The Importance Of Financial Performance
There are large amounts being invested in Corporate Social Responsibility (CSR) to ensure that a firm is relevant within the market. This trend is one where companies will try and create a positive impact on the society while they still conduct their business. Studies have shown that a company’s long term financial success goes hand in hand with its participation in social responsibility, corporate ethics and environmental stewardship, (Kell, 2014) . Corporate Social Responsibility can be defined as the continuous commitment by businesses to behave ethically and contribute to development of the economy while keeping in line the objective of improving the quality of life of the workforce, their families and the local community and extend this …show more content…
Common examples of financial performance include operating income, earnings before interest and taxes, and net asset value. It is important to note that no one measure of financial performance should be taken on its own. Rather, a thorough assessment of a company 's performance should take into account many different measures, (Dictionary, 2009). Accounting ratios such as ROA, ROE and ROIC are used to measure the efficiency of the firms’ internal resources. The ratios help determine the performance of a firm over a given period of time and can be used to compare previous period performance or performance between multiple companies. However, these accounting methods do have their limitations as they tend to capture only historical performance indicators of the firm and can be manipulated by the management and different accounting procedures, (McGuire, Shwneeweis, & Hill, …show more content…
Recent studies carried out in Kenya have shown that there exists a certain relationship between CSR and a firm’s financial performance. All firms listed on the Nairobi Stock Exchange had tried to include CSR within their mission statements, (Gichana, 2004). Another study carried out by Okoth (2012) showed that the financial performance in terms of ROA and ROE is directly affected by CSR.
These and a few other studies have gone ahead to show the relationship between CSR and a firm’s financial performance. Although these studies have shown the close relationship between the two variables they have not been able to prove how a firm could increase its financial performance for every shilling they spend on CSR. This presents a knowledge gap and therefore leaves open the opportunity for research. The study will therefore aim to see the effect of spending on CSR and its direct effect on a firm’s financial performance.
1.3 Research Objective.
1. To determine the effect of Corporate Social Responsibility on the financial performance of commercial banks In
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