The impact of corporate social responsibility on bank performance on the commercial bank in nigeria

Thesis Overview

<p> <b></b></p><p><b><b>INTRODUCTION</b></b></p><p><b><b></b></b></p><b><b><p><b>1.1 &nbsp; BACKGROUND<br>OF THE STUDY</b></p><p><b></b></p><b><p>The Banking System is very important<br>for any nation because it is the pivot of socio-economic development of any<br>economy. They have active developmental<br>roles to play in the economy such as mobilizing fund from the surplus to the<br>deficit spending units. The design of the Nigerian Banking System is geared towards<br>greater impact on the Nigerian economy.</p><p>In the current era companies are not<br>only responsible to their shareholders alone, they said to be standing on the<br>triple bottom lines of corporate responsibility which include social,<br>environmental, and financial (Tjia and Setiawati, 2012). Accountability of the<br>business organizations is therefore extended not only to direct stakeholders<br>concern but also to different external parties through the implementation of<br>different socially desirable activities (Masud and Hossain, 2012). These social<br>activities are no longer considered as a financial burden, but rather as social<br>capital investment (Tjia and Setiawati, 2012). They are also called ethical<br>investment simply because they increase the positive impacts of an organization<br>(Abbasi et al. 2012).</p><p>Corporate social responsibility (CSR)<br>is the encompassing term for the undertaking of these social activities.<br>According to Ahmed et al. (2012) “CSR is generally understood to be the way a<br>company attains a balance or integration of economic, environmental, and social<br>imperatives while at the same time addressing shareholder and stakeholder<br>expectations, with the understanding that businesses play a key role on job and<br>wealth creation in society”. Uddin et al. <br>(2008) state that CSR “is the continuing commitment by business to<br>behave according to business ethics and contribute to economic development<br>while improving the quality of the life of the workforce and their families as<br>well as the local community and society at large”.</p><p>In relation to the banking sector, CSR<br>is said to be the obligation of banks to manage their social, economic and<br>environmental activities at local and global level (Abbasi et al. 2012). &nbsp; This involves the bank considering not only<br>their profitability and growth, but also the interests of society and the<br>environment by taking responsibility for the impact of their activities on<br>stakeholders, employees, shareholders, customers, suppliers and civil society<br>represented by NGOs (Noyer 2008 in Masud and Hossain, 2012). Although banks are<br>not directly involved in degradation of natural environment they are<br>facilitators as they are suppliers of funds that support production process<br>that ultimately causes environmental degradation (Sarokin and Schulkin, 1991in<br>Ahmed et al. 2012). Thus, according to Branco and Rodrigues (2006), the<br>activities of banks, such as their lending and investment policies, can be<br>considered as equally environmentally-sensitive when compared with the direct<br>impacts of polluting industries that are dependent on the banks.</p><p>Therefore Branco and Rodrigues (2006)<br>reasoned that banks can report on what they are doing to ensure that their<br>lending and investment policies do not facilitate industrial activities, which<br>are harmful for the environment. On a more direct way, Branco and Rodrigues<br>(2006) argue that financial institutions consume vast amounts of resources,<br>such as paper and energy, and create wastes; hence their policies regarding how<br>they contribute to the conservation of energy and natural resources and<br>recycling activities are important aspects of their social responsibility<br>activities. Therefore to ensure accountability, banks are to be disclosing<br>social related information.</p><p>Social responsibility disclosure refers<br>to the disclosure of information about companies’ interactions with society<br>(Branco and Rodrigues, 2006). Due to informational asymmetry, disclosure of<br>private information is imperative as it brings general gains in economic<br>efficiency (Hossain and Reaz, 2007), and it is an important instrument in the<br>dialog between business and society (Branco and Rodrigues, 2006). Generally transparency is an important aspect<br>of good corporate governance practice and in relation to the banking sector<br>increased transparency through the disclosure of timely and accurate information<br>ideally should enable a bank to access capital markets more efficiently<br>(Hossain and Reaz, 2007). These CSR disclosures can be classified into<br>environment, human resources, products and customers and community involvement<br>(Branco and Rodrigues, 2006).</p><p>In recent decades, as societies in<br>Nigeria have become more prosperous, better educated and more articulated,<br>increasing attention has focused on the social responsibility of business<br>firms, because business firms are allowed to flourish within society and to<br>make use of various natural and human resources available as well as public<br>services.</p><p>The primary goal of a company is<br>profit. To make more profit, companies make good products, invest money to<br>retain competent employees and develop new technology and retain customers.<br>These efforts have not only benefitted businesses economically, but have also<br>contributed to the development of modern society. This social contribution<br>concept of passive social responsibility has governed the mind of business<br>owners until recently.</p><p><b>1.2<br>&nbsp; STATEMENT OF RESEARCH PROBLEM</b></p><p><b></b></p><b><p>The Nigerian economy today is faced<br>with multiplicity of challenges ranging from high unemployment rate, high<br>poverty (which stood at 69 percent of the 163 million population of Nigeria<br>(NBS, 2010) corruption, youth restiveness, political crises, security<br>challenges (which has great effect on investments (Aimurie,I. et al) and<br>economic growth among others). These problems are generally seen as social<br>issues, thus the more social improvements relates to a company’s business, the<br>more it leads to economic benefits as well (Porter, M .E. and Kramer, M<br>.R.2002). </p><p>Since the role of banks is to enhance<br>economic growth and with all these challenges facing the economy thereby<br>threatening economic growth at this critical time that the Nigerian banks want<br>to be the financial hub of Africa in the year 2020 and the nation is prepared<br>to be one among the top 20 largest economies in the world by the year 2020.<br>Even if the banks are socially responsible to an extent, there is need for the<br>Nigerian banks to rethink both where (that is sector(s) and location) they<br>focus their CSR and how they go about their CSR as no business can thrive in<br>chaos environment.</p><p>Banking operations all over the world<br>are technological driven, right from the door that customer passes through to<br>enter the banking hall to the recording of the transactions between the<br>customer and the bank or with third party (ies) requires one technology or the<br>other which must be powered with electricity. Due to epileptic power supply in<br>Nigeria, most organizations have to provide alternative power supply rather the<br>relatively cheaper Nationalgrid (PHCN). This and some other factors have been<br>militating against efficient running of business organization in Nigeria. As<br>they have to factor the cost of fueling the alternative source of power which<br>is always costly among others (like LPFO/Black oil, AGO/diesel and GAS) into<br>their factors of production or operations as in the case of banks.</p><p>However, in the face of the above<br>challenges for banks in Nigeria, the practice of corporate social<br>responsibility as a concept entails the practice whereby corporate entities<br>voluntarily integrate both social and environment upliftment in their business<br>philosophy and operations. A business enterprise is primarily established to<br>create valueby producing goods and services which society demands. It therefore<br>seems that the practices of CSR will further pose a burden on the financial<br>performance of banks. This has made most observers perceive Nigeria business<br>environment has been hostile.In the light of the above problems faced by most<br>banks, there is the need to evaluate the impact of CSR on the profitability of<br>the banking sector in Nigeria.</p><p><b>1.3 &nbsp; RESEARCH<br>OBJECTIVES &nbsp;</b></p><p><b></b></p><b><p>The main<br>objective of this research work is to examine the impact of corporate social<br>responsibility on bank performance, a case study of some selected commercial<br>banks in Nigeria. The specific objectives of this study therefore, are:</p><p>(i) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To examine the impact of disclosure of CSR on<br>community development and its implications to both economic and environmental<br>bottom line;</p><p>(ii) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To examine the impact of corporate social<br>responsibility on the employee’s commitment.</p><p><b>1.4 &nbsp; RESEARCH QUESTIONS</b></p><p><b></b></p><b><p>This research will attempt to provide answers to the following questions:</p><p>(i) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>Does corporate social<br>responsibility have any economic and environment impact?</p><p>(ii) &nbsp; &nbsp; &nbsp; &nbsp;<br>Does the practice of corporate<br>social responsibility impacts on the financial performance of an organization?</p><p>(iii) &nbsp; &nbsp; &nbsp; <br>How<br>does corporate social responsibility influence employee’s performance?</p><p><b>1.5 &nbsp; RESEARCH HYPOTHESIS</b></p><p><b></b></p><b><p>Hypothesis is a<br>tentative statement about the universe which may or may not be true. The<br>hypothesis for this study is therefore formulated on the basis of the<br>objectives of the research work as stated below:<b></b></p><b><p><b></b></p><b><p><b>Ho:</b>There is no significant relationship<br>between corporate social responsibility and bank performance in Nigeria<b></b></p><b><p><b></b></p><b><p><b>H1:</b>There is significant relationship<br>between corporate social responsibility and bank performance in Nigeria.</p><p><b>1.6 &nbsp; SIGNIFICANCE OF THE STUDY</b></p><p>It<br>is expected that this study will provide an indication of how the corporate<br>social responsibility landscape looks like in Nigeria’s banking system since<br>there are no significant differences in the structural and operational models<br>in the various banks in Nigeria. More so, this study is important because it will add to the<br>existing literature of banks CSR in particular on how socially responsible is<br>the Nigerian banks in addressing the challenges and enhancing the economic<br>growth of Nigeria, which is one of the key sector that can drive the economic<br>growth of any nation.</p><p>The result of this research work will aid the Nigerian banking<br>system to evaluate their level of commitment to their corporate social<br>responsibility objectives and functions in the light of their dependency on the<br>environment as source of inputs and market for corporate outputs. It will also<br>highlight the degree of neglect of government as a regulatory agent in the<br>execution of its social responsibility duties.</p><p><b>1.7SCOPE OF THE STUDY</b></p><p><b></b></p><b><p>This study basically seeks<br>to examine the impact of corporate social responsibility on bank performance. This study is<br>limited in scope to the<br>banking industry in Nigeria from 2003 to 2013.</p><p><b>1.8<br>&nbsp; DEFINITION OF TERMS</b></p><p><b></b></p><b><p>For the purpose of this research, the under – listed<br>terms are defined thus:</p><p>v <b>Corporate Social<br>Responsibility (CSR):</b>&nbsp;is a business process that<br>a company adopts beyond its legal obligations in order to create added<br>economic, social and environmental value to society and to minimize potential<br>adverse effects from business activities, which includes interactions with<br>suppliers, employees, consumers and communities in general.It also describes a<br>company’sobligations to be accountable to all of its stakeholders in all its<br>operations andactivities. It is a concept describing a company’s obligations to<br>be accountable toall of its stakeholders in all its operations and activities<br>on a voluntary basis.</p><p>v <b>Social responsibility<br>disclosure</b>&nbsp;refers to the disclosure of information<br>about companies’ interactions with society (Branco and Rodrigues, 2006). Due to<br>informational asymmetry, disclosure of private information is imperative as it<br>brings general gains in economic efficiency (Hossain and Reaz, 2007), and it is<br>an important instrument in the dialog between business and society (Branco and<br>Rodrigues, 2006). Generally transparency<br>is an important aspect of good corporate governance practice and in relation to<br>the banking sector.</p><p>v <b>Corporate performance</b>&nbsp;is a vital concept that relates to the way and manner with which<br>the financial resources at the disposal of the organization are judiciously put<br>into usage to achieve the corporate objectives of such organization (Kajola<br>2008). The corporate performance of organization would disclose to the various<br>stakeholders of the organization the continuous ability for such organization<br>to remain in business.</p><p>v <b>Bank: </b>is a financial intermediary that accepts deposits and channels<br>those deposits into lending activities, either directly by loaning or<br>indirectly through capital markets. A bank links customers that have capital<br>deficits and customers with capital surpluses.</p><p><b>1.9 &nbsp; OUTLINE OF CHAPTERS</b></p><p><b></b></p><b><p>This research work is divided into Five Chapters.<br>Chapter one is devoted to introduction, Chapter Two, dealt with the review of<br>relevant literature on the constructs and variables of the study as well as the<br>theoretical and empirical frameworks. Chapter Three disclosed the research<br>methods, research design, sampling, sampling techniques, validity and<br>reliability, while Chapter Four examined data presentation and Analysis and<br>Chapter Five dealt with discussions, summary of findings, Conclusions,<br>contribution to knowledge recommendations, limitation and suggestions for<br>further studies.</p></b></b></b></b></b></b></b></b></b></b></b></b></b></b><br> <br><p></p>