Relationship Between Corporate Social Responsibility and Financial Performance: A Case of Equity Bank Kenya Limited

Abstract

Corporate social responsibility (CSR) refers to decisions and activities of a firm directed towards fulfilling stakeholder claims. It is manifested in economic, legal, ethical and discretionary responsibilities. Equity Bank Kenya Ltd has recorded growth in the last five years in branches and revenue expansion; however the concerns are in the unmatched corporate returns to shareholders. CSR which it has engaged in over the years is expected to have been related to these outcomes but this has not been confirmed. Moreover, past studies in CSR have only related it to organizational performance and have not defined it clearly in the four components. None has defined clearly its components and investigated its relationship with financial performance. Consequently how economic, legal and ethical responsibilities relate to financial performance is not known. This study purposed to investigate the relationship between CSR and financial performance in Equity Bank Limited, Kenya. The specific objectives were to establish relationship between economic responsibility and financial performance, investigate the relationship between ethical responsibility and financial performance and analyze relationship between legal responsibility and financial performance at the bank. The study was guided by Stakeholder Value Theory and a conceptual framework that spelt out CSR as the independent variable and financial performance as dependent variable. The study adopted correlational study design with target population of 346 respondents. A sample of 180 respondents was selected using stratified random sampling. The study used both secondary and primary data. Questionnaires were pretested using 17 respondents and reliability correlation of 0.98 obtained. Validity was confirmed by experts in the subject. Data was analysed using percentages and frequencies and correlation. Results were r (148) = .439, p<O.OI; r (148) = .617, p<O.O1 and r (148) = -.542,p<O.Q1. These mean that a moderate positive significant relationship exists between economic responsibility and financial performance, a high positive significant relationship exists between ethical responsibility and financial performance and moderate significant negative relationship between legal responsibility and financial performance. It is concluded as economic and ethical responsibility increases, financial performance increases. Contrarily, as legal responsibility increases, financial performance drops. This study recommends for more resources be put on the economic and ethical responsibilities the bank and less to be deployed to legal responsibility while an investigation into the exercise of legal responsibility is carried out in order to understand better the negative relationship. The government and senior management at the bank and the banking industry are expected to benefit from these results applying them to streamline CSR activities. Based on this study, researchers may formulate future investigations.