Effect of Corporate Social Responsibility on Performance of Commercial Banks Listed in Nairobi Stock Exchange.

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Martin Muchiri, Jotham Wasike & Gitau Muigai

Abstract

The interest on Corporate Social Responsibility (CSR) has risen to great heights within the banking sector in the last decade. Commercial banks have increasingly embraced CSR disclosure practice on education and environmental operations. The relationship between the CSR investments and the financial performance is however unknown. The main focus of this study was to examine the effect of CSR dimensions relating to education and environmental conservation on the performance of commercial banks listed in the Nairobi Stock Exchange. The paper employed desktop research by reviewing and analyzing audited published financial reports for the listed commercial banks in Kenya. The research was a survey of the 11 commercial banks listed by December 2017. CSR investments were measured using the monetary expenditure on social activities, while the financial performance was measured using net profit after tax. Data was analyzed using Karl Pearson correlation model to examine the relationship between the variables. The study analyzed data for the period 2012 to 2016 for all listed commercial banks. The study established that investments in CSR activities are positively related to financial performance of commercial banks; banks which embraced a consistent approach to investing in CSR were associated with high financial performance; customers have also become conscious of the firm's activities, and CSR focused banks gain loyalty from customers. It also emerged that CSR programs build the bank's reputation, hence increase market share which consequently lead to high financial performance. The study recommended that commercial banks and other institutions should consistently invest in activities that consider the interest of all stakeholders and that businesses should invest highly in education programs for the disadvantaged groups and environmental conservation programs as such investments result to high financial performance.

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