Academic journal article IUP Journal of Corporate Governance

Does Corporate Social Responsibility Improve an Organization's Financial Performance? - Evidence from Nigerian Banking Sector

Academic journal article IUP Journal of Corporate Governance

Does Corporate Social Responsibility Improve an Organization's Financial Performance? - Evidence from Nigerian Banking Sector

Article excerpt

Introduction

Corporate Social Responsibility (CSR) is concerned with the different segments of the society to which corporations have obligations. According to Carroll (1991), social expectations can be translated into four characteristics of CSR: economic, legal, ethical and discretionary. This means that firms are expected to generate profit, to obey the law, to operate in harmony with the unwritten social rules, and to voluntarily support societal programs even if society does not expect such support.

CSR has generated significant debate in academics and corporate circles in recent items. This debate acknowledges the importance of CSR in the first world, but raises questions regarding the extent to which corporate operations in developing countries address their social responsibilities.

For the past 30 years, there has been a great interest and as a consequence numerous studies on the nature of the relationship between CSR and financial performance (Griffin and Mahon, 1997; Waddock and Grave, 1997; Roman et al., 1999; and Orlitzky et ah, 2003). Management, politicians, and academics are among those interested in identifying who benefits and who bears the cost of CSR activities and the extent to which corporations will spontaneously address important societal issues.

According to the World Business Council for Sustainable Development, "CSR is the continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of workforce and their families as well as the local community and society at large." CSR is also a concept whereby organizations consider the interest of society by taking responsibility of the impact of their activities on consumers, suppliers, employees, shareholders, communities and others stakeholders, as well as the environment.

Today, issues like environmental damage, improper treatment of workers and faulty production that endanger customers are highlighted in the media. In some countries like Nigeria, government regulations regarding environmental and social issues have increased. Gustafson (2002) speculates that as governments around the world have withdrawn from operating business enterprises, private sector corporations are more increasingly under pressure to play a more active role in the society, to be good 'corporate citizens'.

Since there is a great diversity of theories and approaches, the task remains a very hard one, mainly because no uniformity has been ensured regarding the theory of CSR. In discussing CSR, western research normally adopts several theories such as ethical, economic, legal, charity or stewardship. Each theory gives a different perception of CSR. The ethical theory suggests that business must be carried out in accordance with the ethical principles, while according to stewardship theory the existence of a company should lead to a better condition for the society and not otherwise.

As the impact of the corporate sector, broadly defined, has become a greater concern, there has been an increasing interest to determine the sign and magnitude of any relationship that might exist between the extent of a company's social responsibility activities and its future financial performance. The present study examines the impact of CSR on organizational performance of selected banks in Nigeria.

Going in line with the evidence obtained in the literature, this study adopts the stakeholder theory which stipulates that business organizations must play an active social role in the society in which it operates. Moreover, Freeman et al. (1999), advocates of stakeholder theory, presented a more positive view of manager's support of CSR. They assert that managers must satisfy a variety of constituents (e.g., investors and shareholders, employees, customers, suppliers, and government and local community organizations) who can influence the firm's outcome.

Literature Review

Firstly, an important approach to CSR originates from a book by Freeman (1984) which focuses on the interactions between firms and society. …

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