Does Corporate Social Responsibility Affect the Financial Performance of the Manufacturing Sector? Evidence from an Emerging Economy

Jacob Cherian,Nguyen Khuong,Muhammad Sial,Phung Thu,Thao Nguyen-Trang,Muhammad Umar

doi:10.3390/su11041182

Abstract

The present study analyzed the impact of corporate social responsibility (CSR) reporting on the financial performance of Indian companies. It used secondary data from 50 manufacturing companies over the period of fiscal years 2011 to 2017. The results suggested that there exists a significant relationship between the performance of Indian companies and their CSR. The CSR not only improves the firm’s social value and reputation but also improves profitability and performance. According to the results, return on assets is significantly determined by corporate governance, customers, products, number of employees, and board size. The customer has a negative impact on return on assets (ROA). The relationship between return on equity and independent variables is the same as the relationship between ROA and independent variables. Corporate governance and product positively impact ROE, but the relationship between customers, number of employees, and board size are negative. Corporate governance and product positively impact return on capital employed (ROCE), but the relationship between customer and the number of employees is negative. Education has positive impact on profit after tax (PAT) and profit before tax (PBT), but the PAT relationship between environments is negative. Corporate governance and product positively impact PBT. In general, we concluded that in India, socially responsible corporations perform better and vice versa.

Highlights

Corporate social responsibility (CSR) has become an essential component in general business processes which contributes to the achievement of human development goals by offering activities associated with social, economic, and environmental welfare
Studies on the relationship between corporate social responsibility (CSR) and financial performance in India are mainly focused on the banking sectors [27,28,29] and few on CSR and financial performance [30], but this study examined entrepreneurial commitment and business performance
Data were collected from secondary sources, i.e., money control official websites and annual reports of the manufacturing companies to find the CSR activities performed by the different areas of the sector

Summary

Introduction

Corporate social responsibility (CSR) has become an essential component in general business processes which contributes to the achievement of human development goals by offering activities associated with social, economic, and environmental welfare. There are several strategic benefits in reporting on companies’ social responsibility efforts; for example, industry-level CSR spillovers and own-firm CSR activities are identified as fuel to firm reputation [1]. CSR can bring benefits in terms of risk management, cost savings, access to capital, customer relationships, human resource management, and innovation capacity. It encourages more social and environmental responsibility from the corporate sector at a time when the crisis has damaged consumer confidence and the levels of trust in business. It shapes the economic, social, and environmental future of the country [2]

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