered to as this will ensure each part of the research is allocated fair time for it to be done in conclusive and proper manner that will give the research viable findings for the purposes of drawing conclusions and making relevant recommendations to all stakeholders who might need to use the findings of the report to make informed decisions regarding how they should approach the issue of corporate social responsibility in their organizations.
References
Belal, A. (2016). Corporate social responsibility reporting in developing countries. London: Routledge.
Corporate Social Responsibility, Corporate Restructuring and Firm’s Performance. (2010).
Demirag, I. (2012). Corporate social responsibility, accountability and governance (1st ed.). Sheffield, South Yorkshire, England: Greenleaf Pub.
Denicolo, P., & Becker, L. (2012). Developing research proposals. Los Angeles, CA [etc.]: Sage.
Eilenberger, G. (2010). Current challenges for corporate finance. Heidelberg: Springer.
Eilenberger, G. (2010). Current challenges for corporate finance. Heidelberg: Springer.
Fryzel, B. (2015). The true value of CSR. Houndmills: Palgrave Macmillan.
Gond, J., & Moon, J. (2012). Corporate social responsibility. London [u.a.]: Routledge.
Hossain, M., Chowdhury, M., Evans, R., & Lema, A. (2015). THE RELATIONSHIP BETWEEN CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE FINANCIAL PERFORMANCE: EVIDENCE FROM A DEVELOPING COUNTRY. Corporate Ownership And Control, 12(3). https://dx.doi.org/10.22495/cocv12i3c4p8
Hunnicutt, S. (2009). Corporate social responsibility. Detroit, MI: Greenhaven Press.
Kabir, R., & Thai, H. (2017). Does corporate governance shape the relationship between corporate social responsibility and financial performance?. Pacific Accounting Review, 29(2), 227-258. https://dx.doi.org/10.1108/par-10-2016-0091
Martínez-Ferrero, J., & Frías-Aceituno, J. (2013). Relationship Between Sustainable Development and Financial Performance: International Empirical Research. Business Strategy And The Environment, 24(1), 20-39. https://dx.doi.org/10.1002/bse.1803
Miko?ajek-Gocejna, M. (2016). The Relationship between Corporate Social Responsibility and Corporate Financial Performance – Evidence from Empirical Studies. Comparative Economic Research, 19(4). https://dx.doi.org/10.1515/cer-2016-0030
Ogden, T., & Goldberg, I. (2009). Research proposals. San Diego, Calif. [u.a.]: Academic Press.
Schreck, P. (2009). The business case for corporate social responsibility (1st ed.). Heidelberg: Physica-Verlag.
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