The impacts of CSR should be sustainable in that the gains should not roll back after a short period. Research on the effect of CSR by business entities show that there is a correlation between the level of investment on the CSR dimensions as well as the profitability of the given business entities as well as the market value of the given business entities. This paper seeks to determine if it is the same case for firms in the Indian Economic environment. Most firms though tend to invest in the environmental aspect of sustainability and the alleviation of unemployment rates by creating employment and trainings of youth in a given industry. The paper seeks to determine the relationship between the dimensions of CSR on the market value as well as the profitability of any given firm.
The organizations need to report the activities they fund under CSR on a periodical basis. The business entities can decide where to invest on the four areas of investment on CSR; Ethical, economic, legal and philanthropic dimensions. The organizations have to invest a minimum of 0. 2 percent of their profits in the last three financial years to the CSR kitty. Though some economists tend to disagree with the notion of mandatory CSR contribution as they believe CSR contribution to be from the firms or business entities decision rather than a requirement as some organizations tend to contribute the minimum. 9% as of Dec 2017). Previous research links some aspects of CSR to improved financial performance of firms that spend more on CSR activities in relation to other companies in the study.
This research focuses on a sample of the total business entities and firms on the Indian Market to empirically study whether there is any interaction between CSR expenditure and financial performance of the firms under study. The researcher obtains CSR scores of the companies or firms from a reputable CSR crediting firm and compares the data to financial performance of the companies in the sample to determine correlation between the CSR dimension factors. The researcher also intends to study whether the correlation if it exists between the CSR dimension scores and the financial performance of the companies is statistically significant. In most cases, these emerging economies do not have guides or protocol on standards for the CSR activities; this therefore is a setback to the implementation of CSR activities by willing local and International companies in the emerging economies.
However, since India is an emerging economy it developed a CSR funding protocols for companies or firms in the Indian market. This research therefore seeks to determine the effect of CSR activities and ratings to the performance of firms in the Indian market and in general in the economies of emerging markets. Focus is also on Indian companies that are in the Stock Exchange. The research gave insights on the areas of interest to managers of corporate firms such that they can decide which area to prioritize for maximum gain in the firm’s endeavor to achieve its goals as well as improve the financial performance of the firm in the Indian financial market (Rupal Tyagi & Agarawal, 2013). Since the adoption of CSR activities and the support for the Stakeholder Theory, this led to the loss of popularity of the Shareholder Theory that suggested that the most important stakeholder in any profit making institution is the shareholder who is the most important and as such, prioritizing the shareholder’s interest come first (Thoti, 2015).
The shareholder theory did not allow for CSR activities by its nature of maximizing profit. Research on the effect of CSR to the value of the company in the monetary markets show that the link is highly positive in the economies of stable economies in comparison to other countries whose economies are not stable that report weak positive links between the CSR investments and the financial performance of the firms. Some other dimensions of implementing CSR activities such as the political use of CSR activities tend to lead to negative correlation between the investment in CSR with regard to the market value as well as the performance of the firm in the financial market. However, aspects on instruments and isomorphic use tend to lead to positive correlation between the investment in CSR with regard to the market value as well as the performance of the firm in the financial market.
The researchers also suggested that the categories in the CSR measurements should consider other factors of CSR activities with each country having its own set of CSR activities. This approach upon implementation will ensure at least even if leveled economic environment will not be a factor but most companies will be contributing to some extent their own portion to improve the lives of the other stakeholders in the economic and environmental system (Singh, et al. Researchers and market performance analysts suggest that further research on the implementation of CSR activities and funds should follow a certain determined criteria to allow for comparison of the companies’ performance. The researchers suggested that the CSR grading firms should include unique CSR measures implemented by the companies to ensure the documentation of the contribution by each company in the market.
Further, this effort ensures that determination of the effect of CSR investment at the micro-level of the economy. The research also determined that the CSR investment by companies in the financial market leads to the firm gaining a competitive advantage over other firms both at the microeconomic and macroeconomic level. The Cronbach’s score on the correlation between these items was 0. 76, which is a quite high correlation (positive). The researcher also determined that the CSR is sustainable over the long run to any business entity with a Cronbach’s score of positive 0. 69, which is a moderate correlation score. First, the companies need to conduct feasibility studies on the viability of the CSR projects identified. The companies in the Indian market also need to implement these programs with the CSR funds with a clear goal on what they need to achieve at the end of the period.
Companies invest in the CSR kitty as a legal requirement by the government with no scientific way or logical way on how they invest the funds. Since the CSR, investments do not have any expected outcome or any particular goal and therefore this in the end cannot be sustainable and further cannot make any significant impact to the requirements of the other stakeholders of the firms in the Indian market. Companies in the Indian economy are therefore encouraged to be innovative in the manner in which they invest their CSR funds. The company assisted in the CSR activity to ensure environmental cleanliness. The firm launched a campaign to discourage open defecation in the Country to make it an open defecation free defecation zone.
The campaign was so successful that several partners joined the campaign. The market value of the company shot through the roof after that campaign (Thoti, 2015). For this study, the researcher intends to explore the CSR score of a sample of companies in the Indian Economic system against some selected market performance indices of the firms under study. Assessment of all these dimensions of the CSR activities give a company a general score which the researcher will use to determine if the score correlates to the selected financial performance index of the firms in the study (Singh, et al. Research Question The research question for this study is to determine whether CSR affects positively or negatively on the economic and financial performance of firms in the market of India.
The researcher will develop five hypotheses that will ensure that at the end of the analysis there will be a conclusive finding that will enable the managers of these firms to determine whether the CSR contribution is beneficial to the firm or not. Further, the findings will enable the managers to plan for the future spending of the firm on CSR budgets. The finding will also ensure that the firms decide whether to work as a team to determine whether they need to work together or work individually to ensure they derive maximum achievement for the participation in the CSR endeavor to get the goodwill of the other stakeholders in the system. ” Additionally, researchers noted, “Business firms are experiencing a shift from the traditional approach as other stakeholders exert more influence on the work place and the expected responsibilities of firms to the society.
The main players in this process are the environmental conservationists, search for better management options that are of high quality, and sustainable development, firm learning and firm ethics. ” It infers that the recognition level among business leaders concerning the value of stakeholders place on their corporate operations, structure, and sustainability is growing. Groundbreaking technologies that support higher engagement of companies with a significant interaction with stakeholders are present. For example, crowd-sourcing facilitates the utilization of avenues including My Starbucks Idea, companies are adopting for collective innovation of their consumer population to facilitate the development of the products and service experience. Previous research cautions against the firm not allowing the stakeholders are aware of the firms CSR activities can be detrimental to the organization’s objective to benefit from the CSR operations.
Greater stakeholder engagement leads to enhanced cooperation that is necessary to attain the positive responses to a firm’s CSR operations that lead to inculcate an improved reputation, higher labor force and improved firm’s financial performance. Previous research also shows that organizations reluctant to give in to the demands of external stakeholders are likely to suffer losses. On the other hand, firms that systematically organize their activities to establish better relationships with their external stakeholders attain development in financial status. A researcher pointed out that economic factors, social factors and factors from a political point of view affect the legal context, common knowledge together with aspirations that hinder CSR activities. Since workers encompass vital stakeholders in any firm, the fair and equal treatment, enhanced management of the employees’ safety issues as well as the health should be one of the firm’s main objectives; this triggers development and therefore the firm gains competitive advantage over the other firms in the market.
An effective tool to improve the employees’ workplace environment is employees perform better when they are well motivated both in the physical and the mental aspects. Motivated employees give high outputs that in the end help the organization achieve its main objective of making profit. Another assumption associating the quality of the workplace and firm’s market value is based on the available resources. According to the view, a company attains a sustainable competitive advantage through the development of resources illustrating both valuable and difficult for imitation from a competitor’s perspective. Hypothesis 3 Association between the firm value and the CSR score on the environmental Dimension. Environment plays a significant role in the perception of both the community and stakeholders. The prevailing trends concerning the environment have led to the development of a conscious and sustainable consumption.
The consumer population focuses on the operations and the policies of the service provider or the manufacturer to assess its compliance with environment standards. The push for cleaner technology and the exhaustion rate of the non-renewable resources has stimulated concern thus facilitating the adoption of sustainable production approaches. Conversely, a broader aspect of the researcher should entail on the harmonization of the environment and firm competency to institute high performance. Corporate social responsible practices do not hinder the firms from engaging in destructive production mechanism in the absence of alternatives. However, it emphasizes on the implementation of reclamation and rehabilitation practices that will help restore the productive aspect of the environment. According to institutional and legitimacy theory, the attainment of certification from environmental programs and prerequisites including ISO 14000 standards, provides firms with the capacity to inform the stakeholders on their perception of environment integrity.
In addition, it serves to signal the suppliers of the expectation of the company regarding environment compliance. Additionally, they are complying with the demands of the community based on their informed notion of CSR activities and sustainability both in the social and environmental spheres. Research shows that reputations of firms in the financial market were negatively influenced. The CSR rating score of these firms for instance the case of black diamonds in Africa, to firms in the market that manufacture chocolate getting the negative publicity for ignoring the casual laborers involved in the cocoa farms. According to the stakeholder theory, greater engagement with the stakeholder community promotes the chances of company’s improvement based on social and environmental objectives. Nonetheless, research reveal that assessment of the suppliers as well as the interaction with stakeholders portrays a positive interaction on the firm’s status on the environment CSR dimension (Shuili, et al.
It facilitates both the cash and non-cash incentives that aim to the attainment of social harmony and sustainability (Quarshie, et al. In the global Arena, more companies dedicate their efforts to the alleviation of community suffrage. In the incident of a disaster, several firms offer to help for the purposes of helping the victims. For instance, after the bombing of the World Trade Center, many companies including Microsoft and Daimler Chrysler donated millions to support the humanitarian efforts. Data Description and Methodology The researcher identified the parameters to use for the analysis to be the CSR score determined by the Karmayog independent group, the firms market value as well as the book value to market value ratio to assist in the analysis of the effect of the CSR participation by the firms to the firm’s financial performance.
The data available for CSR scores for companies in India, did not measure the individual CSR dimensions to determine whether these dimensions influence each other to ensure a high CSR score as well as high performance of the firm in the financial sector. There are also very few companies or organization that measure the CSR performance of firms in the Indian market. The data from the Karmayog group only gives the overall score of the CSR performance and as such, the research will be limited in a way. The limitation of the research is that analysis will not be based on the effects of the different dimensions to the overall performance of the firm in the financial sector. The researcher will therefore measure the interaction of the general score of the CSR as given by the Karmayog group against the various different aspects of financial performance such as the firms’ profit before tax, firms’ market value, and firms’ total sales in the financial year 2010 and the number of employees in the firms under study.
Methodology The researcher will collect secondary data from the Indian Financial Stock Exchange as well as the annual financial reports of the selected firms. The researcher will use CSR scores from secondary source, the Karmayog group for the largest five hundred companies in the Indian financial market. The data from the Karmayog group is the general score on the CSR rating of the given firm in that the score does not disaggregate the rating to the different dimensions of the CSR activities. Therefore, the researchers will use the overall score of the CSR performance in the analysis. The general score of the CSR performance encompasses the scores on the six dimensions of the CSR ratings though the researcher will not be able to divide the overall score to the respective score of each dimension of the CSR rating.
This therefore ensures that there is objectivity in the analysis of the relationship between the CSR rating scores and the financial performance of firms in the Indian Market. The independent audit firm Karmayog is also in no way associated with the firms listed in the Indian Stock Exchange and hence the CSR rating is reliable as the audit firm achieved objectivity, as the firm did not have interest in the performance of the firms in the CSR ratings. There are CSR ratings for companies in the Indian Market available since 2007 until the latest by the Karmayog Group is in the year 2010 but released in June 2011. The researcher also left out the information on self-reported CSR ratings as this information has a bias since logically no firm will give its CSR program a lower score if it is not effective.
Self-reported CSR ratings could interfere with the results implying a high CSR achievement in the Indian financial market and that might not be the case. The following table shows the summary of the variables under study. The average CSR score for the sampled companies was 1. 61, which is very low score for the firms in the Indian financial market. The average sales for the sampled companies are 9,382. 05 Rupees Crores. Table 2 From Table 2 it shows that there exists a linear relationship between the CSR score and the firm’s value under study. The scatter plot also shows that there exists a linear relationship between the earnings per share of the stakeholders in the firm with the CSR rating of the firm. The scatter plot therefore shows that there exists a linear relationship between the variables of interest of the researcher and the study.
The regression model will determine the strength of the relationship. To test for randomness of the data available, the researcher performed the Runs Test. The plot of residuals against the independent variable also does not show any linear relationship and therefore the results from the regression analysis are reliable. So far the assumptions of the regression analysis hold and therefore the researcher proceeds to interpret the outcome of the regression analysis to explain the dependence between the CSR rating of any given firm in the Indian Financial market against the financial performance of these firms listed in the Indian Stock Markets. The model developed implies that the higher the CSR score for any given firm the better the financial performance of the firm.
The regression model also show that the lower the CSR rating of any firm in the Indian market the lower the financial performance of the firm in the Indian Market. Empirical Findings From the analysis of the above, the researcher can conclude that the higher a firm in the Indian Stock market spends on the CSR activities the higher the chance the company will have a better financial performance. From the analysis, the researcher can assume that the profit before tax of any company listed in the Indian Stock Exchange rises with an increase in the CSR rating score of the firm. The profit before tax of firms in the Indian Stock Exchange will be lower if the CSR ratings of the firms are low as well.
This implies that with every increase of the CSR score with one-unit increases the profit before tax with approximately 0. 000035 rupees Crores. The converse also holds since if the CSR rating or score of a firm reduces by a single score the profit before tax reduces by averagely approximately 0. The variable on the number of employees also acted as a control variable in the regression analysis to determine if the size of a firm in the Indian Stock exchange affects or influences the CSR rating of the firms under study. The table below summarizes the findings on the correlation analysis Significance of the regression coefficients The following table shows the value of the regression coefficients and their respective statistical significance. The following table shows the correlation matrix after the regression analysis Summary and Conclusion The research results determine that there exists a correlation between the CSR rating score of any firm listed in the Indian Stock exchange with the financial performance parameters of any given firm.
The managers or the management of these firms need to ensure that the firms therefore take up the CSR rating score seriously if the firms are to improve their financial performance. Further the research result also conform to several surveys conducted previously that show that there is a degree of relationship between the CSR rating score of any organization and the financial performance of the firm. The managers in charge of the CSR investments can as well define methods of determining the appropriate dimension of CSR to invest in to ensure that the other stakeholders gain the maximum benefits from these programs. The other option that the firms can explore is to ensure that the firms get the maximum score of five.
The companies in the sample did not have the maximum score of five as the highest score for the companies in the Indian Stock Exchange had a CSR rating of four. Some of the companies with the best CSR ranking in India include the TATA Group as well Microsoft, Colgate Palmolive and the Infosys Ltd. These companies have the best scores within the last three years and incidentally the firms have among the highest firm value in the Indian Market. M. CSR, Sustainability, Ethics and Governance. International Journal of Corporate Social Responsibility, 3(13). Defoe, D. Arguments for and against Corporate Social Responsibility. bbc. co. uk/news/world/-30699787 [Accessed 09 09 2018]. Quarshie, A. , Salmi, A. Maximizing Business Returns to Corporate Social Responsibility (CSR): The Role of CSR Communication.
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