Using panel data set from banks in Nigeria, a developing country, this paper examines the effects of corporate social responsibility (CSR) investment and disclosure on corporate financial performance. The results from the Wallace and Hussain estimator of component variances (a twoway random and fixed effects panel) suggest that CSR investment without due disclosure would have little or no contribution to corporate financial performance. This paper supports the argument that firms could benefit both financially and non-financially from a strategic CSR agenda.

Introduction

Hitherto, investment in corporate social responsibility (CSR) as a global phenomenon has remained a thriving corporate governance concept and management strategy in most multinationals (Peng & Yang, 2014; Amin-Chaudhry, 2016). It keeps attracting the interest of a vast number of scholars, economists, governmental and non-governmental organizations, and the public as a result of industrial growth and economic prosperity of many nations (Abiodun, 2012; Adeyemi & Ayanlola, 2014; Harpreet, 2009; Uadiale & Fagbemi, 2012; Uwuigbe & Uadiale, 2016). Documented evidence has shown that investments in CSR have the potentials of making positive contributions to the development of society and businesses (Harpreet, 2009; Helg, 2007; Wahba & Elsayed, 2015; Hategan & Curea-Pitorac, 2017). In effect, more organizations are beginning to see the benefits from setting up strategic CSR agenda (Chaudhary, 2017; Famiyeh, 2017). Historically, the concept of CSR became pervasive in the 1960s. Since then, it has been narrowly construed, and used indiscriminately to cover legal and moral responsibilities (Uadiale & Fagbemi, 2012). In corporate sense, engaging in CSR activities is a way of firms making restitutions to the society in respect of social and environmental degradation caused by their business operations. It is also an act of appreciation to the host community. In reality, corporate entities are social creations, and they depend largely on the support of the society for survival (Reich, 1998). Arguably, while firms may engage in CSR activities to earn the continuous support of the society, the stalemate here is whether investment in CSR has any financial returns, or it is a mere drain of corporate resources (Galant & Cadez, 2017; Peng & Yang, 2014; Testa & D’Amato, 2017). In the literature, there has been a deal of ambiguity and uncertainty about what CSR really means to a firm as well as the motivation behind a firm’s engagement in CSR (Abiodun, 2012; Wahba & Elsayed, 2015; Galant & Cadez, 2017; Hategan & CureaPitorac, 2017). Business scholars and economic strategists have committed much research efforts to provide empirical evidence on whether a proactive stance towards CSR is just a mere drain of a firm’s profit, or it is a source for sustainable success and competitive advantage (Hockerts, 2007; Famiyeh, 2017; Galant & Cadez, 2017).