Analyzing the Impact of CSR on Financial Performance of Companies

This research report investigates the impact of Corporate Social Responsibility (CSR) activities on the financial performance of companies. The study explores the relationship between CSR investments and company profits, examining both direct and indirect impacts. It delves into the problem statement, highlighting the increasing financial commitment to CSR and its potential effects on profitability. The research aims to determine the extent of this relationship and provide recommendations based on the findings. The report includes a conceptual framework, methodology, and a discussion of potential research outcomes, emphasizing the justification for the project and its relevance to stakeholders. The study also reviews existing literature and previous research findings to provide a comprehensive understanding of the topic, with the ultimate goal of helping businesses make informed decisions regarding CSR participation and its effect on their financial performance.

UNIVERSITY NAME
Student’s name
Student’s ID
Research in Business
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Table of Contents
1.0Introduction..................................................................................................................................2
2.0Problem Statement.......................................................................................................................3
3.0Research aim and objectives........................................................................................................3
4.0Justification of the project and potential research outcome.........................................................4
5.0Conceptual framework.................................................................................................................5
6.0Methodlogy..................................................................................................................................8
6.1Data collection.........................................................................................................................8
6.2Data Analysis and discussion..................................................................................................9
7.0Organization of the study.............................................................................................................9
8.0Conclusion.................................................................................................................................10
9.0Recommedndations....................................................................................................................10
10.0References................................................................................................................................11
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1.0Introduction
Corporate social responsibility abbreviated as “CSR” can be defined as an activity where an
organization or company gives back to the society in terms meeting the cost of a project that
benefits the whole community or society. This is usually undertaken by the company to show
goodwill and selflessness to the society surrounding the company, therefore CSR activity is more
of ethical question rather than an obligation to the companies. The act of CSR more often than
not comes with financial commitment on the part of the company implementing the project. This
research therefore seeks to understand extend and nature of the financial implications associated
with the CSR activities. The research will utilize a number of research techniques to come up
with the dependable and accurate findings to meet the purpose of carrying the research. The
paper is structured in a logical and flowing manner that it makes it easy for the reader to grasp
and understand the report. It states the problem being investigated by the research as well as
highlighting the research aims and objectives. The report also contains conceptual framework
where relevant literature relating to the topic under study will be discussed and analyzed to give
background information regarding the topic of the research. The report contains methodology
that explains how the actual research is going to be conducted. The paper will also show the
project budgets and justification as well a Gantt charts to indicate timelines of the project. (Gond
& Moon, 2012)
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2.0Problem Statement
Over the last decade there has been increased funding towards CSR activities carried out by the
organizations. The organizations which initially did not engage on CSR activities are now
beginning to look for ways in which they can participate in it and spend a considerable chunk of
money towards these activities. The budgetary allocation to CSR activities can be sometimes
huge that it impacts on the financial performance of the companies. It is not common for
companies to heavily invest in activities that do not directly contribute to its profitability. The
reason behind this is that most of the companies are created for the purposes of making profit
and not top generate funds for charity purposes. The company’s shareholders expect to earn
maximum dividends possible from the capital contribution made for investment to the company.
There is therefore need to fully understand the impact of CSR activities on the financial
performances of the company given that CSR is in itself a cost which does not have direct
benefits to the company regardless of the amount of money invested in the activity. There is a
trade-off between shareholders profit and the value the other shareholders like the surrounding
community gets in CSR activities. This therefore begs the question why would companies in
business to make profit for shareholders invest in activities that take up the same profits they are
pursuing? This is a fundamental question that needs careful answered to come up with a good
link between CSR activities and financial performance of companies participating in them.
(Hunnicutt, 2009)
3.0Research aim and objectives
The main aim of this research is to find out the impact CSR activities has on the financial
performance of the companies participating in them. The following objectives will assist this
research in achieving its aim.
(a) To find out any direct relationship between CSR activities and company profits.
(b) To find out indirect any indirect relationship by CSR activities company profits.
(c) To find out extend of any direct or indirect relationship between CSR investments and the
company profits.
(d) To provide appropriate recommendations to all stakeholders based on the outcome of the
research.
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4.0Justification of the project and potential research outcome
The global economy today is run by business companies that generate revenues to the
shareholders. The revenues generated are the basis of the profits the shareholders of the business
get which can be further reinvested or used acquire other ventures as deemed fit by the investors.
Organizations that do not make profits are usually closed down resulting to massive losses in
employment opportunities, capital invested among other commercial loses. It is also a general
observation that whereas CSR activities consume part of the profits companies make without
apparent benefit it would receive in return, these companies continue to invest in them while at
the same time looking successful. There is no evidence that companies that do not participate in
CSR activities are more profitable than those that participate. (Eilenberger, 2010) This means that
when companies participate in CSR activities there is some kind of benefit it receive although
the venture itself is non-profit. In a bid therefore to ensure that all the companies in the world are
profitable so that there is no any form of commercial loses associated with closed business, It is
imperative that studies or researches are conducted to help companies or business entities in the
world to remain afloat in the market and continue offering opportunities to the people and profits
to the shareholders. (Belal, 2016) Therefore, if successful companies continue to invest heavily in
CSR activities, a non-profits venture, could there be some benefits in CSR that other companies
that are not doing the same are missing out? Or is CSR a preserve of successful companies only?
Clearly, these questions need answers so that all the companies in the world doing business and
contributing positively to the global economy can also benefit and continue being useful to all its
stakeholders. There is need to clearly establish links between corporate social responsibilities
and the financial performance of companies. All the companies in business only survive in the
market for long period if they are bale to make profits and realizes their goals without which
commercial loses would occur in terms of job loses and cost sunk. Therefore this study in
establishing the impact CSR activities have on financial performance of companies is a step in
the right direction in helping business ventures across the world to put together a viable and
formidable business plans that will see them remain in business for long time in a sustainable
way that would benefit all the stakeholders. (Corporate Social Responsibility, Corporate Restructuring and
Firm's Performance, 2010)
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The objective of this research would help in resolving this problem by clearly establishing and
highlighting any direct or indirect benefits that CSR activities have on the financial performance
of organizations/companies. With this business ventures can therefore make informed decision
regarding participation in CSR activities.
The study will benefit a number of stakeholders such as governments, companies/organizations
as well the society in general. The expected outcomes can be used by the organizations that deal
with agitation for more CSR activities to further reinforce their message to their target groups.
The outcome can also be used by companies to find out how best they can implement CSR
activities for the betterment of the company’s growth and development.
5.0Conceptual framework
A study done to determine to whether direct CSR activities has direct impact on the financial
performance of listed companies in terms of its stock performance. The study revealed that those
companies which topped CSR activities according to Folksm’s CSR index, a Swedish insurance
company that conduct studies on CSR, did not receive any gains on their stock returns whereas
companies that ranked low on the index report experienced negative impact on their stock
returns. This study points to some benefits to CSR activities in such a way that the company
participating in CSR will actually have no financial gain but at the same time it will not receive
any financial loses on their stock returns. On the other hand a company that has low rankings in
the CSR index will lose on their stock returns. (Eilenberger, 2010)The difference therefore
according to this research is that investing in CSR leads to maintaining of business while non-
investment would lead to loses in business. The research also shows that CSR has an ability to
influence investments that a company would receive depending on whether they participate in
CSR activities or not. It is also imperative to note that CSR being an ethical question goes a long
way in showing investors and the market how ethical is a company in the way it carries out its
business. This is what could be leading to companies maintaining business if they engage in CSR
and losing business if they don’t engage in CSR. (Schreck, 2009)
Another study done to determine impact of CSR activities in companies in Germany and USA
reveals that CSR affects the financial performance of the companies. The study further shows
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that companies in Germany are more proactive in terms of CSR activities than those in USA,
putting this differently, CSR activities is more pronounced among organizations in Germany
than in USA. This however does not mean that companies in Germany are more profitable than
companies in USA because of difference in CSR investments as there is no evidence to support
this narrative. Analyzing this fact it suggest that CSR activities are more of a culture than an
obligation bound by laws in all jurisdictions across the world. The study further notes although
CSR have an effect on the financial returns of the companies the magnitude of this effect varies
from company to company as there is no standard effect that CSR have on companies even when
their respective budgets are matched. Therefore CSR alone can not entirely determine the
profitability of a company because there are other relevant factors which also have a bearing on
the financial position of the companies. (Kabir & Thai, 2017)
Another study done to compare the influence CSR has on corporate financial performance (CPF)
verses the influence other factors such as employee, clients and shareholders have on CPF,
reveals that CSR has little or zero influence on the CPF compared with clients/market,
employees and/or shareholders. The study therefore postulates that since CSR has little or
negligible influence on corporate financial performance compared to other important factors in
corporate business then its makes more sense of companies would concentrate on those factors
which have major bearing on profitability than those that add no or little value to the company’s
profitability such as CSR. It further notes that whereas the finding of the research is logical there
is an increase in CSR budgetary allocations in companies across the world. According to the
research the increased budgetary allocations can be attributed to more on prestige purposes than
investments for profitability. The more the world become connected through technological
advancements, the more the transparency in company activities and the more companies would
want to engage in CSR activities and announce these activities for the purposes of gaining
respect and being viewed as ethical and transparent company that has all her activities open for
scrutiny. (Hossain, Chowdhury, Evans & Lema, 2015)
In a study done to determine the importance of CRS to companies revealed that companies or
organizations can take advantage of societal problems through corporate social responsibility to
gain a standing in the society which latter translates in goodwill received from clients who buy
the company’s products more than the competition. Therefore, companies need not look for
direct financial benefits it will receive when they invest in CSR but rather indirect ones such as
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goodwill from the market which increase sales and profitability by extension. Therefore the
research postulates that CSR no direct benefits but has indirect ones which have a bearing on the
financial performance of the company. The study notes that customers like to associate
themselves with companies that in the eyes of the public are reputable and are known to exercise
the highest kind of ethical standards. The more the a company has a good standing in the society
the higher the likelihood that many customers would want buy their products and associate
themselves with the company. The study further reveals that CSR benefits can be financial but
that is more of long term than short term. It takes time for the market to appreciate a company’s
effort in CSR activities. (Martínez-Ferrero & Frías-Aceituno, 2013)
A research conducted to find out effects of CSR on various types of investments such as banks
and Construction companies reveals variation in terms of CSR effect on the financial
performances of these companies. Corporate such as banks realizes better returns in terms of
CSR investments than other companies such as construction companies. This can be attributed to
the facts that since banks are more sensitive in terms of their ethical standards in the eyes of the
public compared to other companies which are less sensitive construction companies then, CSR,
being an ethical question boost the confidences of bank’s depositors which then enable to bank
to have huge deposits and bigger loan books for more profitability. (Fryzel, 2015) On other hand
companies like construction companies who do not have public money will receive less scrutiny
in terms of financial ethics as they pose no risk in terms of public money getting lost. Therefore
depending on the sensitivity of an industry CSR can have huge or small financial benefit.
(Mikołajek-Gocejna, 2016)
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6.0Methodlogy
The research will utilize both quantitative and qualitative methodology in line with meeting its
objectives. The qualitatively research will help the research in determining the general findings
of the research will quantitative methodology will help the research determine extend of this
effect.
6.1Data collection
The research will utilize a number of data collection methods in order to get the most suitable
data for drawing conclusion of the research. The participants or the sample of the research will
be identified randomly to avoid biasness that will lead to collection of skewed data. Random
collection of data will also ensure that the research will obtain reliable data which can draw
meaningful conclusion for the research. The following data collection methods will be used by
the research;
(a) Questionnaires – Questionnaires will be used to collect data from relevant stakeholders.
Key among them is the managers at institutions that would be chosen to participate in the
study. The questionnaires would contain as neutral questions as possible so as to avoid
leading the participants in the way to answer the questions. The data collected should be
authentic as possible. The research personnel who will administer the questionnaire will
be trained to remain as neutral as possible so that all the responses will be as a result of
the participants input without any undue influence. The questionnaires will also contain
no name or any form of participant’s identification so that the participant would be as
free to give all raw information without fear of reprisal from his company or seniors
when the results are shared with them being stakeholders in the study. The questionnaires
can be administered physically or electronically by sending them through email where the
participant will fill the questionnaire and send it back for compilation.
(b) Interviews – This method of data collection will be useful in obtaining information
especially from participants would have time for interviews. The method would provide a
chance for the researcher to seek any clarification from response obtained from the
participants. The line of questioning while carrying out the interviews will be reviewed
thoroughly before the actual interview to ensure that the questions do not lead the
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participants into giving certain answers. The research personnel will also be trained to
ensure that he or she does not influence the answers being obtained.
(c) Direct observation – The research staff will also obtain data by directly observing the
trends as contained in the most up to date information such as the financial year reports
that would indicate budgetary allocations to CSR activities.
6.2Data Analysis and discussion
The data obtained will be analyzed by representing them on various forms of graphs and charts
that will make it easy for the reader of the report to understand the report and relate them with
explanations given.
7.0Organization of the study
The study will be organized in such a way that a project proposal will first be done, where it will
contain brief introduction of the study in terms of its aim, objectives and knowledge gap in the
research topic. This will then be followed by conceptual framework where literature reviews of
the studies relevant the topic under research will be studied. Methodology of the study will then
be discussed where the report will highlight how the research will be conducted in terms of
qualitative, quantitative or mixed approaches. Data will then be analyzed followed by its
discussion and graphical representation of the research outcomes. The report on its tail end will
have its conclusion and the recommendation.
The research will need budgetary allocation on printing cost of all the questionnaires, cost of
transport and other expenses for the research personnel who will assist in data collection from
selected companies who will participate in the study. There should also be contingency budget
for any unforeseen scenario that the study may run into.
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8.0 Project schedule Gantt chart
Projects name Research to determine the effect of CSR activities on company’s financial
performance
Start date November 8th, 2017
Finish date December 8th, 2017
Task/week Week 1 Week 2 Week 3 Week4
Project proposal 
Conceptual
framework
And
methodology

Data analysis and
discussion

Conclusion and
recommendation

8.0Conclusion
In conclusion, the literature reviewed shows some inconclusiveness that need to be addressed.
Majority of them postulates positive relationship between CRS activities and the financial
performance but does not show extend of this positive relationship between these two variables.
It is therefore imperative that the relationship between CSR activities and financial performance
of the companies is quantified to determine extend for the purposes of making clear and
informed decisions.
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9.0Recommedndations
The research personnel should ensure that the timelines contained in the proposal are adhered to
as this will ensure each part of the research is allocated fair time for it to be done in conclusive
and proper manner that will give the research viable findings for the purposes of drawing
conclusions and making relevant recommendations to all stakeholders who might need to use the
findings of the report to make informed decisions regarding how they should approach the issue
of corporate social responsibility in their organizations.
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10.0References
Belal, A. (2016). Corporate social responsibility reporting in developing countries.
London: Routledge.
Corporate Social Responsibility, Corporate Restructuring and Firm's Performance.
(2010).
Demirag, I. (2012). Corporate social responsibility, accountability and
governance (1st ed.). Sheffield, South Yorkshire, England: Greenleaf Pub.
Denicolo, P., & Becker, L. (2012). Developing research proposals. Los Angeles, CA
[etc.]: Sage.
Eilenberger, G. (2010). Current challenges for corporate finance. Heidelberg:
Springer.
Eilenberger, G. (2010). Current challenges for corporate finance. Heidelberg:
Springer.
Fryzel, B. (2015). The true value of CSR. Houndmills: Palgrave Macmillan.
Gond, J., & Moon, J. (2012). Corporate social responsibility. London [u.a.]:
Routledge.
Hossain, M., Chowdhury, M., Evans, R., & Lema, A. (2015). THE RELATIONSHIP
BETWEEN CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE
FINANCIAL PERFORMANCE: EVIDENCE FROM A DEVELOPING
COUNTRY. Corporate Ownership And Control, 12(3).
http://dx.doi.org/10.22495/cocv12i3c4p8
Hunnicutt, S. (2009). Corporate social responsibility. Detroit, MI: Greenhaven Press.
Kabir, R., & Thai, H. (2017). Does corporate governance shape the relationship
between corporate social responsibility and financial performance?. Pacific
Accounting Review, 29(2), 227-258. http://dx.doi.org/10.1108/par-10-2016-0091
Martínez-Ferrero, J., & Frías-Aceituno, J. (2013). Relationship Between Sustainable
Development and Financial Performance: International Empirical
Research. Business Strategy And The Environment, 24(1), 20-39.
http://dx.doi.org/10.1002/bse.1803
Mikołajek-Gocejna, M. (2016). The Relationship between Corporate Social
Responsibility and Corporate Financial Performance – Evidence from Empirical
Studies. Comparative Economic Research, 19(4). http://dx.doi.org/10.1515/cer-
2016-0030
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Ogden, T., & Goldberg, I. (2009). Research proposals. San Diego, Calif. [u.a.]:
Academic Press.
Schreck, P. (2009). The business case for corporate social responsibility (1st ed.).
Heidelberg: Physica-Verlag.
References
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