Corporate Social Responsibility and Financial Performance: Evidence from the Ethiopian Leather Industry

Abstract

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Corporate Social Responsibility (CSR) is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits to all stakeholders. The effect of corporate social responsibilities of a business on their financial performance has been a subject of intense argument and its empirical analysis result shows inconsistent findings. This study aims to examine the effects of CSR and the financial performance of Ethiopian leather industries. A theoretical framework is proposed based on a stakeholder approach by defining five stakeholders (i.e., employee, customer, supplier, community & environment) and taken as the independent variables. This study uses a questionnaire survey for the measurement of CSR and a three consecutive (2014–2016) years’ average return on the asset enables us to measure firms’ financial performance data, analyzed using a multiple regression models. Finally, this study reveals that a statistically significant positive effect of employee CSR, supplier CSR, environment CSR and aggregate CSR on financial performance whereas customer and community CSR factors are negatively related to return on asset.

Keywords: CSR, Stakeholder Approach, Leather Industry, Ethiopia

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