Abstract:
Corporate Social Responsibility (CSR) is considered as an approach that contributes to
sustainable development by delivering economic, social, and environmental benefits to all
stakeholders. However, there is no consensus in the literature on the relationship between
CSR and financial performance of corporations. Hence this study endeavored to explore
the impact of CSR on corporate financial performance referring to the manufacturing
companies listed in the Colombo Stock Exchange in Sri Lanka. The Stakeholder
Perspective Theory provides valid insights to develop a CSR scale and it was used to
measure CSR whereas the Return on Assets and Return on Equity were used as the
proxies for the Financial Performance of corporations. Further, the risk ascertained
through the Debt-to-Equity ratio considered as the control variable. The sample of this
study consisted of ten manufacturing companies listed in the Colombo Stock Exchange
and the sample period spaned for five years from 2011 – 2018. Accordingly, the study
used 50 firm-year observations for the analysis and this study was based on secondary
data and quantitative approach. Descriptive statistics, correlation coefficient, and panel
data regression analysis techniques were used to accomplish the objectives of the study.
The results revealed that CSR had a significant positive impact on the corporate financial
performance of listed manufacturing companies in Sri Lanka. Moreover, it revealed that
the control variable of risk had a significant negative relationship with Return on Assets
while an insignificant relationship with Return on Equity. This study recommends the
companies to maintain CSR activities at optimum level for all stakeholders as it leads to
improve financial performance.
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Keywords: Corporate financial performance, Corporate social responsibility, Colombo
Stock Exchange, Return on assets, Return on equity
