Corporate social responsibility and financial performance: Evidence from the Johannesburg Stock Exchange, South Africa

Elda Du Toit,Karabo Lekoloane

doi:10.4102/sajems.v21i1.1799

Abstract

Background: Stakeholders are increasingly concerned whether the companies they are involved with act in a socially responsible way. However, stakeholders like employees and shareholders also have a direct financial interest in those companies and need to be assured that company actions bring forth some financial benefit.Aim: The research investigated one of the main questions surrounding the concept of corporate socially responsibility, namely whether a company’s investment in and effort towards corporate social responsibility results in improved financial performance. The purpose of this study was to narrow the gap in the body of knowledge in relation to corporate social responsibility and its relationship to financial performance.Setting: This research investigated whether there was a relationship between being listed on the Johannesburg Stock Exchange (JSE) Socially Responsible Investment (SRI) Index and financial performance. The unit of study comprises 885 company-years of companies listed on the JSE over the period 2009–2014.Methods: Logistic regression was used to find evidence of a relationship between a listing on the JSE SRI Index and financial performance.Results: It is evident that there was no real relationship between inclusion on the JSE SRI Index and financial performance, but there was a direct relationship between the size of a company and having a listing on the JSE SRI Index.Conclusion: A listing on the JSE SRI Index does not have a clear and direct impact on financial performance, but it appeared that larger companies are perhaps better able to invest in corporate social activities and are, as a result, more likely to be listed on the JSE SRI Index.

Highlights

The issue of corporate social responsibility remains increasingly relevant
According to Vaughn and Ryan (2006), good corporate governance practices are of particular importance in emerging economies such as the Brazil, Russia, India, China and South Africa (BRICS) countries, where foreign investment is needed for economic growth
To establish the tone of prior research on corporate governance or corporate social responsibility and financial performance, this study investigated a sample of more recent studies on the topic

Summary

Introduction

The issue of corporate social responsibility remains increasingly relevant. Society is continuously bombarded with news about natural disasters all over the world and the related reports of humanity’s negative impact on the earth in terms of climate change, dwindling natural resources and the effect of waste and pollution on the environment. Many stakeholders have a direct financial interest in companies and need to be assured that the companies’ actions bring some financial benefit. According to Vaughn and Ryan (2006), good corporate governance practices are of particular importance in emerging economies such as the Brazil, Russia, India, China and South Africa (BRICS) countries, where foreign investment is needed for economic growth. One reason these authors, together with Baskin (2006), cite for South Africa’s economic success as part of the African continent is its leadership in corporate governance reforms. Stakeholders like employees and shareholders have a direct financial interest in those companies and need to be assured that company actions bring forth some financial benefit

Objectives

Methods

Results

Conclusion