Today businesses are expected to take on additional social responsibilities aside from maximising profits and shareholders‟ wealth. Pressure from stakeholders have induced the businesses to espouse sustainable practices that look beyond their economic and legal requirements but also fulfil social obligations. However, due to their limited resources or lack thereof, small and medium enterprises, especially in developing countries, typically do not practice CSR or engage in reactionary CSR at best. They are largely linked to sporadic and non-voluntary regulatory compliance when they could adopt strategic sustainable responsibilities which are linked to improving financial performances of enterprises. Conducting more research on the relationship between corporate social responsibility and small and medium enterprises‟ financial performance can induce their strategic investment in sustainable practices that has a positive impact on their economic performance. This study therefore sought to analyse the effect of annual cost of corporate social responsibility activities on the financial performance of small and medium sized enterprises in Kenya. The specific objectives were to analyse the effect of amount spent annually in philanthropic, environmental and ethical activities on the financial performance of small and medium sized enterprises in Kenya. The study was anchored on triple bottom line model and stakeholders‟ and corporate social responsibility theories. A descriptive study design was adopted in order to observe and make inferences on the effect of corporate social activities spending of firm financial performance. The study targeted a population of 100 top performing medium sized companies in Kenya because of their rank as best financial performers in the country and their involvement in corporate social responsibility activities. Secondary data was collected by use of data collection form and the data was obtained from annual financial reports for years ended 2013 to 2018. Data was edited, coded and analysed using descriptive and inferential statistics. Results were presented in form of tables and graphs. The study will enable the owners of small and medium sized enterprises to understand the resultant effect of corporate social responsibility on financial performance of small and medium enterprises. It will also aid decision makers to make informed decisions about planning of sustainable objectives and allocation of resources towards achievement of those objectives. Using results from random effects model, it revealed annual cost of philanthropic, environmental and ethical activities by small and medium sized enterprises in Kenya can be used to predict the outcome of return on investment as a measure of the small and medium sized enterprises financial performance. Specifically, an increase in 1 unit on the amount spent annually on philanthropic activities lead to a decrease in return on investments by 1.4507 units, keeping amount spent annually on environmental activities and ethical activities constant. The relationship though inverse can be statistically can be used to forecast the outcome of return on investments. Secondly, when amount spent annually on environmental activities is increased by 1 unit, return on investment also decreases by 5.6109 units with other variables kept constant.
