Effect of Corporate Social Responsibility on the Financial Performance of Small and Medium Enterprises in Makueni Sub-County
DOI:
https://doi.org/10.53819/81018102t5294Abstract
Small and medium enterprises have a responsibility to generate profits, obey the law, be ethical and be good corporate citizens. These firms use a variety of tactics in an effort to improve their performance. The processes that enable an organization's financial performance are built through CSR. The general objective of this study was to examine the effect of CSR on the financial performance of SMEs in Makueni sub county. The study aimed to assess the impact of CSR economic activities, legal and regulatory frameworks, ethical issues, and philanthropy on the financial performance of SMEs in Makueni Sub County. The study was underpinned by the social capital theory, stakeholders’ theory, dynamic capabilities theory and the agency theory. The study adopted a descriptive research design. The target population was 741 SMEs registered in Makueni Sub County. A sample of 259 was selected for the study. Simple random sampling was used to select SMEs, from the list of SMEs provided by the Makueni County licencing office. Data was gathered through a questionnaire. The Statistical Package for Social Sciences was used to conduct correlation and regression analyses. Findings indicated a positive and significant influence of CSR economic activities on the financial performance of SMEs in Makueni sub county. There is a positive and significant influence of CSR legal & regulatory framework on the financial performance of SMEs in Makueni sub county. The study further found there is a positive and significant influence of CSR ethical issues on the financial performance of SMEs in Makueni sub county. Findings revealed a positive and insignificant association between of CSR philanthropy and financial performance of SMEs in Makueni sub county. The study concluded that businesses that make a conscious effort to maximize their earnings and engage in CSR activities often enjoy a distinct competitive advantage within their respective sectors. The study recommended that SMEs should engage in CSR activities. A robust CSR legal and regulatory framework is essential for businesses to not only operate ethically but also to maintain their financial stability and reputation within their respective industries. It is also recommended that SMEs should adhere to the laws governing the conduct of business. SMEs should ensure that the rights and dignity of their workforce are respected and protected. SMEs should adhere to human rights principles and apply them in their dealings with employees. SMEs should resolve their issues in an ethical way. Ethical conflict resolution methods can prevent prolonged disputes, minimize legal costs, and protect the reputation of the business.
Keywords: Economic activities, legal and regulatory framework, ethical issues, philanthropy, financial performance, SMEs, Kenya
References
Abbas, A., Rayyani, W. O., & Syahadat, E. F. (2021). The Tenet of Corporate Social Responsibility for Environment and its Practices in Indonesia. Asian People Journal, 1-10. https://doi.org/10.37231/apj.2021.4.1.230
Akhtar, N., & Zia, F. (2022). Legal and Regulatory Framework of Corporate Social Responsibility in Pakistan. Pakistan Languages and Humanities Review, 6(3), 152–159. https://doi.org/10.47205/plhr.2022(6-III)13
Barney, J. B., & Harrison, J. S. (2020). Stakeholder Theory at the Crossroads. Business and Society. SAGE Publications Ltd. https://doi.org/10.1177/0007650318796792
Bartolacci, F., Caputo, A., & Soverchia, M. (2020). Sustainability and financial performance of SMEs
Boateng, Dr. E. (2022). The Role Impact of Corporate Social Responsibility (CSR) In Building Small and Medium Enterprises (SMEs) Brand Image in Ghana. International Journal of Current Science Research and Review, 05(05). https://doi.org/10.47191/ijcsrr/v5-i5-17
Bu, M., Rotchadl, S., & Bu, M. (2023). A comparative analysis of corporate social responsibility development in the USA and China. Critical Perspectives on International Business, 19(1), 90–112. https://doi.org/10.1108/cpoib-09-2021-0073
Clement, R. W. (2005). The lessons from stakeholder theory for U.S. business leaders. Business Horizons, 48(3), 255–264. https://doi.org/10.1016/j.bushor.2004.11.003
Coelho, R., Jayantilal, S., & Ferreira, J. J. (2023). The impact of social responsibility on corporate financial performance: A systematic literature review. Wiley Online Library, 1535-1560. https://doi.org/10.1002/csr.2446
Colovic, A., Henneron, S., Huettinger, M., & Kazlauskaite, R. (2019). Corporate social responsibility and SMEs: Evidence from a transition and a developed economy. European Business Review, 31(5), 785–810. https://doi.org/10.1108/EBR-01-2017-0022
Fernando, J. (2013, July 18). Corporate Social Responsibility. Retrieved from Investopedia.com: https://www.investopedia.com/
Ikram, M., Sroufe, R., Mohsin, M., Solangi, Y. A., Shah, S. Z. A., & Shahzad, F. (2020). Does CSR influence firm performance? A longitudinal study of SME sectors of Pakistan. Journal of Global Responsibility, 11(1), 27–53. https://doi.org/10.1108/JGR-12-2018-0088
Jain, P., Vyas, V., & Chalasani, D. P. S. (2018). Corporate social responsibility and financial performance in SMEs: A structural equation modelling approach. Global Business Review, 17(3), 630–653. https://doi.org/10.1177/0972150916630827
Kabir, M. & Chowdhury, S. (2022). Empirical analysis of the corporate social responsibility and financial performance causal nexus: Evidence from the banking sector of Bangladesh. Asia Pacific Management Review. 10.1016/j.apmrv.2022.01.003.
Karanja, C. N., & Wanjiru, R. K. (2022). Effects of COVID-19 Pandemic on Small and Medium Enterprises in Kenya. International Journal of Business and Management Invention, 11(6), 31-39.
Kiyabo, K., & Isaga, N. (2020). Entrepreneurial orientation, competitive advantage, and SMEs’ performance: application of firm growth and personal wealth measures. Journal of Innovation and Entrepreneurship, 1-15. https://doi.org/10.1186/s13731-020-00123-7
Lopa, N. Z., & Ahmad, M. S. (2019). The Effects of Corporate Social Responsibilities on Financial Performance of Small and Medium Enterprises of Khulna City. Khulna University Business Review, 29–38. https://doi.org/10.35649/kubr.2017.12.12.4
Mähönen, J. (2020). Comprehensive approach to relevant and reliable reporting in Europe: A dream impossible? Sustainability (Switzerland), 12(13). https://doi.org/10.3390/su12135277
Mentor, M. (2023). The Effects of Corporate Social Responsibility on Financial. Retrieved from stars.library.ucf.edu: https://stars.library.ucf.edu/honorstheses/47
Mitnick, B. M. (2021). The Theory of Agency Redux. Academy of Management Discoveries. Academy of Management. https://doi.org/10.5465/amd.2019.0136
Mohyletska, U. (2023). The effect of CSR on financial performance. Retrieved from Ecohz: https://www.ecohz.com/
Muigua, K. (2018). Harnessing the Blue Economy: Challenges and Opportunities for Kenya. kmco.co.ke, 1-13.
Oduor, G. O., Omiti, J. M., & Otieno, D. (2023). Impact of Corporate Social Responsibility Initiatives on Financial Performance of Small and Medium Enterprises in Kenya. Journal of Economics and Public Finance, 9(1), 1-13.
Oduro, S., Adhal Nguar, K. D., De Nisco, A., Alharthi, R. H. E., Maccario, G., & Bruno, L. (2022, March 10). Corporate social responsibility and SME performance: a meta-analysis. Marketing Intelligence and Planning. Emerald Group Holdings Ltd. https://doi.org/10.1108/MIP-05-2021-0145
Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74–95. https://doi.org/10.1177/0974686217701467
Sameer, I. (2021). Impact of corporate social responsibility on organization’s financial performance: evidence from Maldives public limited companies. Future Business Journal, pp. 1-21. https://doi.org/10.1186/s43093-021-00075-8
Schnurbein, Georg & Seele, Peter & Lock, Irina. (2015). Exclusive Corporate Philanthropy: Rethinking the nexus of CSR and Corporate Philanthropy. Social Responsibility Journal. accepted. 1-17. 10.1108/SRJ-10-2014-0149.
Shiyab, W., Ferguson, C., Rolls, K., & Halcomb, E. (2023). Solutions to address low response rates in online surveys. European Journal of Cardiovascular Nursing, 22(4), 441–444. https://doi.org/10.1093/eurjcn/zvad030
Slabá, M. (2020). Corporate social responsibility: Motivation, perception, and activities among SMEs in the Czech Republic. Quality - Access to Success, 21(177), 68–73.
Sundaram, A. K., & Inkpen, A. C. (2004). Stakeholder theory and “The corporate objective revisited”: A reply. Organization Science. INFORMS Inst. for Operations Res. and the Management Sciences. https://doi.org/10.1287/orsc.1040.0067
Szegedi, K., Németh, T., & Körtvési, D. (2023). Employer Branding in the Fashion Industry: CSR Actions by Fashion SMEs. Sustainability (Switzerland), 15(3). https://doi.org/10.3390/su15031827
Van, & Nguyen. (2019). Corporate Social Responsibility and SMEs in Vietnam: A Study in the Textile and Garment Industry. Journal of Risk and Financial Management, 12(4), 174. https://doi.org/10.3390/jrfm12040174
Visser, W. (2008). Corporate Social Responsibility in Developing Countries. Oxford: Oxford University Press. https://doi.org/10.1093/oxfordhb/9780199211593.003.0021
Yamane, T. (1967). Statistics, An Introductory Analysis, (2nd ed) New York: Harper and Row.
