ABSTRACT

This study aims at determining the influence of social responsibility cost on the profitability of Cameroon banks. The main objective of this research is to examine the effects of corporate social responsibility on the performance of banks in Cameroon. This study makes use of an ex-post facto research design and data were collected from 10 Cameroon banks through secondary sources and analyzed using the STATA vision 13 method. The study revealed that there is a positive relationship between corporate social responsibility and financial performance of banks. Based on the findings, the study therefore concludes that the deliberate actions taken to reduce the nuisance brought about by waste products generated by firms often brings about positive social responsibility rating, image and acceptability of the firm within its operation area. This study therefore recommend that banks should ensure to put measures in place to reduce the nuisance of environmental pollution through abatement.

CHAPTER ONE

INTRODUCTION

1.1   Background to the study

Corporate social responsibility extends the debate about financial reporting which is being examined, by widening the context in which the problem of financial reporting should be considered. Before now, corporate organizations have ranked business considerations based on profitability and earnings per share. Companies have also recognized all indirect expenditures as overheads without paying attention to the environment and social cost. Conventional accounting practice has not recognized environmental and social cost accounting except for materials, water, energy and other natural resource usage. Besides, conventional accounting has not provided for such practice and particularly for accounting for social cost disclosure and its impact on performance.

Corporate social responsibility is centered on the concept of stewardship accounting. This concept lies at the root of financial reporting. The concept of stewardship accounting provides the link which unites financial accounting and social responsibility accounting in an unbroken chain of historical development. Accordingly, this concept should be interpreted to mean that the managers of business corporations have a responsibility to society as stewards of the social assets entrusted to them. Social stewardship implies an obligation to disclose information which will allow informed judgments to be made about the quality of the social management of these assets, which we may define as the management of assets for the benefit of society.

In this context, the environment is considered as an area in which corporate social objectives may be found. This reflects the growing concern in recent years about the natural resource’s depletion, unacceptably high levels of pollution, global warming, acid rain and deforestation, amongst other issues. The environmental crisis has intensified the debate about social accounting and the role that accounting can play in mitigating or reversing the crisis (Odemerho, 2008).

Long-term environmental strategies at national and international levels were proposed by the World Commission on Environment and Development (1987). The centerpiece of the Commission’s Report was sustainable development that meets the needs of the present without compromising the ability of the future to meet its own needs. This report stressed the need to account for the use of environmental resources and substances which may damage the environment. An effective form of intervention, according to Pearce (1999), was ‘the-polluter-pays’ principles, which requires those who produce products or services to bear the cost of achieving agreed standards of environmental quality.

The growing concern about the environment, and in particular sustainability, has promoted legislation at the national and international levels. In Nigeria the Environmental Protection Act of 1990 takes the first steps toward a piecemeal implementation of ‘the-polluter-pays’ principles through a system of integrated pollution control. The Act provides for levies on certain categories of companies to fund the regulatory and control bodies which were to enforce it (Ayeni, 1998). Controls are placed on emissions and industrial processes and there is more public disclosure on the operations of polluting companies. For the accounting function, a legal obligation is imposed to minimize waste production utilizing what is called the “Best Available Technology Not Entailing Excessive Cost” (BATNEEC) principle (Adewumi, 2005).     

Accountants have begun to define some ecological issues falling within their range of skills. For example, CIMA (1997) argued that the forward thinking management accountant should be taking an active role in environmental management, as he or she has key skills to apply to the process.

The basic financial accounting model may be an impediment to change as it only records and employs the data that arise from a transaction which generates a price. Prices are only generated when property rights are transferred. Majority of the matters that are of concern in ecology are things over which property rights do not exist. As a result, the basic financial accounting model ignores it (Gray, 2003). Although there is an active and essential role that accountants can play in the development of sound environmental and reporting procedures, much work must be done to develop more comprehensive reporting systems involving both quantitative and qualitative techniques.

Recent accounting research is focused on the demand for data on the environmental performance of an entity and the obligation which accountants have in providing information to shareholders and other users of environmental accounting information on the costs and benefits (Bell & Lehman, 2002).

The United Nations Environment Program (UNEP) has been active in directing attention to issues of environmental disclosure. Recommendations have been made for the disclosure of key environmental issues facing firms and plans for addressing them; progress in addressing changes required by future legal requirements; actual and projected-levels of environmental expenditure; energy use, materials use, emissions and waste disposal routes; financial estimates of savings and benefits flowing from pro-environment efforts; and an independent audit statement (Adams, 2000). In spite of this and other similar efforts, the preference has been to avoid regulated reporting. This situation encourages companies to generally give low priority to the reporting of environmental information. For instance, a survey found that only 33 percent of the top UK Companies produced a separate environmental report. Out of this, 14 percent of the reports included quantifiable targets and 19 percent reported on poor performances (Adams, 2000).  The slow response on the part of Companies towards heightened public concern over environmental issues is unfortunate in view of the fact that external reports are extremely valuable as a means of promoting public accountability, the need for which is central to the emerging green agenda. The problem is not particular to the UK, as it has been observed across several countries including Cameroon.

1.2 Statement of the problem

Today, the level of demand goes beyond the direct impact of the organizations business and also incorporates how corporations can contribute to societal and environmental causes. For corporations, these activities are manifested through the concept of Corporate Social Responsibility (CSR). However, from a corporate perspective, it is difficult to measure if these changes can have a positive impact on a firm. Instead, these contributory practices are mainly measurable from a philanthropic perspective. “Business is not divorced from the rest of the society.

Communities have expressed more mistrust of corporations because of various scandals. This has put business ethics in the spot light influencing companies to be good corporate citizens, respecting the law but also to create good social values and principles.

It has been observed that governmental policies in both developed and developing economics have partially allayed many environmental problems, the role of corporations is also crucial for the achievement of ecological sustainable development. A logical reason for this problem lies in the fact that companies are the main source of environmental problem. Most of these companies have the financial resources, the technological knowledge and the institutional influence to provide ultimate solution; yet their responses are passive and inadequate social information are disclosed to enable users make meaningful investment decisions. The information that is provided by these companies is less than users’ requirement and expectation gap therefore arise.

1.3 Objectives of the study

The main objective of the study is to examine the effect of corporate social responsibility on financial performance of banks in Cameroon.

The specific objectives of the study are as follows:

1. To determine the extent to which corporate social responsibility costs affects return on assets of banks in Cameroon.
2. To determine the extent to which corporate social responsibility costs affects return on equity of banks in Cameroon.
3. To determine the extent to which corporate social responsibility costs affects net profit margin of banks in Cameroon.

1.4 Research questions

The research questions for the study are as follows:

1. To what extent does corporate social responsibility costs affects return on assets of banks in Cameroon?
2. To what extent does corporate social responsibility costs affects return on equity of banks in Cameroon?
3. To what extent does corporate social responsibility costs affect net profit margin of banks in Cameroon?

1.5     Research hypotheses    

In order to achieve the objectives of this research, the following null hypotheses are stated:

1. Corporate social responsibility has no significant effect on return on asset of banks in Cameroon.
2. Corporate social responsibility has no significant effect on return on equity of banks in Cameroon.
3. Corporate social responsibility has no significantly effect on net profit margin of banks in Cameroon.