RESEARCH THESIS SUBMITTED FOR THE AWARD
Jalloh Mamoud Abdul, Research Thesis
IMPACT OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURES ON
FIRMS’ PROFITABILITY: EVIDENCE FROM NIGERIA AND SIERRA LEONE
BY
JALLOH MAMOUD ABDUL
BEING A RESEARCH THESIS SUBMITTED FOR THE AWARD OF BRUNEI
DARUSSALAM GOVERNMENT SCHOLARSHIPS FOR FOREIGN STUDENTS
TENABLE IN BRUNEI DARUSSALAM
TO PURSUE MASTERS OF SCIENCE IN FINANCE/ACCOUNTING DEGREE
December, 2015
1
Jalloh Mamoud Abdul, Research Thesis
GENERAL OVERVIEW
Before the 21st century, business organisations were established with the main aim of creating
economic values for their owners through profitable business activities. By doing so, firms fulfill
the financial satisfaction of their owners and the profit is seen as compensation for the owners’
risk to invest their capital in business enterprise. Over time, this profit motive created a wider
gap between business owners and the society in which they operate resulting in agitation by
pressure groups and even government for a fair play.
Several previous researches show there is positive correlation between CSR activities and
corporate financial performance. Jo and Harjoto (2011) find there is a strongly positive impact
for firms that engage in CSR activities on their values. In contrast, some studies show no
relationship or weak relationship between CSR and firms financial performance. Therefore CSR
as concluded by Nelling and Webb (2009) is driven more by unobservable firm characteristic
than by financial performance. At the extreme, Mulyadi and Anwar (2011); Apria (2011)
conclude that there is no significant impact of CSR on firm’s value.
This study therefore will serve as an added contribution to the existing work of other authors
that have discussed issues on CSR such as Friedman (2008); McGuire (1998); Van Marrewijk
and Verre (2003); McWilliams and Siegel (2001); Larsen (2000); Reign (2001); Babalola (2012);
Eragbhe and Oshodin (2014) and it goes further to examine how various factors that surround
CSR affect firm’s profitability in Nigeria and Sierra Leone, which is closer to non-existent.
Using panel data methodology, twenty firms, ten each from Nigeria and Sierra Leone will
be judgmentally selected from industries whose activities impact more on the host communities
and data on their CSR disclosure and financial performance will be sourced from their annual
audited accounts and reports. Branco and Rodrigues (2006) CSR Disclosure Scoring System will
2
Jalloh Mamoud Abdul, Research Thesis
be adapted to measure CSR disclosure and total assets and profit after tax as measure of firm size
and profitability respectively.
Pearson Product Moment Correlation and Multiple Regression of OLS method in the
form of econometric will be used to test the hypotheses. The equations are:
PAT= f (ENV, HR, PQC, CI) ……………………………………… (i)
YPAT= ßo + ß1ENV +ß2HR +ß3PQC+ß4CI+µ
………………….... (ii)
WHERE:
PAT= Profit after Tax as a proxy of firm’s profitability; ß o= Intercept parameter (constant);
ENV=Environmental costs; HR= Human resources costs; PQC= Product Quality and Consumer
relation; CI = Community Involvement; ß1-ß4= Parameters of the estimate and µ = Error term,
representing factors other than specified in the model.
3
IMPACT OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURES ON
FIRMS’ PROFITABILITY: EVIDENCE FROM NIGERIA AND SIERRA LEONE
BY
JALLOH MAMOUD ABDUL
BEING A RESEARCH THESIS SUBMITTED FOR THE AWARD OF BRUNEI
DARUSSALAM GOVERNMENT SCHOLARSHIPS FOR FOREIGN STUDENTS
TENABLE IN BRUNEI DARUSSALAM
TO PURSUE MASTERS OF SCIENCE IN FINANCE/ACCOUNTING DEGREE
December, 2015
1
Jalloh Mamoud Abdul, Research Thesis
GENERAL OVERVIEW
Before the 21st century, business organisations were established with the main aim of creating
economic values for their owners through profitable business activities. By doing so, firms fulfill
the financial satisfaction of their owners and the profit is seen as compensation for the owners’
risk to invest their capital in business enterprise. Over time, this profit motive created a wider
gap between business owners and the society in which they operate resulting in agitation by
pressure groups and even government for a fair play.
Several previous researches show there is positive correlation between CSR activities and
corporate financial performance. Jo and Harjoto (2011) find there is a strongly positive impact
for firms that engage in CSR activities on their values. In contrast, some studies show no
relationship or weak relationship between CSR and firms financial performance. Therefore CSR
as concluded by Nelling and Webb (2009) is driven more by unobservable firm characteristic
than by financial performance. At the extreme, Mulyadi and Anwar (2011); Apria (2011)
conclude that there is no significant impact of CSR on firm’s value.
This study therefore will serve as an added contribution to the existing work of other authors
that have discussed issues on CSR such as Friedman (2008); McGuire (1998); Van Marrewijk
and Verre (2003); McWilliams and Siegel (2001); Larsen (2000); Reign (2001); Babalola (2012);
Eragbhe and Oshodin (2014) and it goes further to examine how various factors that surround
CSR affect firm’s profitability in Nigeria and Sierra Leone, which is closer to non-existent.
Using panel data methodology, twenty firms, ten each from Nigeria and Sierra Leone will
be judgmentally selected from industries whose activities impact more on the host communities
and data on their CSR disclosure and financial performance will be sourced from their annual
audited accounts and reports. Branco and Rodrigues (2006) CSR Disclosure Scoring System will
2
Jalloh Mamoud Abdul, Research Thesis
be adapted to measure CSR disclosure and total assets and profit after tax as measure of firm size
and profitability respectively.
Pearson Product Moment Correlation and Multiple Regression of OLS method in the
form of econometric will be used to test the hypotheses. The equations are:
PAT= f (ENV, HR, PQC, CI) ……………………………………… (i)
YPAT= ßo + ß1ENV +ß2HR +ß3PQC+ß4CI+µ
………………….... (ii)
WHERE:
PAT= Profit after Tax as a proxy of firm’s profitability; ß o= Intercept parameter (constant);
ENV=Environmental costs; HR= Human resources costs; PQC= Product Quality and Consumer
relation; CI = Community Involvement; ß1-ß4= Parameters of the estimate and µ = Error term,
representing factors other than specified in the model.
3