This study provides empirical evidence on the relationship between corporate social responsibility and profit maximization of commercial banks in Nigeria. The study however extensively explored the construct of CSR from general perspective and as applicable to emerging economies. The study further highlighted various forms of CSR commitment which were grouped under four main headings; economic, legal, ethical and philanthropic activities. Two theories were extensively discussed in relation to CSR which are; stakeholder’s theory and social contract theory thus the study was premised on the stakeholder’s theory because it surfaced the question central to this study.
Data used in analyzing this study was secondary in nature and sourced from financial statements of the banks considered for various years. A suitable model was formulated and variables considered includes: profit after tax, corporate social responsibility expenditure and total assets of the banks. This study made use of panel data methodology to analyses data gathered and also made use of granger casualty test to determine whether CSRE can be used to forecast PAT and vice versa. The result of the analysis showed a positive relationship between PAT and CSRE which implicates that investing in corporate social responsibility increases banks profit maximization.
The study concludes that bank’s commitments to CSR in their community will bring about better reputation, increased patronage, reduced social unrest which in the long run leads to better performance and thus increases profit maximization.
The study recommends that banks should improve on their CSR activities and look beyond the interest of shareholders alone but rather take cognizance interest of the society or community in which they operate.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
At an earlier point in history, societal expectations from business organizations did not go beyond official resources allocation and its maximization. In recent time, modern businesses think beyond profit maximization towards being at least socially responsible to its society. Today’s heightened interest in the role of business in society has been promoted by increased sensitivity to the awareness of environment and its ethical issues. However, there is no agreement on the literature concerning definitions of corporate social responsibility (CSR) that would comprise all the aspects this term involves (Hopkins, 2003).
According to Ejiwunmi, (2005), Corporate Social responsibility is the degree to which a company recognizes what being a good community and global citizen means and act accordingly.
Little (2006) maintained that corporate social responsibility initiatives in many business organizations can lead to innovations through the use of social, environmental, or sustainability drivers to create new products and services.
Many Corporations around the world are struggling with this role, which is to meet the needs of the present generation without compromising the ability of the next generations to meet their own needs (Babalola, 2012). Organizations are being called upon to take responsibility for the ways their operations impact societies and the natural environment. They are also being asked to demonstrate the inclusion of social and environmental concerns in business operations and in interactions with stakeholders (Van Marrewijk & Verre, 2003). Organizations have developed a variety of strategies for dealing with this intersection of societal needs, the natural environment, and corresponding business imperatives with respect to how deeply and how well they are integrating social responsibility approaches into both strategy and daily operations worldwide.
According to Babalola (2012), a firm cannot ignore the problems of the environment in which it operates. Therefore, there is a need to examine the impact of corporate social responsibility on firm’s profitability in Nigeria. In its stronger form, the concept of Corporate Social Responsibility (CSR) asserts that corporations have an obligation to consider the interests of customers, employees, shareholders, communities, as well as the ecological ”footprint” in all aspects of their operations (Babalola, 2012).
Corporate social responsibility (CSR) is an established and interesting topic in the developed world (i.e. Europe, America, Canada and recently Asia and South America). However, the next place to pick a lot of interest would be Africa and Nigeria precisely. Many firms in Nigeria engage in CSR and spend lot of money in their commitment to the society (Achua, 2008).
No doubt, corporate social responsibility is not only limited to when company achieve their corporate goals or complies with the law, but when it (company) makes efforts to anticipate likely societal problems and to respond timely to prevent them.
There is great scope of expanding the amount of research on CSR in Nigeria as well as improving the diversity of its content. The study picked interest in the topic having read a lot of journals, articles and observed issues of CSR in Nigeria banks. Much as there have been researches carried out on CSR in the country, scholars seemed tended to focus on what CSR is, the trend of CSR in Nigeria, public perception and relevancy of established CSR models in Nigeria. To the researcher’s knowledge, very few studies have focused on CSR and its impact on profit maximization of commercial banks in Nigeria.
1.2 STATEMENT OF PROBLEM
The concept of corporate social responsibility can make a positive contribution to the development of society and businesses. However, most businesses exist solely to make profit in the short run and maximize value in the long run. A socially responsible bank should supersede the main objective of maximizing its shareholder’s wealth. It should extends its mandate by undertaking social and environmental activities in society within which it carries out its operation through initiative such as environment conservation, improving the quality of life of its employees and society in general. However, a careless spending without understanding the future returns expenditure generates for an organization could cumulatively put an organization into financial mess. Thus, CSR expenditure should rather improve the profitability position of organization not otherwise.
Rolling forward four decades and it is evident that the relatively nascent field of CSR has grown in prominence in practice as well as theory. A multitude of case studies and data now exists which researchers can draw on to test theories. One of the key questions that dominate the literature is the link between CSR and profitability – often phrased as the relationship between corporate social performance (CSP) and corporate financial performance (CFP). To date the results have been mixed with some researchers finding a strong positive correlation (Orlitzky, 2008), whilst others suggesting no discernible correlation (Bauer, Koedijk and Otten, 2005) and in some instances a negative relationship (Brammer, Brooks and Pavelin, 2006). Of course, the challenge with looking at CSR from a profitability perspective is that it is very difficult to establish causation between CSR activities and financial performance – the former is often very abstract and intangible.
Intuitively it makes sense that investment in CSR by banks could lead to improvements in brand reputation which could translate into higher sales, premium prices and better attraction / retention of staff, amongst other things. But showing causation is very difficult. Significantly, socially responsible banks sometimes find it difficult to tie the short-run cost of CSR and the long-run benefits which can prompt to the non-absorbance of such relationship. For these reasons, the purpose of this study is to examine the relationship that exists between CSR expenditure and profit maximization in order to assist in making decision relating to CSR spending.
1.3 OBJECTIVE OF THE STUDY
The main objective of the study is to examine the link between corporate social responsibility and business objectives achievement in order to assist in making decision relating to CSR spending.
However, the study is aimed at achieving the following specific objectives:
i. To investigate the effectiveness of the approach of corporate organization towards corporate social responsibility programmes.
ii. To examine the extent CSR involvement affects profit maximization achievement in Nigeria banks
iii. To evaluate the long-run relationship between CSR expenditure and profit maximization in Nigeria banks
iv. To determine the direction of causality between corporate social responsibility expenditure and profit maximization in Nigeria banks
1.4 RESEARCH QUESTIONS
The following research questions will guide this study.
i. How effective is the approach of corporate organization towards corporate social responsibility programmes?
ii. To what extent does CSR involvement affects profit maximization achievement in Nigeria banks
iii. What is the long-run relationship between CSR expenditure and profit maximization in Nigeria banks
iv. What is the direction of causality between corporate social responsibility expenditure and profit maximization in Nigeria banks
1.5 RESEARCH HYPOTHESIS
In order to provide answers to the research questions all in the name of achieving the stated objectives of the study, the following hypothesis (expressed in their null form) was tested.
Ho1: There is no significant relationship between corporate social responsibility expenditure and bank profit maximization
Ho2: There is no long-run relationship between CSR expenditure and bank profit maximization in Nigeria
Ho3: There is no direction of causality between corporate social responsibility expenditure and bank profit maximization in Nigeria
1.6 SCOPE OF THE STUDY
This study examines corporate social responsibility and profit maximization in Nigeria commercial banks. The study covers the commercial banks in Nigeria, resulting from the continued banks consolidation reforms by CBN from 2010 till 2017. This study covers only 13 randomly selected banks (representing 62% of the population) out of the 21 commercial banks in Nigeria. The time frame for this study covers the period between 2010 and 2017; this period is chosen because it is the period after consolidation (post consolidation).
1.7 SIGNIFICANCE OF STUDY
This study is situated within the confines of banking industry as most corporate social responsibility researches have been carried out on real sectors. The views across the world of the understanding of CSR differs considerably and it is of great importance to try to understand how CSR is perceived in Nigeria and what the specific driving forces are. Adeyanju (2012) carried out research on the assessment of the impact of CSR on Nigeria Society and Asada (2010) carried out a research on corporate social responsibility of companies and sustainable development in Nigeria. However, very few Nigerian studies link CSR’s impact on banks profit maximization leaving this area plausible for research. Thus, this study will add knowledge to existing body of literature relating to CSR and bank profit maximization in Nigeria and other countries. The study would provide a picture of where banks stand in relation to their level of involvement in corporate social responsibility. It is however anticipated that stakeholder will use results from this study to increase their knowledge and understanding of CSR and how it affects the profitability of a socially responsible bank and also serve as a data source for further researchers working on related problem.
1.8 DEFINITION OF TERMS
1. Corporate image: The way an organisation portrays itself to the public so as to gain an impression of the organisation in the eyes of the public.
2. Profit maximization: This is the short run or long run process by which a firm may determine the price, input, and output levels that lead to the greatest profit.
3. Commercial Banks: A commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products that is operated as a business for profit.
4. Policy: A set of principles that guides the operations of an organisation.
5. Social responsibility: These simply refers to providing for the basic need of society so also ensuring that their activities do not create harm on the society.
6. Business ethics: The ability of the firm to interact effectively with the outside world in a moral and valued manner.
7. The Society/Public: The immediate environment and/or individual influenced or that are affected by the firm’s activities either directly or indirectly.
8. Organisation: This comprise of different individual working together to achieve a common goal in which work are divided in manageable unit, each unit allocated with task and headed by a person.