Introduction seven areas of CSR. Existing studies suggest

 

 

Introduction

This report
estimates the effect corporate social responsibility has on company’s
performances using an index based on company rank in seven areas of CSR. Existing
studies suggest two arguments; improves image and reputation and increases
competitive advantage through development of intangible assets.

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The report
studies whether CSR has a significant effect through analysis of six variables,
firstly through scatter graphs to detect any trends, followed by correlation
analysis. Secondly Annova analysis shows the effect of each industry on CSR and
performance. Thirdly regression analysis along with dummy variables allows us
to see the effect of multiple variables simultaneously and the individual
effect of industries. Finally creating an additional variable shows the effect CSR
has on individual industries.

 

 

 

 

 

Graph Analysis

The following
graphs show the relationship between CSR and performance measures MBV, ROCE and
Size.

The first graph indicates a strong
positive relationship between MBV and CSR. Implying the more a company engages
in CSR the higher their MBV. It also shows a ranking of industries by MBV.
Industry 1(manufacturing) has higher MBVs compared to industries 2(services)
and 3(primary). Meaning companies in the manufacturing industry may benefit
more from increased CSR compared to those in the other industries.

The second graph shows a similar relationship between ROCE
and CSR, meaning that the higher CSR the higher the ROCE. However this time
there isn’t any obvious pattern between different industries.

 

 

 

 

 

The final
graph doesn’t suggest any relationship between Size and CSR, implying there isn’t
an effect on size when engaging in CSR.

 

 

 

 

Overall CSR
seems to have a positive effect on performance hence positive relationship with
ROCE and MBV however doesn’t seem to show a pattern with size. So I will concentrate
on MBV as a measure of performance as it looks to have the strongest
relationship.

 

Correlation of CSR on Performance

The table shows Pearson’s
correlations between CSR and the performance variables. The correlation values
shows how strongly correlated each variable is and how an increase in CSR will
affect each variable.

For both MBV
and ROCE there is a strong positive relationship with CSR meaning that an
increase in CSR will result in an increase of MBV/ROCE. Both are also
significant as 0.000<0.05 meaning there's a statistically strong correlation. Size result however was insignificant meaning no significant correlation.   Effect of Industry on Performance and CSR To see if there's statistically significant difference between the industry means we use the one-way annova test. The significance value of 0.033<0.05 therefore there's a statistically significant difference between CSR means of the three industries. However this doesn't show which industries differ. Using the Post Hoc comparison test we can see which industries differ from each other. The significant values show there's a statistical difference of CSR means between primary and both manufacturing and services (0.020&0.017<0.005). Whereas there isn't a significant difference between manufacturing and services. This shows that Primary industry is less likely to engage in positive CSR compared to manufacturing and services. The same test for industry and MBV resulted in there being significant differences between the industries means and the Post Hoc test showed;   Showing that manufacturing industry had significantly higher MBVs compared to Services and Primary (0.000<0.005) who in turn showed no significant difference. This means that company's from the Manufacturing industry show better performance compared to Services and Primary. Overall the effect of industry on CSR and MBV shows the manufacturing industry engages in the most CSR and also has the higher MBVs.     Regression Analysis A multiple regression showed how company performance was effected by several variables (CSR, ROCE and Size). These variables significantly predicted MBV as the significance level 0.000<0.05. The multiple correlation coefficient=0.707 indicating a good level of prediction. The =0.500 meaning 50% of total variance in MBV is explained by the model.1   The table shows only CSR has a significant effect on MBV as 0.000<0.05. So overall a 1 rank increase in the CSR index increases MBV by 0.037. We can predict the MBV with the model: MBV=0.980+0.037*CSR         Dummy Variable Regression Analysis Creating two dummy variables shows the effect type of industry has on the performance (MBV). Regression analysis using the dummy variables was significant (0.000<0.05) and was a very good predictor as R value =0.943 while =0.882 meaning 88.9% of the variance in MBV is explained by the model.2 The table indicates all the variables except Size are statistically significant. The model can be shown as: MBV=0.578+0.038*CSR+0.002*ROCE+0.504*Manu+0.105*Serv This model shows on average a company from the manufacturing/services industry has a MBV 0.504/0.105 higher than a primary company. It also shows manufacturing industry on average has a MBV 0.399 higher than services. CSR also has a significant effect on performance however type of industry looks to have a greater effect.                 New Variable? To see effect CSR has on different industries we create a new variable (MBV/CSR) then run a regression with the dummy variables.  This shows if industry type effects how much CSR increases MBV. The model has R=0.757 meaning a good level of prediction and  meaning 57.4% of variance in the ratio is explained by the model.  The model shows that manufacturing industry has a ratio on average 0.014/0.010 more than primary/services. So this model concludes that the effects of CSR on performance are greater for companies in manufacturing compared to services and primary.   Conclusion Overall, results show that engaging in more corporate social responsibility improves company's performance. Roughly a 1 rank increase in CSR index increases MBV by 0.037 (better performance). This backs up previous theories stating higher CSR increases competitive advantage and thus performance. Evidence also suggest companies from the manufacturing industry have higher performance compared to services and primary. The report also suggests being in different industries can affect the amount CSR benefits performance, manufacturing industries exhibit greater benefits than services/primary. From an investment point of view companies with higher corporate social responsibility located in manufacturing industries seem to be the best performers. 1 Shown in Appendix table A. 2 Shown in Appendix table B.