The Effect of Corporate Social Responsibility on Financial Performance of Large Manufacturing Firms in Addis Ababa, Ethiopia

Abstract

Abstract

Corporate Social Responsibility (CSR) is a concurrent issue in the world. It is the integration of social, economic and environmental aspects in business operations. The main aim of the investigation was to examine the effect of CSR practice on financial performance of large manufacturing firms in Addis Ababa, Ethiopia. In the study, to measure CSR, the dimensions such as, employee, customer, supplier, community, government and environmental-related practices of firms were used. Financial performance of large manufacturing firms was measured using ROA. Additionally, firm size was employed as a control variable to clearly understand the effect of CSR on ROA. The research was utilized explanatory research design and a quantitative research approach. The data obtained from 81 large manufacturing companies in Addis Ababa, Ethiopia. Stratified sampling method was applied to select the sample form 102 large manufacturing firms. Questionnaire and document analysis of audited financial statements served as data collection instruments. The study used multiple regression analysis model and Ordinary Least Square (OLS) parameters estimator. Based on the regression result, employee, community and government related CSR practice and firm size positively and significantly affect ROA. Suppliers’ related CSR practice has negative relationships and significant effect on ROA. Customers and environment related CSR activities have an insignificant effect on ROA. In general, large manufacturing firms are recommended to apply CSR initiatives to increase their productivity.

Key Words: CSR, Financial Performance, ROA, Large Manufacturing Firms