Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
The Effects of Corporate Social Responsibilty Practices on
Financial Performance: A Study on the Food Companies That
Operate in Bist
Sevgi Aydin1 and Ferhan Emir Tuncay2
The aim of this study is to determine the relationship between food
companies' corporate social responsibility levels and their financial
performances. The scope of the study covers food companies that operate
in Borsa İstanbul (BIST). In order to determine the corporate social
responsibility level, annual reports were examined using the method of
content analysis. For the evaluation of financial performance, different
indicators such as profitability and net sales were used.
JEL Codes: M41
1. Introduction
Corporate social responsibility is one of the factors to which people pay attention while
choosing not only the company but also the brand. Today, all around the world more and more
people are inclined to buy the services and products of companies who pay attention to
corporate social responsibility and integrate this perception to their operations, thereby
improve their corporate image. Therefore, to appeal to consumers and draw them to their
sides, companies should act with the reason of social responsibility.
Corporate social responsibility (CSR) is, with a general definition, the planning, conducting,
and sharing the results of processes that make contribution to the development of both the
company and society and reduce the negative environmental, economic and social effects on
all the target groups who are affected by the activities of the company. During the early period
when CSR was handled by corporations, the responsibilities of businessmen were perceived
mostly as to follow the social responsibility policies, making decisions or setting objectives and
developing practices that are desirable with respect to the values of the society. Nowadays,
CSR is considered as the sum of practices that go beyond the legal requirements, conform
ethically to laws and regulations, and make social contracts for the internal and external
shareholders of companies.
In developing countries, preferred social responsibility studies are chosen from the topics that
can particularly lead and direct the development of the society. Thus, CSR takes an important
role in the development of the society. That is the reason for the increasing importance of
social responsibility activities in a developing country like Turkey.
1
Ass.Prof.Dr. Sevgi AYDIN, Kadir Has University, Applied Science Faculty, Department of Accounting and
Financial Management, Turkey, Accounting Discipline, sevgi.aydın@khas.edu.tr.
2
Lecturer Dr. Ferhan EMİR TUNCAY, Kadir Has University, Applied Science Faculty, Department of Accounting
and Financial Management, Turkey, Accounting Discipline, ferhanemir.tuncay@khas.edu.tr.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
In our time, with the developments in mass media, a lot of people are exposed to great
numbers of messages every day, and it is becoming more and more difficult to choose from
companies who provide products and services which are similar to each other. Now they do
not only buy the products and services but also obtain the values those products and services
create and images that are composed by the brands. Therefore, companies should form an
emotional bond with their audience by making use of sound communication strategies. By this
means, they should work to make their brands indispensable. In order to form this emotional
bond, the single most effective communication strategy is corporate social responsibility.
2. Literature Review
According to Milton Friedman (1970) “Business world is socially responsible in its profit
generation function, and its sacrificing actions that are carried out for the sake of business are
impositions by its business function and by completely economic responsibilities". CSR can be
defined as the planning, conducting, and sharing the results of processes that make
contribution to the development of both the company and society and reduce the negative
environmental, economic and social effects on all the target groups who are affected by the
activities of the company.
In other words, by corporate social responsibility it is meant that a corporation is responsible
for its effect on the society. A better insight on social responsibility might be got from Carrol's
(1991) strategic definition where he argued that CSR includes economic, legal, ethic, and
charity responsibilities: "The notion of social responsibility signifies that the corporation
behaves as a fine citizen.” The CSR pyramid created by Carroll shows that a socially
responsible corporation works to acquire profit, to abide the laws, to behave ethically, and to
be a good corporate citizen, all at the same time. Economic performance is accepted as the
most fundamental function and is placed at the bottom of the pyramid while legal, ethical and
charity (at the top) responsibilities form the upper parts of the pyramid.
According to Friedman (1970) the priority of companies is their economic responsibilities. If a
company does not serve its shareholders, it lacks the power of serving the society. Friedman
stated that the ethical and moral responsibility of the corporations is to earn as much money as
they can providing that they obey the basic rules of the society.
The most important economic responsibility of a corporation is its survival. In order to continue
their existence, corporations also have to fulfill their legal responsibilities. In our time, for a
corporation to sustain its operation it is not sufficient only to generate profit. A corporation's
audience expects it to fulfill its responsibilities towards the society it is in. Taking these
responsibilities into consideration has become a key matter for a long time survival of a
corporation.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Nowadays, CSR is considered as the sum of practices that go beyond the legal requirements,
conform ethically to laws and regulations, and make social contracts for the internal and
external shareholders of companies. However, there were some other social responsibility
studies by corporations even before corporate social responsibility has gained its present
status (Yamak, 2007).
CSR can be seen as a notion views and practices about which are becoming more prominent
in both Turkey and the world in recent years. Although acknowledging ethical and charity
responsibilities is not a new concept, CSR gained a new identity when they were listed
conceptually under it. These responsibilities were not stated openly and were thought to
provide no benefit to the corporation. However, it is widely believed that fulfilling these
responsibilities will be effective on financial performance.
3. Methodology
In this study which has been conducted with the aim of determining the relationship between
food companies' corporate social responsibility levels and their financial performances, food
companies that operate in Borsa İstanbul were examined. To determine the CSR level, 2012
annual reports of 21 food companies that operate in Borsa İstanbul were analyzed using the
method of content analysis. For the content analysis, the scale that was created by Ng (1985)
and updated by Hackston and Milne (1996) was used. In the scale the concept of CSR include
6 subtitles such as environment, energy, employees, products, social engagement and others.
This study covers separate analyses of a general CSR measurement and aforesaid six sub
titles.
Information on the financial indicators such as net sales, net profit, equity, debts, size of assets
and numbers of employees was retrieved from 2012 annual reports of the companies. In the
study, after these indicators were separately examined, a final financial performance measure
was determined. To evaluate the relationship, financial performance score (FPS) was used
with financial indicators and CSR's general and sub titles.
Assets variance of financial indicators of 21 companies examined in this study is significant.
Financial values and CSR measurements of companies were analyzed from top to down.
CSR levels of companies were evaluated as the sum of operations in six sub components
while financial performance score (FPS) were calculated with equations below;
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
FPSi = ∑
(
)(
), k=4, i=21+1, r=rank, x=financial indicators,
i= companies+average
CSRi = ∑
( )(
),
l=6, i=21, r=rank, y=corporate social indicators,
To investigate a significant correlation between the values related to financial structure and
CSR level which was determined by the scale of corporate social responsibility, Spearman
Rank Correlation was used and test statistics were collected. To evaluate the scale differences
between the examined food companies, rank correlation was used.
Rankings on financial indicators were determined on series which were calculated on the
number of employees and debt unit. To increase the size of sample, average value was added
to the rankings.
The correlation matrix is composed of variables like equity (EQU), asset (ASS), profit (PRO),
and sales (SAL) indicators and financial performance scale (FPS) and variables of overall
corporate social responsibility with components like environment, energy, employee, products,
social engagement and others. In other words, a 12 x 12 dimensioned rank correlation and test
statistics matrix were composed.
4. Results and Conclusion
The results found out with the tests conducted in this study can be grouped under 4 main titles.
Firstly, corporate social responsibility (CSR) variable's correlation significance with six sub
components is 0,1. Secondly, financial performance scales’ (FPS) correlation significance with
four sub components is again 0,1. Thirdly, there is not a statistically significant correlation
between financial performance levels and corporate social responsibility activities of the
companies. Fourthly, there is a negative correlation between CSR and FPS variables of
companies. However, this negative correlation is not statistically significant.
Those results are proved to be valid when corporate social responsibility activities and financial
performances of companies are examined comparatively and in detail. However, between
EQU and CSR variables there is a correlation of 0, 412 and this correlation's significance ratio
is 0.10. According to Spearman Rank Correlation test whose results are shown in Table 1,
there is a negative correlation between equity (EQU) size and CSR, and this correlation’s
statistical significance is 0.10. Finally, the study showed that as the companies' equity sizes
increase their CSR activities decrease.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Table 1. Spearman Correlation Coefficient Equity - CSR
CSR
Equity
-0.412*
* Significance (2-tailed) at the 0.1 level
The public opinion is that corporations should get more sensitive towards environment, energy
usage, employees, social environment and other CSR components as they grow. However,
from the results that are shown on Table 2, it can be seen that there is a negative correlation
between the financial performance components and corporate social responsibility
components. A negative and significant correlation was found out between environment and
energy components of the assets and energy component of the sales. That is to say, contrary
to what is expected, as corporations grow they pay less attention to CSR activities.
Table 2. Spearman Correlation Coefficient Asset - Sales and the Environment - Energy
Environment Energy
Asset
-0.366*
Sales
-0.357*
-0.357*
* Significance (2-tailed) at the 0.1 level
References
Carroll, A.B. (1991) “The Pyramid of Corporate Social Responsibility” Business Horizons / July
August 1991.
Friedman, M. (1970) “The Social Responsibility of Business is to Increase Its Profits,” New
York Times, September, pp. 122–126.
Hackston D and Markus J. M (1996) "Some Determinants of Social and Environmental
Disclosures in New Zealand Companies", Accounting, Auditing & Accountability Journal, Vol.
9, Iss: 1, pp.77–108.
Ng L.W. (1985) "Social Responsibility Disclosures of Selected New Zealand Companies for
1981, 1982 and 1983", Occasional paper No. 54, Massey University, Palmerston North.
Yamak, S. (2007) “Development of CSR”, Beta: İstanbul.
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