The impact of corporate social responsibility on firm financial performance: does industry type matter?
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Date
2023
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KNUST
Abstract
Corporate social responsibility (CSR) of firms creates a connection between the industry and the outside world. Thus, it serves various purposes for the social well being of the people and also has an effect on the corporation’s performance. The purpose of the study is to investigate the relationship between CSR and the financial performance of firms and how this relationship is influenced by the type of industry the firm operates in. The study draws a diversified sample of 5 leading financial and 5 nonfinancial local and foreign-owned firms over a 12-year period (2010-2021), a period post Ghana Stock Exchange adoption of CSR disclosure for listed firms. In predicting the findings of the study, the static panel regression model was used, and the results showed that increases in CSR initiatives lead to a decrease in the financial performance (ROE) of both financial and nonfinancial firms. This implies the cost of firms investing in social and environmentally friendly initiatives outweighs the benefits. The results also showed that firms in the financial sector experience better financial performance compared to those firms in the non-financial sector. Also, the study finds that the type of industry in which a firm operates positively influences the relationship of CSR on financial performance (ROE). Therefore, despite the fact that CSR initiatives provide valuable benefits for stakeholders and the environment, firms should take caution when investing in CSR initiatives, as it can have deleterious implications on their financial performance due to Agency costs. Also, the study suggests that firms should always consider their industry type (financial or non financial) when investing in CSR initiatives
Description
A Thesis submitted to the Department of Accounting and Finance Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Master of Science in Accounting and Finance