Examining the Relationship between Corporate Social Responsibility and Financial Performance of Manufacturing Companies in Tigray Regional State, Ethiopia

Abstract

Recently the concept of corporate social responsibility (CSR) is being discussed globally. Previous studies investigated the relationship between CSR and corporate financial performance (CFP) and findings show varied results. In this study, we explore and test the relationship between financial performance and social responsibility activities undertaken by private manufacturing firms in Tigray Regional State, Ethiopia. We used survey instruments to collect data from 34 firms over a period of three years. Then, using empirical methods we tested the hypothesis of the direction of the relationship between CSR and CFP. Findings indicate that CSR is positively related to better financial performance, as represented by ROA, ROE, and ROS. This relationship is statistically significant at the p<0.01 level of significance, supporting the view that socially responsible firm performance can be attached with achieving higher financial benefits. Hence, firms should recognize and instill CSR initiatives into their corporate culture and business operations because increases in CSR investments can lead to higher CFP while balancing the needs of their internal and external stakeholders.

Keywords: Corporate Social Responsibility, Financial Performance, ROA, ROE, and ROS.