Effect of Corporate Social Responsibility Of Financial Performance Of Firms Listed In Nairobi Stock Exchange

Abstract

Corporate social responsibility (CSR) has emerged as an important aspect in the global business community and has become a mainstream activity. The purpose of this study was to assess the effect corporate social responsibility has on a financial performance of a firm. The main objective of the study was to assess the effects of CSR on financial performance of firms in Kenya. The specific objective of the study was to assess the effects of CSR on profitability, Liquidity and efficiency of firms in Kenya. The theories guiding the study were stakeholders theory, slack resources theory and Virtous Circle theory. These theories are relevant to this study because they address the various angles from which corporate social responsibility could affect financial performance. Employing a descriptive survey research design, the study targeted public companies which had established foundations within their corporate social responsibility policy. Using Purposive sampling the study selected six companies and used all of them to enable the researcher control the variables "size" and "industry" of the company which have been shown to intervene in the relationship between CSR and Financial performance. Annual financial reports were used to get particulars about a company's CSR spending and the resulting fmancial performance in terms of returns. Descriptive and inferential statistics was employed in data analysis. Descriptive statistics involved frequency distributions and means. Bivariate linear regression model was used to establish the relationship between CSR and profitability. The study found that there was no significant relationship between CSR and liquidity of firms in any of the six participating firms. The findings also showed that there was no relationship between CSR and firm efficiency in majority participating firms. The researcher concluded that corporate social responsibilities in Kenyan firms with foundations have more effect on profitability than liquidity and efficiency. The researcher recommended that firms with foundations should focus on investing their CSR funds to solve problems that have a widespread effect.