Examining the Relationship between Corporate Social Responsibility and Financial Performance of Manufacturing Companies in Tigray Regional State, Ethiopia

Abstract

Recently the concept of corporate social responsibility (CSR) is being
discussed globally. Previous studies investigated the relationship between CSR
and corporate financial performance (CFP) and findings show varied results. In
this study, we explore and test the relationship between financial performance
and social responsibility activities undertaken by private manufacturing firms
in Tigray Regional State, Ethiopia. We used survey instruments to collect data
from 34 firms over a period of three years. Then, using empirical methods we
tested the hypothesis of the direction of the relationship between CSR and
CFP. Findings indicate that CSR is positively related to better financial
performance, as represented by ROA, ROE, and ROS. This relationship is
statistically significant at the p<0.01 level of significance, supporting the view
that socially responsible firm performance can be attached with achieving
higher financial benefits. Hence, firms should recognize and instill CSR
initiatives into their corporate culture and business operations because
increases in CSR investments can lead to higher CFP while balancing the
needs of their internal and external stakeholders.