DETERMINANTS OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURES IN NIGERIAN QUOTED COMPANIES

Abstract

This study examines the determinants of corporate social responsibility disclosures in Nigerian quoted companies. The broad objective of the study is to examine the determinants of corporate social responsibility of corporate entities. Specifically, the study examines the relationship between company size, profitability, industry type, firm’s origin and environmental responsibility measured by extent of environmental reporting. The cross-sectional research design is adopted for the study. The population consists of all quoted companies in the Nigerian capital market. Data were obtained from annual report and accounts of the sampled companies. Data collected were analyzed using the descriptive statistics while hypotheses formulated were tested using the ordinary least squares techniques. The findings indicated that a negative relationship is observed between the extent of CSR and environmental items disclosed and firm size. The effect of industry of operation shows a negative relationship. The effect of company origin was found to be positively related to the extent of CSR and environmental disclosures by companies. The study recommends among others that there is the need for regulatory agencies to develop a CSR and environmental responsibility framework that focuses considerably on utilizing firm interest and providing corporate incentives and penalties for environmental responsiveness and irresponsiveness respectively.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Corporate Social responsibility disclosure by corporations has been increasing steadily in both size and complexity over the last two decades (Smith, 2003). Research attention over the years has attempted to understand and explain this area of corporate reporting which appears to lie outside the conventional domains of accounting disclosures. The evolving challenge in contemporary business firms is the need to

reconfigure their performance indices to incorporate Societal and environmental concerns as part of the overall objective of business. Corporate Social Responsibility (CSR) practices and reporting provides a strategic framework for achieving this holistic reappraisal of corporate performance. Although it is not a new concept, Corporate Social Responsibility (CSR) remains an interesting area of discourse for academics and an intensely debatable issue for business managers and their stakeholders.

The most commonly used definition of Corporate Social Responsibility is that given by the Commission of the European Communities in 2001. According to the Commission, Corporate social responsibility is the integration of social and environmental concerns by companies in their business operations and in their interaction with their stakeholders on a voluntary basis. It is related to complex issues such as environmental protection, human resources management, health and safety at work relations with local communities, relations with suppliers and consumers.

The increasing demand for companies to be socially responsible seems to have witnessed considerable perceptual divergences especially within the context of the stakeholder-shareholder debate. The idea which underlies the “shareholder perspective” is that the onlyresponsibility of managers is to serve the interests of shareholders in the best possible way, using corporate resources to increase the wealth of the latter by seeking profits. In contrast, the “stakeholder perspective” suggests that besides shareholders, other groups or constituents are affected by a company’s activities (such as employees or the local community), and have to be considered in managers’ decisions possibly equally’ with shareholders.

By reporting CSR information, a firm addresses the information needs of stakeholders and provides a basis for dialogue between the firm and its stakeholders. As a critical avenue of stakeholder management, CSR reporting shapes external perceptions of the firm, helps relevant stakeholders assess whether the firm is a good corporate citizen, and ultimately justifies the firm’s continued existence to its stakeholders. Gelb and Strawser (2001) argued that a greater level of reporting is itself a form of socially’ responsible behaviour. Branco and Rodrigues (2006) noted that Corporate Social Responsibility is now seen as a source of competitive advantage and not as an end in itself. Specifically, CSR may signal to the market that the firm is social and environmentally responsible and may create goodwill for the firm leading to positive effects for firm financial performance. Bowen (2000) in this regards, identified that corporations engage and report their CSR activities in order to increase their social visibility and to improve stakeholder relations as it creates promotional opportunities for the firm. Furthermore, many CSR activities are made on the basis of presenting corporations in a positive light and providing reputation effects that improves on how the organization is perceived.

Though several studies have been done to investigate the determinants of corporate social responsibility reporting in developed economies, the evidence for developing economies like Nigerian seems to be largely anecdotal and where empirically examined, the studies has not been adequate. Hence the focus of this study to empirically examine the determinants of corporate social responsibility reporting using a selection of quoted firms in Nigeria.

1.2 Statement of Problem

One approach to evaluating company’s corporate social responsibility behavior is to examine if they engage in social responsibility disclosure. It is believed that when a company engages in corporate social reporting it presents a balanced reporting of its activities and impacts and provides a basis for stakeholders to evaluate its performance.

The reporting entity can also be held accountable for its impact since it is disclosed. However, environmental reporting has developed rather voluntarily and this implies that companies can choose what to disclose and may even decide not to. Research attention (Sharfman & Fernandoi, 2008; Schneider, 2010; Roberts 1992) in this regard has been focused largely on why and what factors could influence a company to engage in social responsibility disclosures voluntarily. Studies (Hackston & Mime, 1996; Adams & Hart, 1998) highlighted the importance of the company size. Connors and Gao (2009), Sharfman and Fernandoi (2008) and Schneider (2010) examined the role of leverage. Dye and Sridha (1995) and Hackston and Mime (1996) have considered the role of industry type. Roberts (1992) examined the role of profitability. However, the research evidence in this regards has been inconclusive and the role of the firm specific factors have been vacillating indicating that the issues are still quite unresolved in the literature and this defines the contribution and relevance of the study.

In addition, the empirical evidence in this area from developing economies is still largely inadequate and a number of reasons may account for this and of paramount amongst them being the voluntary stance on CSR reporting. With the extensive empirical evidence from developed economies, there is a knowledge gap about how corporate characteristics will influence voluntary reporting for developed and developing economies as the magnitude: level of awareness and implications of social cost differs considerably. Consequently, do we expect differences in the influence of corporate factors on social responsibility disclosure for both developing and developed economies? The study findings are an important contribution in this regards.

1.3 Research Questions

The following are the research questions for this study;

1. How is corporate social responsibility disclosure significantly related to company size,

2. What significant relation exist between corporate social responsibility disclosure and profitability,

3. To what extent is corporate social responsibility significantly related to firm origin, and

4. How significantly related is corporate social responsibility with firm industry type?

1.4 Objective of the Study

The main objective of this study is to examine the determinants of corporate social responsibility disclosures in Nigerian listed companies. Other specific objectives are to:

1. Examine the relationship between corporate social responsibility disclosure and company size,

2. Ascertain if there is any significant relationship between corporate social responsibility disclosure and profitability,

3. Ascertain the significant relationship between corporate social responsibility disclosure and firm origin, and

4. Examine the relationship between corporate social responsibility disclosure and the firm industry type.

1.5 Statement of Hypotheses

In order to achieve the objective of this research work, the following hypotheses have been formulated for empirical validation;

Hypothesis One

HO: There is no significant relationship between corporate social responsibility disclosure and company size.

HI: There is a significant relationship between corporate social responsibility disclosure and company size.

Hypothesis Two

HO: There is no significant relationship between corporate social responsibility disclosure and profitability.

HI: There is a significant relationship between corporate social responsibility disclosure and profitability.

Hypothesis Three

HO: There is no significant relationship between corporate social responsibility disclosure and firm origin.

HI: There is a significant relationship between corporate social responsibility disclosure and firm origin.

Hypothesis Four

HO: There is no significant relationship between corporate social responsibility disclosure and the firm industry.

HI: There is a significant relationship between corporate social responsibility disclosure and the firm industry.

1.6 Significance of the Study

The subject of corporate social responsibility is an important issue not used for corporate entities alone, but also for society. The impact of corporate activities on society demands that corporations must act responsibly in finding ways to ensure that the social implications of their business concerns are addressed especially when it constitutes a cost to society.

1. Industries: In Nigeria, multinational now try to placate the restive host communities by embarking on series of ventures such as building classroom blocks, boreholes and roads: offering some employment opportunities to the natives in the community: and giving scholarships to selected students from the affected communities. On the overall, Corporate Social Responsibility (CSR) activities are gaining momentum in Nigeria as companies attempt to project a positive image to the society.

2. Stakeholders: The study will also be useful to stakeholders who need to understand the concept and issues involved in the CSR disclosure. In addition, the study will significantly improve the existing studies from developing economies. The study will also serve as a valuable research material for subsequent researches in this direction.

3. Researcher: It will serve as a reference point for the future researchers’ interest.

1.7 Scope of the Study

The study examines the evaluation of social responsibility of corporate bodies in Nigeria. The study is restricted to firms listed on the Nigerian Stock Exchange as it is more feasible to access information on their social responsibility activities. The geographical region for this research is Edo State. The simple random sampling technique was employed in selecting the 50 companies for 2010 – 2015 financial years.

1.8 Limitations of the Study

In writing this project, so many problems were encountered, which are listed below:

· Geographical Coverage: Factor that may likely affect the work is the issue of investigating the concerned people in carrying out the research work.

· Problem of sourcing for material: The research was faced with problems of getting current materials, textbooks, journals and seminar papers related to subject matter.

· Un-cooperative nature of the studied firms: The researcher encountered problem of non-cooperation from some officials of the selected regions to carry out the research. Some of the personnel contacted for interview did not cooperate while some did reluctantly. The difficulty in getting access to official and up-to-date records and documents was also encountered.

1.9 Definition of Terms

1. Social Responsibility: This is the obligation of an organization’s management towards the welfare and interests of the society in which it operates.

2. Determinant: A factor which decisively affects the nature of outcome of something.

3. Stakeholders: A person or group that has an investment, share or interest in something, as a business or industry.

4. Organization: A social unit of people that is structured and managed to meet a need or to pursue collective goals.

5. Promotional Opportunity: This refers to a special offer, such as a sale or a product deal.

6. Financial Performance: The level of performance of a business over a specified period of time, expressed in terms of overall profits and losses during that time.

7. Leverage: The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.