CORPORATE SOCIAL RESPONSIBILITY AND INVESTORS’ PERCEPTION OF COMPANY VALUE IN NIGERIA
This study is motivated by a desire to examine corporate social responsibility and investors’ perception of company value in Nigeria. In light of the empirical review and other discussions, a number of questions arose as to whether there is positive relationship between corporate social responsibility and investors’ perception of company value in Nigeria. Questionnaire was administered to some selected staff of the sampled banks operating in Nigeria. Data was collected and analyzed using the simple percentage, descriptive statistics and Z-test statistical tool. This study revealed among other things that there is a corporate social responsibility has significant influence on company value. It is recommended that the government should review existing laws policies and regulations governing operation of business firms to ensure that they operate in a socially responsible manner.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of the Research Problem
Objectives of the Study
Scope of the Study
Significance of the Study
Limitation of the Study
CHAPTER TWO: LITERATURE REVIEW
Broad Definition of Corporate Social Responsibility
Conceptual Issues Underpinning Corporate Social
Theoretical Review on Corporate Social Responsibility
and Firm Performance
Corporate Social Responsibility Development in Nigeria
Corporate Social Responsibility and Shareholder Value
Theory Testing: The Effects of CSR Engagement
CHAPTER THREE: RESEARCH METHODOLOGY
The Population of the Study
Data Collection Method
Source of Data
The Research Instrument
Data Analysis Method
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
Test of Hypothesis
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
BACKGROUND TO THE STUDY
Debates continue to rage about whether or not firms should engage in socially responsible behavior. On the one hand, traditional economic arguments suggest that managers should make decisions that maximize the wealth of their firm’s equity holders (Friedman, 1962). Managers do this by making decisions that maximize the present value of the firm’s future cash flows (Copeland, Murrin, & Koller, 1994). To the extent that corporate socially responsible activities are inconsistent with these economic objectives, traditional financial logic suggests that they should be avoided. Indeed, firms that engage in such activities especially when they are very costly may be subject to various forms of market discipline, including limited access to low-cost capital, the replacement of senior managers, and takeovers (Jensen & Meckling, 1976).
On the other hand, some business and society scholars have argued that firms have a duty to society that goes well beyond simply maximizing the wealth of equity holders (Swanson, 1999; Whetten, Rands, & Godfrey, 2001). These scholars argue that such a narrow focus can lead management to ignore other important investors including employees, suppliers, customers, and society at large—and that sometimes the interests of these other investors should supersede the interests of a firm’s equity holders in managerial decision making, even if this reduces the present value of the firm’s cash flows (Clarkson, 1995; Donaldson & Preston, 1995; Mitchell, Agle, & Wood, 1997; Paine, 2002; Wood & Jones, 1995).
One way to resolve this conflict is to observe that at least some forms of socially responsible behavior may actually improve the present value of a firm’s future cash flows and thus may be consistent with the wealth-maximizing interests of the firm’s equity holders. For example, corporate socially responsible behavior can enable a firm differentiate its products market (McWilliams & Siegel, 2001; Waddock & Graves, 1997), can enable a firm to avoid costly government-imposed fines (Belkaoui, 1976; Bragdon & Marlin, 1972; Freidman & Stagliano, 1991; Shane & Spicer, 1983; Spicer, 1978), and can act to reduce a firm’s exposure to risk (Godfrey, 2004). All of these socially responsible actions can increase the present value of a firm’s future cash flows and are therefore consistent with maximizing the wealth of the firm’s equity holders.
However, from a broader theoretical perspective, the entire effort to discover how corporate socially responsible activities can increase the present value of a firm’s future cash flows is problematic. After all, the essential point of many business and society scholars is that the interests of a firm’s equity holders sometimes need to be set aside in favor of the interests of the firm’s other investors (Banfield, 1985; Carroll, 1995; Windsor, 2001). That is, according to social responsibility theorists, firms should sometimes engage in activities that benefit employees, suppliers, customers, and society at large, even if those activities reduce the present value of the cash flows generated by the firm (Wood & Jones, 1995). Focusing the study of corporate social responsibility on those actions that increase the present value of a firm’s cash flows fails to address this central theme in the corporate social responsibility literature (Windsor, 2001).
STATEMENT OF THE RESEARCH PROBLEM
Corporate social responsibility (CSR) is a corporate objective whereby business organizations are asked to consider the interests of society in their actions. They do this by taking responsibility for the impact of their activities on investors in various aspects of operations. CSR goes beyond good citizenship in that it asks businesses to voluntarily take steps beyond statutory obligations to improve society’ quality of life (Martin, 2008). The focus of socially responsible corporations is not solely profit maximization. Because CSR investments are not solely focused on profit maximization, they can still be somewhat controversial. Some argue that these additional CSR investments increase costs, but performance and compete with value-maximizing activities. Others argue that these additional CSR investments benefit firm performance and contribute to value-maximizing activities. CSR activities improve trust and relationships with investors which can ultimately lead to improved returns. A socially-responsible firm may face fewer labor problems, fewer complaints from the community, and fewer environmental concerns from the government. In addition, socially-responsible firms may have improved relationship with their investors, bankers, and government officials.
In the light of this, the following research questions are raised:
Does corporate social responsibility have significant influence on company value?
Does corporate social responsibility have significant effect on leverage?
Does corporate social responsibility have significant effect on the maximization of shareholders wealth?
Does corporate social responsibility have significant influence on firm size?
1.3 OBJECTIVES OF THE STUDY
The objective of this study is to examine corporate social responsibility and investors’ perception of company value in Nigeria.
The specific objectives are:
To determine whether corporate social responsibility have significant influence on company value.
To ascertain of corporate social responsibility have significant effect on leverage.
To verify if corporate social responsibility have significant effect on the maximization of shareholders wealth.
To find out if corporate social responsibility has significant influence on firm size.
1.4 RESEARCH HYPOTHESIS
The hypothesis that would be tested in the course of the work are:
H0¬: Corporate social responsibility has no significant influence on company value.
H¬1: Corporate social responsibility has significant influence on company value.
H0¬: Corporate social responsibility has no significant effect on leverage.
H¬1: Corporate social responsibility has significant effect on leverage.
H0¬: Corporate social responsibility has no significant effect on the maximization of shareholders wealth.
H¬1: Corporate social responsibility has significant effect on the maximization of shareholders wealth.
H0¬: Corporate social responsibility has no significant influence on firm size.
H¬1: Corporate social responsibility has significant influence on firm size.
1.5 SCOPE OF THE STUDY
This research work is an empirical study on corporate social responsibility and investors’ perception of company value in Nigeria. The population of the study is entire quoted companies in the Nigeria Stock Exchange, while the sample size is selected multinational quoted of the Nigeria Stock Exchange.
The length of period covered by the study is two years (2009 – 2010).
Geographically, the study will be conducted in Benin City, Edo State.
1.6 SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between corporate social responsibility and investors’ perception of corporate value. The study would also facilitate the examination of the effects of corporate social responsibility and investors’ perception of corporate value and thus boosting the empirical evidence from Nigeria. Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies in economic modeling and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to investment analyst, investors and corporations in examining the effectiveness of corporate social responsibility and investors’ perception of corporate value. It will also be useful in stimulating public discourse given the dearth of empirical researches in this area from emerging economies like Nigeria. Finally, it would also to the available literature on the area of study while also providing a platform for other researchers who may want to further this study.
1.7 LIMITATION OF THE STUDY
There is always a challenge of ascertaining the level of data accuracy especially with regards to time-series data. The study considers this a limitation.
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