Corporate Social Irresponsibility of African Firms Across the Continent

Abstract

Within the context of Africa, the prevalence of poor institutional environments and its prioritisation of economic responsibilities create simultaneously the need for more socially responsible business practices, and the risk of more socially irresponsible episodes to be discovered. Despite there have been documentations of corporate social irresponsibility (CSI) (e.g. tax evasion, human rights abuse and bribery), there appears to be a lack of research quantitatively assessing the impact of CSI on shareholder value across the African continent. From the lens of stakeholder theory, expectancy violations and institutional voids, we argue that the interrelationship between stakeholder expectations, power and interests is of primacy to the firm and can exert influence on firms’ economic role in creating shareholder value in the macro environment. Using a large sample of 865 African companies across the only emerging markets in Africa (Egypt and South Africa) and representative frontier markets (Kenya and Nigeria) during 2009-2016, we find that firms avoiding CSI earn higher returns and the penalty for CSI is higher in countries with stronger institutional environments. The findings imply for investors and managers that even in the context of weak institutions, adherence to basic moral principles (i.e. avoiding bad) appear to be good business practice.