A STUDY ON THE IMPACT OF FIRM PROFITABILITY ON CSR ACTIVITIES BY FIRMS IN NIGERIA
1.1 BACKGROUND OF THE STUDY
Hashimu and Ango (2012) opined that business does not exist in a vacuum and cannot be divorced from the rest of the society. The processes involved in maximizing profit, attaining optimal business performance and hence fostering economic growth and development comes with some cost, both private and social. Production activities of business organisations do exert significant external costs on the society. Noise and atmospheric pollution from factories, environmental degradation resulting from exploratory activities and long term health implications for the society are the most common examples. How can such costs be minimized? How can the impacts of these costs on the society be ameliorated? The more relevant question is: Who should be responsible for minimizing these costs and ameliorating their impacts on the society? These and many more questions bring about the concept of Corporate Social Responsibility (CSR).
While CSR as a concept and its practice in the West was developed as early as in the 1950s, the concept of CSR is a relatively new phenomenon in Nigeria (Uadiale & Fagbemi, 2012; Helg, 2007). Formalized CSR in Nigeria can be traced back to the CSR practices in the oil and gas multinationals. The CSR activities in this sector are mainly focused on remedying the effects of their extraction activities on the local communities. The companies provide pipe-borne waters, hospitals and schools.
In Nigeria today as a developing country, CSR has attracted both business leaders, the academics and has been a highly contemporary and contextual issue to all stakeholders including the government, the corporate organization itself, and the general public, with companies being demanded to develop a “social conscience” and expected to be more ethical and socially responsible. Moreover, the social problems caused by business activities are too urgent to wait on the relatively weaker regulatory systems and the slow course of political processes in Nigeria, requiring that the exercise of social responsibility by businesses as a quicker and surer way to solve pressing current problems.
The issue of CSR in Nigeria is brought into perspective by several peculiarities in Nigeria as a developing country faced with seemingly overwhelming growth and development challenges in the political, economic and social dimensions. Despite the challenges, several prospects exist, each being associated with massive expansion of business activities than the present levels as business is essential for the development and wellbeing of a society. According to a forecast of bodies as diverse as the International Monetary Fund, the European Union and investment firms such as Goldman-Sachs, Nigerian economy will become the 19th largest in the world by 2025 (Jacques, 2009).
The Nigerian economy has been named as one of the Next 11 (N11) economies, identified as having high potential of becoming one of the world’s largest economies in the 21st century (O’Neill, Wilson, Purushothaman & Stupnytska, 2005). Meanwhile, Nigeria nurses her homegrown Vision 20:2020 wherein by 2020, Nigeria will be one of the 20 largest economies in the world.
The actualization of the above potentials and targets would require a more private-sector led economy as the preferred way of accelerating the pace of economic growth and development in developing countries. In this regard, Osemeke (2012) opines that the prospect for private sector organizations led-growth in Nigeria is very high. Operators in the private sector, who primarily aim at profit maximization, control a lot of assets; have billions in cash at their disposal. Thus, private sector organizations exert a lot of power in the community and in the national economy.
Another reality which brings CSR into perspective is the high inflow of foreign direct investment (FDI) in Nigeria. The United Nations Conference on Trade and Development (2012) reports that over the next several decades, sub-Saharan Africa will continue to attract the highest rates of foreign direct investment (FDI) inflows per capita of any developing region. Moreover, Nigeria is the second largest recipient of foreign direct investment (FDI) in Africa following South Africa (Morisset, 2001; United Nations Conference on Trade and Development, 2013). Such a high level of foreign investment induces a high level of business activity, thereby bringing CSR into perspective.
A high growth potential, high potential for a private-sector led growth, weak regulatory systems and high FDI inflows have all been advocated as reasons for CSR, especially in Nigeria. This creates the need to crucially interrogate the factors influencing CSR activities by companies. The few research works on CSR for Nigeria that exist usually focus on oil companies and on the relationship between CSR and financial performance of firms. This research paper seeks to contribute to the existing body of work in this area by examining the determinants of corporate social responsibility using companies in Nigeria.
1.2 STATEMENT OF THE PROBLEM
In Nigeria, the activities of some multinational companies have been identified as questionable or even unethical because of the harms they perpetrate on the society (Trevino,2000). With emphasis on the Niger Delta, Adeyanju (2012) reports that some ten years ago, the Nigerian society was characterized by fragrant pollution of the air, of the water and of the environment as most corporate organizations are concerned about what they can take out of the society, and de-emphasized the need to give back to the society.
In a similar view, Osemene (2012) opines that many organizations in Nigeria are driven by the need to make more and more profits to the detriment of all the stakeholders as some do not adequately respond to the needs of host communities, employees’ welfare (cheap labor often preferred), environmental protection and community development. This has translated to negative integrity and reputation on the part of corporate identity as people perceived this as exploitation and greed for profitability and wealth maximization within a decaying economy of Nigeria (Adeyanju, 2012).
Corporate Social Responsibility as a concept is relatively new in Nigeria and is one of the emerging issues that confront modern-day businesses (Helg, 2007; Uwuigbe & Egbide, 2012). Amaeshi, Adi, Ogbechie and Amao (2006) assert that most CSR initiatives in Nigeria are ad hoc and not always sustained. From another viewpoint, Osemene (2012) acknowledges the popular opinion that CSR initiatives implemented by some companies in Nigeria are mere superficial window-dressing and lip-service, widely believed by many to be mere campaigns by organizations to promote corporate brands. As such, whenever an organization does something supposedly “big” for the society, such a company and its management are eulogized for being caring and philanthropic by the Nigerian public, a majority of which are ignorant of CSR.
In developed economies the concept of business has changed from profit making activities to social welfare activities where businesses are not only responsible to its shareholders but also to all of its stakeholders (Islam, 2012). As a relatively new phenomenon in Nigeria the main influencing factors driving the CSR agenda in Nigeria have been foreign (Uadiale & Fagbemi, 2012). Thus, there is an apparent lack of a fully Africanised CSR agenda and the need for a Nigeria-specific CSR practice that is contextually relevant and takes the prevailing socioeconomic realities of the country into consideration.
As a result of above, research focusing on CSR practice and activities in developing countries like Nigeria remains scarce, with only an existing handful of empirical studies (Duke & Kankpang, 2013; Uwuigbe & Egbide, 2012; Muthuri &Gilbert, 2010; Helg, 2007). The need for more in-depth studies into corporate social responsibility in Nigeria is a research gap that this study intends to fill. In this regard, a fundamental question exists: What influences corporate social responsibility behavior and activities of Nigerian firms? Several other more specific questions which form the research questions of this study are:
- What is the impact of firm profitability on CSR activities by firms in Nigeria?
- What is the impact of stock market performance of firms on CSR activities by firms in Nigeria?
- What is the impact of firm size on CSR activities by firms in Nigeria?
- What is the impact of firms’ financial liquidity on CSR activities by firms in Nigeria?
1.3 OBJECTIVES OF THE STUDY