Task Description: Assessment task 3 requires the preparation of a full project proposal that should contain the following components:
This is an individual research task. You are required to demonstrate your understanding of the relevant body of works to a real-life business research. We expect you to read and reflect on at least twenty recent refereed journal articles on your topic supported by any other evidence or information that can help refine the problem of your research, formulate conceptual framework and the methods of data collection and analysis. Please see detailed guidelines about specific research requirements on the unit Moodle site. You can write 3000 words maximum for this assignment. The cover page and the list of references are not counted in the word limit.
Chapter 1- Background of the Study
Today, more organizations are aware of sustainable development (SD), corporate social responsibility (CSR), and non-financial reporting (NR) than a decade ago. As a result, organizations from all types of industries have made concerted efforts to ensure that they engage in various SD and CSR activities alongside the pursuit for their organizational objectives and profitability. According to Achua (2008), CSR involves the integration of various environmental and social concerns into the company’s operations, and a responsible interaction with stakeholders. It has been defined by some scholars and practitioners in the business world as an effective tool for ensuring sustainability in business operations. Moreover, some scholars (e.g. Asgary 2016; Chomvilailuk 2010) have claimed that CSR helps in the development of the company’s image as true and responsible corporate citizens because its essence exists in acting responsibly to its stakeholders.
The role of various financial institutions, especially banks in SD is paramount considering the contribution they make to the economic development of both local and international societies. In this context, the need for banks to engage in CSR both in developed and developing countries cannot be underestimated. Ideally, their activities should bear their concerns for the welfare of the society (Romero, 2015).
Motivated by some pieces of evidence that engaging in CSR can contribute to the longer existence of the organization, more organizations across various industry sectors are increasingly engaging in CSR. Moreover, various CSR models indicate that there is a trend of changing importance and application of CSR by most organizations and that today’s organizations are developing a sense of responsibility towards their stakeholders with the main objective of long-term sustainability and bottom-line benefits (Gali, 2016). CSR is no longer only aimed at the obvious objectives and instead, organizations today engage in CSR to build relationships, maximize profits, build company image and promote long-term responsibility among others. This means that the importance of CSR has evolved, and it is no longer only used exclusively as a tool for promoting the company’s image among consumers. Hence, a question that rises out of this realization is whether CSR has a contribution to the financial performance of organizations, and if so, how does CSR contributes to the financial performance or underperformance of the organization?
1.1 Statement of the Problem: Scholars including Kiran et al (2015) believe that the concept of CSR emerged in the 1950s. During the periods of 1971 to 2001, numerous studies were conducted on the concept of CSR and its impact on corporate performance. However, upon evaluating these academic works on CSR, Chomvilailuk (2010) and Kiran et al (2015) agree that there still exists conflicting ideas about the impact of CSR on corporate financial performance. While some studies such as Cheruiyot (2010) have found that CSR has some positive correlation with organizational financial performance, other researchers such as Wagner et al (2002) believe that CSR negatively impacts on the financial performance of the organization. Yet, other studies hold that there is no correlation between CSR and organizational financial performance (McWilliams & Siegel 2000). This lack of consensus among scholars over the impact of CSR on the financial performance of organizations is the motivating factor of the current study. There is no clear agreement on the relationship between CSR and the financial performance of firms, and this relationship may be positive, negative or neutral.
Moreover, Kiran et al (2015) found an insignificant positive correlation between banks’ financial performance and CSR. On the other hand, Aga et al (2012) concluded that there is a significant positive correlation between financial performance and CSR. Contrariwise, Iqbal et al (2012) found a negative correlation between CSR and financial performance of firms. Therefore, this corporate social responsibility assignment aims to resolve this conflict by identifying the role of corporate social responsibility in promoting the financial performance or underperformance of banks.
1.2 Aim of the Study : The aim of this corporate social responsibility assignment to investigate the impact of CSR on the financial performance of the banking sector
1.3 Objectives of this corporate social responsibility assignment
1.4 Research Questions
1.5 Justification of the Study: Huang (2014) argues that regardless of the nature of a study topic, a research study should have a justification stating the reason why it is important to carry out the investigation. Against this backdrop, this proposed study is important because it sheds more light to a business research area which has had a lot of conflicts and disagreements. According to Marquis (2011), the issue of CSR and its impacts on business is very contentious and the more inquiries over the matter the better. Drawing evidence from both qualitative and secondary data, the proposed study aims to seek more clarity on the issue of CSR and how it affects the financial performance of banks. This study is unique in the sense that whereas most studies on CSR rely on secondary data (e.g. Mohammad 2013; Ofek & Barley 2010; and Perez 2015), this study will concentrate on qualitative evidence from local banks to have the perception of bank managers and other practitioners in the financial sector on the impact of CSR on their organization’s financial performance. Moreover, considering the conflicting results from various scholars on the impact of CSR on firms’ financial performance, the proposed study will build an in-depth analysis of the issue in order to develop an evidence-based consensus over how banks benefit or suffer financially from CSR. Whereas the proposed study will focus on the banking sector, its results may be applied in other financial institutions such as insurance companies and micro-finance institutions that have the same business models as banks, thus contributing knowledge to a wider scope.
Chapter 2-Literature Review and Conceptual Framework
2.1 Introduction: The main purpose of this section of corporate social responsibility assignment is to describe the concept of CSR, the theories used in conceptualizing CSR and the strategies of CSR applied by banking institutions.
2.2 The Concept of CSR: A major breakthrough in the conceptualization of CSR was made by a study by Freeman (1984) when it evaluated the interaction between firms and the communities around them. The study led to the development of the stakeholder theory – currently used by scholars as a major theory for understanding CSR. According to Relano & Paulet (2012), the theory argues that stakeholder management enables firms to resolve social and ethical issues while meeting the demands of the stakeholders. Nonetheless, as argued by Ulah & Rahman (2015), there exists a difference between stakeholder issues and social issues because social issues exist in the context of local institutions, legislation, and regulations while stakeholder issues do not concern regulation or legislation.
Another important theory of CSR was coined by Carroll (1991), who used the pyramid analogy to explain an array of responsibilities and obligations that companies owe to the society. For instance, Carroll (1991) conceptualized CSR in four major approaches namely philanthropic, ethical, legal and economic responsibilities. Among the four approaches, Asgary (2016) says that organizations have always had their main focus on the economic approach, where they produce goods and services for purposes of profit maximization. This fulfils the organization’s responsibility to make profits for its shareholders. However, whereas profit maximization has always been the main focus of corporates, the business environment today challenges them to do more than profit maximization and engage in other practices such as being law-abiding (Chomvilailuk 2010).
Another important concept that helps in understanding CSR and how it is practiced by corporates is the agency principle, which explains the activities and costs involved in resolving conflicts of interests between agents and principles (Chomvilailuk 2010). According to Achua (2008), the theory of agency principle holds that the costs incurred as a result of conflicts of interest and both the agents and principles have an incentive for the reduction of these costs. Nevertheless, agency costs are a key element in explaining corporate donation – which is an important aspect of CSR (Brown et al 2008).
The study of the relationship between CSR and financial performance in this corporate social responsibility assignment can be understood from two perspectives. The first perspective involves understanding the short-run impacts of a firm’s engagement in CSR through the event study methodology (Romero, 2015). In the long run, scholars who have used this approach have emerged with mixed results, for example, Welch and Wazzan (1999) found no relationship between CSR and financial performance while Wright and Ferris (1977) found a negative relationship between CSR and financial performance. As earlier mentioned, these mixed results cause inconsistencies in understanding the impact of CSR on the financial performance of organizations.
The second approach involves an understanding of the relationship between some CSR and financial performance by evaluating the long-term financial performance of the firm through accounting-based performance measures. Interestingly, previous studies that have used this approach have also revealed mixed results, some revealing a negative correlation between CSR and financial performance while others revealing a positive correlation. For example, Waddock & Graves (1997) found a positive correlation between CSR and performance measures such as return on assets (ROA) while Aupperle et al (1985) found no relationship between CSR and risk-adjusted ROA.
Asgary (2016) argues that based on the stakeholder theory, it is not enough for organizations only to focus on satisfying their stakeholders or shareholders, but rather, the firm can engage in other CSR programs that promote the welfare of other non-financial shareholders because failure to do so, these shareholders may fail to support the organization’s vision.
Nonetheless, according to Achua (2008), CSR involves aiming for commercial success while honouring the ethical values and respecting the natural environment and the communities around. Chomvilailuk (2010) describes this as activities that promote the social good by considering activities that go beyond the legal responsibility of the firm as espoused in the law. Equally, Kiran et al (2015) assert that CSR is a choice by the firm to engage in sustainability activities that have substantial effects on the welfare of its social stakeholders. Hence, CSR is comprehensively considered a set of practices, policies, and programs that are integrated into a firm’s operations and considered in decision-making in order to ensure that the firm observes ethical practices, invests in the community, conserves the environment, obeys human rights, and upholds effective corporate governance (Romero, 2015).
2.3 CSR in the Financial Sector: There are numerous ways in which banks engage in CSR as documented by scholars. For instance, Kiran et al (2015) state that banks can make a commitment to investigate the environmental impacts of the projects they fund and ensure that they engage in ‘responsible lending’. Moreover, reports by Kiran et al (2015) indicate that banks today realize that being socially responsible is part of traditional banking and that the decisions they make during lending have a direct impact on the society and the environment.
As a result, banks have employed various social and environmental strategies while approaching sustainable development. According to Achua (2008), such strategies include ensuring that the companies that borrow money from them are not involved in activities that negatively affect the environment. They also ensure that they are accountable for all the environmental effects caused by their investments. Noteworthy, Kiran et al (2015) and Asgary (2016) argue that failure to adhere to environmental concerns expose the borrowers to various costs including a delay of regulatory procedures, fines, costs of cleaning up pollution, litigations and damaged assets among other costs. Such costs are passed on to the banks through loan defaults, decreased asset values which cause loss of collateral, increased liability and loss of reputation for funding failed projects (Chomvilailuk 2010).
Hence, as a CSR strategy, banks engage in responsible financing which stresses on social and environmental consequences of the products and projects they finance, rather than just considering the economic benefits they are likely to get from such investments (Romero, 2015). According to Achua (2008), this strategy also involves evaluating the social responsibility of the borrowers even as they migrate from traditional banking to technological banking. This is accomplished through effective records and data management of the projects with a specific focus on the social and environmental impacts of such investments based on the regulatory standards.
Chapter 3-Study Methodology
3.1 Introduction: Research methodology can be defined as the plan for conducting the research which details the specific strategies, methods, and philosophies upon which the inquiry will be based. The section below describes the research approach, philosophy, method, data analysis method and ethical considerations to be made during the proposed research.
3.2 Research Approach: Best & Khan (2016) describes a research approach as the approaches systematically taken to collect data, analyse them and use the analysed information to make conclusions about the research topic. Bryman & Bell (2015) agree that a research study can either take an inductive or deductive approach. The deductive approach involves validating existing theorem or frameworks while inductive approach entails the formulation of a new theorem from the available data (Elo & Kyngas, 2008). Moreover, according to Creswell (2017), the former approach is where general information is used to derive a more specific point in order to test a theorem or a hypothesis. On the other hand, the latter involves the use of specific knowledge to form more general conclusions (Gill et al, 2008). Nonetheless, both approaches can be used on both secondary and primary data to make conclusions that link to the aim of the study.
The aim of this study in this corporate social responsibility assignment is to explore how CSR impacts on the financial performance of banks. It proposes to collect both primary and secondary data and analyse them to establish the effects that CSR has on the financial performance of banks. Therefore, deductive research approach occurs to be the most appropriate research approach.
3.3 Research Philosophy: Research philosophy can be defined as the researcher’s belief on how data should be collected, analysed and used (Heaton, 2008). The current study proposes to apply the interpretivist research philosophy, where a phenomenon is assessed based on the perception of the people experiencing it. This study aims to explore how CSR impacts on banks’ financial performance. Therefore, it is important to get the perception and opinions of bankers on how the various CSR strategies the implement affects their organizations’ financial performance. The proposed study argues that in understanding the context within which each strategy is implemented, the bankers’ experiences can be used to develop a conclusion over how CSR activities impacts in the financial performance of banks. Equally, most CSR strategies involve the bankers’ engagement and key decision –making (Kiran et al, 2015), and therefore acquiring their perceptions and opinions will be of great importance to achieving the research objectives. Ultimately, this study strongly supports the use of interpretivist research philosophy.
3.4 Research Method : An academic research can be conducted through various methods, among them being qualitative, quantitative and mixed methods. According to Hitchcock (2012), the quantitative method entails testing the relationship between variables through statistical instruments and procedures. However, this method is commonly used in the presence of hypotheses to be tested (Gill et al, 2008). On the other hand, according to Best & Khan (2016), a qualitative research method is used to examine the subjective human experience of a phenomenon. It entails the use of non-statistical techniques to analyse data. Against this understanding, the current study aims to explore how CSR is used by banks to create financial benefits and improve financial performance. It seeks to understand the bankers’ point of view of the impact of CSR on the financial performance of banks. So, to understand these impacts from the experiences of individual bankers, the study aims to apply qualitative research method to develop a theory on the impacts of CSR on the financial performance of banks. According to Creswell (2017), subjective information gathered through qualitative research can enable the development of theory, thus justifying this study’s focus on acquiring qualitative data from bankers. However, the study will also rely on secondary data such as company reports, previous research, and other relevant data useful in supporting the qualitative data gathered from the bankers. Thus, the study will take a mixed method approach of both primary and secondary data.
3.5 Data Collection: Data collecting is an essential part of every research process. According to Creswell (2017), the data collection process plays an important role in the final outcome of the study because inaccurate data collection may lead to inaccurate results. In a research study, there can either be primary or secondary data. Primary data is data that is collected from live sources while secondary data is one that is collected from pre-existing sources such as books and journal articles (Bryman & Bell, 2015).
Best & Khan (2016) assert that in qualitative research, data is always sourced through observations, interviews, and documents and audio-visual materials. However, a common source of data in qualitative research interviews which can be conducted through face to face interactions, focus groups and groups (Gill et al, 2008). Specifically, there can be highly structured interviews where the interviewee uses predetermined questions or the interviews can be less structured (i.e. conversational) with open-ended questions. Against this backdrop, this study proposes to apply the semi-structured interview method of data collection, together with other secondary sources such as company reports and financial statements to support the qualitative data. The choice of semi-structured interviews herein is motivated by the assertions by Bryman & Bell (2015) that they enable flexibility during the data collection process to allow the researcher to have an in-depth inquiry into the matter. This qualitative approach is also justified by Creswell (2017) who argues that semi-structured interviews eliminate researcher bias because it gives the respondent a chance to reveal their true voice and perception of the topic area.
3.6 Research Sampling: The corporate social responsibility assignment proposes to target operations managers or senior managers of the respective banks. Three banks will be nominated for inclusion into the study. The researcher aims to seek permission from the HR departments of each bank before involving any staff. The aim is to target key personalities who have leadership and a say in decisions concerning CSR activities of each bank. Through simple random sampling, the study aims to end up with three senior bankers from each bank for interviews.
3.7 Data Analysis: The corporate social responsibility assignment aims to transform the primary data to useful conclusions through thematic analysis as an analytic tool. On the other hand, secondary data will first be subjected to screening to ensure they are valid and relevant for the proposed study. Afterward, both primary and secondary data will be synchronized and used to deduce meanings and answer the research questions.
3.8 Ethical Considerations: The corporate social responsibility assignment aims to make various ethical considerations during the entire process of the research. For instance, the researcher will distribute a consent letter to each participant for signing before engaging in the study. The consent letter will have details of the purpose of the study, its scope and context. Besides, all the relevant authorities will be informed of the study, its time frame and other important details of the study beforehand. Corporate social responsibility assignments are being prepared by our management homework help online experts from top universities which let us to provide you a reliable do my assignment help online service.
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