The Impact of Corporate Social Responsibility on the

Financial Performance of Chinese Oil and Energy Firms

Abstract

This paper was aimed at investigating the impact of corporate social responsibility on the financial performance of Asian Oil and energy firms. The concept of corporate social responsibility has been studied in a vast length by the previous researcher, but few have given much concentration on the on oil and energy corporations. The research used quantitative research method, which involved the collection of second-hand data from the previous researchers to understand the views of the individuals involved in the given area under study. Furthermore, the information from the annual reports, company publications and sustainability reports formed essential sources of information for the research. The sample size for the companies which were used was 30. To perform data analysis, the paper used two regression modes and TOBIN’S Q model. Therefore, descriptive statistics and linear regression were an important part of the analysis. From the results, the research showed that the use the CSR does not improve the financial performance but rather helps the firms to become socially responsible for enhancing the value of the firms. CSR used alone does not indicate how the company could change their financial performance, but rather shows how companies could improve their value to the public and the investors. The research implications are to the oil and energy firms in the world to understand the role of the CSR towards creating value for them. Furthermore, it provides the oil and energy firms with the information on areas they should concentrate on in their CSR goals. The paper is also important to the academic sector because it adds more literature on the existing studies.

Introduction

1.1 Background

For the last decade and a half, most of the companies have been associating the CSR concept with environmental issues. However, the concept of CSR has more to do with the creation of values, investments and giving back to the society which they are operating in. China has over 100 companies which deal with the production and sale of oil and energy. The Chinese economy has been founded on the premise that growth results in more and better opportunities (Marti et al. 2015). Therefore, as large companies, such as those in the oil and sector, exploit natural resources, they need to provide mutual benefits to the local communities from which they obtained their materials. Notably, CSR does not only embody the surrounding local environment. Instead, other factors come into play for the CSR successful implementation. Notably, the stakeholders and other personnel with a direct reach and impact on the business activities are prioritized too in the discussion surrounding CSR strategy formulation and implementation (Turker, 2009). Margaretha and Rachmawayi (2016) explain that there are two types of stakeholders. These include primary and secondary stakeholders. Primary stakeholders are those with a direct link to the company as well as have an influential role within the company. Alternatively, secondary stakeholders define those who do not have a direct link to the organization but are still impactful. These include the government, media, and other competitors. Freeman (1984) stresses on the morals and values which are needed in the management of the organizations as well as the key functions which each of the key players of the organization should perform.

Research shows that companies use CSR creativities as a tactical instrument to man-age their connection with important investors who have a specific influence on their achievements or failures Caniato et al. (2012), corresponding to the enlightened self-centred viewpoint. Companies with higher brand equity involve themselves in CSR doings proactively to accomplish implicit pledged duties to communicate to their market and tell them that they are more responsible socially as compared to their competitor (Fletcher, 2014). It is correct to reason that CSR creativities done by a company with high brand equity will get relatively more concentration from the main company’s different types of investors because high brand equity companies have a higher understanding of the market (Claudio, 2007). This understanding of the company’s CSR actions, strengthen the brand’s positive relations (Baumann-Pauly et al. 2013). It implies that companies with relatively higher corporate brand equity can profit extra from CSR activities than companies with a low level of brand equity (Cambra-Fierro et al., 2008). Companies with high brand equity can profit extra from CSR because of obtaining a more favourable response from their different shareholders (Crane et al. 2008). In some instances, if price and quality are the same customers may be yearning to shift to a brand that is involved in CSR activities such as environmental protection, better human rights records.

Some studies have been advanced on the influence of CSR on firm performance (Vance, 2010; Njoroge, 2009). Vance (2010) analyzed the relationship between reputational indexes of corporate social involvement derived from ratings of forty-five corporations by corporate staffers and fifty corporations by concerned business students and the percentage change in the price per share. Vance (2010) concluded that corporate social responsibility is inversely linked with performance in the short run. However, his study failed to specifically highlight the effect of environmental and ethical CSR on profitability, a gap this current study seeks to fill. Njoroge (2009) found a positive influence of corporate social responsibility on the rate of growth in Kenyan mobile phone companies. However, Njoroge (2009) reports the regression coefficients but do not report the correlation coefficients, and therefore the strength of the negative association is thus not known. Moreover, the study fails to show the specific effects of ethical CSR and philanthropic CSR on the rate of growth in Kenyan mobile phone companies. Moreover, other measures of performance, such as EBIT were not considered in Vance (2010) report; gaps this current study sought to fill. Despite these empirical and literature-based findings of these researchers, there still exists little information and evidence on how oil and energy companies which are the most companies which are expected to maintain CSR in their companies. “

The application of CSR by the companies has been associated with the financial performance of the companies. According to Buldybayeva (2014), the company’s engagement in the CSR has helped them to cut on the costs which they need in the maintenance of the environmental destruction. This is so especially in the companies which have been placed in environmental misconduct and which have been fined due to their acts making them spend a lot. Upholding CSR has, therefore helped in reducing these costs.

1.2. Research Motivation

One of the most discussed issue when it comes to CSR is the impact which CSR brings to the company and especially the finance-related development. However, most of the researchers continue to hold that upholding CSR by the companies is far more costly as the company is required to invest in activities which will help it to become more socially responsible. Some of these activities include sponsorship in the community, donations, employees benefits packages and pollution reduction. The view is that with all these activities and investments, most of the companies will have their profits reduced while at the same time becoming competitive (Alexander & Buchholz, 1978). Furthermore, there is more debate on whether CSR has a positive impact on financial performance, or it increases the cost of the company. This formed the motivation of this research.

However, according to the view of Freeman (1994), he provided a different view of the stakeholder theory. According to Freeman, the existence of the company is obliged to the stakeholders, and most of the time when they are dissatisfied, the future of the company tends to be compromised. Therefore, according to Clarkson, the bottom line of the CSR is to protect the existence of the company. Mele (2008) further claims that companies need to understand that they should make considerations to all the individuals who have a claim or stake to the company. Thus, it should not be about the shareholders only but even the stakeholders (Ruf et al. 2001). According to Aver & CAdez (2009), when a company has the ability to manage their CSR well, they can enjoy their financial performance. For example, when customers become satisfied, they will tend to buy more and even increase their purchase intention. For the employees, they tend to perform effectively.

1.3. Contribution

The contribution of this research is based on providing more insights into how the oil and energy firms should use their CSR in order to increase their financial performance. Furthermore, the paper provided more information on which of CSR activities they should be implemented in the companies. Furthermore, it provides more information to the current literature in the research topic within the context of the oil and energy sector.

1.4. Research Objectives

The main aim of this research was to investigate investigating the impact of corporate social responsibility on the financial performance of Asian Oil and energy firms.

The main objective of this research are:

• To investigate the relationship between financial performance and investment in CSR.

1.2 Structure

This paper was aimed at investigating the impact of corporate social responsibility on the financial performance of Asian Oil and energy firms. To understand this, the paper first introduced the background information to the research. Further, the paper provided a literature review in the second chapter, which provides information on the previous literature. The paper then provides the research methodology, which was used. The paper further provides the research objectives which was acquired after analysis. The paper further discussed these results in relation to the previous literature. Finally, the paper provides the conclusion of the whole research based on the research objectives.

 Literature Review

A large number of companies in China have embraced corporate social responsibility (CSR) as a way of improving their business image and reputation (Abdolvand and Charsetad, 2013.). The main theories which are going to be used include stakeholder theory and agency theory. CSR embodies many elements that the companies strive to achieve. Thus, as companies realize that CSR has a direct relationship with their financial performances, they have carried towards implementing the various CSR elements as deemed fit. The Chinese government has been supportive of the growth of the economy. In fact, Margaretha and Rachmawati (2016) argue that companies employ CSR activities that aim towards attracting investors as well as ensure business continuity.

The Chinese economy has been founded on the premise that growth results in more and better opportunities (Sala-i-Martin et al. 2015). Therefore, as large companies, such as those in the oil and sector, exploit natural resources, they need to provide mutual benefits to the local communities from which they obtained their materials. Notably, CSR does not only embody the surrounding local environment. Instead, there are other factors that come into play for the CSR successful implementation. Notably, the stakeholders and other personnel with a direct reach and impact on the business activities are prioritized too in the discussion surrounding CSR strategy formulation and implementation (Turker, 2009). Margaretha and Rachmawayi (2016) explain that there are two types of stakeholders. These include primary and secondary stakeholders. Primary stakeholders are those with a direct link to the company as well as have an influential role within the company. Alternatively, secondary stakeholders define those who do not have a direct link to the organization but are still impactful (Riaz 2010). These include the government, media, and other competitors. Freeman (1984) stresses on the morals and values which are needed in the management of the organizations as well as the key functions which each of the key players of the organization should perform.

Contrary to the popular opinion that CSR is all about environmental sustainability and conservation, there are other factors that ensure business continuity through CSR. Through CSR implementation, a company can add value to its business and operations. Through this value addition, the company can then improve its financial performance. Through the eyes of a prospective investor, CSR is a tool that improves the value of a company. Similarly, CSR can also be deemed as a non-essential strategy through another perspective (Turker, 2009). This is because, when embarking on CSR, some of the activities can prove to be a burden to the company.

Also, from the perspective of the consumer and the public, CSR acts as a positive activity that highlights the stance that a company towards some of the social issues such as diversity, environmental conservation, and employee empowerment (Manayange, 2013). Thus, CSR is a useful factor to the public as it shows the responsibility of a company towards the general society. Besides, the current world sees an increase in conscious public. The population tends towards being more vocal and opinionated regarding some societal issues, including politics and environmental conservation. Also, as the population demographic changes, so make the consumer behavioural patterns. A large portion of the consumers in the current world tend to be young people who are conscious regarding the environment and other social issues. Therefore, in the event that a company discards the use of CSR in their company objectives, then the demand for their products and commodities will decrease. In fact, according to Young, Hwang et al. (2010) explain that 30 per cent of consumers are very conscious and concerned regarding environmental issues.

Oeyono et al. (2011) explain that the social responsibility of various organizations should be openly availed to the public. This allows for public input and public scrutiny to verify the contents of the CSR policies by different companies. Also, the related social costs, as well as the benefits attained from social responsibility, should be factored into the business decisions and also factored into the price of the commodities and services. Furthermore, since a company should act in the best interests of the consumers, it should also take part in the social affairs such as community welfare and wellbeing. Therefore, companies should strive to be involved in the welfare of its employees, improve the quality of their products and services, introduce innovative products, work towards environmental conservation and also the promotion of fundamental scientific research. For instance, in the current Covid-19 pandemic, companies should embrace social responsibility as best as it could since they are part of the community. Furthermore, Carroll (1979) grouped social responsibilities into four groups, namely; economic responsibility, legal responsibility, ethical responsibility, and discretionary responsibility. However, Tucker (2009) refuted these categories by eliminating economic responsibilities.

Li et al. (2019) explain that companies are tending towards CSR activities on a global scale due to the way business is being perceived on the current contemporary basis. Businesses and companies are implementing a CSR approach through cultivating sustainable development and also impact mitigation efforts. In the oil and energy sector, companies exploit a lot of natural resources that may have a negative impact on the environment. Therefore, compared to other industries such as healthcare that may have far more lenient CSR policies, oil and energy companies tend to have bigger concerns when it comes to CSR strategies. Oil and energy companies do not only need to concern themselves with the environmental aspects of CSR (Li, et al., 2019). Other factors include community participation. As oil and energy companies exploit resources within a specified location, they have an impact on the local communities residing there. Some of these effects include shifting the communities to a new location, improving the welfare of the local community and using safe means of production that are not detrimental to the health of the local residents (Li et al., 2019).

Young et al. (2010) explain that companies use CSR in improving their brand image and reputation. As the global population embraces technology and globalization, they have become conscious of other social issues that are affecting human society and planet conservation. Various activist groups have the limelight to advocate for what is seemingly right in the society. Therefore, some of the social ills such as employee harassment and discrimination, environmental degradation, and adoption of the use of technology are key factors in determining the brand reputation of any company. Therefore, the last decade has seen employees embrace workers unions that will give them a voice regarding some workplace policies. Also, companies have taken to ‘going green’ in order to improve their brand reputation and image. Young et al. (2010) explain that companies are swayed by the consumers into implementing some of their CSR policies. In a highly competitive market, the voice of the consumers dictates the market trend and the revenues of respective companies.

Dobson (2007) argues that sustainable development is a critical factor in determining and influencing environmental citizenship. Furthermore, sustainable development driven by environmental participation and citizenship lasts longer than the behavioural patterns driven by financial incentives. Most consumers are conscious of the products they are purchasing. The attitude of the consumers regarding a certain product cuts deeper than their behaviour. However, most of the companies focus on the behavioural change of their consumers instead of their perception and attitude. Young et al. (2010) argue that the consumption value reflects consumer choice behaviour. Therefore, if consumers reduce the intake of a particular product, this highlights their perception regarding that particular product. Therefore, if consumers stop using one company’s oil in preference for another, it could reflect their distaste or their attitude towards that product. Most of these attitudes are reflective of the sustainable means of development by these respective companies.

Therefore, for most consumers who place a high value on sustainable development, the companies need to gain an insight into these factors, including more.  In the oil and energy sector, brand strength is a fickle power. In the absence of an innovative and efficient CSR policy and strategy, the company’s brand can decline in the competitive market. (Young et al., 2010). For instance, a company such as China National Petroleum Corporation could have a massive leak in the ocean which is detrimental to marine life. If the company does not have any effective CSR policies and tend to leave the damage to both the people who depend on marine life for sustenance as well as the marine life such as corals, the company easily loses its brand strength. Brand culture defines the identity of a company, and it influences the brand reputation. Therefore, for oil and energy companies, they need to have an impressive and attractive brand culture that resonates with the social norms of the consumers. For instance, the company needs to embrace diversity. This includes having equal opportunities for everyone regardless of their race, gender, or religion. A company that does not offer equal opportunities tends to suffer a public disdain, and this negatively impacts on the purchasing and behavioural trends of its consumers (Young et al., 2010). Other factors including finances, demographics, choice of lifestyle and trade-off between ethical factors are also critical in CSR strategies and policy. These factors influence the way individuals perceive their purchases and also the application in a real decision process. Thus, if companies do not embrace the use of CSR that seeks to improve sustainability as well as improve the welfare of its employees and proper business practices, the perception towards the company decreases, and the reputation suffers.

Uadile and Fagbemi (2012) argue that in business administration, the social impact is a necessity in determining the success of the company. Furthermore, there is a relationship between the success of a company based on its strategy and the social and environmental aspects of the business. Therefore, CSR is an approach that aims at improving this relationship and guide the companies into better decision-making processes. Notably, many companies have three aims that guide their respective bottom line. These include people, planet and profit (Uadiale & Fagbemi, 2012). Many companies use these three Ps for their operations and the objectives. Therefore, CSR combines these three factors into one and guide the corporate decision-making process. Hence, businesses and organizations integrate three dimensions that include; economic, environmental, and social aspect. The triple bottom line is solved by the CSR efforts and strategies.

CSR in Chinese oil and energy sector usually aim at satisfying the triple bottom line. Thus, most oil and energy companies use CSR efforts to remedy the adverse effects brought about by extraction to the local communities (Uadiale & Fagbemi, 2012). These companies usually provide piped water delivery, health services, including hospitals and clinics, schools, and employment opportunities—the main driving force for CSR efforts in Chinese oil and energy companies in the government. CSR has become related to the society-business interface, and there have been various theories proposed. There is extensive literature that indicates that CSR has a correlation with firm financial performance.

Positive Correlation between CSR and Financial Performance

Various studies have indicated that there is a positive correlation between CSR efforts and financial performance of any company. Uadiale and Fagbemi (2012) state that investment into CSR efforts has a positive return in terms of brand corporate image and the overall financial performance of the organization. In fact, Uadiale and Fagbemi (2012) emphasize that the benefits of CSR are better and bigger compared to the incurred costs. Waddock and Graves (1997) explain that in the interests of satisfying the stakeholders, there are various benefits that arise from this. The relevant stakeholders, in this case, include the employees, the shareholders, the suppliers, community, government, environment, and others. Therefore, by embracing accountability to each and every one of them, the company manages to have a positive reputation and an overall positive impact. Roberts and Downling (2002) explain that employing the relevant CSR initiatives can help elevate the reputation of the company as well as improve the company trust among the employees and the customers alike. Therefore, having a positive impact on the capital market elevates the position of the company on various firm aspects, especially on the financial aspect. Also, according to Stanwich and Stanwick (1998), there is a positive but weak relationship between financial performance and CSR initiatives. However, McWilliams and Siegel (2000) argue that R&D and innovation are correlated. Also, CSR and financial performance have a positive correlation with R&D and innovation. Rodriguez-Fernandez (2016) proposed a conceptual model that showed the relationship between corporate social responsibility, financial performance, and corporate governance.

In studies that used the proposed instrumental theory from interest groups, there was a positive correlation between financial performance and CSR (Rodriguez-Fernandez, 2016). This is because these studies used the instrumental theory to solve for the misalignment arising from statistical analyses. Other authors such as McGuire et al. (1988) and Olayinka and Temitope (2011) proposed the use of a time lag factor that worked in improving the studies on the relationship between CSR and financial performance over a given number of years. Therefore, using CSR as the measure of social behaviour, there was evidence that CSR had a better correlation with firm financial performance over a given number of years. Callan and Thomas (2009) proposed the use of control variables that helped to reduce the empirical deficiencies through controlling some key variables and also test for non-linearity of various variables. The conclusion from this updated study was that CSR and financial performance enjoy a positive relationship. Also, Oeyono et al. (2011) explain that there is a positive relationship between change in CSR performance and short-term financial benefits as well as long-term benefits such as growth in sales.

No Correlation between CSR and Financial Performance

This is another theory that posits that there is no relationship between CSR and firm performance. Various works of literature also support this theory that CSR does not have an impact on the financial performance of any firm. McWilliams and Seigel (2000) argue that the neutrality comes from various variables aligned to both CSR and financial performance, and thus, the connection between the two is purely coincidental. Uadiale and Fegbumi (2012) argue that the companies that deal with the supply of CSR products and services to their own customers tend to have a different demand curve from those that do not embark on CSR efforts to their customers. Therefore, there is no connection between these two variables, as these companies have different market forces that determine their demand and supply.

Furthermore, Ullmann (1985) explains that there is no clear framework that determines the relationship or acute representation between the CSR efforts such as social performance and economic performance. Therefore, there is a reduced likelihood of finding the relationship between these two since there are no metrics that can efficiently define the relationship. Wood and Jones (1995) also explain that there is a misalignment problem that tends to cause a variance in the results. Besides, Rodriguez-Fernandez (2016) states that there is no defined conclusion on what the relationship between CSR and financial performance is. The ambiguity is as a result of glaring holes within the study, such as the variables that measure financial performance and CSR initiatives. There is also the absence of models that clearly define this relationship. McWilliams and Siegel (2000) explain that there is no correlation between financial probability and CSR due to the errors arising from mathematical and statistical analyses as well as not including R&D variables into the model.

Notably, Schuler and Cording (2006) argue that there is an unclear relationship is mainly due to two reasons. First, the empirical deficiencies may create a wrong analysis and distort the correlation. Second, there are still significant deficiencies in the theoretical models proposed by various authors as to what comprises the link between CSR and financial performance. Oeyono et al. (2011) found a statistically insignificant relationship between short-term return on asset (ROA) and long-term (five years) ROA. Furthermore, according to various profitability forecasting calculations for companies that used CSR initiatives, compared to those that did not have CSR initiatives, there was also insufficient evidence that showed a positive correlation.

Negative Correlation between CSR and Financial Performance

This theory is based on various managerial theories. Uadiale and Fegbumi (2012) explain that a firm can choose to reduce its CSR investment and spending in order to improve their short-term profitability margins. Barnea and Rubin (2010) describe that there is an opposite trend between CSR and financial performance. Therefore, the higher the amount of CSR spending and investment, the lower the financial performance and vice versa. Other authors have also argued that embracing CSR initiatives reduces the competitive advantage of these firms (Waddock et al., 1997, Uadile and Fegbumi, 2012). Ahamed et al. (2014) argue that the increased costs incurred from CSR efforts have an impact on the bottom line. Therefore, shareholders have reduced wealth and profit.

Rodriguez-Fernandez (2016) explains that companies tend towards social context. Therefore, in a bid to satisfy the shareholders as well as maximize their profits, companies need to integrate their systems into one. This enables these organizations to focus on the adhering to the law and also deal with the environmental, social, and economic concerns. Rodriguez-Fernandez (2016) argues that there is an increase in the demand for business ethics and social rights.

Corporate Governance and Impact on CSR and Financial Performance

Stakeholder theory is important in the explanation of the exercise of the companies towards CSR and the factors which influence CSR. For instance, the stakeholder theory posits that the reason for the existence of the business is to ensure that they have created values for the stakeholders and also ensure that they have built relationships for themselves. However, Rodriguez-Fernandez (2016) argues that CSR is inseparable from any company’s strategies and performances. Thus, as CSR is incorporated into the business objectives, it does not indicate what the companies are looking for. Rather, it shows the way the company is implementing measures for CSR initiatives. When it comes to CSR it acts as the main channel and umbrella through which activities which are oriented towards the society can be done.

In most of the cases, the companies which tend to uphold CSR strategies seriously, they involve very much with the social orientation. For instance, most of the companies which are CSR diehards tend to engage with society based help whereby they provide relief food and other health-related help even in the areas which they do not have their operations involved (Freeman 1994). In most of the cases, these are in the form of grants.

On the other hand, when it comes to the activities of the CSR towards the customers and the employees of the company, most of the time CSR mainly focuses on environmental and labour practices. However, when it comes to stakeholder theory, its main aim is to embrace the actions of the company and the manager towards the stakeholder through ensuring that the company goals are achieved. Furthermore, the stakeholder theory tends to be keen on other responsibilities of the company towards the third parties of the company, such as the suppliers and financiers (Freeman et al. 2010).

Rodriguez-Fernandez (2016) explain that stakeholder theory best describes the framework that defines the relationship between CSR and financial performance. Notably, in this theory, there are various interest groups that advocate for the company resources that help to uphold, improve and protect company behaviour through labour relations and environmental conservation. In alternative instances, where an organization does not align with the CSR efforts, there is a financial burden that may work to reduce the profits of the company. However, in the event that organizations that use CSR efforts are profitable, then the CSR investments will be an incentive for other companies to invest in them.

According to instrumental theory, investors usually align themselves with the companies that embark on having a quality social behaviour in the event that all other factors are constant (Rodriguez-Fernandez, 2016). Therefore, most companies make their CSR efforts and reports publicly available. Furthermore, the instrumental theory also argues that companies invest a lot in the CSR areas that are deemed as relevant by various interest groups. However, there are some disadvantages associated with the instrumental theory. First, the companies and organizations need to solve the conflict between their values and the objectives and how to align them with the interests of the shareholders (Oeyono et al., 2011). This is as evidenced in agency theory. The shareholders demand profit and wealth maximization. However, the company may be interested in improving its level of CSR investment. This causes an impasse between these two groups. The second drawback occurs when there is an increased need for accountability. In traditional management, the employees are responsible for accounting to the top-level officials and directors. Alternatively, the directors are accountable to the shareholders.

Oeyono et al. (2011) explain that good social performance is compatible with good financial performance. However, in order for a company to have a good social performance, it requires to have a good social responsibility-politics integration as well as proper and adequate strategic consistency. Oeyono et al. (2011) explain that compared to financial performance, social performance is a harder concept to measure. Social performance is relative to different companies. Therefore, when attempting to measure the social performance between two or more companies, the metrics are much harder to compute due to the variance between the two. For instance, an oil company may measure its social performance based on how much it has done for the local community. However, on the other hand, an energy company may measure its social performance based on its charities and social welfare project. Each of these measures counts as CSR efforts. However, they each require different investments, and the success metrics also tend to differ. Furthermore, Oeyono et al. (2011) argue that there is an inverse relationship between economic and social-ethical factors. Therefore, the proposed core indicators for organizational reporting include economic performance, environmental aspects, social aspects, human rights, society and product responsibility.

Methodology

This chapter deciphers the methodology applied to carry out the study topic. The section discusses the analytical regression model and data analysis, specification of variables, the hypothesis, data collection method and time frame of the research, the sample size and sampling technique (sample, number of companies) time frame of the research, and the ethical considerations. These are followed by the conclusion of this section.

1. Research Questions

Research on the governance of the stakeholders to yield more profits has culminated in conflicts (Margolis, Elfenbein and Walsh, 2009).  Many kinds of research clearly indicate that the correlation between stakeholder strategies and financial results is positive, whereas other research has little to no financial performance consequences. Other important key metrics, resulting in enhanced financial performance, through social responsibility, have been investigated. For instance, CSR activities contributing to consumer interaction, stronger business image, increased brand awareness, employee loyalty and a reduction in turnover would evidently improve the companies’ financial performance (Fatma, Rahman and Khan, 2015). Therefore, the main research question aims at investigating the impact that CSR has on the financial performance of different companies. The main industry under research relevant to this study is the Chinese oil and energy firms. China, like most Asian states, provides a myriad of many companies that are in the energy industry. The main research question is:

1. What is the relationship between CSR and financial performance?

2. Study Design
   • Research Method

The proposed research will be aimed at using a quantitative research method. A quantitative research method involves the collection of second-hand data from the previous researchers to understand the views of the individuals involved in the given area under study (Lindlof & Taylor, 2017). This research utilizes quantitative data as analytical evidence on the important elements in the context of statistical analysis. The sampled corporations’ annual reports on sustainable development, the surroundings and social responsibility and various stock exchange online databases are obtained empirically to nullify theory that includes trends and substantiation as to whether CSR affects the financial performance in China oil and energy industry firms (Quinlan & Zikmund, 2015). The unstructured data made useful quantitative techniques in the research analysis and allows researchers to define unique and crucial variables such that data reliability is improved.

A quantitative research approach comprises logical formation and investigation of research problems, testing of hypotheses and determining correlations between predictor variables. The quantitative method requires realistic analyses of empirical data parameters from secondary sources of data applied to statistical examination (Muijs, 2012). This method is highly preferred over both qualitative and mixed research methods because of various reasons. First, unlike qualitative approach, this quantitative study incorporates examining the probable relations among the identified measurable variables.  The researchers’ quantitative methodology helps in evaluating hypotheses on correlations between statistical variables (Creswell, 2014). In the research, I employed the quantitative method to attest the hypotheses by using quantitative data for all variables statistically. Muijis (2012) have indicated that quantitative studies are useful for generalizing concepts, predicting future outcomes and examining variables’ potential causal relationships. Quantitative research involves collecting and analyzing data from credible sources. In this research project, human subjects and the generation of prolific were not considered as the data were subjective of a few selected companies. The gathering of data for this study conversely exempted primary sources like interviews. Mixed method research, on the contrary, is complex and only suitable where the research objective explores and studies human or social problems. Therefore, a mixed research approach is not ideal as a selected quantitative method answers the predominant research questions for my study.

• Research Design

The study will, therefore, use an explanatory approach which involves the process of studying the collected data to provide reasons, ideas and context under which the topic of study. The explanatory design enables the research to respond to general and specific questions of study by identifying the explanations behind the influence of independent variables on the dependent variable (Smith et al., 2018). This review aims to establish and exemplify the reasons why the financial performance of oil and energy firms, through explanatory research designs, can be affected by corporate donation, employee protection, the reduction in greenhouse gasses (GHG) and the reduction of waste to a minimum. For those reasons, the paper will depend on quantitative data to elucidate how these corporate responsibility measures impact on the China energy industry. This involves the second-hand data collected from the previous researcher and using it to analyze, discuss and conclude on the research. Associating different variable in the research makes use of exploratory research design amid the limited acquaintance or high uncertainty level (Quinlan & Zikmund, 2015).

The research design for this study was longitudinal. In this study, financial performance is the predictor variables, and CSR activities are the independent variable that is investigated to determine the relationship between the businesses financial results while accounting for the societal elements, including the longitudinal approach for the quantitative data recorded over a specified period of time (data from the previous three consecutive months). For the assessment of social performance, a longitudinal approach is best adapted, and a time pattern may be integrated into the research. Possible future research may also provide predictive variable output analyses with the corporate social responsibility effect on financial results. Another benefit on the longitudinal research design is that it stresses on the essence of investigators not to erroneously tag-detected relationship between variables as, at all times, the result of a causative connection (Ployhart & Vanderberg, 2010). Different options are present to explain these correlations and establish a statistical influence between the measures of the selected variables in the study. The longitudinal research design in this paper helps in monitoring quantifiable data from sampled companies from the energy sector in China over a given period of time. The cross-sectional design may be critical when a solitary-stroke link between variables is defined. For a fact, the longitudinal design is the better strategy, since the study problems and potential conclusions appear to be focused on the discrepancy between the key variables over the same testing time.

3. Variable Definition

This research involved both a dependent and independent variable. To ensure that the research results were easily moderated and easier use of the regression model, the researchers used control variables. The independent variable for this research was CSR. The dependent variable includes sales, profits, return on investment which is all classified under financial performance. These variables are evaluated to determine the impact of independent variables – social responsibility of an organization, including company practices towards its environment, workplace health, emission of greenhouse gases and wastes recycle on the dependent variables – profitability through metrics like the ROA and ROE.

• Financial Performance Metrics

Conducting an empirical model requires identifying financial performance metrics fit for signifying the different firms’ financial performance. Since organizational value and financial results may be reduced to profitability and productivity, the variables selected were equity return (ROE), asset return (ROA), gross sales (ROS) and stock prices (Venanzi, 2012). One measure of financial performance is the return on assets (ROA) – accounting-based metrics which is critical but subject to biases like accounting procedures and managerial manipulation. The stock price can be included in this model to determine how CSR influences the accounting metrics other than on market-based financial performance metrics. The adjustment in each parameter was measured as presented in the table. The table below illustrates each financial performance variable chosen.

Table 1: Financial performance variables

4. CSR variable

The independent variable – CSR in this empirical model is selected as the appropriate variable to represents the firms care for the society. The most important aspect of past literature has been assessing corporate social responsibility and determining how companies in broad and verse sectors are affected by this variable. The FTSE/ASEAN 40 Index is set to represent the performance of different companies in the Chinese securities markets, as well as the focus of our study on the oil and energy industry.   The ratings assigned to each organization could be a positive score if their CSR activities are deemed socially responsible. The CSR ratings are often determined by an evaluation of every company individually.

5. Control Variable

The three control variables used in the regression model include firm size, debt level, and firm’s research and development expense which have proven in recent studies as critical in explaining the relationship of CSR and CFP (Han, Kim and Yu, 2016). The size of the firm relatively affects the ability of the firm to undertake CSR activities, and the community also anticipates such efforts from big companies compared to smaller ones (Wang et al. 2016). Size is accounted for as the most vital explanatory variable to the quantity and quality of social disclosure (Tilt 2016). Secondly, another control variable is R&D expense which signifies that large corporations with more investment in R&D are most probable of engaging in social sustainability activities and practices relative to smaller firms (Moon and Shen, 2010). Lastly, leverage significantly impacts on the firm’s value, and as such, the ability of a firm to cover the leverage needs influences to elicit savings like recycling or waste reduction efforts, and influence activities that happen now or future costs like pollution control equipment to eliminate fines and penalties on the environment (Unit et al. 2016)

6. Hypothesis

For the propose of reaching the results of the research, it is important for the researcher to ensure that hypotheses are defined and developed. Based on the type of research paper, there are two hypotheses which can be developed, including statistical hypothesis and research hypotheses. For this research, the researcher intended to use the research hypothesis as for the second option, it is mostly associated with scientific research. In most of the cases, the researcher tends to have a general hypothesis by stating them, identifying them through the use of variables and also through indirectly stating them.

This section will present an overview of the investigation variable that the research attempts to consider and establish a relationship between the dependent and independent variables. This research addresses the existing gap in studies by reconnoitring the effect of CSR activities in the Chinese market – specifically the oil and energy sector. In addition, this research will offer further insight into the wildly divergent results of earlier research studies of CSR initiatives and financial achievement. The quantitative multiple regression analysis helped the researcher to evaluate the effects of each independent variable on the dependent variable. The proposed research is aiming to test the following hypothesis:

H1: There is a relationship between CSR and financial performance of the firms.

7. Data Sources

The tools used for measuring the variables in the study should be described. The different search engines employed to search for the CSR and financial performance data with be reviewed here. The techniques and possible keywords for the search will be determined to guide the process. Where applicable, the reliability and validity of the methods will be established.

Researchers make use of both primary and secondary sources of data to overlook existing data in preference of database. This research uses only secondary data on the sampled companies from the free databases such as ERIC, ABI/INFORMS Global, ORBIS Database, ProQuest Central, and EBSCOhost Business Source Complete and the FTSE 40 Index and the sampled companies’ annual reports. Using the established database, time and money can be saved, whereas analysts may concentrate on data analysis, study and review rather than on data collection (Bryman and Bell, 2011). Investigators who have concerns regarding their studies who need to identify who gather evidence may be assumed to have less time or money for appropriate data gathering. To overcome the barrier, researchers opt for secondary data from companies. Official reports on economic, community and social problems are also released by the organization.

A more advantageous benefit of the use of secondary data is that investigators can conduct longitudinal methods (Bryman & Bell, 2011). In this analysis, secondary data was used to assess the firms’ CSR and financial results over the specified research period without any substantial data-gathering resources being needed. It must be remembered that the use of secondary data in analysis still has certain drawbacks. Because the data also represents the context or the intent of the institution to gather the data, analysts must make sure they incorporate the essential elements to carry out the analysis. Wide repositories of data collection are also made accessible by states or by bigger entities. However, that does not guarantee good data quality. Thus analysts need to thoroughly examine data before use.  Secondary data compiled from several sources to create a new data collection are called multiple source data and are often field dependent or time-series related. The correlation may be applied to the different index since both time-series, and area-based data are mostly made up of financial and market reporting.

8. Data Collection

This research study was conducted as the aforesaid, through secondary data extracted from the mentioned data sources above for the selected oil and energy firms. These sources allowed the researchers to easily and quickly access the quantitative data at a more cost-effective way. The data were extracted from reported financial reports, the databases relevant to the cases or other credible data source. Information to be included in the balance sheet, the operating income Report and stakeholder annual accounts (Lunenberg, Gosselt and De Jong, 2016). The research spanned a five-year duration from annual reports. The whole project’s window period is about ten years of assessment.

In the financial report on sustainability, environmental and social performance of the quoted companies, the comprehensive evidence needed for this study is also accessible. Before the commencement of this research study and data collection process, the investigator sought and obtained the IRB approval within a suitable time interval. The IRB administers research studies ethical compliance as well as ensures the research meets the criteria of appropriate regulations, guidelines, and professional conduct policies (Ghoul, 2014). The proposed research will use secondary data which will be collected from the various databases. Specifically, this data is going to come from the various databases such as the morning star, specific websites of the companies and Google scholar. This, therefore, involves identifying the papers which are associated with the topic under research.

9. Sample size and sampling technique

The sample size of the proposed research will be 30 different oil and energy companies all within China. The companies were selected from different Chinese Securities exchange markets such as the Shanghai stock exchange (SSE), Hong Kong Exchanges and Clearing Limited or HKEx and Shenzhen stock exchange (SZSE). The 30 companies were also incorporated or listed in the FTSE/ASEAN 40 index as either large or mid-cap companies in the energy industries in China. The research samples are listed after the reference page. However, some companies had insufficient or limited data for key elements in the corporate reports. The sampling technique which will be used is non-probability sampling, a convenience sampling to select them. This technique involves providing the researcher with the freedom of deciding on the individuals to participate in the research based on the research outlined characteristics (Green & Thorogood, 2018). The companies’ data will also be retrieved from Yahoo Finance.

10. Validity and Reliability

The validity of data gathering tools correlates to the data types and forms of collection. According to Saunders, Thornhill and Lewis (2012), validity refers to the degree to which the theoretical concept, upon which procedure is designed, is generally measured by a metrics tool. It typically tests that theoretical framework and conceptualization procedures have some accuracy. A further factor that scientists will address is the legitimacy of work in order to maintain its integrity. The validity of the study focuses primarily on the measures used and on testing the instruments (Saunders, Thornhill and Lewis, 2012). Using reliable secondary data in the research paper can provide some level of data validity.

Research reliability relates to the consistency of the findings if the analysis is replicated using the same data type and process (Bryman and Bell in 2011). Reliability assesses the processing of evidence. In quantitative analysis, reliability is of concern since it’s more apparent whether results are accurate or not. CSR ratings are obtained from major companies, webpages, databases and businesses report on financial results of this specific study, would provide reliability because the secondary data of this nature is perceived to be very accurate (Saunders, Thornhill and Lewis, 2012).  This concept is applied in quantitative research assessment and evaluation to establish the accuracy of the quantifiable data.  In the analysis, the validity and reliability of data were assured, because credible outlets such as financial reports and client databases collected data which have been audited.

11. Data Analysis

This research seeks to determine whether corporate social responsibility efforts create value for the shareholders in the oil and energy industries through the quantifiable results of financial performance. This study mainly uses different methods to analyze the data. First, the Statistical Package for Social Science (SPSS) 17.0 software is used to analyze and interpret the data on the CSR activities, financial performance, capital intensity and efficiency. The independent variable’s mean and standard deviation are also determined. The application of the SPSS is the epitome to displaying the descriptive statistics, correlation coefficient computations and normality testing. The collected data prior to the analysis were organized and stored in Microsoft Office Excel file. As mentioned above, the study used the sample data from the different data sources, including the FTSE/ASEAN 40 Index and Yahoo Finance.

Multiple regression analysis is the most appropriate regression model for this research that is used to measure the outcome of multiple independent variables such as emission reduction, corporate giving, waste reduction, and employee safety on the dependent variables like the ROA and ROE.

These are the regression models for this research:

ROA_i,t = α + β1·CSRᵢ,_t + β2·Sizeᵢ,_t + β3·LEVᵢ,_t + β4·R&Dᵢ,_t + Ɛᵢ,_t

ROEᵢ,_t = α + β1·CSRᵢ,_t + β2·Sizeᵢ,_t + β3·LEVᵢ,_t + β4·R&Dᵢ,_t + Ɛᵢ,_t

Tobin’s Q ᵢ_,t = α +λ₁CSR ᵢ_,t +λ₂Sizeᵢ,_t + λ₃LEVᵢ,_t + λ₄R&Dᵢ_,t + ε ᵢ_,t

In the model, ROA, ROE and Tobin’s Q are dependent variables used to measure the financial performance of the companies while CSR is the independent variable in the regression model. The control variables in this paper include LEV is the leverage that measures the ratio of Debt to total assets of the firms in the industry. R&D denotes that large firms with more investment in R&D are more probable of engaging in sustainability initiatives and practices. Lastly, Size refers to the size of the firm. ε is the random disturbance term—t: Year index and i: Company index.

The practical use of Tobin’s Q is critical for measuring a company’s market-based financial performance as well as aids in evaluating the effectiveness of the firms to exploit their available assets. Tobin’s Q also measures if outlays in these firms towards CSR are critical. There are three controlling variables considered in the regression model. First, the firm size determines the level of both pollution and financial performance within a particular year. Secondly, leverage influences the activities that the business can involve in towards the society as well as the cost of controlling pollution and preventing future fines and penalties. Large firms with more investment in R&D are more likely to engage in sustainability initiatives and practices compared to smaller firms.

Table 2: Variable definition

Analysis of variance (ANOVA) is applicable when assessing the regression model’s significance while t-tests were useful in evaluating the importance of the independent variables in elucidating the dependent factor. The F-test is used by ANOVA to evaluate if the variation of the findings between groups is greater than those of the groups. The Correlation Coefficient provided an outcome range of +1, 0 to -1 where positive correlations, negative correlation as well as strong and weak correlation were shown. The results of the research analysis were tabulated for further interpretation. Correlation analysis provided an accurate measure of the degree of linkage between the study variables addressed in the regression model. The regression model sought to estimates the correlation of financial performance with CSR with the aid of the statistical package for Social Sciences (SPSS) version 20. A correlation matrix was applied to ascertain the multi-collinearity between the study variables (see table below).

12. Assumptions and Limitations

12.1 Assumptions and Limitations

Much of CSR work analyses the application and feasibility of initiatives but refuses to differentiate among companies which participate in the CSR on the influence of economic advantages and those which participate in social responsibility. It is assumed that CSR is for public relations. As such, one drawback of this report is that the firms engaging in CSR for altruistic reasons and the enterprises focused on the financial benefit are not differentiated. Businesses which have continuously and significantly influenced their stakeholders can be accredited for their sustainable behaviours, but the focus must always be directed to a number of businesses that only fulfil stakeholder expectations following adverse publicity and profit generation. The Beyond Petroleum efforts to restructure businesses resulting from the 2010 Gulf Oil spill on Deepwater Horizon with the focus of recapping their pledge to social and environmental responsibility, concentrate on alternative energy sources and revamp corporate procedures on safety and environmental matters (Muralidharan, Dillistone and Shin, 2011). The research does not provide insight into the companies’ motives behind their CSR activities. It does not also delineate among the motivations and the intrinsic value of CSR.

There are several databases that the secondary research data could be drawn from. As such, the information published in some databases is only accessible on a paid subscription. This commercial interest of some platforms thus limits the study as it creates some form of biases in how the figures are gathered and reported to funded subscribers. Also, other possible limitations of the research include the time limit. This kind of research would require a lot of time investment, and therefore, the results of the research are a snapshot of the views within the specified time. Looking at the different reports disclosed by businesses, the companies offer a rather insignificant environmental reporting in the oil and energy sector. Therefore, this limits the better understanding of the CSR activities.

13. End of Chapter

The section also presents the information on how the research studies were carried out and the line of rationale as well as motivation in selecting various energy companies. The researcher’s choice of approaches and strategies applied in the study such as the research design, sampling design, data collection methods and analysis procedures. The presented regression model used and the test of significance applied are also discussed in detail in this section. With the discussion on research methods, the researcher can base his/her selections on the guidelines and adhere to the research objective of measuring how CSR can effectively influence and promote the financial performance of energy firms.

The next chapter that will follow this research methodology section is the results and interpretation. In this chapter, the results of the empirical investigation by using these methodologies will be discussed. The data concerning the sample is presented as well as the statistical test significance on the connection between CSR and the financial variables is incorporated.

Findings

This section provides the findings of the results based on the data which was collected. This section, therefore, will provide a descriptive analysis which will outline the mean and standard deviation of the independent variables. Furthermore, the section will provide a matrix of correlations to find the relationships between the independent variables. The last section will provide the main analysis based on the objectives and the research questions. It will, therefore, establish whether there exists a relationship between the dependent variables and the independent variables.

1.     Descriptive Statistics

To understand the different results and the sources of the relationship between the variables, this section chooses to perform descriptive analysis first. This helped to understand the different values of the project before it was done. First, the average net income in all the thirty companies was determined. The average net income of the Chinese firms (Mean = $449 million) whereas the biggest loser experienced a loss of $33 Million. The summary tables of descriptive Statistics illustrate the performance of different predictors for the 30 companies being evaluated.  From the table, it is evident that the different companies have different CSR index ranking. The minimum value was 25, and the maximum value was 98. The index value variability is based on the differences in the type of investment which the company has made in ensuring that their operations maintain a positive impact on the society, economy and the environment.

Descriptive Statistics applied the Pearson correlation, regression analysis and t-ratio for inferential analysis and means, and standard deviation for descriptive analysis as in the table below. Institutions with sufficient capital base relative to their size, leverage and R&D initiatives significantly invest in CSR compared to other organizations. This study unveiled that the sampled organizations spent significant amounts to ensure their CSR efforts brought forth highest returns.

Companies have a considerably lower stock in the disposable currency in terms of leverage amount with less than half a million dollars (Mean = 0.53, SD = 0.2). There is a considerably high variation in company size among the companies surveyed in this study (SD =$76 million).

Table 1: Descriptive analysis

The use of the matrix correlations in this paper is important in showing an earlier relationship between the variables. One of the importance of the correlation matrix is that it shows how each of the variables can be compared with another and establish a relationship between them. The correlation matrix shows indicate a considerably low correlation between the variables.

Table 2: Correlation matrix

This is explained by the fact that most of the relationship show negative value or values far below 1. The main diagonal showing the values of one is of no significance as it shows the relationship between two similar variables. The matrix of correlation shows there is a considerably low correlation between the variables.

The size of companies in millions has a positive correlation ( with Corporate Social responsibility (CSR) which slightly reflects that bigger companies are more likely to engage in social development. Similarly, a 21% correlation  between leverage and company size suggests the availability of funds leverage are closely related to the magnitude of a given firm. The negative correlation between shareholders equity and leverage amount indicates that we can infer that money owed to shareholders often eats away the amount a given firm has set aside as leverage either from profits or other sources (.

The correlation matrix infers that there is a weak correlation among the dependent variables and the response variable, which questions the ability of the predictors in explaining the behaviour of ROE, ROA and Tobin’s Q.

2.     Linear Regression

The regression model provided a good basis through which the hypothesis testing would be done. From the null hypothesis, it is predicted that there is no relationship between CSR and financial performance. To reject or accept the null and the alternative hypothesis, the research use p-value of 0.05. For the variables which had their p-values > 0.05 had no significant relationship with the dependent variable and those which had a p-value less than 0.05 had a significant relationship with the dependent variable.

Multiple regression analysis is the most appropriate regression model for this research that is used to measure the outcome of multiple independent variables such as emission reduction, corporate giving, waste reduction, and employee safety on the dependent variables like the ROA and ROE.

Regression Model obtained from the analysis:

ROA = -2.742 -0.941·CSR – 0.0000000543·Size + 139.35·LEV – 0.0018 R&D

In the models below, ROA, ROE and Tobin’s Q are dependent variables used to measure the financial performance of the companies while CSR is the independent variable in the regression model. The control variables in this paper include LEV is the leverage that measures the ratio of Debt to total assets of the firms in the industry. R&D denotes that large firms with more investment in R&D are more probable of engaging in sustainability initiatives and practices.

Table 3: Regression model of ROA against CSR, Size, Leverage, R&D,

and Shareholders’ Equity

In our assessment of ROA against the other dependent variables, we note that none of the variables significantly affects ROA from the p-values > 0,05 as seen in table 4 above CSR, Size and R$D have an insignificant negative effect on ROE whereas.

Generally, the model fails to have explanatory power on ROA due to an insignificant Adjusted R-squared that has no explanatory power on the fitted data.

Table 4: Regression model of ROE against CSR, Size, Leverage, R&D, and Shareholders’ Equity

From the result, the regression model based on the ROE is:

ROE = 2781.462 – 221.02·CSR + 0.0000109·Size + 16742.405·LEV + 35.7·R&D

The model above shows no significant predictor of ROE. Particularly, any additional 1 dollar spent on CSR reduces the return on equity by 221 Dollars. For explanatory purposes, Size leverage and R&D have a positive effect on ROE, however, the model does not fit the data well as seen from the p-values >0.05 indicating insignificance of predictors. This is further ascertained by the low R^2‑= 0.07, indicating that the model only explains 7% of the variation in the data.

To assess the rate of equity on the book versus market value on the predictors, we obtained the following regression model:

Tobin’s Q = 18.620 – 0.037·CSR + 0.0000000307·Size – 20.672·LEV -0.014·R&D

Table 5: Regression model of Tobin’s Q against CSR, Size, Leverage, R&D, and Shareholders’ Equity

CSR, Leverage and R&D have a negative effect on Tobin’s Q, which infers that an increase in these values reduces Tobin’s ratio. This output can affirm the supposition that any expenditure by an institution drains the book value and increases the market value of a firm; hence the possible negative effect of the mentioned predictors. Similarly, this model has minimal explanatory power, only explaining 3.4 % of the variation in the model.

3.     The Conclusion of Chapter

The results of this research, therefore, provide insight into the real significance of financial performance. The use the CSR does not improve the financial performance but rather helps the firms to become socially responsible for enhancing the value of the firms. CSR used alone does not indicate how the company could change their financial performance, but rather shows how companies could improve their value to the public and the investors.

The study has also established that the investment which has been made on the company in terms of research and development (R&D) does not have a significant impact on the final social performance of the company since the P-value is more than 0.05. This means that the companies used in this research do not need to use R&D investments to increase their financial performance. This is explained by the fact that R7D investments which are made by most of the companies to increase their financial performance would not guarantee them to increase their financial performance.

However, collectively the models report that among the predictors available, none is a significant predictor of either ROA, ROE or Tobins’ q ratio. This is evident from the p-values (p-values > 0.05) at 95% confidence level. In addition to that, the models report a negligible Adjusted R-squared (R2 < 20%)- which is interpreted as approximately 0- further affirms the insignificance of the models.

Collectively, none of the variables could be used to explain the financial performance of the companies as well as the independent predictors. This is also seen in the low correlation values between predictors and the response variables. This probes for further scrutiny of the data to find out influential variables that could potentially explain any changes in the net income of the companies.

Although the results of this research tend to defer with other research findings, this could be explained based on the sector under which the sample came from. The oil and energy sector usually produce important products in the society which are in high demand. This means that most of the individuals such as the customers, workers and society do not have to look at how the company is performing in terms of CSR.

Conclusion

1. Main Findings

This paper was aimed at investing whether the use of CSR by the oil and energy firms in China influenced their financial performance. The paper fulfilled this research objective through the use of secondary data in order to investigate this relationship. To perform this analysis, the researcher analyzed data from 30 companies. The results indicated that among all the variables which were used, the use of the CSR did not impact the financial performance of the company but rather the values of the company. Since the research was done through the use of three main models, it can be concluded that the research is effective in explaining the impact of CSR on the financial performance of the companies. In the calculations of the financial relationship between the CSR and the companies’ financial performance using the correlation matrix results to negative values and positive values less than one. The CSR using the regression model indicates that expenditure on these social activities reduces the value of the firm. However, the CSR increases the market value of the company despite getting minimal returns from these expenditures. This is an indication that CSR does not have any impact on companies’ financial performance, but in some cases where it does, it is very minimal.

2. Implications of the research

The paper is important in helping provide answers and insights to the research question. Evident that CSR positively influences only the value of firms in China. Therefore, the firms listed at the Shanghai and Shenzhen exchanges should come up with strategies to strengthen and align their CSR activities with fasting track and building the CSR programs to enable good value creation which helps in increase in the level of investment. Moreover, the directors and managers of firms listed at the NSE should re-focus on their budget restrictions for CSR programs. This move will ensure the companies will not overspend on social factors leading to huge losses with no way of regaining the money. Some value creation techniques include recycling, reusing, among others. Putting these measures into considerations will not only lower the expenditure but save on raw materials as well.

Limitations of the research

Using secondary data in this research was time-consuming since a lot of background research had to be carried out to ensure it is accurate and had all the required factors. Most of the firms’ data needed for the research had to be purchased making the research costly. Also, comparing data from thirty companies and trying to ensure they all have all the necessary data for the research was time consuming and thus much time was not spent on the analysis part as expected. Another issue is that most of the firms had their CSR values directly connected to the firms’ performance values assuming that they are related, which was proved not true. As a result, the data obtained had to be evaluated individually and hence taking a lot of time. Also, the three methods used gave an assurance of 95% and less than 10% of the table data could be interpreted. It was thus causing the findings to have a high level of inaccuracy. There is also minimal previous research which has been carried out, thus coming up with objectives and comparing data was difficult during the research.

Suggestions for further research

From the study and subsequent conclusions, the researcher recommends further research on the impact of CSR on the performance of non-oil and energy firms in China. This is because this study did not focus on non-oil and energy firms as an element of CSR programs. Furthermore, the study suggests that future studies should adopt longitudinal approaches. Longitudinal approaches should be adopted to analyze the effect of CSR on performance over several rounds, including the use of qualitative data directly from the firms to ensure accuracy.

Appendix 1: Companies List

1. China National Nuclear Power
2. PetroChina Company Limited
3. China Shenhua Energy
4. Sinopec or China Petroleum & Chemical Corporation
5.  Fushun Petrochemical Company
6. China National Offshore Oil Corporation
7. Shaanxi Yanchang Petroleum
8. Sinochem Group
9. Beijing Enterprises Holdings Limited
10. Shenergy Group Company Limited
11. Shenzhne Energy Group Co,Ltd.
12. Tunghsu Azure Renewable Energy Co, Ltd.
13. Shenzhen Guangju Energy Co, Ltd.
14. Sichuan New Energy Power Company Limited
15. CECEP Solar Energy Co,ltd
16. Guanghui Energy Co., Ltd.
17. Daqo New Energy Corp
18. Zhejiang Sunflower Light Energy Science & Technology
19. CEFC China Energy
20. The Hong Kong and China Gas Company
21. CITIC Resources Holdings Limited.
22. Geo-Jade Petroleum
23. Xinjiang Goldwind Science & Technology Co., Ltd.
24. China Oil and Gas Group
25. Huaneng Power International
26. Sunshine Oilsands Ltd
27. China Oilfield Services (COSL)
28. United Energy Group Ltd
29. Mongolia Energy Corporation Limited (MEC)
30. 30. Sino Oil And Gas Holdings Ltd

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