Mpact of corporate social responsibility on the firm’s financial performance

Abstract

The concept of the corporate social responsibility of organizations has a significant interest in Pakistan over the last decade. While international data shows significant relationship between CSR and FP of the firms. This paper tries to explore the relationship between CSR &FP by taking the data from15 companies listed on Karachi stock exchange, using correlation analysis which is used to find the cause and effect of the relationship. CSR is the foundation to understand the responsibilities of organization towards the society where the organization executes their activities. FP plays the vital role to carry out the CSR activities as the strong financial performance results in provision of necessary and reasonable funds and investments to carry out their social activities. These CSR activities not only enhance the firm's social value and reputation but also the profitability as well. The study result shows that there is a considerable positive relationship between the CSR and Financial performance of the firm, and firms spending on CSR not only benefits from continuous long term sustainable development but also enjoy enhanced FP. century larger firms face large number of changes and challenges including the corporate social responsibility as being one of the key problems. It suggests the importance of understanding of the CSR by the organization towards the society which also impacts the financial performance of the firm. The CSR activities are treated as an investment not as a cost or expense where it shows the relationship between corporation and the stakeholders such as the customers, investors, employees and society as a whole. The business's purpose is not only to earn profit but the welfare of the society as well. Some studies have shown the positive correlation between the CSR and financial performance while other studies show the negative relationship between them. Each company performs differently for the implementation of CSR depending on different factors like the culture of the organization, size or the stakeholder demand. Corporate social responsibility is generally defined as while company is performing its core business operations, it considers and handles the influence of these operations on society, economy and atmosphere (10). CSR can be defined when a firm apply its rules and regulations, the welfare of its investors and society should be considered as its duty (7). This paper shows the impact of CSR on financial performance of the firms in 15 listed companies on Karachi Stock Exchange. Pakistan has a background of typical developing country with issues such as the low literacy rate, energy crises, lack of infrastructure, terrorism etc. The welfare role of the government is unrevealing under these conditions. Therefore, organizations have an opportunity to increase their welfare role for the society in exchange of better reputation and growth in business which ultimately leads to strong financial performance and high profitability. The society in general faces many problems in developing countries. So CSR should contribute to solve these problems and challenges. The purpose of this study is to find out the impact of CSR on firm's financial performance, the CSR cost and economic benefits. Impact of CSR on firm's profitability (net profit & total assets).