Effect of Corporate Social Responsibility on Performance of Manufacturing Firms in Kenya

Abstract

Due to intense competition for industrial products, markets are faced with social contestability based on environmental and health related externalities attributed to products and processes, and economic contestation from competitors. Manufacturing sector is characterized by various concerns which affect various stakeholders, who have become adept in holding companies to account for the consequences of their activities. Corporate Social Responsibility (CSR) has evolved from a theoretical concept to a complex managerial tool used to build a company’s reputation and enhance its competitive advantage hence currently an integral part of business strategy to enhance firm performance. The purpose of this study was to determine the effect of CSR on performance of manufacturing firms in Kenya. Manufacturing is a key driver of global trade and highly espoused in Kenya’s development plan. The specific objectives and hypotheses sought to examine and test the effect of firms’ sensitivity to multiple stakeholders comprising employees, customers, community and government on financial and non-financial firm performance. The control variable in this study is company size which is consistent with previous studies in the literature review. The study was anchored on stakeholder, resource based, social contract, social identity and slack resources theories. Descriptive survey research design was used to explain existing CSR phenomenon in relation to firm performance. The study population consisted of 853 manufacturing firms registered with Kenya Association of Manufacturers (KAM), from which 427 firms were selected in Nairobi and Athi River regions to constitute the sampling frame and 202 firms to constitute the sample by purposive sampling. Primary data was obtained by use of a self-administered questionnaire and secondary data obtained from organizations’ annual reports, journals, books, researches, theses, dissertations, articles and company websites by use of a similar questionnaire as used in primary data, after the response, to validate the primary data. Pilot test constituted of 20 respondents, where the research instrument was tested for validity and reliability. Regression analysis was used to test the relationship between CSR and firm performance by use of SPSS, where data was presented in descriptive and inferential statistics. The findings of the study revealed that customer, community and government relations have positive and significant effect on performance of manufacturing firms in Kenya. However, employee relations showed a positive but insignificant effect on performance of manufacturing firms in Kenya. It was further established that firm size had positive but insignificant controlling effect on the relationship between CSR and firm performance. The study recommends the enhancement of employee relations through health and safety, training and development, and staff welfare to maximize employee productivity. It recommends the promotion of customer satisfaction through product information, quality assurance and customer feedback to enhance customer loyalty and firm’s reputation to survive in the highly competitive market place. It recommends firms to engage in community relations through health and education, CSR projects and charity, and welfare initiatives to promote harmony with the society. It also recommends that firms maintain friendly business-government relations through self-regulation on ethical practices in addition to enforced government regulation. It recommends that manufacturing firms do invest in CSR activities as a strategy to actively engage with key stakeholders including employees, customers, community and government to create and sustain competitive advantage in the increasingly competitive market.