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FINANCIAL PERFORMANCE AND CORPORATE SOCIAL RESPONSIBILITY OF QUOTED CONGLOMERATED IN NIGERIA
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FINANCIAL PERFORMANCE AND CORPORATE SOCIAL RESPONSIBILITY OF QUOTED CONGLOMERATED IN NIGERIA
The Project File Details
1.1Background to the Study
Conglomerates are often large and multinational companies that embarks on various types of businesses. In Nigeria, they are under the regulation of the Nigerian Stock Exchange (NSE) and are mainly established to accomplish synergies, diversification and earnings growth. In early 1960s conglomerates were very popular in developed countries, but due to the difficulty associated with managing unrelated business units effectively they are now less popular. In developing countries like Nigeria, apart from the problem of managing unrelated units, conglomerates also face the problem of managing conflicts with the immediate environment in which the business units are established. In an effort to address that, most of the conglomerates embark on Corporate Social Responsibilities (CSR).
Corporate Social Responsibility (CSR) simply means that companies in the cause of discharging their day to day activities for the purpose of profit realization should also take into consideration the effect of their activities on the members of the society in which the companies are residing and the environmental sustainability of their operations.
The origin of CSR in the Nigerian context can be traced back to the presence of unbridled oil in the southern part of Nigeria (South-South Geo-Political Zone). The discovery of the oil brought serious conflict between the companies and the environment. On one hand, members of the community were complaining of environmental degradation that led to various types of hardships and on the other hand, the companies are not willing to accept that they were the major cause of the hardships. These conflicts of interest led to the emergence and implementation of Corporate Social Responsibility (CSR). The overall objective being protecting human rights against corporate abuses and on that basis various legislations designed to regulate business and industry in Nigeria came up which includes recognition of public interests by companies (Gunu, 2008).
There are various views in the literature on Corporate Social Responsibility. Some authorities like Friedman (1962) are of the view that the concern of businesses should be profit making and any activity to deter that should be stayed away by companies because no legal and democratic backing to pursue such activities. Others like Freedman and Liedtka (1991) are of the view that companies are responsible for all their stakeholders and should therefore take greater responsibility for the society at large and seek to solve social and environmental problems in their market place.
Today, most corporate managers believe that business operations should go beyond the simple prospect of money making. Thus, managers should try as much as possible to incorporate the interest of the employee, business partners, customers, shareholders and the society at large into their decision making which offers the best guarantee for consistent profitability. This view in favour of Corporate Social Responsibility implementation creates difficulty on measuring the real effect of the implementation on consistent profitability of companies. This has become more compounded as various ratios for measuring profitability exists.
According to Iyoha (2010), in developing countries, the concern is about how efficient organizations are in terms of how much profits are made and how much dividends are paid. No serious thoughts are given to social issues in the annual reports of organizations such as environmental protection, energy savings, fair business practice, and community involvements etc.
Asechemie (1996) stress that the absence of financial data relating to actions and arrangements for social concern in Nigeria is not in accord with the trend in the USA, Europe and Canada where companies are required to report on the effect of compliance with laws governing corporate social conduct on capital expenditures, earnings and competitive position. The Environmentalists have drawn public attention to the by products of industrial activities in Nigeria. This made the federal government to establish the Federal Environmental Protection Agency (FEPA) and the National Environmental Standard and Regulatory Enforcement Agency (NESREA) for the purpose of monitoring industrial activities as they affect the environment and prescribe necessary control measures.
Asechemie (1996) notes that it is reasonable for Nigerian governments to go beyond the establishment of these agencies to requiring organizations to report scorecards on environmental and other social issues. When this is done, it will reduce the disruptions in companies’ operations, kidnapping, accusation and counter accusations of ill treatment of host communities. According to Davies and Okorite (2007), where the social activities of organizations are fairly reported in the financial statements, duly audited and attested to and published by the organization for all to see, some of the problems would be minimized, if not eliminated. Since accounting is a science that uses measurements and quantities to provide specific quantifiable information about a company’s financial status; it provides detailed accounting logs to enable managers to make responsible decisions that maximize profit and reduce waste and spending. In this modern age of globalization, major global business entities, worldwide, have dedicated accounting units that submit financial reports and logs relevant to the social performance to various bodies and stakeholders. Stakeholders attempt to evaluate, through these reports and other financial and accounting data, institutional performance during a given time period, and whether this performance is balanced and inclusive of all stakeholders without neglecting any particular group.
Social responsibility accounting first emerged in developed countries as a result of pressures exerted by environmental and human rights groups, and has been known by various terms such as; social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting; however, it is more common to refer to it as Social Responsibility Accounting (SRA). It is defined as a branch of accounting that aims to define the results of an institution or organization and its financial position from a social perspective since companies are relevant and affect societies as a whole.
Accountants have an important contribution to make to the debate surrounding Corporate Social Responsibility CSR). The major element of accountants’ contribution is that they have the ability to provide a mechanism for holding corporations accountable for what they do – holding entities accountable is, after all, what accountants do as a matter of course. While traditionally it has been financial accountability that is the remit of accountants, for many years now, accounting academics have been at the forefront of research and theory on social and environmental accounting and, more recently, practitioners, professional associations and others have taken an interest in the topic. Therefore, this study examines financial performance and social responsibility of quoted conglomerates in Nigeria.
1.2 Statement of the Problem
For conglomerates to succeed financially, they must have to produce goods that could enable them generate sufficient profits. Profits making is a function of so many factors, some of which are indigenous and others exogenous. Amongst the exogenous factors are operational interruption caused by hosting community of the conglomerates. This is due to the concern of the community over negative and potential negative effects that businesses brought to the community. The effect ranges from environmental degradations to societal conflicts as a result of the businesses‟ activities. In an effort to overcome the existing conflicts between conglomerates and the host environments the idea of Corporate social responsibility (CSR) was advocated. While that can be considered as a welcome development that avenue for conflicts resolution exists, but the avenue creates more concern over the implementation and the quantification of the benefits to both the community and the conglomerates.
Although, series of arguments based on researches are found in literature as to the relevancy or irrelevancy of Corporate social responsibility (CSR) on the hosting environment, there is no unanimous agreement on the subject matter due to peculiarities of settings and the variations of methodology adopted by the studies. Some of the studies argue in favour of Corporate social responsibility (CSR) as it leads to profitability increments, societal and environmental stabilities. Others argue that it is a waste and unnecessarily leading to diversion of companies‟ resources to projects that have no explicit bearing on profit motive. This therefore stimulates the need for studying specific setting in order to ascertain the consequential effect of adopting Corporate social responsibility (CSR). Against the above backdrop, there is every need to examine financial performance and social responsibility of quoted conglomerated in Nigeria.
1.3 Objective of the study
The main objective of this study is to examine financial performance and corporate social responsibility of quoted conglomerated in Nigeria. Other specific objectives are
1.4 Research Questions
The following research questions were posed to guide the study as follows
1.5 Research Hypotheses
Each of the following hypotheses is designed to test the in order to answer the question posed by the study, four hypotheses were formulated.
H01: Societal expenditure as a corporate social responsibility of conglomerates do not in any way significantly affect corporate financial performance
H02: There is no significant difference on the extent social empowerment programme of conglomerate affect corporate financial performance.
H03: Environmental expenditure by conglomerates do not significantly affects financial performance of corporate organization.
H04: There is no significant effect of constructions of bridges as corporate and social responsibility on financial performance.
1.6 Significance of the Study
The study is of benefit to corporate conglomerate, the government, the society and to fellow researchers. For a corporate body, the study will serves as a pioneering effort in evaluating the effect of Corporate social responsibility (CSR) on the financial performance of conglomerates in Nigeria. This would assist conglomerates in shaping their policy on Corporate social responsibility (CSR) as it would reveal to them the extent to which it affects their performance. For the government, it would assist government in settling conflicts and disputes between companies and the hosting environment. This could be possible by coming up with an acceptable benchmark as to what should be expended for Corporate social responsibility (CSR) to the hosting community. To the society, the study will enable them see the potential contributions of conglomerates in their community and the need of supporting them. While to researcher, the study will serve as a reference point to those that want to research further into the area. It would enable them have more insight into the subject matter under study.
1.7 Scope of the Study
The scope of the study covers corporate financial performance and social responsibilities with particular reference to Nigeria quoted conglomerates. The study also covers the period of ten years (10yrs) ranging from 2005-2014). As for the variables of measurement, Return on Asset (ROA) is to be used in measuring financial performance, while societal expenditure (SE), environmental expenditure (EE) and employees’ expenditure are to be used in measuring corporate social responsibility (CSR).
1.8 Definition of Terms
For the purpose of clarity in some of the terms used, the following terms are defined as used in the study.
Content Analysis: is a research tool or technique used to determine the presence of certain words or concepts within texts or sets of texts. Researchers quantify and analyse the presence, meanings and relationships of such words and concepts, then make inferences about the messages within the texts, the writer(s), the audience, and even the culture and time of which these are a part.
Corporate Environmental Reports: Are only one form of environmental reporting defined as publicly available, stand-alone reports issued voluntarily by companies on their environmental activities.
Corporate Social Responsibility: It is seen as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.
Environmental Audit: An inspection system that assesses the environmental effects of a company’s activities, products and suppliers. It covers specific audit of health, safety, waste prevention and other matter and focuses on environmental issues of key concern. It also takes into account the environmental performance of suppliers of raw materials, goods and services.
Environmental Impact: Any change to the environment, whether adverse or beneficial, wholly or partially resulting from an organizations activities, products or services. A systematic and documented verification process of objectively obtaining and evaluating evidence to determine whether an organisations environmental management system conforms to the environmental management system audit criteria set by the organisation, and for communication of the results of this process to management.
Environmental Costs: Comprise the costs of steps taken, or required to be taken, to manage the environmental impacts of an enterprise’s activity in an environmentally responsible manner, as well as other costs driven by the environmental objectives and requirements of the enterprise. They are expenses incurred as a result of some violation of ecological integrity either by an enterprise that implements a program to rectify the situation or by society or the ecosystem as a whole when no person or enterprise is held liable.
Environmental Policy: Statement by the organisation of its intentions and principles in relation to its overall environmental performance which provides a framework for action and for the setting of its environmental objectives and targets.
Environmental Management System Audit: A systematic and documented verification process of objectively obtaining and evaluating evidence to determine whether an organisations environmental management system conforms to the environmental management system audit criteria set by the organisation, and for communication of the results of this process to management.
Environmental Liabilities: Are obligations relating to environmental costs that are incurred by an enterprise and that meet the criteria for recognition as a liability.
Environmental Performance Evaluation: EPE is described as a process to facilitate management decisions regarding an organization’s environmental performance by selecting indicators, collecting and analyzing data, assessing information against environmental performance criteria, reporting and communicating, and periodic review and improvement of this
Environmental Performance Report: It is a report designed for public reporting that discloses an entity’s environmental performance in the broadest sense. It contains both descriptive information and quantitative performance data. Performance data can be provided in financial terms, but also in physical quantities. An EPR may be published in a section of the annual report, or as a stand-alone report.
Environmental Strategy: A plan of action intended to accomplish a specific environmental objective
Environmental Reporting: Public disclosure by a firm of its environmental performance information, similar to the publication of its financial performance information. The process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large.
Future Site Restoration Costs: These are costs that relate to damages incurred in prior periods which are necessary to prepare an asset or activity for operation. They are recognized as environmental liability at the time the related damage is incurred (identified). They should be capitalised (and amortised to the income statement over the life of the related operations).
Global Warming: An increase of the earth’s temperature by a few degrees resulting in an increase in the volume of water which contributes to sea-level rise. Increase in the average temperature of the earth’s surface or a rise in the temperature of the Earth’s atmosphere due to the increase in certain gases in the atmosphere.
Greenhouse Gas: Gases added to the atmosphere by human actions that trap heat and cause global warming. This is a collective term for gases such as carbon dioxide, methane and nitrous oxides (among others) that trap heat in the atmosphere and contribute to climate change.
Involuntary Disclosure: The disclosure of information about a company’s environmental activities without its permission and against its will.
Mandatory Disclosure: The disclosure of information about a company’s environmental activities that is required by law
Performance Indicators: Are finite set of quantities chosen to reflect certain aspects in an organisation. They are number, absolute or relative terms that facilitates managements communication and follow-up of an organisation’s performance
Social Audit: The process of reviewing and verifying the social accounts at the end of each social audit cycle. The term social audit is also used generically for the concept and for the whole process.
Social Responsibility Accounting (SRA): It is defined as a branch of accounting that aims to define the results of an institution or organization and its financial position from a social perspective since companies are relevant and affect societies as a whole.
Socially Responsible Investors: Also known as sustainable, socially-conscious, or ethical investor are those investors which basically seeks to maximize both financial returns and social good. In general, social responsible investors tend to favour corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity.
Stakeholders: A person, group, organization, or system who affects or can be affected by an organization’s actions.
Sustainable Development: Development that ensures that the use of resources and the environment today does not restrict their use by future generations.
Voluntary Disclosure: The disclosure of information on a voluntary basis.