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In 2009, the federal government of Nigeria launched its amnesty programme for Niger Delta region of the country to address the concerns of the communities that host the oil and gas companies operating in the country. One of the matters arising since the launching is whether the programme has helped in the restoration of peace and security in the region to enable the companies operate optimally, realise their full potentials and increase their productivity and consequently their financial performance. Another question relates to the extent to which the programme motivates the companies to make more effort to satisfy the communities through increased corporate social responsibility (CSR) activities. This study examined the effect of amnesty and CSR on the financial performance of listed downstream oil companies in Nigeria. The study formulated three hypotheses with the third hypothesis focusing on the moderating effect of firm size on the extent to which amnesty and CSR affect the financial performance of the companies over the period of 10 years from 2004 to 2013. The robust regression result based on the annual data collected from five (5) companies revealed that both amnesty and CSR have significant effect on the financial performance of the companies. The result also revealed a high level of interacting effect of size on amnesty and CSR. Based on the findings, the study recommended among other things that the federal government should continue with the implementation of the amnesty programme and initiate even other similar interventions as means of maintaining or restoring peace within the Niger Delta and other regions of the country where such interventions are needed. The study also recommended that the management of oil companies should continue to execute more CSR programmes in order to guarantee safety and security of personnel and equipment that are used to generate higher profits.
TABLE OF CONTENTS
Title page i
Table of Contents viii
CHAPTER ONE: INTRODUCTION
1.1 Background to the study 1
1.2 Statement of the Problem 5
1.3 Research questions 6
1.4 Objectives of the Study 7
1.5 Research hypotheses 7
1.6 Scope of the study 7
1.7 Significance of the Study 8
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction 10
2.2 The Concept of Corporate Social Responsibility 10
2.3 History of Oil and Gas CSR in Nigeria 13
2.4 The Concept and History of Amnesty 17
2.5 CSR and Amnesty Programme in the Niger Delta 21
2.6 Amnesty and Financial Performance 22
2.7 CSR and Financial Performance 28
2.8 Firm Size and Financial Performance 35
2.9 Theoretical Framework 37
CHAPTER THREE: RESEARCH METHODOLOGY
3.2Research Design 40
3.3Population of the Study and Sample Size 40
3.4 Sources and Methods of Data Collection 41
3.5 Technique of Data Analysis 42
3.6 Model Specification and Variables Measurement 42
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND DISCUSSION
4.1 Introduction 47
4.2 Descriptive Statistics and Correlation Matrix 47
4.3 Analysis and Interpretation of Regression Result 52
4.4 Policy implications of the findings 57
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary 59
5.2 Conclusions 60
5.3 Recommendations 60
5.4 Limitations of the study 61
1.1 Background to the study
The Niger Delta region of Nigeria, which is richly endowed with crude oil, and also known for its gas, wealth of hydrocarbon and water resources had suffered the effect of oil exploration with its attendant environmental degradation for years due to the activities of multinational oil companies in the region. It is argued that the companies have over the years exploited the widespread ignorance of the people of the region about the obligation for them to be socially responsible. Consequently, until the late 2000s, the rich natural endowment was not seen to have translated into concrete development in the region.
However, as the Niger Delta Environmental Survey of 1992 indicated, while the exploitation was going on, the people in the region were becoming increasingly enlightened about their rights as citizens, in the same vein that they were increasingly aware of how much is derived from their communities as oil revenues both for the government and the multinational oil corporations (Niger Delta Survey, 1992). Thus, as their business activities continue to expand and their sizes increase, the companies were confronted with issues related to sustainable development in the region through Corporate Social Responsibility (CSR). The call for CSR was premised on the fact that corporations that align business interests with community interests in terms of CSR objectives can minimize the risks and liabilities associated with operating in culturally different regions from their homes countries (Bertels & Vredenburg, 2004; Grossman, 2005; Lipineux, 2005; Thompson, 2005; Porter & Kramer, 2006).
Corporate social responsibility connotes the commitment of companies towards encouraging community growth and development and voluntarily eliminating practices that are not in accordance with public interest. It is thus the deliberate inclusion of public interest into corporate decision making and the honoring of a triple bottom line: People, Planet and profit (Solihin, 2009). It is believed that if corporations or businesses establish an understanding with host community where such businesses are located, an understanding anchored on the protection of the people from the adverse effects or impacts of its activities, this will further enhance the operation of such companies in the organization. However, oil companies in the Niger Delta have been found to be practicing CSR in the form of donations and charitable concerns to less privileged, contributions, sponsorship and charitable gifts devoid of consideration of their different sizes and scope of activities instead of long lasting CSR programmes.
The host communities on their part perceived those donations as not sufficient but deceptive and destructive to the environment compared to the damage being caused by the companies especially those with expanded scope of activities. According to the host communities, the region has over the years been deprived of its resources that were expected to bring about good life to its inhabitants (Inokoba and Imbua, 2008:647). Prior to the discovery and exploration of oil and gas resources in the region, the primary occupation of the people was fishing and farming. It was however noted that oil activities have destroyed the subsistence economy of the people and the environment suffers degradation occasioned by oil spillages has made life extremely difficult for the local people. (Fedelis & Kimiebi, 2011).
This consequently affected the livelihood support system of the inhabitants; the people continue to live in poverty and famine. As a response, some of their youth formed militant groups that embarked on disruption of crude oil and gas installations, production obstruction and kidnapping of foreign oil company personnel. The actions of the militia led to violent conflict in the region and posed threats to the oil sales, and in turn reduced drastically the oil revenue to the government.
Various strategies were devised by the companies and the federal government to enthrone peace in the region. The companies began to spend large amount of money according to their size and scope of operations in order to hire security operatives to safeguard their facilities and personnel from attacks by the Niger Delta militia, while government expends huge amount of money in peace maintenance in the region. Despite the huge expenditure, peace could not be restored in the region and oil revenue continues to decline.
In order to resolve the conflicts, President Umaru Musa Yar‟Ádua introduced Amnesty programme in 2009. The program was designed in four phases starting with pardoning the militants for them to willingly renounce violence, followed by disarmament, rehabilitation and reintegration (DRR) of the militias. The essence of the programme was to change the mindset of the militants and facilitate their adjustment to normal civil life. The hitherto militants were therefore equipped in different areas of skills and entrepreneurship in the orientation and rehabilitation camp in Obura in Cross River state. The quantity of crude oil production for example jumped from 0.80 million barrels in 2008 to over 1.6 million barrels from second quarter of 2010 (Ambily, 2012). Thus the programme created a conducive atmosphere and
peaceful environment that present an opportunity for oil companies to enhance their production, increase their profitability and consequently carry out more CSR activities for the betterment of the region. Furthermore, as the various oil companies are of varying sizes, the extent of their damage to the host communities varies as well, hence the need for the Amnesty policy benefits to be commensurate to damages caused as well as the need for the companies to increase their CSR activities. In view of the mixed feelings with which the host communities received the amnesty policy from the time it was launched (Fidelis & Kimiebi, 2011), a study on the effect of the intervention on the CSR activities and consequently performance of the oil company is considered imperative.
Many empirical studies have been conducted on CSR and its impact on the performance of firms largely in developed countries and relatively in developing countries. The studies have however yielded mixed results (Friedman, 1970; Bragdon and Marlin, 1972; Klassen and McLaughlin, 1996; Cordeiiro and Sarkis, 1997; Wright and Ferris, 1997; Orlitzky et al., 1997; Bird et al., 2007; Arago´ n-Correa et al., 2008; Nicolau, 2008). This could be attributed to methodological issues such as model specifications and choice of variables, or domain; or due to CSRs measurement challenge as captured in the findings of literature review of CSR and financial performances. According to the literature, measuring CSR has always been a difficult undertaking as there is no consensus about which measurement tool is the best to apply. In addition, the studies seem to focus more on the manufacturing sector, perhaps in view of the nature of its multi-scale activities and the effect of the activities on the society. The mixed results documented in the literature have created a motivation for further research.
1.2 Statement of the Problem
CSR has been a subject of debate especially in the oil producing and refining communities of the Niger Delta region of Nigeria. Prior to the launching of the Amnesty policy, the relationship between oil companies and some of their host communities was not cordial owing to different perceptions of the role that the oil companies are expected to play in the development process of their host communities and on the contrary the extent of environmental degradation they have visited on the host community. On the one hand, the host communities claim that oil companies are not doing enough considering the amount of oil wealth taken away from their lands. On the other hand, oil companies feel that they are doing enough and, have, even gone beyond the realm of normal corporate social responsibility. The oil companies as stated by chevron claimed to have implemented several projects in the host communities as part of their Corporate Social Responsibility. The claims include: construction of hospitals, roads and schools, providing portable water, electricity, sponsorship, scholarships and; supportive health campaign programmes among others. However the host communities in Niger Delta seem not to have accredited these acclaimed community development projects by oil companies as they continue in their hostile disposition to the companies (Alabi, 2012). It was in the face of this controversy that Amnesty was introduced as an intervention policy by the government in 2009 in order to resolve the crisis that affected in no small measure the level of activities of the firms. The introduction of the policy, which was due largely to the activities of the militants in the Niger Delta who felt that the region was ignored by both the oil companies and the government despite the hazards facing them as a result of the activities of the companies, was a reconciliatory approach to the crisis. The policy was therefore meant to pacify the host communities and alleviate their sufferings and at the same time create a peaceful and conducive atmosphere for the oil companies to continue with their activities.
With the policy now going into its six years, an empirical study of its effect on the performance of the oil companies is desirous. Incidentally, while attempts have been made by researchers to study the relationship between CSR and performance as found in the works of Williams (2006) and Amaeshi, Olufemi, Adi and Ogbechie (2006), they did not incorporate the amnesty programme to address its effect on the financial performance of oil and gas companies. Of recent few others attempted to study the dimension of the crisis in the Niger Delta even after the introduction of the Amnesty policy but resorted to the opinions and perceptions of either the host communities or staff of the companies. To the best of the researcher‟s knowledge, no effort has been made to empirically study the effect of the policy on the activities of the oil companies on the one hand, and on the other hand, the combine effect of Amnesty and corporate social responsibility on the financial performance of the firms. This study is therefore a modest effort to study an area that attracts little or no attention in Nigeria.
1.3 Research questions
The study sought to answer the following questions:
i. What is the impact of amnesty programme on financial performance of firm listed downstream oil and gas companies of Nigeria?
ii. To what extent does corporate social responsibility on financial performance of listed downstream oil and gas companies of Nigeria?
iii. To what extent does size moderate the effect of CSR and amnesty on the financial performance of listed downstream oil and gas companies of Nigeria?
1.4 Objectives of the study
The overall objective of this study is to examine the impact of CSR and Federal government amnesty on the financial performance of listed downstream oil companies in Nigeria. Specifically however, the study seeks to:
i. assess the impact of amnesty programme on financial performance of listed downstream oil and gas companies of Nigeria.
ii. determine the effect of CSR on financial performance of listed downstream oil and gas companies of Nigeria.
iii. examine the extent to which size moderate the effect of CSR and amnesty on financial performance of listed downstream oil and gas companies of Nigeria.
1.4 Research Hypotheses
In line with the objectives of the study, the following hypotheses have been formulated:
H01: Amnesty has no significant impact on financial performance of listed downstream oil and gas companies of Nigeria.
H02: CSR does not significantly affect the financial performance of listed downstream oil and gas companies of Nigeria.
H03: Size has no significant moderating effect on the relationship between CSR and amnesty and the financial performance of the oil and gas companies of Nigeria.
1.5 Scope of the study
This study focuses on the effect of CSR and federal government amnesty on the financial performance of listed downstream oil companies in Nigeria. The study covers ten (10) years from 2004 to 2013 with 2004-2008 and 2009-2013 representing before and after amnesty
programme respectively. The choice of the period is predicated upon the statement below; it allows analysis of the relationship between the dependent and independent variables over a relatively reasonable period of pre and post.
The oil sector was chosen as the domain focusing on the amnesty program and the oil and gas sector. This was considered imperative owing to the fact that the study concentrated on the area.
1.6 Significance of the study
The need for government intervention through Amnesty for the host communities of Nigerian petroleum companies is not only important but necessary in view of the role that petroleum companies play in the national economy. A research work of this nature will be useful to all stakeholders in the oil and gas companies. The results of the study will be important to investors in understanding whether or not amnesty has enhanced the operations of the oil and gas companies and the impact of corporate social responsibility on their performance.
Oil companies will also find this study useful as it will assist them in making informed managerial decisions as regards to the welfare of their immediate community in which they operate, which will further enhance a more peaceful environment and improve their performance. The findings will be useful in understanding the extent to which CSR practices affect the performance of oil and gas companies in Nigeria. In addition, Government will find the outcome of this study useful in a number of ways. It will inspire policy makers to attend to issues that could bring unrest and setback and consequently affect the economy of the nation. It will also guide the National Oil Spill Detection and Response Agency (NOSDRA) on the needs
of the Niger Delta Communities and other similar regions that might unfold.