Relationship between Environmental Costs and Financial Performance of Oil and Gas Firms in Nigeria

Abstract

This study explored the relationship between environmental costs and financial performance of oil and gas firms in Nigeria for the period 2010 – 2019. The dependent variable and proxies for financial performance were return on assets, return on equity and earnings per share while environment al costs is the independent variable of the study and was measured by corporate social responsibility expenses. A sample of 5 firms was selected from the 11 oil and gas firms listed on the Nigeria Stock Exchange for the period of study. Secondary data were sourced from the annual reports and accounts of the selected firms and analyzed using Pearson’s Product Moment Correlation analysis. Findings from the analysis indicate that the relationship between corporate social responsibility expenses and return on a ssets was negatively weak and insignificant. It was also found that corporate social responsibility expenses of oil and gas firms has weak positive and insignificant associations with return on equity and earnings per share. In view of the findings of the study, we recommend that firm managers should avoid incessant investment in assets and invest only on those assets that will enable them achieve cardinal corporate objective of profit and wealth maximization for the firm owner. It was also recommended that firm managers should use more of equity financing in their capital structure. This will increase return on equity thereby boasting the firms’ corporate social responsibility performance. It was further recommended that the firm should repurchase some of its share floating around the Stock Exchange Market in order to increase the firms’ earnings per share and thus enhance corporate social responsibility performance of the firms.