Effects of Corporate Social Responsibility on Firm Performance.

Abstract

For decades it has been practiced by commercial firms to offer aids in the form of Corporate Social Responsibility as one of the key determinants to enhance firms’ performance. Despite a great belief possessed by such firms on expected positive return from the practice, there is a great debate among scholars on the influence of Corporate Social Responsibility on firm performance. The existing strand of literature provides inconclusive findings and with limited awareness on the matter in Tanzanian context especially in the banking sector. The objective of this study was to examine the influence of Corporate Social Responsibility from the banking sector offered to Tanzanian society on the performance of registered banks in the Central Bank of Tanzania. The study employed the probit and fixed effects econometric models to establish empirical evidence on the influence of banking sector’s Corporate Social Responsibility on firm performance. A total of 20 registered banks by Central Bank of Tanzania were analyzed based on unbalanced panel data spanning from 2008 to 2019. The key finding revealed that, the likelihood of banks performance decreases with support offered by the banks to the society through Corporate Social Responsibility. The finding was consistent both in Corporate Social Responsibility offered to education and health sectors from both probit and fixed effects analytical methods. The Study concluded that the performance of banks is negatively affected by corporate social responsibilities offered to the society by the banks in both educational and health sector. The negative effect could be due to the extra cost incurred by the banks in offering such aids which adversely affect their performance. The finding has an implication to managers on reviewing and developing appropriate marketing strategies of their firms in order to achieve a better firm economic performance. Additionally, the study recommends firms to manage their Corporate Social Responsibility schemes by reviewing related policies based on cost benefit analysis to establish consistent and win-win Corporate Social Responsibility strategies so as to complement improvement of their performance when offering Corporate Social Responsibility to the society.