Proceedings of Eurasia Business Research Conference
16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-54-2
The Relationship between the Level of Corporate Social
Responsibility and Financial Performance in Energy
Companies
Sevgi AYDIN* and Gizem KAYMAK**
The aim of this study is to determine the relationship between the level of social
responsibility and financial performance in energy companies. Under the scope of the
research, energy companies which operate in Borsa Istanbul (BIST) have been examined.
In order to determine the corporate social responsibility level annual reports of energy
companies have been analyzed with content analysis. In the determination of financial
performance, different indicators such as profitability and turnover have been used.
Field: Accounting
1. Introduction
In its broadest definition, corporate social responsibility means the
commitment of corporations which are a part of the society to behaving appropriately
to ethical values. The notion can also be defined as a concept that aims to increase
the social welfare as a whole, grounding on the idea that business world and society
act together in social life (Yüksel et al, 2005). Corporate social responsibility (CSR),
is a notion that requires any kind of organization (a firm established with the aim of
profit, public institutions, or non-governmental organizations) to behave ethically and
responsibly towards all interior or exterior shareholders, to make decisions for this
purpose and to apply these decisions (Aktan and Vural, 2006). The rising interests of
international companies towards this issue, together with their enterprises on this
field, are enhancing the awareness on corporate social responsibility. This rising
interest is making the corporate social responsibility notion inevitable for companies.
It is also inevitable in companies that do not obey organizational ethical rules
and behave insensitively on social responsibility issue the following changes will
occur: The trust in the owners, partners, and administrators will be lost, corporate
image will be damaged, group works will diminish, or group activities will be reduced,
organizational communication will suffer or diminish, self-respect will be lost, the
feeling of commitment will be reduced and team spirit will be lost, business turnover
rates and speed will increase, lack of motivation will rise, and performance decline
will arise (Çelik, 2007).
Humankind is now facing the bitter fact that the rising energy need and
consumption have negative effect at large scales on natural environment and thus on
human health and on ecological balance (Diakoulaki et al, 1999). As energy sector’s
share on the development of environmental problems is bigger than all other sectors,
it is compulsory that the measures to be taken to solve these problems will be taken
and applied principally on this area (Karaca and Erdoğdu, 2012). Setting out from this
obligation, it is essential to present the relationship between the corporate social
responsibility and financial performance in energy companies.
____________________________________________
*Assist. Prof. Dr. Sevgi AYDIN, Department of Accounting and Financial Management, Kadir Has
University,Turkey . Email : sevgi.aydin@khas.edu.tr
**Gizem Kaymak is a student at Department of Capital Market Auditing and Rating, Kadir Has University,Turkey .
Email : gizem.kaymak@stu.khas.edu.tr
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Proceedings of Eurasia Business Research Conference
16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-54-2
2. Literature Review
In our day the social consciousness is rising together with globalization, for
this reason and in order to create a powerful, long term influential and effective
corporate image, an institution that has social responsibility perception is required.
Institutions that have corporate social responsibility perception are seen as
institutions that are respected and trusted by their employees and customers
(Güzelcik, 2012). Society is slowly moving towards seeking more sustainable
production methods, waste minimization, reduced air pollution from vehicles,
distributed energy generation, conservation of native forests, and reduction of
greenhouse gas emissions (Sims, 2003).
Companies, by buying, producing, selling, making contracts, and assuming
responsibility for the financial damages to their investors from whom they get
financial support behaves just like an individual person. For that reason, they should
be hold responsible for the damages they will cause on their workers, customers,
investors, general and local population, the state and the economy (Clarkson, 1995).
In this process, in order to reduce pollution and increase their profits, companies
have to contribute to the development of a sustainable global economy (Hart, 2000).
The responsibility of protecting natural life, which is one of the social responsibility
areas, includes the prudential use of natural resources, energy save, limitation of
pollution spread and waste management (Hoffman, 2001). Thanks to the designs for
environment by companies, it is possible to develop new products which are easier to
launch for reusing or recycling and thus to gain profits by reducing the material and
energy consumption (Hart, 2000). In the strategic plan of United Nations
Development Programme (UNDP) for 2010-2017, again, environment and
sustainable progress hold a significant place (www.undp.org).
About a billion people live in the developed countries of market economy.
These wealthy nations are responsible for 75% of the world energy and resources
consumption and cause to a large amount of industrial, toxic, and consumer waste.
However, the level of pollution in developed economies is smaller than of the other
economies despite such an intense usage of energy and material. That is because
the strict environmental regulations in developed countries led to the shift of polluting
activities to developing countries and consequently the greening has been
accomplished in expense of a greater pollution of environment in developing
economies (Hart, 2000). The issue of keeping the energy consumption as low as
possible and using energy most efficiently and economically is a significant concern
for companies as well as governments (Taşoğlu and Ertike, 2010).
In the research by Uslu and others which studied the attitude of customers in
Turkey towards the social responsibility campaigns and responsible companies, it
has been found that customers have a high level of support to and trust in social
responsibility campaigns. Furthermore, another important finding of the study is that
operations conducted by companies that has had many a successful result by their
social responsibility campaigns and has run social responsibility campaigns which
create values with their results for the society in real terms, are direct proportionally
reflected on customers’ corporate social responsibility perceptions. This result shows
the necessity of the parallelism between corporate responsibility and social
responsibility perceptions for the corporate image (Uslu et al, 2008)
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Proceedings of Eurasia Business Research Conference
16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-54-2
Energy resources have negative effects on environments during both
productions and consumption processes (Akpınar et al, 2008). When we evaluate
energy usage with respect to environmental effects and sustainable development, we
can clearly observe a strong relationship between them. In order to foster
sustainability, the use of renewable energy resources should be expanded,
environmental pollution should be reduced, and energy resources should be used
efficiently. An optimum planning is necessary to reduce the environmental problems
that are given off during the production and consumption processes of energy to the
lowest level and to make it possible to use resources economically and reliably (Selici
et al, 2005). For companies whose potential to affect environment negatively is very
high, taking CSR exercises into serious account is one of the important factors that
can reduce the aforesaid negative effect.
3. Methodology
The scope of this study, which has been conducted in order to determine the
relationship between CSR levels and financial performances of energy companies,
consists of the energy companies active in Borsa İstanbul. To determine the level of
CSR, the annual reports for the year 2012 of 9 energy companies active in Borsa
Istanbul were analyzed with content analysis. During the conduction of the content
analysis the scale, which was first invented by Ng (1985) and was later updated by
Hackston and Milne (1996), was employed. In the scale, CSR notion is categorized
under six titles: environment, energy, employee, products, social participation and
others. In this study, both a general CSR scale and the aforesaid six titles have been
through deep analyses.
The measurement related to the financial indications of companies was carried
out on the basis of turnover, net profits, shareholders’ equity, debts, assets, and
number of employees all of which were obtained from 2012 annual report. In the
study, these indicators were analyzed separately and used to determine a final
financial performance scale. In association process, both financial indicators and
financial performance scale (FPS) were subject to statistical analysis together with
CSR general and sub components.
Financial indicators which belong to the nine companies which are analyzed in
the scope of the study present a significant variance. On the other hand, analysis
methodology is based on the principal of competitive benchmarking. Hence, financial
and CSR measurements of companies were analyzed after being ordered top down.
While the CSR level of companies were determined as the sum of activities in
six subcomponents, financial performance points (FPP) were calculated with the
equations below:
FPPi =
, k = 4, i=9+1, r=rank, x=financial indicators,
i=companies + average
CSRi =
,
l = 6, i=9, r=rank, y=corporate social indicators,
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Proceedings of Eurasia Business Research Conference
16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-54-2
To point out to a meaningful relationship between the CSR level which was
determined via the aforesaid scale and values related to financial structure
Spearman’s rank correlation was used and test statistics were arranged.
The sequences related to financial indicators were done on the series that had
been calculated based on the number of employees and debts department.
Furthermore, average value was also included in the sequences.
The correlation matrix consists on one side of shareholders’ equity, active,
profits and sales indicators and financial performance points (FPP), and on the other
side of environment, energy, employe, products, social contribution and other
components with total corporate social responsibility variables. In other words, a
sequence correlation of 12x12 size and test statistics matrix was developed.
4. Conclusion
Findings that were obtained at the end of correlation analyses and test
statistics were grouped under four essential titles. Firstly, total corporate social
responsibility (CSR) variable, represents the six subcomponents at the level of 86%
correlation and 1% significance. Secondly, financial performance points (FPP)
variable represents 4 sub components at 82% correlation and 1% significance levels.
Thirdly, there is not a statistics-wise meaningful relationship between financial
performance level and depth and corporate social responsibility activities. And
fourthly, there is a negative correlation between CSR and FPP variables. However,
this negative correlation does not bear an acceptable statistics significance.
When we examine financial indicators and corporate social responsibility
activities of companies in detail and correlation, we can see the findings above
preserve their general validity. However, between shareholders’ equity variable and
CSR variable, there is a correlation of -54% and 10% significance level. Spearman’s
rank correlation test whose results are shown in Figure 1 tells us that there is a
negative correlation between shareholders’ equity size and CSR, that this correlation
has a statistical significance of 0,10. Setting from this result, it is possible to conclude
that, in companies, as the size of shareholders’ equity grows, CSR activities diminish.
Figure 1: Spearman Correlation Coefficients Shareholders’ Equity - CSR
CSR
Shareholders’
-0.539*
Equity
* Significance (2-tailed) at the 0.1 level
Actually, as they grow and become more powerful, companies are expected to
be more sensitive to environment, energy use, employee, products, social
environment and other CSR components. However, when we examine the correlation
between shareholders’ equity and corporate social responsibility components which
are shown in Figure 2, we can see that there is a negative correlation between all of
these components and shareholders’ equity. It has been found out that there is a
negative correlation between shareholders’ equity and employee, energy and other
CSR components and this correlation has 0,10% significance in statistical meaning.
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Proceedings of Eurasia Business Research Conference
16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-54-2
Figure 2: Spearman Correlation Coefficients Shareholders’ Equity- CSR
Components
Energy
Shareholders’
-0.564*
equity
Employee
Other
-0.600*
-0.539*
* Significance (2-tailed) at the 0.1 level
Although there are some statements and efforts to make people generally
perceive in the opposite way, but the claim that as companies gain more growth and
complexity in financial aspects they do not take up more corporate social activities
does not bear a statistical relationship and significance.
These kinds of analyses can be done for other sectors and periods.
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