CSR Expenditure and Company Performance: Charity or Signal? Evidence from Indonesia

Erna Widiastuty,Noorlailie Soewarno

doi:10.12776/qip.v23i3.1273

Abstract

Purpose: The purpose of this study are: first, to investigate CSR expenditures made by public companies in Indonesia are whether aimed at the charity, and second, whether CSR expenditure is related to the corporate’s performance in the future.Methodology/Approach: The samples are taken from 53 companies registered at the Indonesia Stock Exchange. Measurement of CSR expenditure uses monetary unit because CSR expenditure is the actual expenditure of the company. Company performance variables use ROA and CFO.Findings: The result indicates that CSR expenditures by companies in Indonesia are aimed at charity and are not related to their future performance. In addition, the CFO is also not related to CSR expenditure. This finding indicates that the expenditure of corporate CSR in Indonesia is only limited to fulfilling corporate social responsibility to the community without expecting repayment and to fulfill applicable regulatory obligations. Thus the resulting decision is a charity decision, not a signal.Research Limitation/implication: Sample in this study is limited to only company that reports CSR expenditure data in its annual report. The problem is that this disclosure is not mandatory in Indonesia so we cannot put all of public companies into our study. Our findings must be interpreted with this sample limitation problem.Originality/Value of paper: Our study contributes to understanding of motives of corporation in CSR spending. Corporations that operate in Indonesia are not only local corporations. Some are foreign companies that operate in Indonesia. Even though this Indonesian-based foreign corporation has its CSR program running in Indonesia, the program actually made by its home office abroad. While the CSR activity is used as signal in the home country, the purpose is not the same in Indonesia.

Highlights

The debates whether corporate social responsibility (CSR) activities conducted by corporates related to philanthropy or reflecting corporate performance in the future are still not reaching inclusive conclusions until now (Lev, Petrovits and Radhakrishnan, 2010; Hong, Kubik and Scheinkman, 2012; Nollet, Filis and Mitrokostas, 2016; Bose, Podder and Biswa, 2017; Danielli, Bini and Giunta, 2013; Lys, Naughton and Wang, 2015; Chen, Feldman and Tang, 2015; Rhou, Singal and Koh, 2016; Supriyadi and Tjahjadi, 2017)
This study provide evidance First, CSR expenditures by Indonesia corporations have charity motive
Corporate performance is proxied by viewing at the total return on assets (ROA) since it describes the level of management effectiveness in generating profit using existing corporate assets

Summary

Introduction

The debates whether CSR activities conducted by corporates related to philanthropy (charity) or reflecting corporate performance (signals) in the future are still not reaching inclusive conclusions until now (Lev, Petrovits and Radhakrishnan, 2010; Hong, Kubik and Scheinkman, 2012; Nollet, Filis and Mitrokostas, 2016; Bose, Podder and Biswa, 2017; Danielli, Bini and Giunta, 2013; Lys, Naughton and Wang, 2015; Chen, Feldman and Tang, 2015; Rhou, Singal and Koh, 2016; Supriyadi and Tjahjadi, 2017). Friedman (1970), Galaskiewicz (1991), Brammer and Millington (2008)’s preference to not supporting CSR activities incurred by corporates is caused by the argument that, based on their functions, managers are those who are responsible for increasing the prosperity of shareholders, not running CSR activities that are supposed to run by the government Shifting from those who do not support, Fombrun (2005), Brammer, Brooks and Pavalin (2006), Weber et al (2008), Hoopwood (2009) stated that there is a positive relationship between CSR activities and corporate performance. This will attract investors and increase the legitimacy of the corporate (Bowen, 1953; Servaes and Tamayo, 2013) and certainly have an impact on improving corporate performance in the future (signal) (Danielli, Bini and Giunta, 2013; Lys, Naughton and Wang, 2015; Rhou, Singal and Koh, 2016; Wang and Sarkis, 2017; Esteban-Sanchez, De la Cuesta-Gonzalez and ParedesGazquez, 2017)

Objectives

Methods

Findings

Conclusion