The Relationship between Corporate Social Responsibility and Financial Performance of Companies in South Africa
Date
2012-01-20
Authors
Kimingi, Peter Kihuyu
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Abstract
In recent times, there has been a significant increase in the level of interest in
corporate social responsibility (CSR) amongst regulators, legislators, shareholders
and broader stakeholder groups. The major driving force behind this heightened
interest seems to be mounting concerns regarding global warming, the
widespread adoption of the Kyoto protocol, numerous large scale corporate
collapses and corruption cases. In South Africa, CSR has an additional impetus
given the complex nature of the country’s history, the need to adhere to the
Broad-Based Black Economic Empowerment’s (B-BBEE) Codes of Good Practice
and the ethical values of responsibility as espoused by the King Code.
This research sought to define the relationship between firms’ corporate social
responsibility and their financial performance. Although most literature reviewed
suggest that investment in CSR is associated with superior financial performance,
many other studies found contrasting results or no relationship at all. Findings are
therefore both mixed and inconclusive. By addressing the methodological
shortcomings identified in previous studies, this research sought to provide an
improved perspective into the nature of this relationship.
Companies that met the JSE’s (Socially Responsible Investment) SRI Index for
assessment were used to conduct this research. These companies were identified
and separated into leading and lagging Corporate Social Performance (CSP) firms
based on their environmental responsibility profile and their performance data for
five years drawn and analysed. The sample was also sorted and analysis
conducted in different industrial sectors so as to eliminate industry biases.
No significant difference in the financial performance was found between leading
and lagging CSP firms over the five-year period. The findings were consistent
regardless of the measure of performance employed, period of analysis or the
sector to which the firms operate. The findings indicate that there is neither a
detrimental impact nor financial rewards for engaging or not engaging in CSR
activities. Managers and investors can therefore afford to be socially responsible.
Description
MBA thesis - WBS
Keywords
Corporate social responsibility, Financial performance of companies