Home Accounting Project Topics DETERMINANTS OF CORPORATE SOCIAL RESPONSIBILITY OF QUOTED CONGLOMERATES IN NIGERIA

DETERMINANTS OF CORPORATE SOCIAL RESPONSIBILITY OF QUOTED CONGLOMERATES IN NIGERIA

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ABSTRACT

Over the years, there has been tremendous increase in the corporate social responsibility (CSR) behavior of firms globally. However, the growing awareness seems to be occasioned by various degrees of commitment among firms. This study therefore, attempts to investigate the factors that determine the practice of CSR by listed conglomerates in Nigeria. Specifically, it proffers answers to whether profitability, firm size, firm growth and leverage significantly influence firms’ CSR participation in the Nigeria conglomerates? It employed quantitative data from 2009 to 2013 which were sourced from the Annual Reports of seven (7) sampled companies. With the use of multiple linear regression models, the study selected explanatory variables such as profitability, firm size, firm growth and leverage in order to establish a functional relationship with CSR; the explained variable. The findings revealed that profitability and firm size are positively and significantly influencing CSR of conglomerates in Nigeria. While firm growth was found to be negative and insignificant in influencing CSR of conglomerates whereas, leverage showed a negative and significant effect in explaining and predicting CSR of conglomerates in Nigeria. The study concludes that profitability and size of firms determine CSR while growth does not influence CSR whereas, leverage negatively influence CSR. Therefore, it is recommended that management should review promotional strategies in order to make firms highly profitable; retained earnings should be improved in order to increase firms’ size; CSR orientation should be cultivated especially by high growing firms; and firms should refrain from taking too much credit facility.

 

 

TABLE OF CONTENTS

 

Title Page——————————————————————————————i
Title Page——————————————————————————————ii
Declaration—————————————————————————————-iii
Certification—————————————————————————————iv
Dedication—————————————————————————————–v
Acknowledgements——————————————————————————vi
Abstract——————————————————————————————-viii
Table of Content ——————————————————————————–ix
CHAPTER ONE: INTRODUCTION
1.1 Background to the study………….…….…………….………..…..………………..1
1.2 Statement of the Problem…………….……….………..………………..……………6
1.3 Objectives of the study……………………..……………………..…………………9
1.4 Statement of Hypotheses….…………………………………….……..……….……9
1.5 Scope of the study …………………………………..…………………………..…10
1.6 Significance of the study …..……………………………….………..……………..10
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction…………………………………………………………….…………12
2.2 Concept of CSR………..……………………………..….………………………….12
2.3 Determinants of CSR……..…………..………………………..…………..……..18
2.4 Review of Empirical Literatures…………………………..…………………….25
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2.5 Theoretical Framework……………..…………………..…………………………..43
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction…………………….…………………………….…………………………46
3.2 Research Design……………..………………………………………………………….46
3.3 Population and Sampling Technique…………..……..…..…………………….……46
3.4 Sources and method of Data Collection……………..……..…………………………47
3.5 Techniques of Data Analysis………..……………….……………………………………..47
3.6 Model Specification……………………….…………………………………………47
3.7 Variable Measurement………..……………….………………………………………………48
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction………………………………………………………………………..49
4.2 Descriptive statistics……………………………………………………………….49
4.3Correlation matrix………………………………………………………………….51
4.4Heteroskedasticity test……………………………………………………………..53
4.5 Presentation and discussion of regression result…………………………………..53
4.6 Robustness tests..…………………………………………………………………..57
4.7 Implications of the findings……………………………………………………….58
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary…………………………………………………………………………….62
5.2 Conclusions…………………………………………………………………………64
5.3 Recommendations………………………………………………………………….65
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5.4 Limitation of the Study…………………………………………………………………66
5.5 Areas for Future Research….………………………………………………………….66
BIBLIOGRAPHY……………………………………………………………………..67
APPENDICES…………………………………………………………………………77
List of Tables
Table 2.1 CSR Framework & Pyramid of CSR———————————————–17
Table 3.1 Variable Measurement—————————————————————49
Table 4.1 Descriptive Statistics—————————————————————–51
Table 4.2 Correlation Matrix——————————————————————-53
Table 4.3 Regression Result——————————————————————–54
Table 4.6 Tolerance and VIF values———————————————————-59

 

CHAPTER ONE

 

INTRODUCTION
1.1 Background to the Study
Business has positioned itself as a key player on the global development agenda. It can be ascertained that business organisations today have an unprecedented potential to contribute towards some of the most pressing developmental needs (Barkemeyer, 2007). Firms around the world are now struggling with a new role, which is to meet the needs of the present generation without compromising the ability of the next generations to meet their own needs. Organizations are being called upon to take responsibility for the ways their operations impact on the societies and the natural environment. They are also being asked to apply sustainability principles to the ways in which they conduct their businesses (D‟ Amato, Henderson & Florence, 2009). Over the years, companies all over the world have come under intense pressure to be socially and environmentally responsible. Hence, firms must now focus attention on both increasing profitability and being a good corporate citizen. Keeping abreast of global trends and remaining committed to financial obligations to deliver both private and public benefits have forced organizations to reshape their frameworks, rules, and business models (D‟ Amato, Henderson & Florence, 2009).
The literature on Corporate Social Responsibility (CSR) has emerged from a variety of disciplines, such as Sociology, Philosophy, Accounting, Management, Finance, Law and Politics (Porter & Kramer, 2006 and Jones, 1995). In the debate on CSR, two broad schools of thought emerged; the classical or free market view and the socio-economic
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view. The proponents of free market view (Levitt, Friedman and Mackey & Mackey) argued that it is not the job of businesses to be concerned about social issues and problems. Business has an only task to maximize profits and create wealth for shareholders. It should not interfere in social problems as it is a field of government regulation (Levitt (1958), Friedman (1970) and Mackey and Mackey (2007)).
Socio-economic scholars (Caroll, Freeman and others) argued that business is more than just economic unit, it is a part of complex surrounding consisting of various intermediaries like consumers, suppliers, mass-media, unions, employees and shareholders and it should definitely help the society, in carrying out various social programs and cooperate with government (Freeman (1984), Jones (1995), Caroll (1979), O‟Dwyer (2002), Cooper & Owen (2007), and Detomasi (2008)). Traditionally, firms have been concerned with profits maximization. However, “it appears that the culture around the globe has been changing. People are beginning to judge corporations for their actions. Recently many corporations have gone to great lengths to make sure that their companies are being viewed as socially responsible by the public eye” (Spilectic, 2013: 85).
Furthermore, nowadays, management is being held responsible not only for the efficiency of operations as expressed in profitability performance but also for what is done about an endless number of social problems. This requires companies to undertake additional but discretional activity beyond traditional objective of maximizing shareholders wealth. Casewell (2004) states that, CSR and sustainability are used inter-changeably to mean the
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same thing, therefore, for any organisation to be sustainable in the long run; it first needs to be financially self-sufficient, thereafter strive to be socially responsible. This can be achieved by ensuring that its environmental and social impacts are monitored to conform to the stakeholders‟ expectations and ethical values. Companies often provide sustainable economic benefit to the society; in return, the society supplies them with numerous critical resources in the form of access to employees, natural resources, infrastructures, customers and legitimacy (Bailey, Harte & Sugden, 2000 and Reich, 1998). It has being maintained that companies are social creations whose very existence depends on the willingness of the wider society to endure and support them (Cannon, 1992; Reich, 1998). Therefore, they are deemed to agree to perform various socially desired actions in return for their acceptance as legitimate institutions in society. O‟Dwyer (2002) opined that the quest for acceptance results in the formulation of several (often) strategic tactics aimed at convincing the wider society that an organisation is a legitimate institution. Many of these tactics tend to concentrate on changing or controlling the public perception of an organisation in response to threats to its legitimacy arising from social pressure (Abba, 2012).
Large companies especially conglomerate firms have incorporated CSR issues into their long-term corporate policies because of its strategic importance. Conglomerates are often multi-industry companies, often large and multinational. A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate group, usually involving a parent company and many subsidiaries. In spite of the fact that CSR is still voluntary, firms devote huge resources in executing
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social projects. This sparked several studies into why and what factors determine firm‟s social responsibility behaviour. Studies across the globe have found CSR to have “a remarkable long-term fiscal advantage” (Lin, Yang & Liou, 2009). However, several different factors have been found to be the determinants of social behaviour of firms.
Profitability of firms is a variable that strongly influences the engagement of firms in CSR activities because it provides the needed resources for payment of dividends and the execution of CSR projects which is current investment for future growth and survival of the firm. The work of Tsoutsoura (2004); Hussainey, Elsayed & Razik (2011) and Musa & Hassan (2013) empirically revealed that profitability is a main determinant of CSR. Dividend payout is also associated with social behaviour of firms. Benlemlih (2014) found that high CSR firms pay more dividends than low CSR firms.
The ability of firms to engage in CSR projects is largely determined by the sizes of the firms. Large firms have more capacity and resources to execute social welfare projects than small firms. The findings of several studies revealed that size is significantly and positively influencing CSR pattern of firms (Al-Shubiri, Al-Abedallat & Orabi, 2012; Cowen, Ferreri & Parker, 1987; Belkaoui & Karpik, 1989; Trotman & Bradely, 1981; Ho & Taylor, 2007; Garcia-Ayuso & Larrinage, 2003 and Brammer & Pavelin, 2004). Corporate Social behaviour of firms could also be influenced by the growth of the firms. This is because; firms‟ growth is usually occasioned by the ability of firms to retend profit over time and/or effective and efficient management of the firms‟ resources. This view is supported by the work of Musa & Hassan (2013) and Al-Shubiri et al. (2012).
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Leverage is another characteristic that could have impact on CSR. This may be because the capital structure of a firm has great consequences on the financial position of the firm. Studies on leverage and CSR found mixed results. The influence of leverage on social behaviour of firms is supported by the work of Ahmad, Hassan & Mohammed (2003) and Musa & Hassan (2013). While Ho & Taylor (2007) and Reverte (2009) found no relationship between leverage and CSR.
In developed economies there are government regulations, society pressure groups and green consumer pressure reawakening corporate attention to strategic and competitive role of CSR to corporate survival. However, in Nigeria and other developing economies, the understanding is somewhat different mainly because of weak government regulations and lack of organised pressure groups and consumer awareness to influence corporate behaviour (Ngwakwe, 2009).
The call on firms in Nigeria to be socially responsible came to reckoning by the activities of youths in the Niger Delta region (Ejumudo, Edo, Avweromre & Sagay, 2012). Protests (sometimes violent) by host communities are a major way of attracting attention of the oil companies, government and the general public to their plight. These pressure groups have metamorphosed into proliferation of arms, emergence of militias, kidnapping, armed robbery, inter and intra community clashes etc which created insecurity, hampered development and generally caused Nigeria daily oil production to drop (Ejumudo et al., 2012). Firms in the oil industry responded to pressure from the violent Niger Delta youths and started embarking on socially responsible corporate projects and programmes
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in host communities. With increased demand and awareness, firms in other industries in the country integrated CSR into their corporate policy and practice as part of corporate goal. However, despite the practice of CSR in the country, not all listed firms are part of the story (Ejumudo et al., 2012). Some industries have not started and seem not to realize the importance of being socially responsible.
The concern therefore is what determines firms‟ participation in CSR and by what extent? Campbell (2007) proposed conditions to include the general financial condition of the firm, the health of the economy, and the level of competition among others. To Adeyemo, Oyebamiji & Alimi (2013), factors that influence CSR practices are competition, employees demand, government policy, organisational culture and customer demand. Different studies found variables that influence CSR to include among others size, industry, profitability, growth, dividend and leverage. This study therefore, seeks to investigate conglomerate firms in Nigeria in order to identify the determinants of CSR.
1.2 Statement of the Problem
Despite the divergent views on CSR, a large number of companies appear increasingly engaged in a serious effort to define and integrate it into all aspects of their businesses (Zu & Song, 2008). Moreover, in today‟s world where business has become global but governments have remained local, companies have to bear the social responsibility for their actions (D‟ Amato, Henderson & Florence, 2009).
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Notwithstanding the universal pressure on business organisations to be socially responsible, a cozy analysis of companies‟ reports in Nigeria shows that not all firms practice CSR. And the companies that practice it do it at various degrees of commitment. The puzzling issue now is what determines firm‟s participation in CSR? Observation of the practice of CSR in Nigeria reveals that some factors could be influencing companies‟ behaviour. Available studies also reveal several factors as determinants of firms‟ engagement in CSR.
It is generally believed that performance of companies is the principal factor influencing the social responsibility of firms. Highly profitable firms are favourably disposed to use part of the profits to execute social projects than less profitable firms. The findings of some studies show profitability as a major influence on the practice of CSR (Hussainey et al. (2011); Musa & Hassan (2013) and Tsoutsoura (2004)). On the contrary, some studies found profitability to be an insignificant explanatory variable (Patten, 1991) while others found it significant but in negative association with CSR (Ho & Taylor, 2007). This study therefore looks at whether the profitability of firms in the conglomerate industry influences their practice of CSR or not.
Size is a significant variable in determining the behaviour of a firm. Several studies examined the impact of size as a determinant of CSR and found it to be a significant explanatory variable in influencing CSR (Al-Shubiri et al., 2012; Ho & Taylor, 2007; Brammer & Pavelin, 2004; Jinfeng & Huifeng (2009) and Garcia-Sanchez (2008). This
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study would consider size as a variable in explaining the practice of CSR by conglomerate firms in Nigeria.
The growth of firms is an indication of good financial performance and ultimately a factor that could serve as a catalyst in boosting a firm‟s engagement in CSR activities. Few researches conducted using growth as a firm characteristics in determining CSR found it to be significant in explaining firm‟s participation in CSR (Musa & Hassan, 2013) while others found it to be insignificant (Rahman, 2011). Leverage is also an important factor in the financial position of a firm. Several studies examined the relationship between leverage and CSR and the results revealed leverage to be positively, strongly and significantly influencing CSR practice (Musa & Hassan, 2013 and Ahmad et al., 2003). While other studies found no significant relationship between leverage and CSR (Ho & Taylor, 2007). The findings show mixed results, therefore, this work to be carried out in the Nigerian conglomerate industry would regress growth and leverage among other variables against CSR in order to determine the relationship.
Besides the diverse findings of the studies on the determinants of CSR, most of the existing works were carried out outside Nigeria (Al-Shubiri et al., 2012 Hussainey et al., 2011 and Chih et al. 2010). The few works carried out in Nigeria are in the banking and other sectors of the economy (see Musa & Hassan, 2013 and Adeyemo et al., 2013). Moreover, these studies covered the period before 2012 and hence do not cover the most current period which reflects the present reality. Also, methodologically, few of the previous works reviewed used primary data, simple percentages and/or content analysis
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(Adeyemo et al., 2013 and Abba, 2012). Therefore, this study would employ quantitative data from 2009 to 2013 using regression analysis and examine conglomerate firms in Nigeria in order to ascertain whether profitability of firms, firm size, firm growth and leverage determine the extent of firms‟ participation in CSR.
1.3 Objectives of the Study
The main objective of the study is to investigate the factors that influence the practice of CSR. The specific objectives of the study are to:
(i) Examine the extent to which profitability influences firms‟ CSR participation in the Nigerian conglomerate firms.
(ii) Identify the degree to which size makes firms to be socially responsible in the Nigerian conglomerate firms.
(iii) Determine the degree of influence of firms‟ growth on the practice of CSR in the Nigerian conglomerate firms.
(iv) Find out the extent to which leverage influences firms‟ practice of CSR in the Nigerian conglomerate firms.
1.4 Research Hypotheses
In view of the objectives of the study, the following hypotheses have been formulated in null form:
(i) Profitability does not significantly influence firms‟ CSR participation in the Nigerian conglomerate firms.
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(ii) Firm‟s size does not significantly influence the social responsibility of Nigerian conglomerate firms.
(iii) Firm‟s growth does not significantly affect the practice of CSR in the Nigerian conglomerate firms.
(iv) Leverage does not significantly influence the practice of CSR by the Nigerian conglomerate firms.
1.5 Scope of the Study
This study focuses on the determinants of CSR in the Nigerian conglomerate firms that are listed on the Nigerian Stock Exchange (A.G. Leventis (Nig) PLC, Chellarams PLC, John Holt PLC, P.Z. Cussons Nig PLC, SCOA (Nig) PLC, Transnational Corp. of Nig PLC, UAC of Nig PLC, and Unilever Nig PLC). It covers the period of five (5) years from 2009 to 2013. This period was chosen because it is the period after conglomerates in Nigeria experienced transformation and expansion. Therefore, this period was chosen to ensure that the study captures the effects of the changes on CSR. There are many factors that can influence the practice of CSR as revealed by the extensive theoretical review, but this study limits itself to the study of such variables as profitability, firm‟s size, firm‟s growth and leverage. This is because, these four (4) variables seems to be the most argued than the other factors. Hence, the selection was made in order to know whether these variables really determine CSR.
1.6 Significance of the Study
This study would be very important as the findings would extend the frontier of knowledge and provide knowledge base in the area of determinants of CSR in the Nigeria conglomerate industry. This is imperative because the few studies on the determinants of
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CSR in Nigeria are outside of the domain of this study and with different focus. The study would benefit the following:
Conglomerate firms would benefit from the study in that it would provide the needed theoretical information on factors that positively or otherwise influence the practice of CSR. The findings and the recommendations of the study would also provide the base and veritable tool for informed decisions on CSR programmes.
The management of organisations especially in West Africa would also benefit immensely from the study. This is because, the appropriate application of the findings and the recommendations would result to sound policies formulation.
The findings of the study would be of immense benefits to government and regulators in Nigeria as it would provide a useful guide for the formulation of policies and decisions on CSR.
Also, the study would be beneficial to the researcher and potential researchers as a research tool, which would provide sound theoretical knowledge on determinants of CSR and the methodology required for carrying out research.

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