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FINANCIAL RES. AND
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FINANCIAL RESEARCH NO.
MGT. 7 ISSN:
SCIENCE 2773-1040
VOL. 13
SCIENCE

T
HE EFFECT OF CORPORATE SOCIAL
RESPONSIBILITY ON FIRMS’ PERFORMANCE
IN THE NORTN EAST NIGERIA.

NUHU OTARU ISAH

School of Business and Management Technology, Department of
Accounting, The polytechnic, Bali. Taraba state.
ABSTRACT
The study examined
corporate social
Introduction

C
orporate social responsibility (CSP) is an important component of
responsibility on firms
corporate policies of large scale firms, including multinationals. This is
performance of
because the host communities are becoming more and more aware of
selected firms in the
the effects of their (firms) operations on the immediate community. This,
north east Nigeria using
coupled with government policies on corporate social responsibility has
return on equity as
compelled firms to understand how important it is to give back to host
measures of firm
community for mutual relationship to thrive. The term corporate social
performance of
responsibility encompasses a variety of issues revolving around firms’
selected firms north
interaction and relationship with host community (Olaroyeke and Nasieku,
east Nigeria. The study
2015).
design was ex-post-
Companies will ordinarily not want to engage in any corporate responsibility
facto and survey.
activities but competition and the need to earn the cooperation of members
Pearson correlation and
of the society, especially the locality that is hosting the firm, they cannot but
random effect
get into one form of CSR or the other. To strengthen the point made above
regression analysis
further, Benabou and Tirole (2010) noted that firms engage in a wide range of
were the major
activities such as being employeefriendly, environment-friendly and ready to
statistical tools used for
provide some social amenities in the environment where the business is
the analysis through the
domiciled just to win peoples’ trust and patronage. The practice of corporate
application of STATA
social responsibility by firms has brought about some relief to the members
version 11 package.
of the community where the business is located. This includes their
Correlation results
involvement in health care services, educational services and the provision of
showed that the
some physical infrastructures such as classroom blocks, motorized water
relationship between
boreholes, recreational and civic centers among others. The provision and
corporate social
presence of such developmental projects has endeared the businesses and
responsibility and
their owners to members of the communities who are direct beneficiaries of
return on asset was
such projects (Richard and Okoye, 2013).
positive and significant.
Some authors among whom were Kipruto, (2014) had opined that the only
The study recommends
business an enterprise should concern itself with is business; meaning that
among others that
firms need not border about any additional responsibility since such activities
corporate organizations
depletes the firms’ profit margin. But Doane (2015) contradicts such views and
should endeavor to give
states that a firm is responsible for all its stakeholders including the host
community and therefore should take greater responsibility for the society at
large as well as seek to solve social and environmental problems within the

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more to the society in CSR and leverage it to enhance the firm performance of their businesses in the
north eastern Nigeria.

operating environment because such activities enhances corporate image of the firms. On the other hand,
firms’ financial performance which refers to the degree to which financial objectives of firms are being or has
been met (Odetayo, Adeyemi & Sajuigbe, 2014), involves a lot of activities. Many firms are competitive area
and an act of expenditure on peoples’ welfare in the name of corporate social responsibility enhances
patronage by the immediate community as well as others members of the society.
Besides, there is also prospect for long run benefits in terms of stock appreciation (Kipruto, 2014). Similarly,
Iya, Badiya and Faiza (2015) have equally observed that businesses, especially commercial businesses such as
banks, can increasingly excel if they learn to do good CSR. Therefore, financial performance of firms does not
depend totally on efficient core banking activities but also on some element of charity in the nature of CSR.
However, opinions are still divided on the relationship between firm’s expenditure on corporate social
responsibility and its financial performance in Nigeria, especially, as it concerns commercial businesses of
which banking sector happens to be one of. Consequently, this study has been designed to investigate the
relationship between CSR expenditure and banks’ financial performance in Nigeria.
Statement of the Problem Many businesses in Nigeria are increasingly becoming aware of the need for
spending on corporate social responsibility (CSR) in their immediate host communities and even beyond.
Especially in the north east Nigeria which was ravaged by emergency of insurgency and Boko Haram since
2009. There is need for the firms situated in those communities to come out and assist inform of CSR to help
alleviating the suffering of the people living in this region. But the CSR activities are financed from the profit
of the businesses. Consequently, it is not clear whether such expenditure portend problems for the firms in
the region or a boost towards the enhancement of firms’ performance.
Furthermore, past studies in the area had produced conflicting results. For instance, whereas Ohiokha, Odion
and Akhalumeh (2016) found that corporate social spending has little influence on financial performance of
the sampled firms, studies by Babatola (2012) and Richard and Okoye (2013) revealed that there is notable,
positive and significant relationship between corporate social responsibility spending and firm’s financial
performance in Nigeria. This unevenness of research findings has aroused interest to undertake further
investigation aimed at establishing the real effect of corporate social responsibility spending firms’
performance in Nigeria north east region

STATEMENT OF THE PROBLEM

Many businesses in Nigeria are increasingly becoming aware of the need for spending on corporate social
responsibility (CSR) in their immediate host communities and even beyond. Not only has it been made a policy
option by businesses but there has also been competition among firms in the same industry about who will
spend most (Richard and Okoye, 2013). North East area of Nigeria which had been devastated by insurgency
which resulted into loss of lives, destruction of homes, unemployment, and so many other social vices, this
translated to negative integrity and reputation on the part of corporate identity as people perceived this as
exploitation and greed for profitability and wealth maximization within a decaying economy of Nigeria.
However, the general belief is that both business and society gain when firms actively strive to be socially
responsible; that is, the business organizations gain in enhanced reputation, while society gain from the social
projects executed by the business organization. In modern day however, having seen the benefits and
average favorable pay-back period of their investment in CSR, corporations are now seriously involved in this
project, which had impacted in the society wonderfully and profitable. This study is therefore, intended to

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consider the impact of corporate social responsibility, firm performance in the North East. The perceived gap
supposedly created is harnessed and investigated for possible resolution, using the banking, communication
and manufacturing industries as case study. The research approach is both descriptive and analytical. Data
collected for this study are from both primary and secondary sources, relying heavily on the relevant
information available from banking, communication and manufacturing sectors, and other sources.

OBJECTIVE OF THE STUDY

This study explored the research in CSRs studies, which include:
1. Assessed the role CSR in helping companies to alleviate the conditions of host communities in the North
East;
2. Examined the CSR and firm performance on community development in the North East;

SIGNIFICANCE OF THE STUDY

The result of this study will be of immense contribution to the study of CSR nationally and internationally, it
will increase more awareness to the companies on the need for effectiveness CSR as a means of societal
development, also the host communities to keep cordial relationship between them and the firm.

RESEARCH QUESTIONS
The research will specifically address the following research questions:
1. Can corporate social responsibility improve firm performance?
2. Is there any positive impact of societal development as a result of CSR by firms?

REARCH HYPOTHESES
The following null hypotheses were formulated to guide the objectives of the study and strengthen the
analysis:
1. There is no relationship between the CRS and firm performance as measured by community
development.
2. Community does not feel the impact of firm development

SCOPE OF THE STUDY

This study focused on the case of high profile companies such as banks, communication and manufacturing
firms in the North Eastern Nigeria to investigate the impact of corporate social responsibility on firm
performance using both primary and secondary data.

REVIEW OF RELATED LITERATURE

Corporate Social Responsibility (CSR)
Corporate social responsibility (CSR) as defined by Olaroyeke and Nasieku (2015) encompasses a variety of
issues which revolves around firms’ interactions with the society. More precisely, it refers to sets of
actions/activities that appear to promote the provision of some social goods beyond the interests of the firm
and that which is required by law (McWilliams and Siegel, 2000). The underlying factor in the definition is that
CSR activities are on a voluntary basis, which surpasses the firm’s legal and contractual obligations. In a related
development, Bolten (2012) defined CSR as encompassing the legal, ethical, economic and other discretionary
responsibilities that firms/institutions render to society. The implication of the above definition is that
firms/institutions operating in a society should operate under the dictates of the law prevalent in a society
and conduct its operations in a morally acceptable manner by contributing to the economic well-being of the
society among other obligations deemed necessary. It is an important practice by firms (El Mousadik and El
Kandoussi, 2017). It improves the relationship between a firm and a host community.

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Other scholars like Vitezic (2011) defined CSR on the basis of their perceptions and understanding of the
concept. Vitezic observed that CSR concept implies balance between economic, ecological and social goals,
which means distribution of assets among several interest groups. In the same vein, Jamali and Mirshak (2011)
defined CSR as a concept whereby companies decide voluntarily to contribute to a better society and a cleaner
environment or a situation whereby organizations integrate social and environmental concerns into their
business operations and in their interaction with their stakeholders on a voluntary basis. CRS disclosure by
firms improves the perception of investors (Gitahi, Nasieku, and Memba, 2018). What has featured
prominently in all the definitions offered so far for CSR is the fact that it focuses on bettering the lot of the
society or host community as well as the environment at large.

Firm Performance
On the other hand, firm performance is a fusion of an organization’s financial health, its ability and capacity
to meet its long term financial obligations and its commitments to provide services in the foreseeable future
(Awan and Nazish, 2016). Long term objectives represent the results expected from pursuing certain
strategies which represent actions to be taken to accomplish the long term objectives. It has equally been
recommended that the time frame for objectives and strategies should be consistent, usually from two to five
years (Paulik, Majkova, Tykva & Cervinka, 2015). To Odetayo et al. (2014), financial performance in a wider
perspective refers to the degree to which financial objectives of firms are being or has been accomplished. It
is indeed, the process of measuring the results of a firm’s policies and operations in monetary terms. They
stated that accounting based indicators such as return on assets (ROA), return on equity (ROE), return on
investment (ROI), earning per share (EPS) and profit after tax (PAT), captures a firm’s internal efficiency. The
indicators are used to measure firm’s overall financial performance over a given period of time usually, a year.
They can also be used to compare performance of similar firms across the same industry.

THEORETICAL FRAMEWORK
The underpinning theory for the study is the Stakeholders Theory developed by Edward Freeman in 1984.
Freeman had postulated that business organizations apart from their shareholders have different
stakeholders which they must seek to satisfy their interest as a matter of obligation. He reiterates that the
stakeholders include all those who affect or are affected by the activities of the organization directly or
indirectly, such as shareholders, employees, customers, host community, government, competitors and the
environment. For instance, businesses must play an active social role to better the lots of the society in which
they operate (Freeman, 1984 cited in Onwe, 2014). Therefore, it is not enough for managers to focus only on
the needs of shareholders or the owners of business alone but it is also important for them to engage in CSR
activities that promote the interest of other groups, especially those in the host community who equally affect
their performance directly or indirectly by their actions. Owing to the fact that stakeholders vary from firm to
firm, CSR activities should start with the identification of stakeholders followed by finding the strategy with
which to satisfy and harmonize their expectations. A fundamental characteristic of the stakeholders’ theory
is that it tries to identify the individuals and groups that business organizations are accountable to. The
interaction between firms and it stakeholders is the essence of stakeholders theory. The theory is of the view
that interest of all stakeholders in a firm must be recognized and attended to and not just that of shareholders
only.

EMPIRICAL REVIEW
In India, Maqbool and Zameer (2018) in their paper attempts to examine the relationship between corporate
social responsibility and financial performance in the Indian context. Secondary data has been collected for
28 Indian commercial banks listed in Bombay stock exchange (BSE), for the period of 10 years (2007–16). The
results indicate that CSR exerts positive impact on financial performance of the Indian banks. The finding of

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this study provides great insights for management, to integrate the CSR with strategic intent of the business,
and renovate their business philosophy from traditional profit-oriented to socially responsible approach.
Empirically, Amidu, Liu and Sesay (2017) in their study evaluates the impact of CSR disclosure (CSRdisc) on the
financial performance of firms in Africa for both short and long terms. 158 listed companies were selected
from six African countries (South Africa, Kenya, Nigeria, Morocco, Egypt and Mauritius) and grouped into six
industry. The study measured CSR in terms of keywords count (content analysis) referred to this as CSRdisc.
The employed accounting based to measure financial performance of firms (return on assets [ROA] for short-
term, and return on equity [ROE] for longterm). Multiple linear regression analysis was done with a sample of
panel data for a period of 11 years (2005-2015). The results showed that unlike for the sales and manufacturing,
health and pharmacy and others industries, CSRdisc affects the financial performance of firms in the short-
run (ROA) negatively for the mining, investment and transport industries.
Empirically, Magdalena Kludacz-Alessand and Małgorzata (2021) their paper aims to analyze if financial
performance affects corporate social responsibility adoption in energy sector companies. In order to achieve
this goal, the study specifically examines the relationship between selected financial performance indicators
and CSR adoption. Analyzing an international sample of 219 companies from thirty-two countries for 2020, the
study observed the statistically significant relations between financial performance and the implementing of
the CSR strategy of the energy industry companies. The Return on Assets measure (ROA) and the Earnings
before Interest and
Taxes measure (EBIT) were significantly higher among companies implementing the CSR strategy. The
Enterprise Value to earnings before interest, taxes, depreciation, and amortization ratio (EV EBITDA) was
lower among companies that adopted CSR.
Ibrahim (2021) determine the CSR disclosure and to find out the association between CSR and FP by the public
companies of Maldives. The study used a mixed-method research choice and is longitudinal research. The
study period was from 2014 to 2018. Data were collected from annual reports of the listed companies in MSE.
The sampling technique used was judgmental sampling, and the data were analyzed from STATA 15 software
by using panel data regression. The finding reveals that diversity and ROA, environment and ROE, diversity,
and EPS, and when the size of the firm controlled, there exhibit significant negative relation between CSR and
ROA; hence, it can conclude that there exists a significant negative relationship between CSR and FP.
Elok and Muhamad (2021) in their paper investigates the company value determinant by observing the effect
of financial performance and Corporate Social Responsibility (CSR) and its role in moderating performance
achievement. The macro-economy variables such as inflation and interest rate are also used as the controlling
variable. The research employs the sample of manufacturing companies of the food and beverage sub-sector
listed on the Indonesia Stock Exchange. This study used panel data from 2013 to 2017, with the moderating
regression analysis. The result shows that the profitability of the current or previous period affects the
company’s value. CSR and company size affect the company value at the next period shows that stock price,
which reflects the investor’s perception today, will be affected by the CSR, Size, and Return On Asset of the
previous year.
Itoya, Owuze, Akhator and Igbokwe (2022) in their study which examined corporate social responsibility on
financial performance of banks in Nigeria by using earning per share, gross earning and profit after tax as
measures of financial performance of banks in Nigeria. The study design was ex-post-facto. Pearson
correlation and simple regression analysis were the major statistical tools used for the analysis through the
application of SPSS version 20.0 and E-View 8.0 software packages. Correlation results showed that whereas
the relationship between corporate social responsibility and earning per share was positive but insignificant,
it showed strong, positive and significant relationships with gross earning and profit after tax respectively.
Similarly, corporate social responsibility expenditure was found to have insignificant effect on earnings per
share, it has significant effect on gross earning and profit after tax of the banks in Nigeria.

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Hamas, Iwan and Umar (2020) examine the effect of corporate governance on financial performance of
Islamic banking in Indonesia. Corporate governance mechanism determined by board of director,
independent commissioner, and sharia supervisory board, the financial performance is calculated by using
Return on Assets (ROA) and Economic Value Added (EVA).
The data were collected from each bank’s annual report in a period 2014-2018, thus 9 Islamic
Banks were taken by purposive sampling. The analysis method is path analysis and applied by WarpPLS 6.0
tool. This study reveals that board of director had significant influence to ROA, however independent
commissioner and sharia supervisory board had no significant influence to
ROA, on the other hand only independent commissioner and ROA had significant influence to EVA.

METHODLOGY
Description of study area: The area for this research work will be the entire North Eastern part of Nigeria
where indigenous companies operating in the axis will be the population of the study. A sample of multiple
companies will be considered for the study

RESEARCH DESIGN
Ex-poste factor and survey research designs were employed.

SAMPLE OF THE STUDY

The sample of the study was obtained from telecommunication firms, banks and private firms in Adamawa,
Borno and Yobe State. The firms from telecommunication are MTN Nigeria, Glo Nigeria and Airtel Nigeria.
From the banking sector the following commercial banks was selected. They are First Bank Nigeria Plc, United
Bank for Africa and Union Bank of Nigeria. On the private firms, the study selected the following firms, ABTI
American University Of Nigeria, Ooando Major Oil distribution, and silvery major oil distributions. The study
covered a period of five years of which financial statement of the above mentioned firms was extracted within
the period of 2017 to 2021. The staff of the above mentioned firms were engaged including some residents of
the community of the three states. The firms were grouped into three categories. Financial firms, oil firms and
private firms.

METHOD OF DATA COLLECTION

The method of data collection were both primary and secondary through the annual report of the sample
firms, journals, uses of questionnaires, interview methods relying heavily on the relevant information available
from banking, communication and manufacturing sectors.
The Variables of the Study and their Measurement
This study used two set of variables: dependent and explanatory variables
The Dependent Variable
ROE): It shows the relationship between net profit available to equity shareholders and the amount of capital
invested by them. Mathematically,
ROE = Profit after tax/shareholders equity as used by Ibrahim, (2021)

Independent variables
CSR: This is the total amount invested in CSR for the community by the firms which is measured as proportion
of amount invested in CSR by all firms to total earnings as used by Itoya, Owuze and Igbokwe (2022).
Control variables: The control variable is;
Firm size: Total asset is the proxy for the firm size.

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Model specification
In determining the relationship between corporate social responsibility dividend and firm performance and
community development in north east Nigeria, two simple models stated in general form estimated are as
follows: as used by Maqbool and Zameer, (2018).
ROE = f (CSR, FS)… ………. (1)

These equations will be represented in econometric form as stated as follows:

ROEEit = β0 + β1CSRit, + FSβ2it + ei ……. (2)

Where; ROE is return on equity

CSR = corporate social responsibility

FS = represents the control variables, which are firm size

β1, β2 represent coefficients of parameter estimates.

β0 is constant

eit and μit are the error terms, which account for other possible factors that could influence but not included
in the models.

METHOD OF DATA ANALYSIS

Two methods of data analysis were used. First the uses of regression and correlation method of analysis with
the help of STATA statistical tool. Second, is the uses of percentage method to analyze the questionnaires
administered. The research approach will be both descriptive and analytical.

Results and Discussion

Table 1: Multicollinearity Test
Variable VIF 1/VIF(TV)
CSR 1.10 0.909467
FS 1.10 0.909467
Mean VIF 1.10
Source: out of VIF developed by researcher using STATA 11 (2023)

The two common ways to check for the presence of Multicollinearity between independent variables are
correlation coefficients and variance inflation factors (VIF) with tolerant values. This study used VIF to check
whether the explanatory variables of the model suffer from Multicollinearity. The VIF in excess of 10 should
be taken as an indication of harmful Multicollinearity (Neter, Wasserman & Kutner 1989, and Gujarati 2003),
and the result of the test show that the maximum VIF is 1.10 and the minimum VIF is 1.10 and this is less than
10 which indicate absence of Multicollinearity.

Table 2: Descriptive statistics

Variables Observation Mean Std.dev Min Max
CSR 15 9.201333 3.589845 -.11 16.01
ROE 15 9.214 3.657546 -11 16.33
FS 15 9.271333 3.686153 14.98 18.32
Source: Output of summary statistics developed by research using STATA 11 (2023)

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Table 2, the mean total firm profit for the sampled firms in north east Nigeria shows an average of 9.613. This
means that firms in the north eastern Nigeria spent over 9.6 million naira. This shows element of high level
CSR activities by the in the region, with a minimum of over -.11 million naira and maximum of over 16 million
naira. The standard deviation of 3.56 indicates that there is no significant variation CSR activities between the
sample firms during the period of the study. As indicated in the Table 2, the mean 9.24 which represent 9.2
million. An indication that 9.2 million naira is shareholder wealth of the sampled firms, with minimum of -11
million naira and maximum of 16.33 million naira. The standard deviation of 3.6 shows that there is significant
variation in the amount declared by the sampled firms. Firm size, measured by the natural logarithm of total
assets has a mean of about 9.27, with a minimum of about 14.98 and maximum of about of 18.32. But the
standard deviation of 3.6 suggests that there is no dispersio8n in the total assets among the sampled
companies.

Table 3: Correlation matrix

ROE CSR FS
ROE 1.000
CSR 0.9991 1.000
FS 0.3058 0.3009 1.000
Source: Correlation output developed by researcher using STATA 11 (2023)

Table 3 shows the correlation coefficients on the relationship between the dependent variable (ROE) and
explanatory variables corporate social responsibility and firm size). The values of the correlation coefficient
range from -1 to 1. The sign of the correlation coefficient indicates the direction of the relationship (positive
or negative), the absolute value of the correlation coefficient indicates the strength, with larger values
indicating stronger relationships. The correlation coefficients on the main diagonal are 1.0, because each
variable has a perfect positive linear relationship with itself. As shown in table 3, the relationship between all
dependent variable and independent variables are positive. All other relationships are positive and strong.

Table 4: Regression results

ROE COEFF STD. ERRORS T VALUE PROB

CSR 1.016312 .0129201 78.68 0.000***

FS .0233551 .0553999 0.42 0.67

INTERCEPT -.5122791 .8619565 0.552

R Sq. 0.9167
PROB. 0.00000***
Source: Regression output developed by researcher using STATA 11(2023). (*, **. ***, indicate significant levels
at 10%, 5%, and 1* respectively).

The R-square is 91 % which shows the CRS variables explain ROE to the extent of 91% while the remaining
percentage are explained by other factors that are not captured in the model. The probability is significant at
1% an indication that the model is fitted and the study results can be relied upon.
The regression result of the study’s model indicates all independent variables have positive impact ROE. Thus;
PR = -.5122791 + .01016312CSR + .0233551FS + e. from the regression results, all independent variable have
positive relationship with ROE.

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The results in table 4. Show that CSR has positive and significant on ROE in the Nigerian north east firms at 1%
level of significance. This is in line with the result of Ibrahim, (2020) contradict the findings of Joe and Kechi
(2013). With this result, the hypothesis one which stated that there is no relationship between the CRS and
firm performance was tested here. Base the result the alternative hypothesis is accept which say there is
relationship between CSR and firm performance and the null hypothesis is rejected.
Concerning the second hypothesis, based on the result above the alternative hypothesis is accepted which
say communities feel the impact of firm development in their region because base on the researcher interview
with the respondent, their respond was affirmative on how the firms has influence their standard of living and
the null hypothesis was rejected.
Table 4 indicates that firm size, measured by the natural log of total asset, is not significant and negatively
associated with firm performance at 67% significance.

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS.

There is positive and significant association between ROE and CSR in the Nigerian north east firms. This is an
indication the firms in the north east region enjoy some share of profit as result of investing in CSR.

Concluding Remarks
Companies face challenges and limitations as they implement CSR. These usually relate either to political
issues or to organizational-level concerns and are often embedded in culture. The complexity of operating in
a global society places new demands on organizations and their leadership. This study concludes that
profitable organizations in Nigeria do not invest much in corporate social responsibilities and this has
tendency to threaten their long run existence.

Policy Suggestions.
Though, in Nigeria social responsibility is encouraged in achieving greater firm’s performance, but
organizations in the country have not really engaged in CSR which have implications for the survival of these
firms. This paper therefore offer the following policy suggestions on how firms can improve on their CSR to
ensure greater and better performance. Policy framework should be design for corporate social
responsibilities in Nigeria by the government and ensure compliance by setting mechanisms and institutions
for the implementation of CSR. Companies in North East Nigeria particularly the profitable one should give
greater priority to CSR. This has the tendency to assist them to survive and maintain their profitability.
Attention should be given to social accounting and social costs by firms in Nigeria.
In view of the above findings and conclusions, the study recommends that:
1. Firms should encourage to invest in CSR in order to boost their revenue drive
2. By the interview granted and the respond received, the firms should make adequate provision in an
area of human capital development.
3. Expenditures on CSR should be increased to enable it reflect more on return on equity.

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