Academic journal article Journal of Emerging Trends in Economics and Management Sciences

Impact of Disclosure of Corporate Social Responsibility on Corporate Financial Performances of Plantations Companies in Sri Lanka

Academic journal article Journal of Emerging Trends in Economics and Management Sciences

Impact of Disclosure of Corporate Social Responsibility on Corporate Financial Performances of Plantations Companies in Sri Lanka

Article excerpt

Abstract

A growing number of companies in Sri Lanka embrace the concept of Corporate Social Responsibility (CSR) in recent past. However, the motivations behind why companies make voluntary CSR are unclear. Does a firm really spend its shareholders funds without some kind of return? This research provides a Sri Lankan perspective on the topic; using content analysis of annual reports of 14 plantations companies listed in CSE from 2001 to 2010. The study shows that they have positively respondent to stakeholders' interest on social and environmental compliance by strategic CSR initiatives by devoting additional resources. Further the study aims to explore the relationship between CSR and financial performance to see what motivates firms to voluntary initiate CSR activities. The compliance check list by chamber of commerce was used to determine the CSR score. ROE and ROA were used as measures for corporate financial performance. The study concluded that overall CSR discloser has been increasing since 2001 to 2007 at lower rate and after that increasing at an increasing rate. Further CSR activates as environmental initiatives become more evident after 2007. ROE and ROA were positively correlated and significant.

Keywords: corporate social responsibility (CSR), corporate financial performance, ROE, ROA, plantations industry, stakeholders

INTRODUCTION

Plantation sector has been important to the Sri Lankan economy for many years. However the global tea consumption is increasing at a lower rate than production, resulting in a growing discrepancy between production and consumption. This continuing overproduction of tea is one of the factors behind intensive competition in today's' global tea market. Furthermore, Market concentration is extremely high: 90 percent of Western trade is concentrated in the hands of seven multinationals companies; 85 percent of world production is sold by multinationals.

Unilever, the largest seller of tea in the world, producing tea from their own estates in East Africa as well as buying from third parties, including smallholders, and on the world market including Sri Lanka and India, have been pledged to source 100% sustainable product by 2020. Furthermore, by 2015 their aims to have the tea in all Lipton tea bags sourced from Rainforest Alliance Certified(TM) which is a voluntary standard on Sustainable Agriculture.(Unilever Global, 2011).Furthermore Tetley, also pledge to sourcing 100% of its tea from Rainforest Alliance Certified TM farms by 2016(Tetley, 2010). Continuing this trend, Jam's Finlay and Van Rees also committed to sourcing their tea from sustainable sources. Van Rees also strongly believe in and support practical initiatives that encourage agricultural sustainability in tea industry. They further believe that programmes which bring social and economic improvement in origin countries are the pathway to a strong and enduring future for tea. They also ascribe to Rainforest Alliance, UTZ, Fair Trade and organic practices.(Van Rees, 2011).The trend is continuing, sales of faire trade certified teas are growing rapidly mainly in the UK that purchase over 80% of the fair trade tea import to the EU(Jhone Keells PLC, 2010).

Therefore, reputation management including compliances to environment and social requirements has become major economic drivers to adaptations of CSR in plantations companies in Sri Lanka. Corporate social responsibility offers to plantations companies a means by which companies can manage and influence the attitudes and perceptions of their stakeholders, building their trust and enabling the benefits of positive relationships to deliver business advantage.

It is clear that the relationship between CSR and financial performances is still controversial and open area for further research (Wijesinghe & Senaratne, 2010). Further, the relationship is industry depended. Although, with the supply chain pressure for social and environmentally accountable product, plantations are continuing investing on CSR initiatives, the managers and shareholders are unawares about the effect of CSR on performance for the bottom line of the plantations companies. …

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