Effect of Corporate Social Responsibility on the Financial Performance of Small and Medium Enterprises in Makueni Sub-County

Abstract

Small and medium enterprises have a responsibility to generate profits, obey the law, be ethical and be good corporate citizens. These firms use a variety of tactics in an effort to improve their performance. The processes that enable an organization's financial performance are built through CSR. The general objective of this study was to examine the effect of CSR on the financial performance of SMEs in Makueni sub county. The study aimed to assess the impact of CSR economic activities, legal and regulatory frameworks, ethical issues, and philanthropy on the financial performance of SMEs in Makueni Sub County. The study was underpinned by the social capital theory, stakeholders' theory, dynamic capabilities theory and the agency theory. The study adopted a descriptive research design. The target population was 741 SMEs registered in Makueni Sub County. A sample of 259 was selected for the study. Simple random sampling was used to select SMEs, from the list of SMEs provided by the Makueni County licencing office. Data was gathered through a questionnaire. The Statistical Package for Social Sciences was used to conduct correlation and regression analyses. Findings indicated a positive and significant influence of CSR economic activities on the financial performance of SMEs in Makueni sub county. There is a positive and significant influence of CSR legal & regulatory framework on the financial performance of SMEs in Makueni sub county. The study further found there is a positive and significant influence of CSR ethical issues on the financial performance of SMEs in Makueni sub county. Findings revealed a positive and insignificant association between of CSR philanthropy and financial performance of SMEs in Makueni sub county. The study concluded that businesses that make a conscious effort to maximize their earnings and engage in CSR activities often enjoy a distinct competitive advantage within their respective sectors. The study recommended that SMEs should engage in CSR activities. A robust CSR legal and regulatory framework is essential for businesses to not only operate ethically but also to maintain their financial stability and reputation within their respective industries. It is also recommended that SMEs should adhere to the laws governing the conduct of business. SMEs should ensure that the rights and dignity of their workforce are respected and protected. SMEs should adhere to human rights principles and apply them in their dealings with employees. SMEs should resolve their issues in an ethical way. Ethical conflict resolution methods can prevent prolonged disputes, minimize legal costs, and protect the reputation of the business.