Effect Of Corporate Social Responsibility On Profitability Of Listed Deposit Money Banks In Nigeria

Also, scholarly works on the association between corporate social responsibility and profitability have produced mixed results. Some studies conclude that a positive nexus exists (Bolanle, Olanrewaju & Muyideen, 2012; Graves & Waddock, 1994; McGuire, Sundgren & Schneeweis, 1988; Moskowitz, 1972; Muhammad, Saleh & Zulkifli, 2011; Roberts, 2002; Roman, Hayibor & Agle, 1999; Simpson & Kohers, 2002; Uadiale & Fagbemi, 2012). Some other studies conclude a negative link (Mwangi, 2013; Palmer, 2012). Yet, others query the existence of such a relationship completely (McWilliams & Siegel, 2001; Margoslis, Elfenbein & Walsh, 2007; Tsoutsoura, 2004). The empirical studies conducted in developed countries on the relationship between CSR and profitability is essentially of two distinct categories (Margolis & Walsh, 2007). The first category considers the short-run financial impact if the company is involved in either socially or irresponsible actions. The results are mixed. For instance, Wright and Ferris (1997) find negative relationships, while other researchers find positive relationships (Hall & Rieck, 1998; Posnikoff, 1997; Wright & Ferris, 1997 and Teoh et al., 1999).
The second category, examines the relationship of CSR and profitability in the long-run, using accounting and market based measurements. The findings are also mixed. Various studies report a negative relationship between CSR and profitability (Moore, 2001; Vance, 1975), while other studies reveal a neutral or no relationship (Mahoney & Roberts, 2007; McWilliams and Seigel, 2000; Patten, 1991; Alexander & Buchholz, 1978). Most of the prior studies found a positive relationship between CSR and CP. Again, stakeholder theory suggests that Corporate Social Performance (CSP) is positively associated with CP (Freeman, 1984 and Donaldson & Preston 1995). Moskowitz (1972) finds a positive relationship between socially responsible business practices and corporate equity returns.
Muhammad, Saleh and Zulkifli (2011) conclude that there is a positive and significant link between CSR and Profitability. Two of the CSR dimensions, namely employee relations and community involvement were found to be positively related to financial performance. The results also reveal that there is limited evidence of the relationship between CSR and CP in the long- term. Bolanle, Olanrewaju and Muyideen (2012) examine the relationship between corporate social responsibility and profitability in the Nigerian banking industry using First Bank of Nigeria (FBN) Plc as the case study. They conclude that there is positive relationship between banks CSR activities and profitability. This study is different from current study because it is a case study while current study is a longitudinal study. Uadiale and Fagbemi (2012) examine the impact of CSR activities on financial performance measured with Return on Equity (ROE) and Return on Assets (ROA). The results show that CSR has a positive and significant relationship with the financial performance measures. This study uses non-financial services firms and is therefore different from current study which uses deposit money banks.
Mahbuba and Farzana (2013) examine the relationship between CSR and profitability in Bangladesh and conclude that 90.7% of the variation in profit after tax is explained by the benefit accrued from corporate social responsibility. Mahbuba and Farzana (2013) study is also different from current study for three reasons. First, the study was done in Bangladesh while current study is a Nigerian study. Second, their study was done for 10 years (2002-2011), while the current study covers 15 years (2001-2015). Third, Mahbuba and Farzana (2013) study used profit after tax as proxy for profitability, this study uses net profit margin, return on assets and return on equity as proxies for profitability.
Arising from the lack of consensus on the findings of the previous empirical studies on the impact of CSR on the profitability of corporate enterprises and the fact that none of these studies comprehensively modeled all the listed deposit money banks in Nigeria; there is a gap in the academic literature that needed to be filled. It is within this context that this study examines the impact of CSR on the profitability of listed deposit money banks in Nigeria. Consistent with literature, this study expects that in the long run CSR will have positive impact on the profitability of the firm.
1.3    Statement of Research Questions
In the light of the foregoing, the research questions of this study are articulated as follows:
(i)    What effect does corporate social responsibility has on the net profit margin of listed deposit money banks in Nigeria?
(iv)    How does corporate social responsibility affects the return on assets of listed deposit money banks in Nigeria?
(v)    Does corporate social responsibility affects the return on equity of listed deposit money banks in Nigeria?
1.4    Objective of the Study
The main objective of the study is to examine the effect of corporate social responsibility on the profitability of listed deposit money banks in Nigeria. The specific objectives of the study are to:
(i)    Examine the effect of corporate social responsibility on the net profit margin of listed deposit money banks in Nigeria.
(ii)    Examine the effect of corporate social responsibility on the return on total assets of listed deposit money banks in Nigeria.
(iii)    Assess the effect of corporate social responsibility on the return on equity of listed deposit money banks in Nigeria.