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Dissertation

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Corporate Social Responsibility (CSR) and Corporate Financial Performance
(CFP): Kuala Lumpur Stock Exchange (KLSE)
Name:
Institution:
Supervisor:
Date:
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Table of Contents
List of Figures ............................................................................................................................. 3
List of Tables .............................................................................................................................. 3
List of Abbreviations .................................................................................................................. 4
Abstract ....................................................................................................................................... 5
CHAPTER ONE ............................................................................................................................. 6
Introduction ................................................................................................................................. 6
1.1 Importance of Corporate Social Responsibility ................................................................ 6
1.2 Research Background ....................................................................................................... 7
1.3 Problem Statement ............................................................................................................ 8
1.4 Research Objectives .......................................................................................................... 8
1.5 Research Questions ........................................................................................................... 9
1.6 Dissertation Structure ........................................................................................................ 9
CHAPTER TWO .......................................................................................................................... 11
Literature Review...................................................................................................................... 11
2.1 Definition of Key terms .................................................................................................. 11
2.2 Corporate Social Responsibility in Malaysia .................................................................. 12
2.3 Theories and Models of Corporate Social Responsibility .............................................. 14
2.4 Critical Review of Empirical Studies ............................................................................. 18
2.5 Hypothesis Development ................................................................................................ 21
2.6 Conceptual Framework ................................................................................................... 22
CHAPTER THREE ...................................................................................................................... 23
Research Methods and Design .................................................................................................. 23
3.1 Research Design.............................................................................................................. 23
3.2 Descriptive Design .......................................................................................................... 24
3.3 Data Collection Procedure .............................................................................................. 25
3.4 Sampling ......................................................................................................................... 26
3.5 Data Accessibility ........................................................................................................... 27
3.6 Data Validity ................................................................................................................... 27
3.7 Regression Analysis ........................................................................................................ 28
3.8 Data Analysis Strategy .................................................................................................... 28
3.9 Ethical Issues .................................................................................................................. 28
3.10. Empirical Formulae ..................................................................................................... 29
CHAPTER FOUR ......................................................................................................................... 30
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Results and Discussion ............................................................................................................. 30
4.1 Descriptive Statistics ....................................................................................................... 30
4.2 Pearson Correlation Analysis .......................................................................................... 31
4.3 Univariate Analysis ......................................................................................................... 33
4.4 Regression Model ........................................................................................................... 33
4.5 Discussion ....................................................................................................................... 35
4.6 Hypothesis Testing.......................................................................................................... 38
CHAPTER FIVE .......................................................................................................................... 39
CONCLUSIONS AND RECOMMENDATIONS ................................................................... 39
5.1 Conclusion ...................................................................................................................... 39
5.2 Research Objectives ........................................................................................................ 40
5.3 Recommendations ........................................................................................................... 42
5.4 Limitations ...................................................................................................................... 43
5.5 Future Direction in Research .......................................................................................... 44
CHAPTER SIX ............................................................................................................................. 45
List of References ..................................................................................................................... 45
List of Figures
Figure 1: Carroll’s Pyramid Model ............................................................................................... 17
Figure 2: Conceptual Framework ................................................................................................. 23
List of Tables
Table 1: The sample...................................................................................................................... 26
Table 2: Descriptive statistics ....................................................................................................... 30
Table 3: Pearson Correlation Analysis ......................................................................................... 31
Table 4: Univariate Analysis of Variance ..................................................................................... 33
Table 5: Regression Model ........................................................................................................... 33
Table 6: Variables Regression Model ........................................................................................... 34
Table 7: Hypothesis Testing ......................................................................................................... 38
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List of Abbreviations
CFP Corporate Financial Performance
CSR Corporate Social Responsibility
KLSE Kuala Lumpur Stock Exchange
ROA Return on Assets
ROE Return on Equity
PLC Public Listed Company
BM Bursa Malaysia
SVT Shareholder Value Theory
REIT Real Estate Investment Trust
IPC International Petroleum Corporation
UK United Kingdom
USA United States of America
WHO World Health Organization
GLC Government–Linked Company
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Abstract
Corporate Social Responsibility (CSR) is a field that has numerous contested issues due to its
developing nature. In Malaysia, the context currently references case studies from other countries
as it is yet to gain full implementation mainly due to socio-economic factors and ethnicity.
However, there have been commendable efforts by Public Listed Companies (PLCs) and small
and mid-sized organizations especially after the “Silver Book” of 2005 and Bursa Malaysia
requirement that all PLCs must disclose their CSR activities and frameworks. PLCs participating
in Kuala Lumpur Stock Exchange (KLSE) are hence practicing CSR activities; that is used to
determine whether there exists a relationship between CSR and Corporate Financial Performance
(CFP), the major goal of this research exercise. The listed companies on KLSE are deemed to
have good CSR practices where evaluation has been done to examine whether that impacts their
financial performance.
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CHAPTER ONE
Introduction
1.1 Importance of Corporate Social Responsibility
Lindgreen and Swaen (2010) asserted that in nearly all academic disciplines, the study of CSR is
at crossroads. The general perception encompasses management of business enterprises while
also maintaining an essence and purpose of an organization in the society. Due to this status,
implications that encompass philosophy, business ethics, economics and law emerge (Lindgreen
& Swaen, 2010). A business organization is morally mandated to ensure the welfare of the
environment in which it operates regardless of whether there are direct impacts caused such as
pollution and depletion of naturally-occurring resources.
According to Okoye (2009), in any civilized society governed by rule of law, there is a societal
expectation that business organizations need to conduct themselves ethically and responsibly.
Notably, a bigger responsibility is rested upon business that have a direct impact on the
environment which leads to pollution and/or pollution of the environment. For a business
organization, corporate social rectitude generally embodies moral conduct of a business in a
manner that upholds the welfare of the society.
It is hence clear that being socially responsible entails the ability of the business to meet social,
ethical and legal expectations in a manner that upholds the welfare of the environment. In
addition, ISO 26000 outlined seven core subjects which encompass social responsibility. They
are; organizational governance, human rights, labor practices, community involvement and
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development, consumer issues, and fair operating practices (Okoye, 2009). In this light, are listed
companies in Kuala Lumpur Stock exchange able to meet these expectations as well as other
demands as outlined herein?
1.2 Research Background
As earlier affirmed, CSR varies from one country to another. It has been established that is
actually influenced by a number of factors such as; education levels, religion, demographic
profile, and income levels among others (Husted, Allen, 2006). It is actually clear that a business
cannot claim to meet CSR responsibilities without first learning about the current needs of a
particular region. More so, the country status can also greatly influence it. For instance, the US,
first instituted it in 1776 and hence has advanced practices that constitute CSR (Husted, Allen,
2006). Due to this nature, what comprises of CSR may vary from one country to another.
In support of the above, Malaysia has a history that may not be considered healthy when
compared to other countries such as Switzerland and USA. In the country, it began in the form of
small contributions which were greatly influenced by religion and racial motivations (Husted,
Allen, 2006). There were no proper rules and legal frameworks that demanded effective CSR
strategy. However, over time, there are changes that have been experienced majorly due to
influence that rise from the West. More so, the focus of the government on CSR has also hugely
impacted the culture which is now getting deeply rooted. A good example is Silver Book which
was launched by a government-linked Company (GLC), which has since then been providing
organizations with scorecards and guidelines on how to realize effectively in line with country’s
current needs (Husted, Allen, 2006).
An additional measure that contributed greatly to focus on CSR is the move by Bursa Malaysia
which demanded that every organization must present a CSR framework before being listed a
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public listed company (PLC). This move focused on four major areas which are, environment,
community, market place and work place. A more specific measure enacted in 2007, required
that organizations must be able to disclose their CSR practices which has led to very positive
results (Perrini, Russo, Tencati & Vurro, 2011). However, it has been contested whether the CSR
practices adopted by the public listed companies actually meet the CSR needs of the 21
st
century
in line with international demands. From this view, one may highlight that CSR in Malaysia has
not been able to be perceived as a critical business culture.
1.3 Problem Statement
Peloza and Papania (2011) affirmed that the perceived relationship between CSR and Corporate
financial performance (CFP) is changing and hence there is an urgent need for an informed
attempt to evaluate the phenomenon. There are changing dynamics in the entire field of
corporate social responsibility and hence new trends need to be examined through research.
More importantly, there is limited research that has tried to examine the relationship between
CSR and CFP while examining public listed companies in Malaysia. This means that more
research is needed so that the current existing relationship and trends can be evaluated.
1.4 Research Objectives
1. To examine the relationship between Community development and financial
performance (ROA)
2. To examine the impact of Waste management and financial performance (ROA).
3. To examine the relationship between Carbon mitigation and financial performance
(ROA)
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1.5 Research Questions
The following research questions will be addressed by the research
1. Is there a relationship between community development and financial performance?
2. Is there an association between waste management and financial performance?
3. Is there a relationship between carbon emission mitigation and financial performance?
4. What is the nature of relationship between corporate social responsibility activities
outlined above and corporate financial performance?
1.6 Dissertation Structure
In order to provide the right context in which the research’s data is collected, analyzed and
interpreted, the first chapter has clearly outlined several aspects and attributes of the general
topic while pointing out the most sincere aim of this research. In addition, the chapter also looks
into motivation of the study, research objectives, background information, problem statement,
purpose statement, importance and benefits of the study, assumptions, limitations, and theory
that has informed the overall research objective. Furthermore, the chapter also outlines the
research questions that are addressed by the research project.
Chapter two looks into existing theory and practice that exists in relation to the research aim. It
will comprehensively address existing frameworks that not only gives an agreeing view but also
an opposing view. That will enable the research process to focus on all general and specific
issues relating to the research exercise. Specifically, the chapter will dig into previous researches
that have focused on CSR as well as Corporate Financial Performance not only in Malaysia but
also other countries. The relationship between the previous researches’ outcomes and the
question to be addressed by the research exercise will also be determined. Additionally, the
chapter will also look into definition of key terms as they relate to CSR and business
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performance. Furthermore, the chapter will evaluate models and conceptual frameworks that
have been proven through empirical researches. More importantly, the chapter will facilitate
development of hypothesis after critical examination of the existing literature.
Chapter three outlines the most important part of the research process. First, the research design,
paradigm, and methodology will be looked into in a manner that will most effectively address the
overall research question. Additionally, research methods, data collection procedures, sampling,
and data analysis methods evaluated critically. Further, ethical issues that apply to data access,
collection and analysis will as well be evaluated. It is of paramount importance to assert that data
collection is the most critical part of a research exercise as it is normally at the center of the
whole exercise. Careful considerations of approaches and frameworks adopted is key so that
valid and updated data can be garnered, analyzed and interpreted.
Finally, chapters four and five will present data results, discussion, interpretation and conclusion.
The data collected is analyzed using e-views as an applicable statistical tool to data that is non-
uniform and unstructured. Regression analysis is used in determining the relationship between
the established variables. Chapter four will tabulate statistical values accessed and those
calculated from data available. It will also discuss the data tabulated while testing it against the
hypothesis. Chapter five will offer a more detailed discussion of the data. It will also offer
recommendations, limitations, and directions of future research.
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CHAPTER TWO
Literature Review
2.1 Definition of Key terms
2.1.1 Environmental Conservation
This refers to efforts by an organization to ensure that the sanctity of the environment has been
upheld through being directly involved in various activities such as tree planting and waste
management (Esa & Ghazali, 2012). In Malaysia, various organizations such as Sony Malaysia
have widely been involved in such activities. Esa and Ghazali et al (2012) established a positive
association between organizational environmental conservation efforts and ROA.
2.1.2 Mitigation of Carbon Emission
The terms refers to industrial methods and measures employed by an organization to curb the
levels of carbon being emitted to the atmosphere (Esa & Ghazali, 2012). United Nations
Environmental Program is among various bodies and agencies that have been advocating for
mitigation of carbon gases being emitted to the atmosphere which have led to effects such as
global warming. Though Malaysia have companies that have been adhering to this call, most
have no clear strategies to mitigate the carbon levels (Esa & Ghazali, 2012). There have been
protests against a proposed coal plant which indicates that the society is becoming conscious of
environmental hazards associated with carbon emissions. Esa and Ghazali et al (2012)
established that there is no association between reduction of carbon emission and ROA.
2.1.3 Society Welfare
According to Weintarb (2007) society welfare refers approaches employed by an organization to
ensure that the society’s expectations are being met. He noted that social welfare has a positive
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relationship with ROA. Social welfare may encompass strategies such as civic education and
corporate giving in a manner that meets the expectations of the society. Due to requirements
made by Bursa Malaysia, organizations have been meeting society expectations through a
number of ways such as funding disease control initiatives, facilitating eco-programs, and
promoting educational achievements for the less privileged.
2.1.4 Return on Assets (ROA)
According to Hamid, Atan & Saleh (2014), ROA is a term that refers to the indicator of the
financial health of a particular firm. The authors pointed out that CSR and ROA have a positive
relationship. It also indicates the internal efficiency of an organization. It will be used as the
basis of evaluating the financial performance of the PLCs.
2.2 Corporate Social Responsibility in Malaysia
According to Abdulrazak and Ahmad (2014), CSR in Malaysia has only been impacted by CSR
activities despite its initiation dating back to 1980s. They note that there is an awareness of
importance by all stakeholders. As was earlier pointed out, there are two major milestones that
have taken place in the country. First, ‘Silver Book’ in 2005 led to setting of principles that are
guidelines that are used in offering guidelines for the government linked companies. The other
milestone is the Bursa Malaysia- the Malaysian stock exchange which made it mandatory for all
public listed companies to disclose their CSR activities. Though these milestones helped proper
the CSR industry, it is imperative to point out that it is considered lagging when compared to
other practices adopted by other countries such as the USA.
According to Abdulrazak and Ahmad (2014), Malaysia is a Muslim majority country which
means that beliefs, norms, culture, and interpretation of events is highly dependent on the culture
which is of Asian origin. For instance, there are interventions that may not apply in the country
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but can apply in the western countries. According to Maamoun (2013), due to globalization,
numerous multinationals have been able to penetrate the market and hence bringing with them
foreign social beliefs that have since been taking root in the country. It is paramount to point out
that there are rigid values that are experienced in the country without any signs of change. For
instance, managers in the country tend to adopt a management style that uphold Asian vales with
much emphasis on loyalty and cohesiveness.
Despite the government’s efforts to forge a unique and collective Malaysian race, it has
experienced opposition from ethnicity which has remained a critical and explosive issue in the
society (Husted & Allen, 2006). Ethnicity affects management of business and hence by
extension CSR initiatives put in place. For a long time, there has been commendable efforts in
shunning ethnicity from national discourse but has recently been empowered by political
awareness facilitated by social media platforms (Husted & Allen, 2006). These social factors
have negatively been impacting CSR activities and initiatives in the country.
Though challenges still exist in the country with regards to CSR initiatives, there have been CSR
activities have majorly been focusing at preserving the environment a cultural attribute held in
high regard by the Malaysians. However, according to a survey carried out by Bursa Malaysia, it
was found out that many of listed companies performed poorly in the said domain (Husted &
Allen, 2006). This has led to efforts by some several NGOs which have been advocating for
green efforts both by the government and the business sector. More so, the public has shown
consciousness in matters regarding social responsibility for instance being opposed to proposed
cola power plant in Sabah as well as the proposed 100 Storey mega tower that has also been
proposed.
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According to Esa and Ghazali 2012, there is a notable trend in Malaysia which entails foreign-
linked companies putting in place CSR practices in line with their home country’s practices. For
instance, Japan has been on the frontline where its companies such as Toyota initiated the Toyota
Eco Youth Program that has been promoting reduction, re-usage and recycling of resources. The
program has mainly been targeting secondary school students. More so, an additional Japanese
company, Fujitsu, initiated the Fujitsu Group Malaysia Eco-Forest Park whose overall aim is
afforestation and re-afforestation so as to preserve the forests. More so, other companies such as
Sony Malaysia and Nippon Paint have also been carrying out CSR activities that are also aimed
at promoting environmental conservation.
According to Hamid, Atan & Saleh 2014, in the Malaysian context, the requirement by the Bursa
Malaysia has led to a notable impact that is mainly perpetrated to public listed companies.
However, due to socio-economic factors and the production and manufacturing industry in the
country, it is imperative to point out that more efforts in CSR are needed so that primary goals
such as environmental conservation can be attained. In addition, Carroll and Shabana (2010),
established that Malaysia does not have a definitive framework which can be used to direct
initiatives and methodologies employed by the stakeholders in attaining improved CSR goals and
objectives. More so, there is no signs for collective engagements that could lead to more
definitive goals in line with both societal and environmental expectations.
2.3 Theories and Models of Corporate Social Responsibility
It is imperative to point out that though CSR is a function that has been developed in the 20
th
century, its theoretical underpinnings go much deeper. First, it is imperative to point out that
CSR encompasses business ethics which have a theoretical basis such as the utilitarian theory by
Jeremy Bentham and John Stuart Mill. Bentham and Mill stated the utility of happiness of the
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greatest possible number of people (Husted, Allen, 2006). In this light, CSR majorly looks into
the utility of happiness caused to the environment which have more people than an
organization’s internal stakeholders.
A closer examination of the utilitarian theories leads to several perspectives as follows. Weintarb
(2007) suggested that neo-classical economics normally rests on four aspects which are;
individuals maximize their utility, organizations maximize profits, and that individuals have
rational preferences and act independently. In this view, one may hence outline the point at
which CSR activities rest as far as business operations are concerned. Are organizations more
mandated to make profits than sustaining the environment in a manner that meet the
expectations?
2.3.1 The Shareholder Value Theory
The shareholder value theory (SVT) also relates to CSR and mainly focuses on the sole objective
of shareholders which entails maximization of wealth. Managers are supposed to act as agents of
the shareholders and hence should put in place strategies that will attain the interests of the
shareholders (Husted, Allen, 2006). This means that in many cases, CSR initiatives are
subsidiary to the shareholder value. This explains why many organizations have been focusing
on CSR as a secondary initiative behind financial interests. Organizations will cause pollution in
maintaining profitability and put in place measures to curb pollution.
It is imperative to point out that the shareholder value theory has been criticized heavily. First, it
has been stated that it overlooks the social responsibility of a business. For instance, a business
can have goods or service offerings that meet the needs of the community (Husted, Allen, 2006).
Essentially, there are ways through which a business organization can impact a society which
may not be taken as CSR initiatives. On the other hand, there are other critics such as Milton
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Friedman (1970) who have argued that the theory has a narrow focus and is only concerned with
economic output. The concept of corporate social performance states that an organization not
only produce goods and services but also produce socially valuable outcomes that should as well
be considered by the theory.
2.3.2 Relational Theories
An additional relating theories are relational theories that mainly focus on the interactions
between corporations and environment they operate. The theories argue that there needs to exists
the balance of power between the two parties (Abdulrazak & Ahmad, 2014). However, it is
imperative to point out that the theories do not necessarily point out how the interactions should
be instituted and managed (Abdulrazak & Ahmad, 2014). Notably, if a corporation is taking too
much from the society, the latter is expected to react in a manner that will attain sustainability.
The theories affirm that businesses have a social responsibility due to expectations and
obligations. In nearly all countries and regions, business benefit more from the society
(Abdulrazak & Ahmad, 2014). Relational theories state that there needs to be a reciprocal
arrangement between the organizations and the society.
Managerial theories also relate to CSR activities as the initiatives are normally facilitated by the
managerial level. Actually, in major business functions and undertakings, the managerial
personnel are responsible for decision-making and hence play a vital role in instituting measures
that will lead to better CSR outcomes.
2.3.3 Carroll’s CSR pyramid
The pyramid of CSR developed by Carroll in 1991 was first perceived as a mere description of
the CSR but was later accepted as an insight about how managerial level can effectively
operationalize CSR. The pyramid breaks the CSR into four elements; ethical, legal, economic
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and philanthropic (Abdulrazak & Ahmad, 2014). The model basically arranges the elements in
the form of a pyramid that distinguishes their importance while also highlighting the
interrelationships between them. It is not easy to pinpoint the applicability of the pyramid but can
be used as a reference point of how strategies may be intertwined so as to attain the best overall
outcomes.
Figure 1: Carroll’s Pyramid Model
Carroll’s view is found to rhyme with Friedman’s view that management should make money
while conforming to the basic rules of the society. He argued that that should not entirely be a
function of existing law but also being governed by an ethical custom. Carroll outlined that CSR
is an ethical mission which aims at sustaining and meeting expectations of the society
(Abdulrazak & Ahmad, 2014). In this light, if the elements outlined in the pyramid can be met,
that will enable organizations to operate smoothly in any environment (Abdulrazak & Ahmad,
2014). Essentially, the pyramid is a tool that may be used by the management in prioritizing
management strategy in a manner that meets CSR goals and objectives.
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2.4 Critical Review of Empirical Studies
2.4.1 The Business Case for Corporate Social Responsibility
Colloquially, the relationship between business and CSR has been labelled as “doing well by
doing good.” This means that organization is able to increase its financial performance through
committing to social welfare. There are factors that may lead to this view such as the ability to
attract a wide array of stakeholders where that leads to better organizational performance
(Abdulrazak & Ahmad, 2014). More so, committing to social welfare also leads to cultivation of
loyalty among stakeholders which is highly essential. The literature in this area has not properly
been developed. This comes to the overall aim of this research which seeks to determine the
relationship between CRP and CFP. Researches by Allouche and Laroche (2005) and Wu (2006)
critically analyzed the impact of committing to social welfare and financial performance where a
relationship was determined. The research supported the view that socially responsible business
are able to achieve and sustain financial performance. Others researchers such as Porter and
Kramer (2006), suggested that the best way of examining the relationship between CSR and CFP
is to evaluate the corporate social advantage
2.4.2 The Impact of CSR on Strategy and Management Capabilities
It is widely accepted that strategic planning majorly entails a deeper understanding of the
environment a business operates in (Abdulrazak & Ahmad, 2014). From a general point of view,
this entails recognizing the harness and interdependence between business and society. In this
light, PLCs as well as small and mid-sized organizations need to have a framework that guides
their CSR operations and business activities. Organizations that are socially responsible normally
have a working relationship with other groups such as communities and organizations that focus
on making an impact.
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Porter and Kramer (2006) outlined that organizations need an additional capability which will
enable them manage the relationships with the other groups and sectors. This means that CSR is
actually associated with quality and innovation. Additionally, Porter and Kramer (2006) also
asserted that innovation is a core component of CSR activities so that benefits such as lowering
of costs can be attained. In support of this, Porter and Van der Linde (1995) stated that poor
relations between an organization and the environment is actually out of lack of innovation. In
this light, businesses must be able to develop a working relationship with the environment in a
manner that sustains innovation and diversity.
2.4.3 Corporate Social Responsibility and Corporate Finance Performance
“Doing well by doing good,” is a term that has greatly been associated with CSR and CFP, the
main objective of this research exercise. Studies done by various researchers (Orlitzky, Schmidt
&Rynes, 2003; Brammer & Millington 2008) were among the early that attempted to explain the
nature of the relationship between the two entities. However, recent research has shown that
differences that have earlier been experienced rise from different methodologies that are adopted.
(Orlitzky et al., 2003). There have been no any standardized methods that could be used in
evaluating the relationship and hence researchers embark on their own understanding of data. It
is imperative to point out that accounting and market based measures have been found applicable
as they have an ease of calculation and understanding (Orlitzky et al., 2003). In evaluating the
performance of PLCs, this research will also accounting and market based measures.
2.4.4 Accounting Measures of Financial Performance
According to Margolis and Walsh (2003), in using the accounting principles, there are no
prescribed principles that have lately been adopted as methods employed from one researcher to
the other. A common principle is the Return on Assets (ROA), which has largely been employed
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by researchers. In this research, it will also be used as its applicability has been tested and
proven. It is imperative to note that previous researches were able to establish a relationship
between CSR and CFP through the use of the financial ratio. It will hence be used as a
measurement in the study.
According to Norhayati and Siti-Nabiha (2009), ROA has been used both locally and
internationally as a reference measure in determining the relationship between CFP and CSR.
Examination of both local and international literature points out to the fact that there are other
measures such as Return on Equity (ROE), Return on Sales (ROS), Return on Investment (ROI)
and Profit that can also been employed (Wu, 2006). They have widely been used in a
complementary role. More so, in a substantial number of cases, they have been used to measure
profitability of the companies being studied.
2.4.5 Market-Based Measures
Beccheti and Ciciretti (2009) used share performance as a measure of evaluating the relationship
between CSR and CFP. It entailed evaluation of share market performance of organizations that
were perceived socially responsible. Notably, the research did not find any significant
relationship between CFP and CSR (Beccheti & Ciciretti, 2009). The researchers also focused on
share price movement which also did not highlight any major differences. On the other hand, a
study conducted by De Klerk and De Villiers (2012), used the Feltham-Ohlson valuation model
to evaluate if there is an increase in the value of CSR reporting to the shareholders. The model
majorly focuses on making one understand factors that affect changes in other models (De Klerk
& De Villiers, 2012). It also did not find a relationship between CFP and CSR. Brammer and
Millington (2008), pointed out that analysis of the stock market is an effective measure as stock
performance is about how investors view the organization.
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2.5 Hypothesis Development
The study by Ramchander (2012) found out that there exists a positive relationship between CSR
and CFP. The author stated that at the announcement of good CSR incentives, firms tend to
experience a positive share price reaction. Van Beurden and Gossling (2008), on the other hand
found out there is a positive relationship between CSR and CFP, their study was majorly focused
on factors that influence CSR and CFP both individually and holistically. While using a totally
different measure, Dhaliwal (2011) found a positive relationship between the factors which
lowers the cost of equity capital. In this light, most researches have been able to establish a
positive relationship between the two factors.
H
1a:
There is a positive relationship between Community Development and ROA
It is also imperative to point out that there are researches that have found a positive association
between the two variables such as that conducted by Nelling and Webb (2009). The research did
find a significant definitive relationship between Community development initiatives and
effective financial performance. Notably, the study was looking for a relationship from a
numeric point of view (Nelling and Webb, 2009).
H
1b
: There exists a neutral relationship between Community development and ROA
Researchers such as Liang and Renneboog (2017) established that Community development had
a neutral impact on ROA. In addition, there are a number of researchers such as Ramchander
(2012) that also found a neutral relationship between a business social responsibility and ROA.
However, there are studies have shown that when a business is socially responsible, it tends to
attract more stakeholders which is reflected in its ROA performance (Gossling & Vocht, 2007).
H
2a
: There is a negative association between Waste reduction and ROA
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On the other hand, Seifer (2003) found out that there exists no any association between Waste
reduction and ROA. The researcher pointed out that there are additional factors such as market
performance that influence ROA more than CSR activities such as Waste management. More so,
Zulfiqar (2016) also found out that there is no any significant association between waste
management and ROA. The researcher also pointed out that ROA is largely influenced by other
factors such as perceived financial performance.
H2b: There exists a negative association between Carbon mitigation and ROA
Zulfiqar (2016) found out that there exists a negative association between CSR initiatives such as
Carbon emission mitigation and environmental conservation and ROA. The researcher pointed
out that the society tends to consider that as a moral obligation and hence an organization is not
likely to gain a competitive edge through CSR initiatives such as Carbon emission mitigation and
environmental conservation (Zulfiqar, 2016).
2.6 Conceptual Framework
Before the research design is effectively outlined, the author’s conceptual framework is as shown
below which is contingent on the hypothesis to be tested.
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Corporate Social Responsibility
Corporate Financial Performance
Figure 2: Conceptual Framework
Source: The framework was developed by the author
CHAPTER THREE
Research Methods and Design
3.1 Research Design
The primary aim of a research design is to outline the specific methods that have been employed
in actual data collection. As earlier mentioned, there are three approaches that can be adopted
which are; descriptive, explanatory and exploratory (Kothari, 2009). The descriptive design
which has been widely adopted in this research entails using data to make an evaluation between
Waste Reduction
(Esa & Ghazali et al, 2012)
Community Development
(Weintarb et al, 2007)
Mitigation of Carbon Emission
(Esa & Ghazali et al, 2012)
Return on Assets (ROA)
(Hamid, Atan & Saleh et al,
2014)
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various variables. It also enables the research to establish a relationship between the variables.
On the other hand, explanatory approach means that the research questions are addressed through
going deeper into data available (Kothari, 2009). In this light, it means that the explanatory
approach will be utilized in explaining the perceived relationship between the earlier identified
variables. It is imperative to point out that an exploratory approach will not be adopted as it
majorly involves data that may have a high level of uncertainty.
Research paradigm can be understood from two perspectives that is; a positivist or a
interpretivism approach (Stevens, Wrenn, Sherwood &Ruddick, 2006). It is imperative to note
that this research could not utilize an interpretivism approach as carrying out research normally
tends to influence the data collected. For instance, if data was to be collected from the PLCs
about their CSR initiatives, it is highly likely for data to be influenced by other factors. Hence,
the findings of this research are derived from qualitative data available. As noted, this research
will utilize a positivist approach as it is beneficial due to considerations that data collected is
unbiased. There is available annual corporate sustainability, ROA, environmental and
sustainability reports which have unbiased information. This means that the research entirely
depends on secondary data in drawing a conclusion as well as testing the research hypothesis as
earlier stated in this report.
3.2 Descriptive Design
Descriptive design which has highly been adopted in this research basically involves two
approaches, that is, cross-sectional and longitudinal. The longitudinal approach mainly involves
repetitive data measurements in this case, annual reports of the sampled companies (Kothari,
2009). Due to the nature of the data, which is unstructured and non-uniform, a longitudinal
approach will help the researcher evaluate patterns and trends in data through repetitively
25
measuring the variables. It is imperative to point out that a cross-sectional approach normally
involves measuring the relationships between variables at particular intervals (Kothari, 2009).
3.3 Data Collection Procedure
It was earlier stated that the research will utilize a secondary approach due to two major reasons.
Collection of primary data can be influenced by external factors as well as internal factors. For
instance, if sampled organizations can be engaged in interviews so as their CSR activities can be
evaluated, it is likely for one to gather incorrect information. To deal with this issue, the
researcher uses the annual reports which were not influenced by the said factors. Second,
utilizing primary data approach requires more time and resources which are not available for the
researcher. Due to these reasons, the researcher has sought to utilize secondary data which is
freely available.
It is imperative to point out that secondary data may have some limitations and hence the final
outcomes may be impacted. First, the data is unstructured and hence it may not be easy to come
up with data measurements standards (Kothari, 2009). More so, annual reports and other relevant
pieces of data may have been collected in different times which may introduce some
confounding variables. Additionally, the researcher has no control of discrepancies that may
have marred the data collected. In this light, the researcher is not responsible for any
discrepancies and failures that may have marred the data in the reports. For analysis, this
research will extract annual reports from sampled PLCs websites and employ content analysis
approach in measuring data. Content analysis has already been credited as an effective approach
when measuring and analyzing secondary data.
26
3.4 Sampling
Generally, a sample refers to a small part that could be used as a representation of the entire
population (Stevens et al., 2006). This research will sample 23 companies which will serve as a
representation of all PLCs in Kuala Lumpur Stock Exchange (KLSE). The researcher chose to
use this sample due to data invalidity and challenges in accessing it. The sampled companies
need to meet certain criteria. Must have existed in the market for at least four years, and must be
listed as a PLC hence mandated to disclose its CSR initiatives and frameworks. Foreign-linked
and local companies were all treated as similar entities. Convenient sampling has been adopted
which refers to collection of data and facts that are easily accessible so as to save resources and
time. As was earlier mentioned, the research exercise suffered time constraints and hence
convenient sampling was deemed effective in addressing the issue.
Table 1: The sample
Category
Finance
Trading
services
Consumer
products
Construction
Industrial
Products
Plantation
IPC
REITS
Total
Size
7
12
2
1
2
2
1
1
Sample
Size
5
11
2
1
1
1
1
1
Source: Malaysiastock.biz
It is imperative to note that the aforementioned criteria for sampling were all met by the sampled
firms. It can be seen that the stock market has a total of 28 PLCs. However, not all have easier
27
accessibility of information and hence sampling was also done which basing on ease of data
accessibility.
3.5 Data Accessibility
The age of internet has made data access as a quick undertaking when compared to previous
times where files were to be accessed and data extracted. In modern times, it is practically
possible to acquire real time stock information which has greatly influenced the stock market. In
this light, data accessibility may be defined as the general extent to which the needed data can be
acquired without formal and/or technical challenges (Stevens et al., 2006). In this research study,
the type of data accessed encompasses annual reports, CSR initiatives, sustainability reports,
ROA information, Carbon emission control, and general financial data. In order to gather this
data, the firms’ official websites will be visited and data extracted. This means the researcher
solely relies on secondary data as earlier mentioned.
3.6 Data Validity
It is imperative to point out that data validity is critical as it determines the validity of the overall
outcome. The researcher has made an assumption that the firms sampled have ethically
conducted themselves in compiling annual reports. However, the researcher will preliminarily
examine the data and reports so that any discrepancies can be evaluated. However, it will not be
possible for the researcher to test whether the data provided is accurate and valid. It is hence
important to point out that the researcher is not responsible for any inaccurate data that may be
used by this research. However, it is imperative to note that the researcher will critically examine
the applicability of the data in order to ensure that data consistency and validity have been
upheld.
28
3.7 Regression Analysis
The major aim of the research is to make a determination whether there is a relationship between
CSR and CFP. This is done through examining CSR activities and determining whether they
have an effect to ROA, as a financial health measure. Regression analysis normally refers to a
statistical tool that mainly help determine whether one variable has an effect on another variable
in the same domain (Stevens et al., 2006). It is imperative to point out that simple linear
regression cannot apply in this research as it entails making a determination whether an
independent variable has an effect on a dependent variable. In this research, there are several
variables (Social welfare, environmental conservation, and Carbon emission control) whose
effect on ROA will need to be determined.
3.8 Data Analysis Strategy
It is imperative to point out that generation of descriptive statistics and regression statistics will
be done through use of E-views which is an effective tool that enables quicker interpretation and
forecasting (Stevens et al., 2006). More so, the tool is highly applicable with unstructured data
and longitudinal approaches. It will hence be applied in generating actionable statistical
information. More so, it is important to point out that data will be analyzed and systemically
evaluated so that trends can be made easily distinguishable.
3.9 Ethical Issues
It is the sole duty of the researcher to ensure that ethical conduct is depicted during data
collection, analysis and presentation. No manipulation and/or modification of data that should be
done so that a certain statistical fete can be attained. More so, the data gathered cannot be used to
portray any of the sampled firms negatively. More so, any other ethical expectations within the
Malaysian context will be adhered to accordingly.
29
3.10. Empirical Formulae
1. Community development refers to initiatives that are being adopted by the
organizations that enable society’s social and economic development. Various activities
are conducted such as sponsoring education for urban poor families, initiatives for
disease control and civil education on some aspects such as healthy living. All these
initiatives were considered in monetary value.
2. Waste reduction refers to initiatives that were put in place at the time this study was
conducted to examine how the sampled organizations. Computation was made through
making a comparison between the previous year’s waste generated and the current year’s
waste generated.
Waste generated the current year-Waste generated in the previous year
Waste generated in the previous year
3. Carbon Emission Mitigation refers to initiatives that were being put in place in order to
reduce the volume of greenhouse gases that was being emitted to the atmosphere. The
computation made a comparison between the current year’s emission and the previous
year’s emission.
Current year’s Carbon Volume emitted- Previous year’s Carbon Volume emitted
Previous year’s Carbon Volume emitted
4. Return on Assets (ROA) is an indicator of financial performance which highlights the
profitability of an organization relative to the total assets. Essentially, ROA indicates the
efficacy of the management in using the assets to generate earnings (Weintraub, 2007).
The computation is done as outlined by the formula below.
ROA = Net Income
Average Total Assets
30
It is imperative to point out that this research utilizes a quantitative approach as annual data and
reports will be used to test the aforementioned research hypothesis. The sampled PLCs have their
CSR and ROA performance evaluated through critical evaluation of their annual reports. The
major benefit of using a quantitative approach is that the data being sourced is highly
unstructured and hence it may not be possible to compute it. Also, quantitative data can be used
in explanatory and descriptive researches and hence applicable in this research project (Stevens
et al., 2006). Further, the data collection method adopted in this research has enabled precise
specification of key variables which has enabled attain data validity.
CHAPTER FOUR
Results and Discussion
The following section outlines the data that was collected in line with the variables that were
identified which are (mitigation of Carbon Emission, Community development and Waste
reduction).
4.1 Descriptive Statistics
Table 2: Descriptive statistics
Variables
Standard Deviation
Mean
Community development
0.006803
0.001899
Carbon mission mitigation
0.01558
0.013125
Waste reduction
0.028910
-0.02478
31
ROA
0.124453
0.086065
(n= 23 companies)
The data above is from the E-views that were generated.
The table points out a number of outcomes. First, it can be seen that waste reduction was found
to have the highest level of influence on the organizations that were sampled. During the period
when data was accessed it can be seen that waste management reduced by 2%. It is imperative to
point out that the sampled companies were seen to experience growth and hence the reason why
waste management could have dropped.
It is also seen that community development (Corporate giving and sponsoring education for
urban poor families) has a mean of 0.001899 and a standard deviation of 0.006803. When
interpreted, it is seen that the average involvement in community development initiatives
increased by 0.18%. This can lead to a deduction that there was increased growth and expansion
which was also reflected in giving of the sampled organizations.
It can also be evidenced that carbon mitigation initiatives had a mean of 0.013125 and a standard
deviation of 0.01558. This meant that carbon mitigation measures increased by 1.3%. This may
be attributed to the fact that the government has enacted strict measures against excessive
emission of carbon gases into the environment.
4.2 Pearson Correlation Analysis
Table 3: Pearson Correlation Analysis
Variables
ROA
Community development
-0.07662
(0.2246)
32
Carbon emission mitigation
-0.06442
(0. 5113)
Waste Reduction
0.02431
(0.6679)
Notably, the significance level was taken at 0.04
As it can be seen from the table, the relationship between Community development and ROA is
weak standing at -0.07662. It is hence clear that community development has a weak and a
negative relationship with ROA. More so, the probability value stands at 0.2246 which is greater
than the p-value of (P>0.04) meaning that there exists an insignificant relationship between the
variables. Essentially, based on the data that was accessed, ROA and community development
have a negative and insignificant relationship.
On the other hand, it can be seen that waste management as an independent variable shows a
weak correlation with ROA standing at 0.02431. This indicates that the relationship between
ROA and waste management is positive and insignificant. At a p-value of (p>0.004) the
probability value stands at 0.6679 which indicates there is an insignificant relationship between
the two variables. Essentially, it can be concluded that waste management has an insignificant,
positive relationship with ROA.
From the table, it can also be seen that carbon mitigation as a measure has a weak correlation
with ROA. It has a value of -0.06442 which indicates a weak correlation. Additionally, between
the variables, a probability value of 0.5113 which indicates a weak, negative an insignificant
relationship between the carbon mitigation and ROA. Businesswise, this means that the amount
33
of carbon emitted does not have any significant impact of Return on Assets. Essentially, there
exists a weak, negative and an insignificant relationship between Carbon Mitigation and ROA.
4.3 Univariate Analysis
Table 4: Univariate Analysis of Variance
Variables
ROA
Coefficient
t-statistic
Significant
Carbon mitigation
0.078
4.854
0. 000
Waste Management
0.153
2.173
0.032
Community
development
-0.016
-3.067
0.003
The table above shows the results of Univariate analysis of ROA against the independent
variables. It is imperative to point out that the s-significant stand at <0.04 and hence it can be
affirmed that Waste management, Carbon mitigation and Community development are
significant. It can hence be stated that there is a significant relationship between Carbon
mitigation and Return on Assets (ROA).
4.4 Regression Model
Table 5: Regression Model
Model
r2
Adjusted r2
F-statistic
Probability
(F-statistic)
Durbin-
Watson
1
0.4410
0. 2958
3.12568
0.000
1.6489
It can easily be seen that r2 equals 0.4410 which translates that only 44% of the dependent
variable can be predicted using the independent variables ( Community development, carbon
34
mitigation and waste management). The adjusted r2 has outlined that the model is a weak fit as it
does not reach the threshold of 0.6. The nature and value of relationship between dependent and
independent variables has been shown at 3.12568. On the other hand, it is imperative to point out
that the Durbin Watson value falls within 1.5 and 2.5 meaning that there lacks autocorrelation
between the companies that were sampled during the research. This is due to the fact that the
companies operate in different industries and hence have employed varying CSR activities.
Table 6: Variables Regression Model
Variables
Standard error
Coefficient
t-statistic
Probability
Community
development
1.9706
-1.7678
-1.0346
0.1349
Carbon
mitigation
0.04331
-0.2718
-2.7661
0.0107
Waste reduction
0.021174
0.022791
0.691756
0.3678
The significance level was taken as 0.04, ROA was the dependent variable
Community Development
As it can be seen in table 6, community development has a beta coefficient of -1.7678 with a
probability value of 0.1349. Having the p>0.004, it is hence shown that all activities that fall
within community development category had no significant impact on Return on Assets (ROA).
There are numerous researches that have concluded similarly. Essentially, in Malaysia, by the
time this research was being conducted, it is imperative to point out that there was no any
significant relationship between Community development and ROA.
Carbon Mitigation
35
Carbon mitigation had a beat coefficient of -0.2718 while having a probability value of 0.0107.
This means that carbon mitigation as a CSR activity has a negative significant impact on ROA.
In a business setting, this means that there is no statistical impact of carbon mitigation measures
on ROA. The probability significance value of (0.0107) indicated that better carbon mitigation
measures led to an increase in ROA. In Malaysia, there has been a rising awareness with regards
to the harm caused by severe emission of greenhouse gases and hence there is a reflection in the
performance of the organizations.
Waste reduction
It can be seen from the table that waste reduction had a beta coefficient of 0.022791 which
indicated that waste reduction had an insignificant positive relationship with ROA. However, it
had a probability significance value of 0.3678 which indicated that it has a positive insignificant
impact on ROA.
4.5 Discussion
As it has been evidenced in table 6, community development has a coefficient value of -1.7678
with a probability significance value of 0.1349. The data indicate that community development
(Corporate giving and sponsoring giving which were identified as the most common CSR
activities among the companies sampled) has a negative insignificant impact on Return on Assets
(ROA). This means that the sampled organizations cannot put much focus on community
development as an edge to gain competitiveness.
The data above indicate that there is no statistical impact of community development on financial
performance of the sampled organizations. In Malaysia, though organizations are being heavily
involved in community development as a CSR activity, it is imperative to note that the initiatives
36
do not have any financial impact on their organizations. According to Hannifa and Hudaib
(2006) Bursa Malaysia requires the PLCs to publicly disclose their CSR practices which has
made organizations to embark on CSR initiatives especially sponsoring education for poor urban
families in the country.
Community development is just a moral obligation that organizations need to meet which does
not have a reflection on financial performance. The accessed information of the sampled
organization indicate there is no financial motive of the companies that are involving in
community development. This is in line with other findings such as that of Lian and Renneboog
(2017) who had found a positive relationship between community development and financial
performance. It is imperative to point out that in developed societies such as US, UK and
Switzerland, the society is more conscious of community development and environmental
conservation initiatives and hence that is reflected in financial performance.
Next, Carbon mitigation had a coefficient of -0.2718 while having a probability significance
value of 0.0107. This indicates that carbon mitigation among the sampled manufacturing
factories has a negative significant impact on ROA. First, it is imperative to point out that
Malaysia is yet to implement stringent measures against Carbon mitigation. Manufacturing
industries have not fully committed to carbon mitigation. This may be perceived as one of the
reasons why the organizations doing it do not find reflection in financial performance.
In other countries such as the UK and US, carbon emission initiatives have been found to have a
positive impact on financial performance. This means that manufacturing focusing on carbon
emission experience increased return on assets. In these countries such as the UK, there are
regulations and laws require them to focus on carbon mitigation where failure to do so leads to
sanctions. For instance, the Kyoto Protocol in the UK issues environmental sanctions of the
37
companies that do not comply with the orders. This means that the finding in Malaysia is not
similar to previous findings of researches done in developed societies. For instance, Brammer
and Millington (2008) found out that companies which maintained low carbon emission in UK
gained a stiff competitive edge as the society is already conscious of the need for environmental
conservation. This is due to the fact that there are no effective measures in the country that
require manufacturing companies to meet certain standards.
Next, it can be seen from the table that waste reduction had a coefficient of 0.022791 which
indicated that waste reduction had an insignificant positive relationship with ROA. This
indicated that waste management by the sampled organizations does not have any significant
impact on Return on Assets. In the country, companies such as Sony Malaysia have been
focusing on educating the public on recycling, reuse and reduced usage which has been an
initiative encompassed in waste management. Essentially, the sampled organizations not only
focuses on management of industrial waste but also waste generated by the consumers.
Waste reduction and management is an initiative that has been on the rise among the sampled
companies. It is imperative to point out that most of the companies sampled engage in waste
management as a moral obligation as opposed to being strategic initiative (Porter & Kramer,
2006). Urban Malaysia’s stakeholders are committed to clean environment which has become a
culture that is adopted by the business organizations. In the country, previous researches such as
that of Abdulrazak and Ahmad (2014) found out that waste management as an initiative does not
lead to a competitive advantage or a positive impact on financial performance. However, the
researchers pointed out that enviornmental conservation initiatives at large such as tree planting
and public education has a significant impact on the performance of an organization (Abdulrazak
38
& Ahmad, 2014). This is due to the fact that waster reduction and management is perceived as a
moral obligation of the organizations.
Table 7:Hypothesis Testing
4.6 Hypothesis Testing
Hypotheses
Coefficient
Explanation
Result
H
1a:
There is a
positive relationship
between Community
Development and
ROA
-1.7678
Community
Development has a
coefficient value of -
1.7678 with a
probability
significance value of
0.1349. This means it
has a negative
insignificant impact
on Return on Assets
(ROA)
REJECTED
H
1b
: There exists a
neutral relationship
between Community
development and
ROA
-1.7678
Community
Development has a
coefficient value of -
1.7678 with a
probability
significance value of
0.1349. This means it
has a negative
insignificant impact
on Return on Assets
(ROA)
REJECTED
H
2a
: There is a
negative association
between Waste
reduction and ROA
0.022791
Waste reduction had
a coefficient of
0.022791 which
indicated that waste
reduction had an
insignificant positive
relationship with
ROA.
REJECTED
H2b: There exists a
negative association
between Carbon
mitigation and ROA
-0.2718
Carbon emission
mitigation had a
coefficient of -0.2718
while having a
probability value of
0.0107. This means
ACCEPTED
39
that carbon mitigation
as a CSR activity has
a negative significant
impact on ROA
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusion
The main aim of the research was to determine whether there CSR activities carried out by
companies publicly listed in Malaysia have a direct or an indirect impact on financial
performance. First, it is imperative to point out that the Malaysian context is hugely different due
to factors such as socioeconomic factors as was outlined herein. The focus on CSR is hence
influenced by such factors and hence there is no any definitive patterns regarding how companies
engage in CSR initiatives. This challenge has been addressed over time especially due to the
requirement of Bursa Malaysia that all publicly listed companies must disclose their CSR
activities and frameworks. This has seen a notable rise in CSR involvement by the companies.
The organizations that were examined operate in various industries such as finance, consumer
products, construction, plantations, and trading services among others. Due to the categories of
industries involved, it was not clearly possible to examine involvement in some CSR initiatives
such as Carbon mitigation and waste management. The data regarding these aspects was limited
but was applicable in the overall research process. The researcher was hence forced to mainly
focus on other CSR activities such as community development which are focused on by a
40
majority of the sampled companies. Overall, the research objectives were exploited as shown in
the following section.
5.2 Research Objectives
Objective 1: To examine the relationship between Community development and financial
performance (ROA)
After analysis of data that could be accessed, it was seen that CSR initiatives that focus on
community development have no direct or direct impact on financial performance. Specifically,
it was found out that it has a negative insignificant impact on Return on Assets. This is in line
with an early assertion that within the Malaysian context, the consumers and investors tend to
view CSR as a moral responsibility and hence not likely to bring about better financial
performance.
This is different from researches done by others such as Nelling and Webb et al (2009) who
found a positive association between corporate giving and financial performance. On the other
hand Esa and Ghazali (2012) affirmed that corporate giving may have an impact on financial
performance if it focuses on the much needed support in the society. As was earlier stated,
companies in Malaysia have been focusing on community development especially sponsoring
education for urban poor families (Esa & Ghazali, 2012). This research aimed at examining
whether public listed companies are able to realize better financial performance as a result of
being committed to community development. The result indicates that there is no any impact.
Esa and Ghazali (2012) noted that in Malaysia companies that are being involved in CSR
initiatives do it from a moral view as well as a way of meeting the requirement by Bursa
Malaysia. This was also found to be the case. PLCs felt it is their moral responsibility to impact
the communities.
41
5. To examine the impact of Waste management and financial performance (ROA).
This research found out that there is a positive insignificant relationship between waste
management and financial performance. Within the Malaysian context, waste management is an
organizational mandate and hence the public perception does not fall within CSR. Hong, Ismail
and Yin (2008) affirmed that waste management as a CSR initiative in Malaysia is largely seen
as an obligation not only for the PLCs but also other organizations including small and middle
enterprises. In this regard, it is uncommon for organizations to be perceived socially responsible
for managing the waste generated. However, it is imperative to point out that data accessed
showed that there is a positive insignificant association between waste management and ROA
due to initiatives of some companies such as Sony Malaysia that have been offering civil
education on waste management such as recycle-reuse-reduce. Doing so has been helping curb
environmental pollution. Lu and Castka (2009) stated that waste management as a CSR initiative
must sustain a direct impact on the society. In Malaysia, there has been no direct impact to the
society which is one of the reasons why it does not lead to a notable impact on financial
performance. In this light, this research found out that waste management is as well as moral
obligation for the sampled companies.
6. To examine the relationship between Carbon mitigation and financial performance
(ROA)
The aim of the research was to determine whether Carbon mitigation has a direct impact on
financial performance. However, it was found out that carbon mitigation as a CSR activity has a
negative significant impact on ROA. Within Malaysian context, there is a rising awareness with
regards to carbon emission control as effects of global warming are already being experienced in
the country. However, despite efforts by some of the sampled companies to control volumes of
42
carbon released into the atmosphere, that has no impact on financial performance. This is in line
with some of the previous researches such as that of Zulfiqar (2016) who found a negative
association between carbon emission control and financial performance. However, others such as
Brammer and Millington (2008) found a neutral association between carbon emission mitigation
and financial performance. In Malaysia, though the society has become increasingly aware of the
need to control carbon volumes being emitted into the atmosphere, this is yet to be reflected on
financial performance.
According to Hamid and Atan (2011) greenhouse gases have been central to the rising global
warming which has severe effects such as melting snow and rising sea levels. Businesses
especially those in manufacturing have a role to play to ensure that carbon volumes being
emitted to the atmosphere has been mitigated. In Malaysia, organizations in manufacturing have
been focusing on mitigation of carbon volumes being emitted but there is a need to ensure that
measures adopted have a direct impact on the society. More so, it is imperative to point out that,
carbon mitigation measures are not recognized as there are no strict laws against excessive
carbon emission into the atmosphere.
5.3 Recommendations
Within the Malaysian context, there are numerous recommendations that need to be implemented
in line with research so that objectives can be reached in a more subtle manner. For instance,
when accessing data on carbon mitigation and waste management, the researcher only found
limited data and hence recommends future researchers to focus on variables that have easily
accessible data such as community development. This is due to the fact that the Malaysian
context, advanced CSR activities are yet to be realized by the Public Listed companies. More so,
the manufacturing industry which is largely associated with carbon mitigation and waste
43
management is still developing. In future research, it is highly essential for researchers to sample
organizations that have existed in the market for at least 8 years so that data can easily be
accessible. Additionally, the research span did not consider a long time and hence future
researchers should focus on a longer time so that data can be managed effectively.
On the other hand, it is imperative for managers to continue focusing on CSR activities both as
their moral obligation and a business strategy. Though the CSR initiatives do not have an impact
on financial performance, the society is becoming more conscious and hence in the near future
effect on financial performance will be realized. Furthermore, according to Yin et al (2008)
within Malaysian context, a company gains a positive public image if it engages in CSR
initiatives that have a direct impact on the society. It is hence a good practice if managers can
continue undertaking CSR activities not only to meet the Bursa Malaysia requirement but as a
means of sustaining a good relationship with the public and the society.
5.4 Limitations
A major limitation of this research is that it only considered 23 companies that are public listed
in Kuala Lumpur Stock Exchange. This means that CSR initiatives undertaken by non-listed
companies could not be evaluated. More so, this research did not examine additional factors that
could have led poor financial performance despite undertaking CSR activities. It is an established
fact that undertaking CSR initiatives is one of the factors that promote financial performance.
This means that some additional factors that could not be examined by this research could have
led to poor financial performance. Additionally, this research did not use other indicators of
financial performance such as Return on Equity (ROE) due to limitation of data available.
44
5.5 Future Direction in Research
It is imperative to point out that this research only focused on Public Listed Companies (PLCs)
which should not be the case. Future research should also focus on organizations that are not
publicly listed. More so, future research should also focus on CSR initiatives that have a direct
impact to the society. More so, it could be a good practice if future researchers will try to
evaluate additional factors that could lead to poor financial performance so that a higher level of
validity can be attained. Further, future research should focus on organizations that have existed
in the market for at least 8 years so as to deal with confounding variables that may negatively
impact the final research outcomes.
45
CHAPTER SIX
List of References
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corporate social and financial performance. Revue de Gestion des Resources Humaines
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Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the
relationship between corporate social and financial performance. . Strategic Management
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Carroll, A. (1991). The pyramid of corporate social responsibility: Towards the moral
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Carroll, A., & Shabana, K. M. (2010). The business case for corporate social responsibility: A
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Esa, E., & Ghazali, A. (2012). Corporate social responsibility and corporate governance in
Malaysian government‐linked companies", Corporate Governance. The international
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Esa, E., & Ghazali, N. M. (2012). Corporate social responsibility and corporate governance in
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