CORPORATE SOCIAL RESPONSIBILITY COST AND FINANCIAL

PERFORMANCE IN THE NIGERIAN BANKING SECTOR

By

Dr. Duenya Moses Imoter, 1 Dr. Iorshe Peter2 & Gbenyi Gabriel Tyona3

1
Department of Accountancy, Federal Polytechnic Wannune, Benue Sate.
2
Bursary Department Benue State Polytechnic Ugbokolo, Benue Sate.
3
Department of Accounting and Finance, Joseph Sarwuan Tarka University, Makurdi
Corresponding Author: Dr. Duenya Moses Imoter (imoterduenya@gmail.com)

ABSTRACT

This study investigated the effect corporate social responsibility cost on financial
performance of listed Deposit Money Banks in Nigeria. Specifically, the study sought to
examine the effect of social responsibility cost, employees training cost and personnel and
human management cost on financial performance of listed DMBs in Nigeria. The ex-post
facto research design was used. The study used a sample of 12 DMBs from a population of 14
DMBs listed on the Nigerian Exchange Group using the filtering method. Data were sourced
from annual reports of the sampled DMBs in Nigeria. The study period covered five (5) years
from 2017-2021. Panel regression analysis (Pooled OLS model) was used for data analysis
based on the recommendation of hausman specification test and Breusch-Pagan Lagrangian
multiplier test for random effect. The results of the study suggested that social responsibility
cost and employees training cost have a perverse but insignificant effect on financial
performance (ROE) of DMBs listed in Nigeria. The result of the study also established that
personnel and human management cost positively but insignificantly affects financial
performance (ROE) of DMBs listed in Nigeria. The study, therefore, recommended that
Personnel and human resource management cost should be encouraged in DMBs, however,
caution should be exercised in regards to the limit of the cost as high cost does not
necessarily translate to significant increase in financial performance. The study also
recommended that DMBs should enact policies that will commit the employees to the
organization for a specific time period after receiving training to avert situations of
employees quitting their jobs after receiving training from organizations.
1.0 INTRODUCTION

1.1 Background of the Study

Corporate social responsibility (CSR) has received increased attention from academics,
executives and international organizations over the last decades. This is attributed to the wider

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forces that influence the operations of organizations (Christopher, 2010). Every firm,
regardless of the business sector, has some primary stakeholders (employees and customers)
and secondary stakeholders (communities, local governments) which assert increased
pressure on its operations. Organizations are perceived as social creations and are deemed to
be capable of tackling societal issues that arise due to their activities.

Socio-economic scholars argued that business is more than just economic unit, it is a part of
complex surrounding consisting of various intermediaries like the community, consumers,
suppliers, mass-media, unions, employees and shareholders and it should definitely help the
society, in carrying out various social programmes in cooperation with government
(Freeman,1984; Caroll, 1979).

In the debate on CSR, two broad schools of thought emerged: the classical or free market
view and the socio-economic view. The proponents of free market view (Friedman, 1970)
argued that it is not the job of businesses to be concerned about social issues and problems.
Business has an only task to maximize profits and create wealth for shareholders. It should
not interfere in social problems as it is a field of government regulation (Friedman, 1970).

In developed economies, there are government regulations, society pressure groups and green
consumer pressure reawakening corporate attention to strategic and competitive role of CSR
to corporate survival. The call on firms in Nigeria to be socially responsible came to
reckoning by the activities of youths in the Niger Delta region (Ejumudo, Edo, Avweromre &
Sagay, 2012). Protests (sometimes violent) by host communities are a major way of attracting
attention of the companies, government and the general public to their plight. These pressure
groups have metamorphosed into proliferation of arms, emergence of militias, kidnapping,
armed robbery, inter and intra community clashes which have created insecurity, hampered
development and generally caused Nigeria daily oil production to drop.

Enquiry as to whether socially responsible actions by companies are financially rewarded has
ensued since Friedman in his 1970 treatise on CSR. It can be contended that firms that are
socially responsible stand to enjoy long-term benefits. This holds logic in view of the fact
that to ignore the changing expectations of a broad base of stakeholders can induce the capital
market to perceive lower expected earnings and impute a higher risk factor resulting in a
lower present value of the firm (Friedman, 1970). Therefore, social actions by companies
might affect both cash flows and the cost of capital.

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One of the key areas of performance that CSR seems to be associated with is internal or
financial performance (Kiel & Nicholson, 2003). Extant literature has argued that there exist a
relationship between CSR and financial performance. This argument is premised on the
contention that CSR activities of organizations enhances the image of the organization which
translate into improved financial performance through higher patronage and sales. Another
argument as espoused by extant literature is that CSR activities through employees training
enhances the employees performance via the acquired skills and knowledge which translate
into improved financial performance.

CSR which is a component of sustainability was adopted in the banking sector under the
sustainability framework referred to as Nigerian Sustainability Banking Principles (NSBPs).
Therefore, the guideline for CSR in the banking sector is embedded in NSBPs. Sustainable
banking and finance thus, integrates environmental, social and governance (ESG) criteria into
traditional way of banking and finance, and sets ESG benefits as a key objective.

Given the difference in the sustainability framework of the banking sector with that of other
sectors and the paucity of studies on CSR and financial performance in the banking sector due
to the peculiar nature of its framework, it therefore imperative for this study to be conducted
on CSR and financial performance in the banking sector in order to provide evidence of the
relationship in this sector based on the sustainability framework of the sector.

1.2 Statement of the Problem

Although there have been many empirical studies conducted to investigate the association
between CSR and corporate financial performance, however, the emphasise of prior research
has been on the disclosure element of CSR and not the cost aspect of CSR. Therefore, there
exist an empirical research gap in the cost element of CSR and firm performance which this
study seeks to address.

In addition, CSR has different areas including community relations, environmental projects
and social concerns. Each of these areas has different degrees of effect on financial
performance of firms. In view of this, Godfrey, Merill and Hamsen (2009) suggest that future
research should investigate the relationship between CSR and performance using
disaggregated CSR measures within a single industry and for a significant number of years.
The reason behind this argument is that each industry has specific social interests and issues
based on different stakeholders. Consequently, a certain dimension of CSR activity may have
a different impact depending on the specific sector (Inoue & Lee, 2011). This is evidenced in

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the fact that the financial sector has a different and unique sustainability themes that is
peculiar to its sector which prior research has ignored.

Furthermore, finding the right balance between the various CSR activities is a difficult task.
Therefore, given the limited resources available to organizations, the selection of the proper
CSR portfolio is crucial for providing the best for society and the corporation (Babiak &
Trendafilova, 2011). This means that there is urgent need for the examination of the extent to
which various components of CSR affect financial performance of firms.

As espoused by extant literature, most prior studies on the subject matter have used only one
component of CSR activities in examining and drawing conclusion on its effect on financial
performance. Also, most prior studies used primary data which is subjective in nature in
examining an event that has already taken place and available data exists for it (i.e the effect
of CSR on financial performance).

Given the inappropriateness of the methodology of prior studies on the subject matter as
outlined above, it becomes pertinent for this study to be conducted to address these concerns.
This study therefore uses secondary data on the actual cost of CSR of three activities
contained in the Nigerian Sustainability Banking Principles which is the framework for
banking sustainability, in examining the effect on financial performance.

1.3 Objectives of the Study

The main objective of this study is to examine the effect of corporate social responsibility on
financial performance of listed Deposit Money Banks (DMBs) in the Nigerian Exchange
Group. The specific objectives are to;

i. Examine the effect of social responsibility cost on financial performance of listed

DMBs in Nigeria.
ii. Examine the effect of employees training cost on financial performance of listed
DMBs in Nigeria.
iii. Examine the effect of personnel and human management cost on financial
performance of listed DMBs in Nigeria.

1.4 Research Hypotheses

The following hypotheses are formulated in their null form:

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Ho1: Social responsibility cost has no significant effect on financial performance of listed
DMBs in Nigeria.

Ho2: Employees training cost has no significant effect on financial performance of listed
DMBs in Nigeria.

Ho3: Personnel and human management cost has no significant effect on financial
performance of listed DMBs in Nigeria.

1.5 Significance of the Study

The result of this study will be of tremendous importance to various stakeholders including,
corporate managers, and accounting academic/research. This study will also be of importance
to management in the area of suggesting which of the CSR activities exerts more influence on
financial performance given the limited resources available to organizations in pursuing all
the CSR portfolios.

2.0 LITERATUREE REVIEW

This section reviews the literature related to the subject matter. The section is divided into
conceptual framework, theoretical framework and review of empirical studies.

2.1 Conceptual Framework

Two concepts are considered germane to this study; there include corporate social
responsibility and financial performance. These concepts are explained below.

2.1.1 Corporate Social Responsibility (CSR)

Studies on corporate social responsibility commenced with Boroen who in 1953 issued a
paper on “social responsibility of businessmen”. Other researchers that followed suit were
Davis (1960), Cochran and Wood (1984), Carroll (1979), since then, many studies have been
conducted on corporate social responsibility.

CSR as a concept means that management should have consideration of the social as well as
economic effects of its decisions. Tan-Mullins (2014) observes that most modern definitions
of CSR emphasize the significance of a company’s many stakeholders, which are generally
defined as anyone in society that is somehow impacted by a firm’s operations. The number
and type of stakeholders is highly dependent on the firm itself and the industry to which the
company belongs. The most widely cited definition of CSR provided by Carroll (1979)

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averred that ‘The social responsibility of business encompasses the economic, legal, ethical,
and discretionary expectations that society has of organizations at any given point in time’.
He argues that these social responsibilities carried by the firm are for the sake of both the
society at large and the firm itself. So, firms are obligated to take the society's interest into
consideration when taking its decision because at last the society is greatly affected by those
decisions.

In a similar tune, the World Bank (2003) posited CSR as the commitment of business to
contribute to sustainable economic development by working with employees, their families,
the local community and society at large to improve their lives in ways that are good for
business and for development.

Extant literature has espoused a number of benefits to be accrued from CSR activities to
include but not limited to enhanced brand image and reputation, less risk of negative rare
events, increased ability to attract and retain employees.

Dimensions of Corporate Social Responsibility in Banking Sector

The multidimensionality of CSR can be assessed within a stakeholder framework which

indicates how firms manage their relationship with primary stakeholders which include but no
limited to.

Employees

Employees have been considered by both academics and executives as the most significant
corporate resource since through this mechanism firms can achieve corporate goals, improve
their growth options and sustain their viability. In conformity, Olalere and Adesoji (2013)
asserted that corporate activity that enhances employee relations contributes positively to firm
financial performance. This is attributed to the fact that the implementation of advanced
human resource practices allows for improved productivity, decreased absenteeism and
increased organizational commitment. When firms’ actions demonstrate good citizenship
(addressing health and safety issues in the working environment, union relations allowed,
employee participation in management, cash profit sharing, retirement benefits), employees
assess the firm as one that is fair and just, leading to greater convergence on organizational
goals.

Personnel and Human Management Cost

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Personnel and human rights protection as an activity of CSR gives all affected stakeholders
more confidence and a sense of belonging to be more committed in performing their duties
which may translate into improved financial performance (Changrok et al., 2018). In
affirmation to the above position, Smith et al. (2018) conjectured that corporate social
responsibility proxied by human rights cost has a significant positive effect on financial
performance.

Environment/ Community

Corporate attention to community relations can lead to improved corporate image and
enhanced customer base which in turn can contribute to improved corporate performance.
Moreover, Inoue and Lee (2011) suggest that strategic implications of CSR are closely
dependent on the level of connectedness between the firm’s business operation and local
societies by trying to address issues which are important to local communities. Thus,
voluntary involvement to CSR initiatives towards local communities may provide significant
benefits for achieving corporate goals such as improved reputation in the eyes of the
customers, differentiation from their main competitors and ultimately improved financial
performance (Inoue & Lee, 2011).

Corporate Social Responsibility (CSR) in the Nigerian Banking Sector

Corporate social responsibility in the banking sector is embedded as one of the elements of
sustainability banking or practices. Thus, discussion of CSR in the banking sector is
embedded in sustainability. Sustainability therefore, implies balancing social and
environmental risks and opportunities in economic decisions. It is about impact management.
Organisations, once established, create impacts, which could be positive or negative.
Sustainability thinking encourages organisations to reduce their negative impacts and enhance
their positive impacts on stakeholders.

In the banking sector, sustainable banking is a practice that ensures that banks and related
institutions have the interest of their stakeholders at the core of their strategies. As such,
sustainable banking requires a responsible and ethical organisational culture. Sustainable
banking and finance thus, integrates environmental, social and governance (ESG) criteria into
traditional way of banking and finance, and sets ESG benefits as a key objective. ESG and
Socially Responsible Investing (SRI) trends are exerting significant influences on mainstream
financial markets.

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The adopted sustainable banking framework is referred to as the Nigerian Sustainable
Banking Principles (NSBPs). The NSBPs comprises of nine principles, guidance notes for
implementation and guidelines on how financial institutions should sustainably support
business activities in three critical sectors of the Nigeria economy- Power, Agriculture and
Oil & Gas.

The NSBPs initiative is also intended to help banks make more informed investment
decisions using the sustainability lens, which would minimize their investment risks and
enhance their opportunities. Sustainability practices were thus, considered important by
financial institutions and the Central Bank of Nigeria (CBN) as a way of addressing the
challenges of social, environmental and governance. Therefore in collaboration with the
CBN, the Bankers’ Committee in 2012 approved and adopted a sustainable banking
framework for banks, discount houses and development finance institutions in Nigeria. In
May 2013, CBN issued circular requiring reporting on NSBPs. In March 2014, the first round
of reports was collected from the finance sector. In January 2015, the Nigerian Sustainable
Fiancé week was held. Upon this background on sustainability in the banking sector, financial
institutions have continued to embrace sustainable banking in Nigeria up till date.

2.1.2 Financial performance

Financial performance is a subjective measure of how well an organization uses its assets
from its primary mode of business to generate revenues. The term is also used as a general
measure of a firm's overall financial health over a given period. Analysts and investors use
financial performance to compare similar firms across the same industry or to compare
industries or sectors in aggregate. Abedifar, Hasan and Tarazi (2016) averred that the relative
importance of performance measures should be sensitive to manager’s performance. Financial
performances of firms are usually measured in various categories. However, the most used
category is profitability. The commonly employed ratios of financial performance include but
not limited to; Return on asset (ROA), return on equity (ROE), Return on Capital Employed
(ROCE), Earnings before interest and taxes (EBIT).

2.2 Theoretical Framework

The following theories underpin the study; the stakeholder theory, legitimacy theory, and
signalling theory.

2.2.1 Stakeholder theory

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The stakeholder theory which was propounded by Freeman (1984) held that effective
corporate management required consideration to the interests of all appropriate stakeholders
and not only the stockholders. Freeman (1984) postulates that business entities have both
implicit and explicit agreements with all their stakeholders and are therefore, liable to honour
the said agreements. Honouring both explicit and implicit agreements makes a firm reputable
among stakeholders. Freeman (1984) posits that a manager bears a fiduciary relationship to
stakeholders whom he defines as groups or individuals who can affect or are affected by the
achievements of the organization’s objectives such as stakeholders, suppliers, employees,
customers and host community.

Extant literature has further expanded on the stakeholder theory to establish a relationship
between the responsibilities of the firm to its various stakeholders and financial performance.
Prominent among the literature is the study of Brammer and Millington (2006) which
observed that embracing CSR creates direct financial benefits to organizations owing to
improved brand reputations which improves their sales. Furthermore, CSR activities in form
employees training and human rights issues affects financial performance in the sense that
when employees are trained, there acquire more relevant skills to perform their jobs better
which translate into enhanced financial performance. Also human rights protection as an
activity of CSR gives all affected stakeholders more confidence and a sense of belonging to
be more committed in performing their duties which may translate into improved financial
performance.

The stakeholders theory is thus, related to this study in the sense that, the theory postulate that
CSR which is the interest of stakeholder groups such as community, employees, and suppliers
is as important in influencing the financial performance of firms as other stakeholder groups
interests such as shareholders and investors. Therefore, CSR has a positive effect on financial
performance as conjectured by the theory.

2.2.2 Legitimacy theory

The legitimacy theory developed by Suchman (1995) explains that legitimacy is the general
perception or assumption that the act of a company complies with the value system or social
norm. The social and environmental responsibility is done by a company to get legitimacy
from the society to do its operational activities. A company does not only care for the rights
of the investor, but also of the public.

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Legitimacy theory focuses on company-community interaction. It is based on the idea that
companies attempt to create harmony between social values inherent in their activities and
behavioural norms of a social system in which they constitute its part. CSR is one of
organizations strategies to develop, maintain, and legitimate its contribution to economy and
politics.

According to the legitimacy theory, organizations tend to embark on certain actions that are
considered legitimate in order for them to be tagged legitimate as well. Consistent with the
legitimacy theory, organizations embark on CSR because if they do not, they will lose
legitimacy. The theory emphasize on the importance of legitimacy in an organization as it
affects the financial performance of organizations that are not tagged legitimate, appropriate,
rational and modern by the society. Legitimate organizations display responsibility and avoid
claims of negligence.

2.2.3 Signalling theory

The discussion of the signalling theory in financial management was initiated by Spence
(1973) who examines the signal in the labour market. A signal is likened to a cue given by an
organization to different stakeholder groups. Management scholars have used signalling
theory to explain the potential benefits for firms of adopting socially responsible practices.
CSR practices may be a signal that reveals additional information to relevant stakeholders,
especially in emerging economies.

According to the signalling theory, CSR activities embarked by organizations act as signal to
different interests groups including employees, investors, suppliers and the community which
tends to influence their financial performance. The theory posits that embarking on
employees training will send a positive signal to the employees which will motivate and
improve their performance and enhance the firm’s overall performance. CSR activities in
form corporate donations, charitable, scholarship, and gift is expected to also send a positive
signal to the community that the firm is socially responsible and will boost patronage and
access to finance which may all translate to enhanced financial performance.

2.3 Review of Related Empirical Studies

Mohsin and Ngui (2019) examined the effect of CSR on organizational performance of
companies in the Building and Construction Sector in Kenya. The study was based on
primary data collected from a sample of 100 respondents cut across the top and middle

10
management staff. The study employed the simple linear regression for analysis and the
results indicate that there is a significant positive relationship between employees training and
organizational performance. Changrok, Minwoo and Youngsoo (2018) examined the
relationship between corporate human rights responsibility disclosure and performance of the
largest 1,000 Korean companies. The study used a sample of 1,000 largest Korean companies
for a period of 9 years (2006 to 2014). The study employed the multiple regression analysis
and findings revealed that corporate human rights responsibility disclosure is not associated
with performance.

Samwel (2018) examined the effect of corporate social responsibility on organizational

performance of Drilling Companies in Geita, Shinyanga and Mara Regions in Tanzania. The
study used primary data from a sample of 219 respondents selected using purposive and
simple random sampling techniques from a population of 484 employees from three drilling
companies in Geita, Shinyanga and Mara regions. The study found that CSR proxied by
employee training has a significant positive effect on the performance of drilling companies.

Smith, Betts and Smith (2018) examined the effect of corporate social responsibility on
financial performance of Fortune 500 companies. The study population comprised of Fortune
500 companies, while the study sample comprised of 92 companies that have ‘human rights’
as a CSR heading on their websites. The study proxied CSR with human rights cost. The
study employed the simple linear regression and the results showed that human rights cost has
a significant positive effect on ROE. Cross (2018) also examined the effect of corporate
social responsibility on financial performance of Coca-Cola Bottling Company in Abuja. The
study was conducted on a population of 1,573 staff of Coca-Cola Bottling Company in Abuja.
With a sample of 319 respondents. The study employed the Pearson product moment
correlation coefficient and simple linear regression for analysis. Result of the study showed
that employee training has a significant effect on firm performance.

Madugba and Okafor (2018) examined the effect of CSR on financial performance of listed
banks in Nigeria. The study adopted the ex-post facto research design. The study used
secondary data for a period of five years from 2010 to 2014. The study employed the simple
regression analysis and the result showed that corporate social responsibility proxied by
corporate donations and charitable have a significant negative effect on financial
performance.

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Enyioko and Ikoro (2017) examined the effect of CSR on financial performance of Seven-Up
Botlling Company, Enugu State Nigeria. The study adopted the survey research design. The
study used a population of 300 staff and sample of 110 respondents and further employed the
person product of moment correlation coefficient and the one-sample Kolmogorov Smirnov
Test for analysis. Result of the study showed that employee training does not improve
organizational performance. Ohiokha, Odion and Akhalumeh (2016) examined the effect of
CSR on financial performance of listed financial and non-financial companies in Nigeria. The
study sample comprised of twenty nine (29) firms which were purposively selected for a
period of six years (2005 to 2010). The study measured CSR using corporate donations. The
study employed the multiple regression technique for analysis and the results showed that
(donations) have a positive but insignificant effect on financial performance.

Margaretha and Rachmawati (2016) examined the effect of CSR on financial performance
from a sample of 30 extractive sector companies listed in Indonesia Stock Exchange for the
period of four years from 2010-2013. The study employed the multiple regression analysis
and findings revealed that CSR measured by employees training have a negative and
insignificant effect on financial performance. The result further revealed that community
donations and scholarship have a significant positive effect on financial performance, while
firm size as a control variable have a positive but insignificant effect on financial
performance.

3.0 METHODOLOGY
The research design adopted for this study is the ex post facto research design. The
population of the study comprises the of the 14 listed Deposit Money Banks on the floor of
the Nigerian Exchange Group as at 31st December 2021. The filtering sampling technique
was adopted for the study based on the criteria that the Deposit Money Banks have available
data for all the study variables for 5 years from 2017 to 2021 and have filed their annual
reports reported in Nigerian currency with Nigerian Exchange Group yearly. Consequently,
Jaiz Bank and Eco Bank were not included in the sample as the former does not have
complete data up to five years (2017-2021), while the later presents their annual reports in
Dollars which makes it difficult for comparison with other DMBs in Nigeria. Following the
above, 12 DMBs were selected from the population based on the predetermined criteria stated
above.

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 The study consists of dependent, independent and control variables. The dependent variable is
financial performance which is proxied by return on equity (ROE), the independent variable
is corporate social responsibility cost which is proxied by; social responsibility cost (SRC),
employees training cost (SEC), and personnel and human resource cost (HMC); while the
control variable is firm size (FSIZE). The panel regression model for the study is given
below. ROEit = β0 + β1SRCit +β2SECit+ β3HMCit + β4FSIZEit+ Uit.

where;
SRC = Social Responsibility Cost
SEC = Employees Training Cost
HMC = Personnel and Human Management Cost
FSIZE = Firm Size
it = Firm and time identifiers
β0, β1 to β4 are parameters to be estimated
U = Error term

4.0 RESULTS AND DISCUSSION

This section presents and discusses the results obtained from data analysis. The paper
employed both descriptive and inferential statistics (pooled OLS model).

4.1 Descriptive statistics

Table 1: Results of Descriptive Statistics (N=60)

Standard
Variables Mean Minimum Maximum Observations
Deviation
ROE 0.098,047,059 0.071,946,939 0.030,563,813 0.287,602,342  60

SRC  495,623,917.5  6,000,000  750,725,249 3,065,000,000  60

SEC 1,400,371,721 15,000,000 1,532,540,765 6,493,271,000  60

HMC 148,516,937 9,436,816 227,927,121 982,000,000  60

FSIZE 3,666,000,000 1,020,000,000 1,444,000,000 6,185,000,000  60

Table 1 showed that ROE has a mean value of 0.1 indicating the average value of ROE into
the sampled DMBs during the period of study. The minimum value of ROE was 0.1. The
standard deviation value of ROE was 0.03, implying that the standard deviation value is

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closer to the minimum than the maximum thus indicating that the data on ROE do not exhibit
much variance across DMBs during the period under review. Furthermore, the maximum
ROE into the sampled DMBs was 0.3, indicating the highest ratio of ROE by the sampled
DMBs during the period of interest.

Also from Table 1, SRC has a mean value of N495,623,917.5, indicating the average cost of
social responsibility in terms of corporate donations and scholarships by the sampled DMBs
during the study period. SRC also has a minimum value of N6,000,000, indicating the lowest
cost of social responsibility in terms of corporate donations and scholarships by the sampled
DMBs during the study period. SRC also has a standard deviation value of N750,725,249,
meaning that the standard deviation value is closer to the maximum limit than the minimum
limit thus, indicating that the cost of SRC exhibits much variance across the DMBs during the
period under review. Furthermore, the sampled DMBs during the period of interest has a
maximum SRC value of N3,065,000,000, indicating the highest cost of social responsibility
in terms of corporate donations and scholarships among the sampled DMBs in the study.

SEC has a mean value of N1,400,371,721, indicating the average cost of employees training
by the sampled DMBs during the study period. SEC also has a minimum value of
N15,000,000, indicating the lowest cost of employees training by the sampled DMBs during
the study period. SEC also has a standard deviation value of N1,532,540,765, meaning that
the standard deviation value is closer to the maximum limit than the minimum limit thus,
indicating that the cost of SEC exhibits much variance across the DMBs during the period
under review. Furthermore, the sampled DMBs during the period of interest have a maximum
SEC value of N6,493,271,000, indicating the highest cost of employees training among the
sampled DMBs in the study.

HMC has a mean value of N148,516,937, indicating the average personnel and human
management cost incurred by the sampled DMBs during the study period. HMC also has a
minimum value of N9,436,816, indicating the least personnel and human management cost
incurred by the sampled DMBs during the study period. HMC also has a standard deviation
value of N227,927,121, meaning that the standard deviation value is closer to the maximum
limit than the minimum limit thus, indicating that the cost of HMC exhibits much variance
across the DMBs during the period under review. Furthermore, the sampled DMBs during the
period of interest have a maximum HMC value of N982,000,000, indicating the highest
personnel and human management cost incurred.

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Finally, FSIZE has a mean value of N3,666,000,000, indicating the average size in terms of
assets of the sampled DMBs during the study period. FSIZE also has a minimum value of
N1,020,000,000, indicating the least assets size of the sampled DMBs during the study
period. FSIZE also has a standard deviation value of N1,444,000,000, meaning that the
standard deviation value is closer to the minimum limit than the maximum limit thus,
indicating that firm size do not exhibit much variance across the DMBs during the period
under review. Furthermore, the sampled DMBs during the period of interest have a maximum
FSIZE value of N6,185,000,000, indicating the highest firm size expressed in terms of assets.

4.2 Multicollinearity Test

Multicollinearity arises where a single explanatory (independent) variable is highly correlated
with a given set of other explanatory variables (Hair, Hult, Ringle, and Sarstedt, 2017). The
most common ways of testing multicollinearity are correlation analysis and variance inflation
factor/tolerance levels, which are presented in Tables 2 and 3.

Correlation Matrix
Table 2: Results of Pearson Correlation (N=60)

| SRC SEC HMC FSIZE

SRC | 1.0000
SEC | 0.4671 1.0000
HMC | -0.2927 0.0698 1.0000
FSIZE | 0.3070 0.3594 0.1649 1.0000

The Pearson correlations matrix is adopted as presented in Table 2. The result of the Pearson
correlation analysis indicates that the highest correlation coefficient between the independent
variables and the control variable is 0.4671 for SEC and SRC. Judging from the result of the
correlation matrix, there is no indication of multicollinearity.

Variance Inflation Factor (VIF) and Tolerance level

As can be observed from Table 3, the VIF ranges between values of 1.23 to 1.57 with a mean
of 1.37 which is below the threshold of 10 indicating the absence of multicolinearity among
the variables of the study.

Table 3: Result of Variance Inflation Factor and Tolerance

Variable VIF 1/VIF

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 SRC 1.57 0.635328
SEC 1.42 0.705098
FSIZE 1.25 0.800610
HMC 1.23 0.813557
Mean VIF 1.37

4.3 Normality test

Table 4: Result of Skewness and Kurtosis for Normality Test

Obs Skewness Kurtosis

ROE 60 0.0000 0.0000

SRC 60 0.1743 0.8429
SEC 60 0.0808 0.0230
HMC 60 0.0346 0.2119
FSIZE 60 0.0090 0.4260

Skewness and kurtosis are employed to test for data normality in this study as presented in
Table 4. As can be observed from the result of Table 5, the skewness and kurtosis values of
all the study variables are between -1 and +1, indicating that the study variables are normally
distributed.

4.4 Heteroskedasticity test

Table 5: Result for Heteroskedasticity Test

Variable Chi-Sq. Value Probability Value
Model 55.18 0.0000
Note: Ho (null): Homoskedastic

To test for heteroskedasticity in this study, the Breusch-Pegan test was performed which
showed a P-value of 0.0000, implying that there is presence of heteroskedasticity. As a result,

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the robust regression test was further performed to correct the heteroskedasticity presence.

4.5 Hausman specification test result

The formulated hypotheses in this study were tested using the pooled OLS, fixed and random
effect models. A look at the p-value of the Hausman specification test (0.3290) which is
greater than the significance level of 0.05 as presented in Table 6 implies that the random
effect model is preferable to the fixed effect model.

The choice of the random effect model by the Hausman specification test further necessitates
the Breusch and Pagan Lagrangian multiplier test for random effects to be conducted in order
to choose between the result of the pooled OLS and the random effect model as presented in
Table 7. From the Breusch-Pagan LM test result, the F-statistic p-value is 0.3865 which is
statistically insignificant at 5% level of significance, implying that the pooled OLS model is
more preferable than the random effect model in inferencing the study result.

Table 6: Result of Hausman Specification Test

Test Summary Chi-Sq. Value Probability Value

Cross-section random 4.62 0.3290
Note: Ho: Random effect model is preferable to fixed effect model

Table 7: Result of Breusch and Pagan Lagrangian multiplier test for random effect

Test Statistic F-statistic Value Probability Value

LM test 0.08 0.3865
Note: Ho: Pooled OLS regression model is more appropriate than fixed effect model

Table 8: Regression Result (Pooled OLS Model)

Variable Coefficient T statistics Probability

SRC -.010411 -1.50 0.139

SEC -.0045738 -0.71 0.481
HMC .0062305 0.85 0.398
FSIZE -.0091631 -1.00 0.322
C .2502294 2.77 0.008

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 R-squared 0.1595
F-statistic 2.61
Prob(F-statistic) 0.0453
Observations 60

Note: *= 1% level of significance

Table 8 shows the pooled OLS estimation result for the effect of corporate social
responsibility cost on financial performance of DMBs in Nigeria. The regression result
showed R-square value of 0.1595, indicating that 16% of the changes in the dependent
variable (ROE) in of the sampled DMBs over the period of interest is jointly explained by the
independent and control variables. Table 8 also shows an F-statistic value of 2.61 with its
associated P-value of 0.0453, indicating that the regression model is statistically significant at
5% level, this means that the specified regression model provides a better fit than the intercept
only model and can be used for statistical inferencing.

Furthermore, Table 8 shows that SRC has a coefficient of -.010411 and associated P-value of
0.139, indicating that SRC has a negative but insignificant effect on ROE at 5% level of
significance. SEC has a coefficient of -.0045738 and associated P-value of 0.481, indicating
that SEC has a negative but insignificant effect on ROE at 5% level of significance. The
regression result also showed that HMC has a coefficient of .0062305 and associated P-value
of 0.398, indicating that HMC has a positive but insignificant effect on ROE at 5% level of
significance.

Also, FSIZE as the control variable showed a perverse influence on the behaviour of ROE
with a coefficient of -.0091631 and a p-value of 0.322, indicating that FSIZE has a negative
but insignificant effect on ROE. The implication is that, the size of firms does not determine
its financial performance in terms of ROE.

4.6 Discussion of Findings

The findings of the study are discussed according to the study objectives as follows:

4.6.1 Objective 1: To examine the effect of social responsibility cost on financial

performance of listed DMBs in Nigeria.

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The result of data analysis for hypothesis one revealed that social responsibility cost has a
negative but insignificant effect on ROE. This result tallies with the findings of Madugba and
Okafor (2018) which found that corporate social responsibility proxied by corporate
donations and charitable have a significant negative effect on financial performance.

The result however, is inconsistent with the study of Ohiokha et al. (2016) which found that
corporate social responsibility (donations) have a positive but insignificant effect on financial
performance. The result of hypothesis one also fails to support the findings of Margaretha and
Rachmawati (2016) which revealed that corporate social responsibility measured by
community donations and scholarship have a significant positive effect on financial
performance. The variation in the results could be attributed to difference in the jurisdiction
of the studies. This result also fails to support the stakeholders theory, legitimacy theory and
signalling theory which all posit a positive effect of CSR activities proxied by corporate
donations and scholarship on financial performance.

4.6.2 Objective 2: To examine the effect of employees training cost on financial

performance of listed DMBs in Nigeria.

The result of data analysis for hypothesis two revealed that employees training cost has a
negative but insignificant effect on financial performance (ROE). This result tallies with the
findings of Enyioko and Ikoro (2017) which found that corporate social responsibility proxied
by employee training does not improve organizational performance. In order words, it
adversely affects organizational performance.

The result is however inconsistent with the studies of Mohsin and Ngui (2019), Samwel
(2018), Cross (2018) which found a significant positive relationship between corporate social
responsibility measured by employees training and organizational performance. This result
also fails to support the stakeholders theory, legitimacy theory and signalling theory which all
posit a positive effect of CSR activities proxied by employees training cost on financial
performance.

4.6.3 Objective 3: To examine the effect of personnel and human management cost on
financial performance of listed DMBs in Nigeria.

The result of data analysis for hypothesis three revealed that personnel and human
management cost has a positive but insignificant effect on ROE. This result tallies with the

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findings of Smith et al. (2018) which found that corporate social responsibility proxied by
human rights cost has a significant positive effect on ROE. The result is inconsistent with the
result of Changrok et al. (2018) which found that corporate human rights responsibility
disclosure is not consistently associated with performance. The result of hypothesis three is
supported by the stakeholders theory which postulate that CSR activities proxied by human
rights protection cost gives all affected stakeholders more confidence and a sense of
belonging to be more committed in performing their duties which may translate into
improved financial performance.

5.0 CONCLUSION AND RECOMMENDATIONS

Based on the findings of this study, the study concluded that; social responsibility cost
denoted by corporate donations and scholarship inversely and insignificantly affects financial
performance (ROE) of DMBs listed in Nigeria; employees training cost inversely and
insignificantly affects financial performance (ROE) of DMBs listed in Nigeria; personnel and
human management cost positively but insignificantly affects financial performance (ROE) of
DMBs listed in Nigeria. The study also recommended that; since social responsibility cost is
inversely related to financial performance (ROE), a limit should be placed on the cost in order
not to deplete the profit maximization goal of the firm. Also recommended is that since
employees training cost adversely affect the financial performance (ROE), DMBs are
encouraged to enact policies that will commit the employees to the organization for a specific
time period after receiving training to avert situations of employees quitting their jobs after
receiving training from organizations. Also, trainings in form of skills acquisition and
empowerment should focus on relevant areas to the area of operation of the organization in
order to complement the services provided by the organization. The study further
recommended that personnel and human resource management cost should be encouraged in
DMBs, however, caution should be exercised in regards to the limit of the cost as high cost
does not necessarily translate to significant increase in financial performance.

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