CHAPTER 1

INTRODUCTION

1.0 Introduction

This chapter as a beginning for our study so in this chapter which known as
introduction will introduce a little bit about the purpose of doing this research which
include the background of the study, the problem statement, research objectives, research
questions and contribution of this study. In this chapter, the researcher will share more
about the effects of CSR on investment efficiency companies and also will explain why the
researcher doing this research.

2.0 Background of The Study

Corporate social responsibility (CSR) is a corporate structure of self-regulation that

allows a company to have been socially responsible for itself, its shareholders and the
community. Companies should be mindful about the kind of effect they have on all facets
of society, especially fiscal, social and environmental aspects, by exercising corporate
social responsibility, also called corporate responsibility. Participating in CSR ensures that
an organization works in ways that improve society and the world in the usual course of its
business, instead of adding adversely to them. During industrialization, corporate
responsibility acquired a broader significance for larger corporations, as companies would
create homes for their workers and difficult labour conditions caused the topic to rise in the
public's mind. Companies increasingly started embracing social responsibility for their
workers and their families, but that only took place as a result of national implementation
and state laws until decisive changes were made.

Based on the previous study, it has been addressed that corporate social
responsibility must be applied (Surroca, 2010). Some researchers, however, claim that
CSR is linked to high business success and high value, low financial risk, decreased
knowledge asymmetry, quick access to funding, and decreased capital expense. Other
analysts conclude that CSR practices are a cause of shareholder tension and excessive
costs, leading to a loss in capital and causing comparative losses relative to firms which do
not charge social responsibility (McConnell, 1985). In order to assess a successful
investment, there are at least two key considerations. First of all, to finance a company's
investment prospects, the need to increase resources in an ideal market, all projects of
positive net present value should be financed, whereas the investment texts will warn
businesses that they are facing funding restrictions whose management capability is
restricted to financing future projects. Secondly, the restrictions whose managerial capacity
is limited to funding new investments and the success of the investment mean that even
though the organization wanted to raise its resources, there would be no certainty of the
correct investment. There are many positive impacts when the company making CSR like
increase their sales, build their image of the company and others. But as a researcher they
should look at many factors before making a perception because not all the companies
received the positive impacts when making the CSR program in their companies or
businesses.

Based on the article from (Digital Marketing Institue, 2019), said that customers
know as if they're doing their duty as they are using a socially conscious company's
product or service. Then the more business is socially conscious, the more the society and
clients become tolerant. This article also shows the statistics of several company when they
doing the CSR. Firstly, for the Global giant Johnson & Johnson is an outstanding example
of CSR. For decades, they already concentrated on reducing their effects on the earth.
Their projects range from exploiting the energy of the wind to supplying people around the
world with clean water. The purchasing in the Texas Panhandle of a closely owned energy
provider enables the business to mitigate emissions while offering a clean, inexpensive
alternative to electricity. The organization aims to explore clean energy solutions with the
aim of acquiring 35% of its power from renewable energy sources. After that, for the
google company, owing to the data center consuming 50 percent less electricity than those
in the world, RI received RI's highest CSR score in part. They however have contributed
over $1 billion to green energy programs and have allowed other organisations, through
services such as Gmail, to reduce their environmental effects.

3.0 Problem Statement

Nowadays, many companies in the world especially in Malaysia will doing the
Corporate Social Responsibility (CSR) every year but some times they doing three to four
times every year. Even the CSR program is a one of the tools that can be used by the
companies in order to build their image, increase their sales, expand their business and
others. But the company should look at many factors that will be affect the companies’
performance when doing the CSR program. This is because the CSR program usually will
give a positive impact towards the society but the CSR program do not give the positive
impact towards the companies that making the CSR program. According to the previous
study, usually the business CSR is connected to high business valuation, low financial
difficulty, decreased information asymmetry, quick access to funding and acquisition costs.
This means the company should make sure that their company do not have any financial
difficulty before making CSR towards the society (Benlemlih, 2015).

Before any companies especially finance companies doing the CSR program, they
should investigate their firm size because the firm size is most important towards their
company because if the small firm size making the CSR program, it will not affect
anything in term of their sales and others. This is because, as we know if the companies
already known by the society or any companies doing the CSR through popular person it
will affect the sales of the companies. After that, the companies also should measure their
financial leverage before making any CSR program because before we help the others
person, we should make sure that ourself are not in the dangerous places or situation. This
means, the company have to make sure they manage their debt and their assets properly
before doing any program that related to the society because if they do not afford to pay
their own debt, how they want to provide the funds to the others person. Whatever the
corporation has a high level of personal responsibility, it still spends less in ventures that
have proven lucrative and of greater importance with shorter payback period (Cariola,
2005).

Based on the (Pava & Krausz, 1996) as an outcome of the CSR debate and its
potential valuation abilities, researchers have become more involved in exploring a
possible connection between CSR and financial performance. This study also determined
that businesses with low social responsibility have lower financial performance, though
acknowledging that low CSR performance may also subject those companies to risks to a
greater degree than strong companies. So, this study will measure the financial
performance of the company because with a better financial performance, the company
will doing the CSR very well.

4.0 Research Objectives

The ultimate aim of this report is to provide insight to the impacts of CSR on
investment efficiency companies. There are several core objectives provided as the
structure of the study followed by the research question suggested by the study, which
include:

i. To examine the relationship between CSR and investment efficiency.

ii. To investigate the moderating effect of CSR on investment efficiency of the

companies.

5.0 Research Questions

The ultimate purpose of this report is to provide insight to the impacts of Corporate
Social Responsibilities (CSR) on investment efficiency companies. There are several
research questions provided as the structure of the study and already suggested by the
study, which include:

i. What is the relationship between CSR and investment efficiency?

ii. What is the moderating effect of CSR on investment efficiency of the

companies?
6.0 Contribution of the Study
 This study are aims to investigate the affects of CSR on investment efficiency
companies. The study contributions will attract a several types of person which are the
investment companies itself, the sales manager, the customer, the society and also the
government. The variables that affecting this study are the size of the firm, the financial
leverage of the companies, Corporate Social Responsibility (CSR) and the investment
efficiency companies. As an investment companies, they should make sure that they
measure several factors before making any decision to contribute in the CSR program. This
is because the CSR program are not totally giving the positive impacts towards the
companies but sometimes it will give the negative impacts if the companies do not measure
properly.

After that, as a government, they also need to take any actions like limit the
program of CSR or limit the qualifications of doing CSR in every single of the companies
in Malaysia. Lastly, as a customer, they should investigate a little bit about the company
before making any investment or anything before not all the company that making the CSR
program will have a good performance because sometimes, the company that making the
CSR program also have a financial problem in the company. So, as a good customer, we
should investigate first before making another move in the future.
 REFERENCES

Benlemlih, M. (2015). Corporate social responsibility and investment efficiency. 22-33.

Cariola, A. R. (2005). Overinvestment and underinvestment problems: determining factors,

consequences and solutions. 11-25.

Digital Marketing Institue. (2019, February 25). 16 Brands Doing Corporate Social Responsibility
Successfully. Retrieved from Digital Marketing Institue:
https://digitalmarketinginstitute.com/blog/corporate-16-brands-doing-corporate-social-
responsibility-successfully

McConnell, J. &. (1985). Corporate capital investment decisions and the market value of the firms.
. Journal of financial economics, vol14. No3, 399-422.

Surroca, J. T. (2010). Corporate responsibility and financial perforemance. The role of intangible
resources. . Strategic management journal, vol 31. No 5, , 463-490.