An Investigation of Impact of

Corporate Social Responsibility

(CSR) on Firm Performance –
Evidence from Pakistan
SUBMITTED BY
MUHAMMAD IFTIKHAR HUSSAIN
R. # E11MBA075 (2011-2015)

SUPERVISED BY
MR. IFTIKHAR AHMAD (ASSISTANT PROFESSOR)
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Corporate Social Responsibility
(CSR)

Social and Environmental

responsibilities performed by
corporations along with their
economic functions
Iftikhar Hussain (E11MBA075, 2011-2015)
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Objectives:

 To ascertain both qualitative & quantitative

aspects of costs and benefits associated with CSR.
 To investigate the relationship between stock
prices, firm performance, and stock market
volatility in relation with CSR.
 Reasons corporations avoid CSR

Iftikhar Hussain (E11MBA075, 2011-2015)

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Research Question

What are the effects of CSR

on stock value and firm
performance

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Wang & Hsu (2011) narrated that CSR affects the

performance of a firm in a positive way. Company being a
cooperate citizen not only excel financially but also can earn
more goodwill due to CSR activities. Kim (2010) analyzed the
importance of CSR activities on a company’s systematic and
unsystematic risks with focusing on short term financial
performance. The findings of the study suggested that CSR is
negatively related to company’s systematic and
unsystematic risks and concluded that a company can
reduce its risk with contributing towards CSR.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Snider, Hill and Martin (2003) contended in his

exploration concentrate on that grasping the CSR
benchmarks incorporates costs. These costs might be
short lived in nature or relentless outpourings. These
costs may incorporate the purchase of new biologically
very much arranged equipment, the change of
organization structures, or the utilization of stricter quality
controls.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Tsoutsoura (2004) investigated that socially tried and

true corporate execution can be associated with a
movement of fundamental concern points of interest.
Regardless, a great part of the time, it creates the
impression that the time of the costs and points of
interest can be contorted—the costs are snappy, and
the focal points are not consistently recognized
quarterly. Before long, various focal points can be
perceived.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Doorman and Kramer (2006) examined in their study

that CSR mindful associations moreover have less risk of
negative extraordinary events. Ignoring negative social
and normal externalities while regarding an association
might be proportionate to neglecting colossal tail peril.
The risks related to CSR could be assembled into three
classes: corporate organization, environmental
perspectives, and social points.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Mishra & Suar (2010) examined the influence of

CSR on financial and non-financial
performance of Indian companies. Findings of
the study suggested that companies who were
listed on stock market have shown better CSR
activities which leaded them to better financial
performance than the non-listed companies.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Fiori, Di Donato & Izzo (2007) conducted a study to find

the relationship between contribution in CSR and the
stock prices of Italian Companies but their study
concluded that stock prices of Italian companies are
not affected by CSR activities. Mackey & Barney (2007)
conducted a study to observe the reduction,
improvement or no change in the market price of
company due to CSR activities.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Margolis & Walsh (2003) considered CSR

activities as a strategic tool to promote the
economic objective of the company. CSR is
best practice for value addition in company
performance due to strengthened relations with
stakeholders.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 The study of Li, W and Zhang (2010) was conducted to address

the impact of Corporate Social Responsibility (CSR) activities
on firms’ performance of Asian Emerging Markets. Secondary
Data was collected from an Asian brokerage firm of 3 years,
from 2001 to 2004. Findings of study have shown positive
significant relationship in market valuation of Asian firms and
corporate social responsibility (CSR). This study concluded that
corporate social responsibility (CSR) activities reward firm’s
performance.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Margolis and Walsh (2001) studied the relation between

firm performance and CSR activities through finding
impact of CSR activities on profitability and asset
valuations. This study concluded that Social
performance effects the firm performance in such a
way that high increase in expenditures incurred on CSR
activities leads to higher operating cost that decrease
the firm profitability.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Literature Review

 Cohen et al. (1997) narrated that there is no relation in

risk adjusted returns and CSR activities. The study of
Hamilton (1995) studied on CSR activities performed by
chemical industry and found significant abnormal
negative returns in response to the Toxics Release
Inventory. Filbeck and Gorman (2004) narrated that
financial performance is increased upon declaration of
new environmental protection plan.

Iftikhar Hussain (E11MBA075, 2011-2015)

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Hypothesis:

 HI : CSR positively contributes towards firm

performance
 H2 : Market value of firm that contribute towards
CSR is substantially high
 CSR is positively related to cash dividends

Iftikhar Hussain (E11MBA075, 2011-2015)

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Methodology:

A sample of 18 blue chip companies from KSE-100

 Data collected for six years (2009 – 2014)
 Calculated EPS, DPS, ROE, Dividend yield, and
MPS
 Regression and correlation models were applied
through SPSS & STATA

Iftikhar Hussain (E11MBA075, 2011-2015)

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Sample Selection:

Engro Dawood Herculis International Security Papers

Corporation Chemicals Industries

MCB Pakistan Cables Al Ghazi Tractors Rafhan Maize

Products
Pakistan Nestle Pakistan Shell Pakistan Indus Motor
Petroleum Company
Limited
Philp Morris IGI Insurance First National Feroze Sons Labs
Equities
OGDC Unilever Pakistan
Iftikhar Hussain (E11MBA075, 2011-2015)
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CSR CONTRIBUTION DETAIL

1. Education 2. Health 3. Social Welfare

4. Environment Protection 5. Sports 6. Water Supply
7. Charity 8. Energy 9. Livelihood & Capacity Building
10. Infrastructure Development 11. Disaster Management
12. Water Sanitation 13. Enterprise Development
14. Women Empowerment

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Summary of CSR Activities:

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OGDC Pakistan

Oil and Gas Development Oil and Gas Development

Company Company (OGDC)
35
300
30
250
Amount in Rs.

25
20 200
15 150
10
100
5
50
0
2009 2010 2011 2012 2013 2014 0
EPS 12.91 13.76 14.77 22.53 21.11 28.81 2009 2010 2011 2012 2013 2014
DPS 8.2624 5.504 5.4649 7.2096 8.2758 9.2192
MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Unilever Pakistan

Unilever Pakistan Unilever Pakistan

500 10000
450 9000
400 8000
Amount in Rs.

350 7000
300 6000
250 5000
200 4000
150
3000
100
2000
50
1000
0
2009 2010 2011 2012 2013 2014 0
EPS 230 246 308 413 460 474 2009 2010 2011 2012 2013 2014
DPS 229 246 307 413 457 473 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Nestle Pakistan

Nestle Pakistan Nestle Pakistan

200 10000
180 9000
160 8000
Amount in Rs.

140 7000
120 6000
100 5000
80 4000
60
3000
40
2000
20
1000
0
2009 2010 2011 2012 2013 2014 0
EPS 66.27 90.69 102 129 129.37 174.85 2009 2010 2011 2012 2013 2014
DPS 70 75 65 70 125 155 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Security Papers

Security Papers Security Papers

9 90
8 80
7 70
6 60
Amount in Rs.

5 50
4 40
3 30
2
20
1
10
0
2009 2010 2011 2012 2013 2014 0
EPS 6.73 7.05 6.38 7.66 6.49 8.34 2009 2010 2011 2012 2013 2014
DPS 5 5 5 6 4 6 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Pakistan Cables

Pakistan Cables Pakistan Cables

9 180
8 160
7 140
Amount in Rs.

6 120
5 100
4 80
3 60
2
40
1
20
0
2009 2010 2011 2012 2013 2014 0
EPS 2.98 2.12 3.34 4.92 6.08 7.81 2009 2010 2011 2012 2013 2014
DPS 2.25 1.5 2 3.25 4 4.5 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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IGI Insurance Limited

IGI Insurance Limited IGI Insurance Limited

3 300

2.5 250
Amount in Rs.

2 200
1.5 150
1 100
0.5
50
0
2009 2010 2011 2012 2013 2014 0
EPS 1.25 1.73 2.32 2.53 1.48 1.11 2009 2010 2011 2012 2013 2014
DPS 0 0 0 0 0 0 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Al-Ghazi Tractors

Al - Ghazi Tractors Al-Ghazi Tractors

50 400
45 350
40
300
Amount in Rs.

35
30 250
25 200
20
15 150
10 100
5 50
0
2009 2010 2011 2012 2013 2014 0
EPS 43.61 44.46 31.65 44.62 31.94 27.17 2009 2010 2011 2012 2013 2014
DPS 20 20 20 22.5 25 25 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Indus Motor Company Limited

Indus Motors Company Limited Indus Motor Company Limited

60 1000
900
50
800
Ampount in Rs.

40 700
600
30 500
20 400
300
10 200
100
0
2009 2010 2011 2012 2013 2014 0
EPS 17.6 43.8 34.9 54.7 42.7 49.3 2009 2010 2011 2012 2013 2014
DPS 10 15 15 32 25 29.5 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Feroze Sons Laboratories

Ferozsons Laboratories Ferozsons Laboratories

16 600
14
500
12
Amount in Rs.

10 400
8 300
6
200
4
2 100
0
2009 2010 2011 2012 2013 2014 0
EPS 8.77 12.7 10.47 13.53 13.54 13.83 2009 2010 2011 2012 2013 2014
DPS 1 0 2.5 4.5 7 12 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Rafhan Maize Products

Rafhan Maize Products Rafhan Maize Products

350 12000
300 10000
250
Amount in Rs.

8000
200
6000
150
100 4000
50 2000
0
2009 2010 2011 2012 2013 2014 0
EPS 140.43 198.99 220.2 220.86 301.14 272.48 2009 2010 2011 2012 2013 2014
DPS 90 100 115 115 130 135 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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International Industries

International Industries International Industries

10 70
9
60
8
Amount in Rs.

7 50
6
40
5
4 30
3
20
2
1 10
0
2009 2010 2011 2012 2013 2014 0
EPS 3.8 8.4 8.6 2.7 4.7 4.2 2009 2010 2011 2012 2013 2014
DPS 2.25 4 5 2 3.25 3.25 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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First National Equities Limited

First National Equities Limited First National Equities

5 14
12
0
Amount in Rs.

10
-5
8
-10 6
4
-15
2
-20
2009 2010 2011 2012 2013 2014 0
EPS -17.89 -2.22 -3.06 0.27 -0.13 0.83 2009 2010 2011 2012 2013 2014
DPS 0 0 0 0 0 0 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Philip Morris Pakistan

Philip Morris Pakistan Limited Philip Morris Pakistan Limited

20 1200
15
10 1000
Amount in Rs.

5
800
0
-5 600
-10
-15 400
-20
-25 200
-30
2009 2010 2011 2012 2013 2014 0
EPS 15.68 9.38 -7.18 -9.33 -7.17 -24.07 2009 2010 2011 2012 2013 2014
DPS 4 2.5 0 0 0 0 MPS

Iftikhar Hussain (E11MBA075, 2011-2015)

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Shell Pakistan

Shell Pakistan Shell Pakistan

30 300
25
20 250
15
Amount in Rs.

10 200
5
0 150
-5
-10 100
-15
-20 50
-25
2009 2010 2011 2012 2013 2014 0
EPS 23.95 15.1 8.47 -18.08 9.92 -9.97 2009 2010 2011 2012 2013 2014
DPS 26 10 0 0 4 8 MPS

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Dawood Hercules Limited

Dawood Hercules Limited Dawood Hercules Chemicals

15 250

10
200
Amount in Rs.

5
150
0

-5 100

-10 50
-15
2009 2010 2011 2012 2013 2014 0
EPS -9.46 6.75 6.01 2.04 7.17 6.18 2009 2010 2011 2012 2013 2014
DPS 9.19 -4.12543 -1.5961 0.144207 4.286226 0.538919 MPS

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Conclusions:

 CSR positively effects the market value of

the firms
 CSR positively effects the firms’
performance
 CSR has no relation with cash dividends

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Recommendations:

 Firms should have a clear and concise CSR

policy
 Government should have a statutory body to
govern CSR practices undertaken by firms
 Government should devise rules and regulations
to monitor the Firms’ roles in CSR for the benefit
of the society

Iftikhar Hussain (E11MBA075, 2011-2015)

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