The Impact of Corporate Social Responsibility (CSR) on the firms’ Financial Performance and Value Creation: the case of Publicly Listed firms in the United Arab Emirates
Date
2017-05
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Publisher
The British University in Dubai (BUiD)
Abstract
CSR is the Corporate Social Responsibility of a business which includes the economic, legal, ethical, and discretionary expectations that society has of corporate at a given point in time. Several studies have sprung out to develop investment criteria in relation to a spectrum of CSR practices, such as corporate governance, environmental and societal ethical issues. Empirical analyses of the relationship among corporate social responsibility (CSR) and financial performance (FP) initiated before about thirty years ago, and the findings of these analyses still in contention. These studies suffer from several limitations in the sense they were unable to view CRS as a vehicle for a high financial performance (FP) and also value creation. Thus, the aim of this thesis is to extend our understanding of the CSR determinants those contribute to financial performance and value creation of the firms publicly listed in United Arab Emirates (UAE).
This research carried out an exhaustive literature research with a focus on contemporary academic research in the field of CSR practices and financial performance and value creation in order to examine the main theories and seminal authors from the following aspects: origins of CSR notion, classification and development of its definition, determinants of CSR, evolution of studies examining the relationship among CSR and financial performance.
This research was able to advance the existing literature by classifying the CSR practices into 4 groups and identify 97 CSR determinants/questions; these groups are including: Corporate Governance (CG) CSR practices; Economic (EC) CSR practices; Environment (ENV) CSR practices; and Social (S) CSR practices. The study also put forward an integrated framework for assessing the financial performance and the value creation of the firms through CSR practices. The most important CSR practices were evaluated for their potential to value creation through questionnaires in the firms studied. Several statistical methods were used to analyze the data.
The results demonstrated that only “Economic Value - ECN1” is associated with “Stakeholder Relationships - VC2”, while “Wealth Distribution - ECN2” is associated with “Reputation of the firm - VC1”. On the other hand, “Environmental Practices - ENV1” is associated with “Price to Book Ratio -PB”, while “Environmental Policies - ENV2” is associated with both “Price to Book Ratio - PB” and with “Reputation of the firm - VC1”. Also, “Reputation of the firm - VC1” is associated with “Share Price - SP”.
The study observed that the CSR practices of the UAE firms in their current structure are not the significant predictor of their profits with comparing to other important variables such as debt ratio, origin of the firm, firm growth and firm size.
However, involvement in CSR activities should be happened in simultaneous with other variables that have a major influence on firms’ Financial Performance. This study found a positive association between UAE firms’ CSR practices and their Financial Performance “Share Price (SP)”.
The results of this research have important practical and theoretical implications. In practical, the research results revealed that decision makers should put more resources and efforts on their CSR practices as their firms will be rewarded by their stakeholders and the long-term profitability. In theoretical, further research should aim to develop further CSR determinants and confirm the association proposed this study framework.
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Keywords
Corporate Social Responsibility (CSR), Financial Performance (FP), value creation, United Arab Emirates (UAE)