AMBO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

THE EFFECT OF CORPORATE SOCIAL RESPONSIBILITY ON

FINANCIAL PERFORMANCE OF COMPANIES: THE CASE OF
ETHIO TELECOM

By: Endalamaw Nurie Anagaw ID No: PGE/39696/12

A Thesis Submitted to Ambo University, College of Business and Economics,

Graduate Program in Partial Fulfilment of the Requirements for the Award of a
master’s degree in MBA in Finance.

Advisor: Kokobe Seyoum (PhD)

May 2022

Addis Ababa, Ethiopia

Approval Sheet

AMBO UNIVERSITY
SCHOOL OF GRADUATE STUDIES
APPROVAL SHEET

Submitted by:
Endalamaw Nurie Anagaw __________________ _______________
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Approved by:
Kokebe Seyoum (PhD). __________________ _______________
Major Advisor Signature Date

_____________________ ___________________ _______________

Co-advisor Signature Date

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Head, Department Signature Date

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Certification Sheet

AMBO UNIVERSITY
SCHOOL OF GRADUATE STUDIES

CERTIFICATION SHEET

A thesis research advisor, I hereby certify that I have read and evaluated this thesis prepared
under my guidance by Endalamaw Nurie Anagaw entitled “The Effect of Corporate Social
Responsibility on Financial Performance of Companies: The case of Ethio Telecom”
recommend that it can be submitted as fulfilling the thesis requirement.
Kokebe Seyoum (PhD). _________________ _______________
Name of Major Advisor Signature Date
___________________ _________________ ______________
Name of Co-Advisor Signature Date

As mentioned of the Board of Examiners of the MSc/MA. thesis open defense examined. We
certified that we have read and evaluated the thesis prepared by Endalamaw Nurie Anagaw
and examined the candidate. We recommend that the thesis be accepted as fulfilling the thesis
requirements for the degree of Master of Science/Art in MBA in Finance.
Kebede Atomsa (PhD) ________________ ____________
Chairperson Signature Date
Gamachis Garamu (Assis. Prof) ________________ ____________
Internal Examiner Signature Date
Teferi Deyuu (Asso. Prof) ________________ ____________
External Examiner Signature Date
Declaration of Authorship
I, the undersigned, declare that the thesis comprises my own work. In compliance with
internationally accepted practices, I have dually acknowledged and refereed all materials used in
this work. I understand that non-adherence to the principles of academic honesty and integrity,
misrepresentation/ fabrication of any idea/data/fact/source will constitute sufficient ground for
disciplinary action by the university and can also evoke penal action from the sources which have
not been properly cited or acknowledged.

Endalamaw Nurie Anagaw

Name of the student

_______________
Signature

_______________
Date
 Acknowledgements
First, I would like to express my deepest gratitude to the Almighty God for giving me existence as
well as intelligence for the successful completion of my thesis.

I would like to express my deepest gratitude to the advisor of my thesis, Dr. Kokebe Seyoum for
his guidance, critical and constructive comments and valuable suggestions during the entire
research design and preparation processes as well as for his positive cooperation.

My special thanks also go to my families who always being with me to enhance my career and to
my beloved wife Marta Ayele, my daughter Ruth Endalamaw and my son Hara Endalamaw for
your support and patience that I have received.

Finally, I would like to extend my gratitude to both Ethio Telecom finance division and corporate
social responsibility (CSR) section management and staff for your kind cooperation.
Table of Contents
Approval Sheet ............................................................................................................................................ 1
Certification Sheet ...................................................................................................................................... 2
Declaration of Authorship .......................................................................................................................... 3
Acknowledgements ..................................................................................................................................... 4
Abstract ....................................................................................................................................................... 10
CHAPTER ONE ......................................................................................................................................... 1
Introduction ................................................................................................................................................. 1
1.1 Back Ground of the Study .......................................................................................................... 1
1.2 Statement of the problem ........................................................................................................... 3
1.3 Research objectives ..................................................................................................................... 5
1.3.1 General Objective ...................................................................................................................... 5
1.3.2 Specific Objectives ..................................................................................................................... 5
1.4 Statement of Hypotheses .................................................................................................................. 5
1.5 Significance of the Study .................................................................................................................. 6
1.6 Scope of the Study ............................................................................................................................. 6
1.7 Limitation of the study ..................................................................................................................... 7
1.8 Organization of the paper ................................................................................................................ 7
1.9 Operational definition of terms ....................................................................................................... 7
CHAPTER TWO ........................................................................................................................................ 9
Review of Related Literature ................................................................................................................. 9
2.0 Introduction ....................................................................................................................................... 9
2.1 Theoretical Literature ...................................................................................................................... 9
2.1.1 The concept of CSR.................................................................................................................... 9
2.1.3 Theories of CSR ......................................................................................................................... 9
2.1.4 Carroll’s CSR pyramid ........................................................................................................... 15
2.2 Review of Empirical Literature ..................................................................................................... 17
2.2.1 The effect of CSR on Financial Performance ........................................................................ 17
2.2.2 Measuring financial performance .......................................................................................... 19
2.2.3 Measuring Corporate Social Responsibility .......................................................................... 20
2.2.4 CSR in Ethiopian context ........................................................................................................ 22
2.3 GAP Analysis................................................................................................................................... 22
2.4 Conceptual Framework .................................................................................................................. 23
CHAPTER THREE .................................................................................................................................. 25
Research Methodology ............................................................................................................................. 25
3.1 Description of the Company........................................................................................................... 25
3.1.1 Study Area ................................................................................................................................ 25
3.1.2 History of Organizational Reform.......................................................................................... 26
3.1.3 CSR Activities of Ethio Telecom............................................................................................. 26
3.2 Research Approach ......................................................................................................................... 27
3.4 Data Type and Sources of data ...................................................................................................... 28
3.5. Target Population, Sample Size and Sampling Technique ........................................................ 28
3.5.1 Target Population .................................................................................................................... 28
3.5.2 Sample Size ............................................................................................................................... 28
3.5.3 Sampling Technique ................................................................................................................ 29
3.6 Method of Data Collection ............................................................................................................. 29
3.7 Data Analysis Technique ................................................................................................................ 30
3.8 Measurement of Variables ............................................................................................................. 30
3.8.1 Independent Variable: Corporate Social Responsibility (CSR) .......................................... 30
3.8.2 Dependent variable: Financial performance (FP) ................................................................ 31
3.9 Reliability and Validity of the Instruments .................................................................................. 33
3.10 Ethical Consideration ................................................................................................................... 33
3.11 Model Estimation .......................................................................................................................... 34
CHAPTER FOUR..................................................................................................................................... 35
Data Analysis, Interpretation and Discussion ........................................................................................ 35
4.1. Introduction .................................................................................................................................... 35
4.2 Response Rate.................................................................................................................................. 35
4.3 Reliability and Validity Test .......................................................................................................... 36
4.3.1 Reliability Test ......................................................................................................................... 36
4.3.2 Validity Test ............................................................................................................................. 37
4.4 Descriptive Analysis ........................................................................................................................ 37
4.4.1 Demographic Profile of Respondents ..................................................................................... 37
4.4.2 Descriptive Statistics of Ethio Telecom CSR activities ......................................................... 39
4.4.2.1 Economic responsibility practices of Ethio Telecom ......................................................... 39
4.4.2.2 Legal responsibility practices of Ethio Telecom ................................................................. 40
4.4.2.3 Ethical responsibility practices of Ethio Telecom .............................................................. 41
 4.4.2.4 Philanthropic responsibility practices of Ethio Telecom ................................................... 42
4.4 Multiple Linear Regression Diagnosis Test .................................................................................. 43
4.4.1 Linearity Test ........................................................................................................................... 43
4.4.2 Normality Test .......................................................................................................................... 44
4.4.3 Multi-collinearity Test ............................................................................................................. 45
4.4.4 Homoscedasticity Test ............................................................................................................. 46
4.4.5 Auto-correlation Test ............................................................................................................... 46
4.5 Model Estimation ........................................................................................................................ 47
4.6 Discussion of Hypotheses ............................................................................................................ 49
4.7 Discussion of Major Findings..................................................................................................... 50
CHAPTER FIVE ...................................................................................................................................... 53
Summary, Conclusion, Recommendations and Suggestions for Future Research ............................. 53
5.1 Summary of findings....................................................................................................................... 53
5.2 Conclusion ....................................................................................................................................... 54
5.3 Recommendations ........................................................................................................................... 55
5.4 Suggestions for Future Research ................................................................................................... 56
Reference .......................................................................................................................................................

List of Tables
Table 3. 1 The Constructs, Variables, and Measures of Conceptual Model ................................. 32

Table 4. 1 Response Rate of Respondents .................................................................................... 35

Table 4. 2 Reliability Statistics ..................................................................................................... 36
Table 4. 3 Total item statistics for Cronbach’s alpha ................................................................... 36
Table 4. 4 Inter-item correlations.................................................................................................. 37
Table 4. 5 Demographic profile of Respondents .......................................................................... 38
Table 4. 6 Economic responsibility practices of Ethio Telecom .................................................. 40
Table 4. 7 Legal responsibility practices of Ethio Telecom ......................................................... 41
Table 4. 8 Ethical responsibility practices of Ethio Telecom ....................................................... 42
Table 4. 9 Philanthropic responsibility practices of Ethio Telecom ............................................. 43
Table 4. 10 Multi-collinearity Test ............................................................................................... 46
Table 4. 11 Homoscedasticity Test ............................................................................................... 46
Table 4. 12 Auto-correlation test .................................................................................................. 47
Table 4. 13 Model Estimation ....................................................................................................... 47
Table 4. 14 Summary of Hypotheses ............................................................................................ 50
Table 4. 15 Summary of Findings................................................................................................. 53
List of Figures

Figure 2. 1 Carroll’s Pyramid of CSR .......................................................................................... 15

Figure 2. 2 Conceptual Framework of Effects of CSR on Financial Performance....................... 24
Figure 3 1 Map of the study area ………………………………………………………………..25
Figure 4. 1 Linearity Test.............................................................................................................. 44
Figure 4. 2 Histogram of normality test ........................................................................................ 45
List of Appendices
Appendix I .................................................................................................................................... 63
Appendix II ................................................................................................................................... 69

List of Acronyms and Abbreviations

Acronyms and Abbreviation .......................................................................................................... 9
Acronyms and Abbreviation
CSR - Corporate Social Responsibility

FP - Financial Performance

ROA - Return on Assets

ROI - Return on Investment

 Abstract
The main purpose of this study is to determine the effect of corporate social responsibility on the
financial performance of Ethio Telecom. In order to achieve the research objectives, the
researcher adopted both a descriptive and explanatory research design. Structured questionnaires
were used to gather data from the targeted group of the study, where the random sampling
technique was employed to draw a sample of 112 using excel RAND formula and sorted from
smallest RAND value to largest to select those 112 respondents. The collected data were presented
and analyzed using the STATA (version 13.0) statistical software package. A multiple linear
regression model was applied to see the effect of CSR on financial performance of the company.
The study showed that economic responsibilities, legal responsibilities, ethical responsibilities and
philanthropic responsibilities affect financial performance of the company, have a positive
relationship, and are statistically significant. It was concluded that community relations are
critical to ensuring a suitable environment for company success through corporate social
responsibility.

Key words: Corporate Social Responsibility, Financial Performance, Ethio Telecom

 CHAPTER ONE
Introduction
1.1 Background of the Study
Corporate social responsibility (CSR) is a concept with many definitions. The concept of corporate
social responsibility (CSR) has become so popular in both academic and business areas that it has
contributed in the global expansion of numerous businesses in various industries. Most corporate
companies today have a growing interest in promoting the interests of society by engaging in
various CSR activities to address societal issues by producing goods and rendering services to the
society with profit motivation (Carroll, 1991).

According to Crowther and Aras (2008), there is no widely accepted definition of CSR. Corporate
Social Responsibility has been defined in a variety of ways by various researchers (Kelly,2018).
According to the World Business Council for Sustainable Development (2000), "Social
Responsibility (CSR) is the continuing commitment by business to behave ethically and contribute
to economic development while improving the quality of life of the workforce and their families
as well as of the local community and society at large". In general, CSR has typically been
understood as policies and practices that business people employ to be sure that society, or
stakeholders, other than business owners, are considered and protected in their strategies and
operations (Carroll, 2016). According to some definitions of CSR, an action must be entirely
voluntary in order to be considered socially responsible. Others have argued that it also includes
legal compliance. Still others have argued that ethics is a component of CSR. Almost all definitions
include business giving or corporate philanthropy as a component of CSR, and many observers
associate CSR solely with philanthropy, ignoring the other categories of responsibility (Carroll,
2016).

Based on the prior definitions, the following discussion briefly explains each of the four categories
that comprise Carroll's four-part definitional framework upon which the pyramidal model is built.
Carroll's original four-part definition of CSR was as follows: "Corporate social responsibility
encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that
society has of organizations at a given point in time" (Carroll 1979, 1991). This set of four

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responsibilities establishes a foundation or infrastructure for explaining in detail and framing or
characterizing the nature of a business's responsibilities to the society of which it is a part.

Corporate social responsibility has become an essential component of most business strategic plans
for achieving and maintaining a competitive advantage in globally competitive industries.
According to Kotler and Lee (2015), companies gain significant benefits from participating in CSR
activities, and these benefits are the driving force behind CRS's global acceptance. Profit
maximization as the sole goal of a business cannot exist as an independent entity on its own, but
must rely on a multitude of relationships with its stakeholders, such as customers, employees,
suppliers, communities, and investors, among others. Because of the dynamic nature and intense
competition in the telecom sector, businesses can focus on other potential factors that positively
affect business operations, such as protecting their reputation (Soana, 2011) and corporate image
(Bravo, Matute & Pina, 2012). Corporate social responsibility programs are an important way for
telecom companies to improve their corporate image and reconnect with communities (Pomering
and Dolnicar, 2009). Corporate image and reputation creates respect in the market please, which
can lead to increased sales, increased employee loyalty, and the recruitment of better employees
(Edmans, 2012). CSR activities also would focus on sustainability issues while potentially
lowering costs and improving efficiencies (Robins, 2011). As a result, businesses would be
motivated to profit from a sustainable business to improve financial performance (Boddy, 2008).

Because of the various arguments raised in relation to CSR and its potential value creation
capabilities, researchers have been more interested in investigating the possible link between CSR
and financial performance. According to Cochran and Wood (1984), if a particular behavior has a
negative correlation with financial performance, managers should proceed cautiously in this area.
If there is a positive correlation, management may be encouraged to increase their social
responsibility performance. The other study conducted in 2015 by Saeidi et al. to investigate the
relationship between companies' CSR activities and financial performance revealed that firms with
low social responsibility had weaker financial performance, which could expose such companies
to a higher level of risk than firms with higher social responsibility practices (Saeidi et. al., 2015).
Several studies conducted on the relationship between CSR and financial performance provides
mixed results with some studies showing a positive relationship (Wright and Ferris, 1997;
Margolis and Walsh, 2003; Orlizky et al.,2003), others negative (Saleh, Zulkifli, and Muhammad,

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2011; Carmel-Pillar, Rosa, and Lisa, 2011; Wu and Shen, 2013), and still others showing that there
is no relationship between the two variables (McWilliams and Siegel, 2000; Mohoney and Roberts,
2007; Chih et al., 2010) as cited by Saeidi et. al. (2015).

Locally, a few studies have been conducted in the banking industry in utilizing one-dimensional
CSR measure, specifically in philanthropic contribution measures of CSR. However, the outcomes
of the few research that have been undertaken have yielded mixed results. For instance, a research
conducted by Dakito in 2017 shows no significant relationship between the two variables. Another
study was conducted by Uvaneswaran and Hussien in 2017 provides that there is a positive
relationship between CSR activities and Financial performance.

Though, many studies have been carried out to examine the relationship between CSR and
financial performance in developed nations, there is no sufficient, similarity and consensus on the
findings. This implies that the effect of CSR practices on organizations' financial performance
completely unexplored (Ofori, Nyuur, & S-Darko, 2014). On the other hand, according to Mujahid
and Abdullah (2014) the position of CSR is still at its premature in developing countries. Hence,
there is no or little evidence in developing countries like Ethiopia. Moreover, there is no research
conducted on this particular topic in Ethio Telecom as far as the researcher's knowledge.
Considering this gap in research, the study seeks to determine the effect of Corporate Social
Responsibility (CSR) on financial performance of Ethio Telecom.

1.2 Statement of the problem

Traditionally, the primary concern of most businesses has been profit. However, increasing
government regulation, media attention, pressure from non-governmental organizations and the
rapid spread of information require that companies look beyond simply maximizing profits and
satisfying a variety of stakeholders in a sustainable and ethical manner. Involvement in CSR
projects is becoming a must for companies, especially if they want good public opinion and a
recognized brand (Werther & Chandler, 2005). At the same time, involvement in CSR projects can
have both positive and negative effects on the financial performance of companies. On the one
hand, a positive image can help increase profits as customers are willing to pay more for the
company's products and services. Likewise, CSR projects can increase profits through increases
in efficiency and a more sustainable use of resources. On the other hand, CSR projects require
significant funding, so costs can exceed the above benefits and profits can be uncertain.

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The two conflicting views of managers have produced extensive research in the field of CSR in
relation to companies' financial performance (FP) (McWilliams & Siegel, 2001). So far, the results
of the relationship between CSR and FP studies have been mixed, there is evidence of a positive
relationship between CSR and the company's financial performance (FP), while in other cases this
relationship is negative or lacks the significance to prove a direction.

The studies finding a positive CSR and FP relationship support theories arguing that CSR projects
legitimize company actions, act as a marketing tool, and have a positive impact on the financial
performance of companies by increased Productivity (more motivated employees and less wasted
resources), higher margins because customers are willing to pay a premium, and lower cost of
capital because shareholders are willing to pay a premium for owning a socially responsible
business.

In contrast, the studies finding a negative relationship between CSR and FP reflect that in a free
market, an economic agent pursuing its own interests also promotes the welfare of society (Smith,
2005). According to these theories, CSR is a cost that reduces company’s profits and thus runs
counter to the interests of society.

The debate about the relationship between Corporate Social Responsibility (CSR) and Financial
Performance (CFP) is ongoing and controversial among scholars. This is due to differences in
concepts and definitions, operationalization, measurement and disclosure issues as CSR reporting
is not mandatory in many jurisdictions (Dahlsrud, 2008). As a result, the controversies among
Scholars about CSR and FP relationships have left room for further research.

Aside from the fact that previous research on the CSR and FP relationship is still under great debate
and room for further investigation, most of the studies so far have been in the developed Countries,
who are believed to have more friendly CSR traditions and more predictable foundations. There is
little evidence on the effect of CSR on FP in developing countries like Ethiopia. More specifically,
there is no research conducted on this particular topic in Ethiotelecom as far as the researcher’s
knowledge.

For this reason, there is an issue of interest and there is a knowledge gap. It is therefore important
to examine the effect of CSR on the financial performance of Ethio Telecom.

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Significantly, the study will be used as an input for management of the company to evaluate the
outcome of investment in CSR in terms of broad company focused goals and social benefits. This
will motivate the company to plan not only short-term profits but long-term sustainability of
company’s business. It also helps to policy makers of the country to understand the concept and
scope of corporate social responsibility and get an insight in CSR practices in the light of the
telecom industry. Moreover, the study can add to the existing body of literature on the relationship
between CSR and financial performance, in Ethiopian context.

1.3 Research objectives

1.3.1 General Objective
➢ The general objective of the study is to determine the effects of corporate social
responsibility on financial performance of Ethiotelecom.

1.3.2 Specific Objectives

The specific objectives in this study are:

➢ To determine the effects of Economic responsibility on financial performance of

Ethiotelecom.
➢ To determine the effects of Legal responsibility on financial performance of Ethiotelecom.
➢ To determine the effects of Ethical responsibility on financial performance of
Ethiotelecom.
➢ To determine the effects of Philanthropic responsibility on financial performance of
Ethiotelecom.

1.4 Statement of Hypotheses

The following hypotheses were formulated and addressed in the study:

H1: Economic responsibility has a positive significant effect on financial performance of Ethio
Telecom.

H2: Legal responsibility has a positive significant effect on financial performance of Ethio
Telecom.

H3: Ethical responsibility has a positive significant effect on financial performance of Ethio
Telecom.

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H4: Philanthropic responsibility has a positive significant effect on financial performance of Ethio
Telecom.

1.5 Significance of the Study

The study will enable the company to understand the impact of CSR on financial performance and
to improve its financial performance through planning and developing policies and procedures
based on the study's findings. Again, it will be used as a guide for Ethio Telecom's finance division,
as well as other sectors, to make informed decisions that will satisfy stakeholder interests while
taking into account the effect of CSR on financial performance. Furthermore, the study will benefit
finance students in terms of empirical review, as well as those who wish to conduct additional
research on topics related to CSR and financial performance. Finally, it will help the government,
specially policymakers, in developing strategies to promote long-term growth, particularly in the
telecom industry, by demonstrating the effect of CSR on financial performance.

1.6 Scope of the Study

The scope of this study is to determine the effect of corporate social responsibility on financial
performance of Ethio Telecom at Head Office. From the perspective of Carroll (1991) Corporate
Social Responsibility includes four categories of social obligations which all responsible
companies demand it. These include economic, legal, ethical and philanthropic responsibilities of
that business have towards society at any given point in time (Carroll, 1991). Carroll argued that
the total responsibility of business should entail the simultaneous fulfillment of economic, legal,
ethical and philanthropic dimensions by the company. Therefore, this study will focus on these
CSR responsibilities to determine the effect of CSR on financial performance.

The study employs a mixed research design of descriptive and explanatory with quantitative
approach based on questionnaire survey.

The four-dimensional CSR questionnaire developed by Maignan, Ferrell, and Hult (1999) was
used to measure CSR. The instrument will have 29 items for the four CSR dimensions (Economic
responsibility, legal responsibility, ethical responsibility, and philanthropic responsibility).
Whereas four (4) items of financial performance measures (Return on Investment (ROI), Return
on Assets (ROA), Sales growth, and profit growth) developed by Samiee and Roth (1992) and

6
adopted by Adu, Asiedu and Muah (2018) was used to measure a company's financial performance
from 2020 to the present, after CSR was established as a section.

1.7 Limitation of the study

The study concentrates only on Ethio Telecom, therefore its findings may not be extended to others
public sectors in Ethiopia, firms in other industries, and firms in countries. Both CSR and financial
performance measurements are inconclusive. Therefore, there will be other measurements for CSR
and financial performance of Ethio telecom which are not included in this study. Thus, further and
more comprehensive study is needed to fully understand this area of research.

1.8 Organization of the paper

The paper has five chapters. The first chapter presents introduction, background of the study,
problem statement, research questions, objective of the study, hypothesis, significance,
and scope. The second chapter includes a review of the literature in the form of theoretical and
empirical studies, as well as a gap analysis and conceptual framework. The third chapter covers
the study's research design and methodology. Then in chapter four, data analysis and empirical
results of the study was presented. Finally, the conclusion and recommendations was incorporated
in the fifth chapter.

1.9 Operational definition of terms

In the field of Corporate Social Responsibility, several terminologies are often used
interchangeably. However, the following distinctions have been made in the terms below, for the
purpose of this study.
Economic Responsibility: Covers Immediate responses for customer complaints, Quality of
products, Customer satisfaction, Maximizing profits, Minimizing the operating costs, Monitor
employees’ productivity, and Engaging in Long-term business strategy.

Legal Responsibility: Refers to a company complying with the laws and regulations within which
they operate. It incorporates environmental laws, legal standards, contractual obligations,
compliance with law, hiring laws regulation, diversity of workforce, avoiding the discrimination,
and follow internal policies of remuneration among employees.

Ethical Responsibility: Refers to a company being expected to act beyond legal requirements by
considering the activities such as company’s code of conducts, professional standards, monitor of

7
activity, trustful company, fairness employees’ evolution, and providing full & accurate
information to customers.

Philanthropic Responsibility: Requires voluntary social involvement, including activities such

as competitive salary comparing with other companies or industries, support for education and job
training programs, encourage employees to join philanthropic organizations, energy and materials
program of reduction support for the local community, direct involvement in community projects
and affairs, an employee - led approach to philanthropy, offers generous product warranties, and
campaigning for environmental and social change.

Financial performance: Refers to the ability of the company to achieve its objectives by
increasing ROI, ROA, Sales growth and profit growth of a company.

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 CHAPTER TWO
Review of Related Literature
2.0 Introduction
This chapter of the study reviews both relevant theoretical and empirical studies conducted by
other researchers. For the purpose of readers to have an in-depth understanding of the study, this
section critically reviews the works and findings of what others have done relevant to this current
study. This chapter deals with the definition of the concepts of CSR and financial performance,
measurements of both CSR and financial performance (FP). It also indicates a Gap analysis of the
studies conducted by others. Finally, this section has to do with a conceptual framework which
indicates the relationship between the various CSR responsibilities and firm’s financial
performance.

2.1 Theoretical Literature

2.1.1 The concept of CSR
The concept of corporate social responsibility has become increasingly dominant in business
settings. Several definitions of CSR have been made available, according to Hopkins (2004),
McWilliams, and Siegel & Wright (2006), but the fundamental challenge in the field of CSR is
that there is no clear universally accepted definition of the concept of CSR, making measurement
and theoretical development difficult. Hopkins (2004) defined Corporate Social Responsibility
(CRS) as the way in which all CSR stakeholders are treated responsibly and ethically. CSR
activities are voluntary contributions to society that a company makes above and beyond its own
interests and legal obligations (McWilliams and Siegel, 2001); this may include sacrificing
earnings in the best interests of society. Indeed, many well-known corporate entities have been
founded to engage in profitable business operations. As a result, CSR activities must be undertaken
on a voluntary basis by an organization.

2.1.3 Theories of CSR

Studies on the relationship between CSR and financial performance are still inconclusive because
they are based on a variety of theoretical arguments. Jensen (2002) believes that CSR incurs
unnecessarily high additional costs, putting a socially responsible firm at a disadvantage in

9
comparison to its competitors. However, there are managers who believe that improving the firm's
social performance with stakeholders such as investors, consumers, suppliers, and employees
improves the firm's relationship with these stakeholders (Orlitzky, Schmidt & Rynes, 2003).

Specifically, Bagnoli and Watts (2003) discovered that firms that practice high CSR practices have
improved financial performance because they attract more socially responsible customers. Gomez-
Bezares, Przychodzen, and Przychodzen (2016) take the same stance, arguing that responsible
firms face less litigation and that the responsible behavior that exists between their investors and
the government may bring economic benefit. Institutional investors, such as telecommunications
companies, have stated that social considerations play a significant role in their investment
decisions.

The long debate on CSR has contributed to a better understanding of CSR theories and other related
approaches in business and society. The key theories and techniques of CSR, according to Garriga
and Mele (2013), are centered on economics, politics, social integration, and ethics. As a result,
CSR theories can be divided into four categories: instrumental theories, political theories,
integrative theories, and ethical theories. However, among the four (4) stated theories, instrumental
theories and ethical theories stand out and will be discussed in depth.

2.1.3.1 Instrumental Theory

According to this theory, CSR is viewed as a means of achieving economic goals and, more
specifically, increasing shareholder value (Garriga and Mele, 2004). Friedman (1970) made a
significant contribution to this approach by stating that the sole primary contribution of a business
to society is the creation of shareholder wealth within the country's accepted legal framework and
ethical customs. Concern for maximization of shareholder wealth does not preclude consideration
of the interests of all stakeholders in the firm. Satisfying the interests of all stakeholders can help
to increase shareholder wealth (Gomez-Bezares et al, 2016).

Motivated by economic objectives, instrumental theories can be divided into three (3) categories:
maximization of shareholder value, strategic goals for achieving competitive advantage, and
cause-related marketing.

Maximization of shareholder value: The first component of instrumental theory aims to

maximize shareholder wealth. According to one interpretation of this theory, any corporate action

10
taken to maximize shareholder wealth should be the ultimate criterion for evaluating any corporate
activity (Garriga and Mele, 2013). This supports the notion that any investment made by a
company that results in an increase in shareholder wealth should be carefully considered and free
of deception and fraud.

Friedman (1970) provided an example of a local community investment, stating that "it will be in
the long run interest of a corporation that is a major employer in a small community to devote
resources to providing amenities to that community or to improving its government." This makes
it easier to attract desirable employees, reduces wage costs, reduces losses from thefts and damage,
and has other beneficial effects.

Strategic goals for achieving competitive advantage: This aspect focuses on how organizational
assets are allocated to achieve long-term goals and to gain a competitive advantage (Husted and
Allen, 2000). In this context, there are three (3) viable approaches to gaining a competitive
advantage.

The first approach is social investment in a competitive context; authors such as Porter and Kramer
(2002) used Porter's competitive advantage model to consider investment in competitive context
areas. These authors shared the belief that engaging in philanthropic activities can help a
company's competitive advantage by creating more social value than individual donors or the
government can. According to Hamidu, Haron, and Amran (2015), a firm that has philanthropic
activities as part of its core business function is bound to achieve organizational objectives better
than other companies that do not invest in philanthropic activities.

The natural resource-based view of the firm and dynamic capabilities is another approach to
gaining a competitive advantage. According to Barney (1991) and Barney, Ketchen Jr, & Wright
(2011), the natural resource-based view of the firm implies that a firm can only outwit its
competitors through the unique or optimal utilization of its human resources, financial resources,
and other relevant organizational resources over time. These resources enable firms to choose and
implement strategies. Traditionally, the resources best suited to contributing to a firm's competitive
advantage must be valuable, rare, and unique, and the organization must be structured to
effectively deploy these resources (Garriga and Mele, 2004).

11
Finally, the bottom of the economic pyramid strategy is used to gain a competitive advantage in
this context; Garriga and Mele (2013) believe that traditional businesses are aimed at the upper or
middle classes of society, but the majority of the world's population is poor. Prahalad (2005)
suggested that the poor should not be viewed as a burden, but rather that the world should recognize
them as resilient and active customers. The first step toward this mindset is to see the poor as a
source of innovation rather than a problem. Disruptive innovation could be used to help those at
the bottom of the economic pyramid. According to Christensen and Overdorf (2000), disruptive
innovation refers to products or services that have fewer capabilities and conditions than those
used by customers in the mainstream market.

Most importantly, disruptive innovation has the potential to simultaneously improve the economic
and social conditions at the bottom of the economic pyramid while also providing firms with a
competitive advantage, particularly in less developed countries (Hart & Christensen, 2002;
Prahalad & Hammond, 2002).

Cause-related marketing: The final component of the instrumental theory is cause-related

marketing. Cause-related marketing is defined by Varadarajan and Menon (1988) as "the process
of formulating and implementing marketing activities that are characterized by an offer from the
firm to contribute a specified amount to a designated cause when customers engage in a revenue-
providing exchange that meets organizational and individual objectives." The primary goal of
cause-related marketing is to increase a company's revenue and sales by developing a brand
through acquisition or association with the ethical or social responsibility dimension of CSR
(Vanhamme, Lindgreen, Reast & van Popering, 2012). Furthermore, a company that engages in
cause-related marketing establishes a reputation for being honest and reliable; as a result,
customers perceive that products from reliable and honest companies are of high quality
(McWilliams and Seigel, 2001) and distinguish them from their competitors (Werther and
Chandler, 2011).

2.1.3.2. Ethical theory

This theory focuses on the ethical requirements that exist between business and society. The ethical
approach requires corporations to do the right thing in order to achieve a good society (Garriga
and Mele, 2013).

12
The Normative Stakeholder Theory, Universal Rights, Sustainable Development, and The
Common Good Approach are some of these theories. In order to gain a better understanding of the
study these approaches are examined as follows:

Normative Stakeholder Theory: The stakeholder theory, according to Freeman, Harrison,

Wicks, Parmer, and De Colle (2010), has gradually become part of the academic dialogue in
management and other fields of study such as health care, law, and public policy. In his book
Strategic Management: A Stakeholder Approach, Freeman stated quite clearly that managers have
fiduciary duties to the firm's stakeholders and that firms should proactively pay the necessary
attention to its stakeholders (Freeman, 1984). He further defines stakeholders as individuals or
groups who can influence or are influenced by an organization's decisions and actions. Customers,
employees, local communities, shareholders, suppliers, and distributors are also important
stakeholders (Freeman, 2006).

Furthermore, Harrison and Wicks (2013) argued that the stakeholder theory establishes that
managers of organizations should consider the interests of other important stakeholders who are
affected by the organization's actions. Meaning, the organization must critically consider the
interests of shareholders as well as all parties or groups with an interest in the organization's
decisions and actions.

As a result, the normative stakeholder theory justifies firms that are socially responsible in
attending to the legitimate interests of their multiple stakeholders rather than just the interests of
the firm's owners. According to Freeman (2006), a normative core of ethical principles is required
to indicate how corporations should be directed and how managers should act in order to maintain
the corporation's success and survival.

Universal rights theory: Human rights, according to Cassel (2001), have been adopted as the
foundation for corporate social responsibility in the global marketplace. In a speech to the World
Economic Forum in 1999, United Nations Secretary General Kofi Annan presented the UN Global
Impact, which proposed some human-rights-based approaches for corporate responsibility
(Garriga and Mele, 2004), which have since been adopted by many companies.

Another approach used by businesses is The Global Sullivan Principles, which aim to support
economic, social, and political justice in the communities in which they operate (Garriga and Mele,

13
2004). Although there are various approaches to universal right theories, they are all based on the
1948 Universal Declaration of Human Rights and other international declarations of human rights,
labor rights, and environmental protection (Garriga and Mele, 2004). According to Donnelly
(1985), universal rights have theoretical foundations and some moral philosophy theories that
support them.

Sustainable Development theory: According to the World Commission on Environment and

Development (1987), the term "sustainable development" became popular in 1987 with the
publication of the "Burtland Reports" by the World Commission on Environment and
Development (United Nations). According to the report, sustainable development "seeks to meet
the needs of the present without jeopardizing the ability of future generations to meet their own
needs."
According to the World Business Council for Sustainable Development (2000), sustainable
development necessitates the incorporation of social, environmental, and economic considerations
in order to make long-term decisions that are balanced. According to Kiron, Kruschwitz, Haanaes,
and von Streng Velken (2012), managers now consider sustainable development to be an important
component of their business strategy when developing CSR programs.

The Common Good Approach: The common good approach is a classical concept based on the
Aristotelian tradition as well as the Catholic Church's Social Doctrine (Sison & Fontrodona, 2012).
(Carey, 2001). Because businesses are considered to be a part of society, this approach holds that
they must contribute to the common good in the same way that other social groups and individuals
do. Fort (1996) argued that because business is a mediating institution, it should not cause harm
or exploit society, but rather contribute positively to its well-being. According to Garriga and Mele
(2004), business that creates wealth, provides goods and services in an efficient and fair manner,
and respects an individual's dignity and fundamental rights is contributing to the common good.

Furthermore, common good contributes to social well-being and a harmonious way of coexisting
in a peaceful and friendly environment, both now and in the future (Mele, 2002).

In conclusion, the CSR theories discussed above are based on focusing on long-term profits and
contributing to a better society by doing the right thing.

14
2.1.4 Carroll’s CSR pyramid
Another theoretical approach to CSR is Carroll’s CSR pyramid which depicts the inherent
obligation that businesses must perform towards its stakeholders. Carroll (1991) conceptualized
the responsibilities of a business into four (4) dimensions which are economical, legal, ethical and
philanthropic responsibility as shown in Fig 2.1 below.

Figure 2. 1 Carroll’s Pyramid of CSR

Source: Adapted from Carroll (1991)

2.1.4.1 Economical Responsibilities

According to Carroll's CSR pyramid, economic responsibilities are at the bottom of the pyramid,
on which all other responsibilities rest, demonstrating that businesses must generate profit in order
to survive (Carroll, 2016). Furthermore, if a business is not economically profitable, it will lack
the resources needed to carry out the other responsibilities, which are based on the economic
responsibilities (Crane and Matten, 2004). Economic responsibilities can be interpreted as an
organization's profit motive. According to Carroll (2016), society expects businesses to produce
goods and services that consumers require or desire while also making a healthy profit.
15
2.1.4.2 Legal Responsibilities
The second layer of Carroll's CSR pyramid is Legal Responsibilities, which states that corporations
are expected to follow society's laws and engage in activities that are permitted by the state.
Businesses are expected to operate not only as an economic entity, but also in accordance with the
directives established by federal, state, and local government legislators (Carroll, 2016). According
to Carroll (1991), businesses are viewed as having a social contract with society, and as such, they
are expected to carry out their economic mission within the framework of the society's rules and
regulations.

2.1.4.3 Ethical Responsibilities

In addition to what is required by law, ethical responsibilities encompass business practices and
conduct that are accepted or prohibited by society. According to Carroll (2016), ethical
responsibilities are those obligations which are not categorized in law but are expected by society.
Carroll (2009) asserts that businesses' ethical responsibilities must conform to what appears fair
and right in their business operations even when laws fail to provide directives or dictate courses
of action. As a result, society expects businesses to conduct their operations in an ethical manner
that reflects and indicates what employees, consumers, owners, and the local community recognize
as ethically correct.
2.1.4.4 Philanthropic Responsibilities
The Philanthropic responsibilities are located at the top of the pyramid. According to Carroll
(1991), philanthropic responsibilities include all corporate actions that are in response to societal
expectations, and that businesses must engage in accepted corporate activities in order to be good
corporate citizens by giving back to the society in which they operate (Carroll, 2009). In general,
it entails actively participating in any form of business giving that promotes human welfare or
goodwill.

Carroll (2009) argued that in modern times, philanthropic responsibility has become an everyday
expectation of society or the public for business to incorporate voluntary and discretionary
activities. The primary distinction between ethical and philanthropic responsibility is that the latter
is not expected of businesses from a moral or ethical perspective (Carroll, 2016). In light of this,
Carroll (2016) proposes that businesses that do not contribute to the philanthropic responsibilities
of society are not considered unethical, even if corporate actions such as monetary grants,

16
volunteerism by employees and management, and other community development projects are
highly desired by stakeholders. Indeed, some researchers, such as Freeman et al. (2010), refer to
philanthropic responsibilities as 'discretionary responsibilities.

2.2 Review of Empirical Literature

2.2.1 The effect of CSR on Financial Performance
According to Margolis and Walsh (2003) and Dimson, Karakas, and Li (2013), despite over a
hundred (100) empirical studies on the relationship between corporate social responsibility and
financial performance, the findings has no a consistent pattern. According to Chih, and Chen
(2010), and Wu and Shen (2013), while the relationship between corporate social responsibility
and financial performance in the telecommunications sector has not been extensively studied, the
existing limited studies show contradictory evidence. Specifically, Chih et al. (2010), concluded
that there is no relationship between CSR and financial performance after studying 520
Telecommunication firms from 34 countries between 2003 and 2005. In addition, Wu and Shen
(2013) discovered a positive relationship between CSR and financial performance after studying
162 financial firms in 22 countries between 2003 and 2009.

Previous empirical studies on the relationship between CSR and financial performance can be
divided into two categories. The first group has frequently focused on the use of event study
methodology to examine the financial impact when firms engage in CSR. For example, Wright
and Ferris (1997), McWilliams and Siegel (2000), Margolis and Walsh (2003), and Saleh, Zulkifli,
and Muhamad (2011) all found a mixed result when it came to the relationship between CSR and
financial performance. Wright and Ferris (1997) proposed a negative relationship between CSR
and financial performance; McWilliams and Siegel (2000) discovered no relationship; and Saleh,
Zulkifli, and Muhamad (2011) discovered a positive relationship between CSR and financial
performance. Furthermore, according to a survey conducted by Margolis and Walsh (2003), 4
percent of the 160 studies examined revealed a negative relationship between CSR and financial
performance. 55 percent reported a positive relationship, 22 percent reported no relationship, and
18 percent reported a mixed relationship. Besides this, Orlizky et al., (2003) used a different meta-
analysis and reached a similar conclusion.

17
The second set employed to examine the relationship between CSR and financial performance
used the accounting and financial measures of profitability. For instance, Simpson and Kohers
(2002), Mahoney and Roberts (2007), McWilliams and Siegel (2000), and McGuire, Sundgren,
and Schneeweis (1988) all obtained inconclusive results in these studies. Simpson and Kohers
(2002) conducted a study titled "the link between corporate social and financial performance" of
companies in the Dutch telecommunications industry, using the Community Reinvestment Act
(CRA) as a social performance measure, and found a positive relationship between corporate social
responsibility and financial performance. In addition, Mahoney and Roberts (2007) conducted a
study on a large sample of Canadian public companies to test the relationship between CSR and
financial performance. The study's findings revealed no statistically significant relationship
between CSR and financial performance. Nonetheless, they stated that certain CSR activities, such
as environmental and international activities, have a significant impact on financial performance.

According to research (Backhaus et al., 2002; Greening & Turban, 2000), the social behavior of
companies plays a significant role in employees' job choice. Similarly, Greening and Turban
(2000) asserted that firms that invest heavily in CSR activities attract more potential employees
than firms with lower CSR commitments, resulting in an increase in a firm's financial performance.
In addition, Carmen-Pillar, Rosa, and Lisa (2011) conducted a survey to assess the impact of CSR
on a company's short- and long-term financial performance, focusing on European companies
listed in the Stoxx Europe 600 sustainability index and Stoxx Europe 600 index from 2006 to 2010.
The studies' findings revealed that a firm's CSR commitment, the country's level of economic
development, and the size of the firm all influence the company's ROE. Furthermore, they
discovered that social performance variables are positively and significantly related to a company's
ROE, implying that a firm that engages in more CSR activities improves shareholder return by
realizing improved financial performance.

Based on the results of previous studies, it is possible to conclude that there is no consensus on the
nature of the relationship between corporate social responsibility and financial performance.
According to Weber (2008) and McWilliams and Siegel (2000), the inconsistent pattern in the
research findings is due to the failure to account for key variables and the different methodology
used in the research.

18
2.2.2 Measuring financial performance
Weber (2008) defined financial performance as an organization's overall financial health, implying
a monetary analysis of the firm's operations. According to Chetty, Naidoo, and Seetharam (2015),
there is no genuine agreement on the best way to perfectly measure financial performance.
However, most empirical studies examining the relationship between corporate social performance
and financial performance used either accounting-based or market-based measures to assess
corporate financial performance. Accounting measurement captures the historical aspect of a firm's
financial performance and has been adopted by some researchers, such as (Bayoud, Kavanagh &
Slaughter, 2012; McWilliams & Siegel, 2000; Mwangi & Jerotich, 2013). The Market-based
measure of financial performance, on the other hand, is characterized by its forward-looking
perspective and ability to reflect shareholder expectations about the firm's future performance
based on previous or current performance (Shan & McIver, 2011).

Despite the fact that many researchers used numerous and diverse accounting-based methods to
measure financial performance, the accounting methods developed by Samiee and Roth (1992)
such as Return on Investment (ROI), Return on Asset (ROA), Sales growth, and profit growth
were used as essential financial variables in many researchers in their studies to evaluate a
company's financial performance (Samiee and Roth, 1992; Carton and Hofer, 2010; Batchimeg,
2017; and Adu, Asiedu and Muah, 2018). According to Batchimeg (2017), Return on Investment
(ROI) and Return on Asset (ROA) are used to quantify a company's profitability, while sales
growth and profit growth are used to measure a company's growth.

However, other financial performance measurement categorized under the market-base measure
are stock return, market value of a company, and change in stock exchange (Galant and Cadez,
2017).

In conclusion, regardless of various limitations associated with both accounting-based and market-
based financial performance measures, accounting-based measures are still a more efficient
measure of financial performance than market-based measures (Moore & Spence, 2006). As a
result, in this study, return on investment (ROI), return on asset (ROA), sales growth, and profit
growth are employed to measure the company's financial performance.

19
2.2.3 Measuring Corporate Social Responsibility
The measurement of the CSR concept is difficult due to a lack of agreement on the meaning of its
theoretical foundation and concept (Dahlsrud, 2008). Furthermore, CSR is multidimensional, with
dimensions that are relatively heterogeneous (Carroll, 1979). As a result of these difficulties, such
as a lack of agreement on the theoretical foundation and conceptualization, several approaches and
methods for measuring CSR performance have been used in empirical literature. According to
their frequency of use, these approaches are as follows: (a) reputation indices, (b) content analysis,
(c) questionnaire-based surveys, and (d) one-dimensional measures. The following subsection
attempts to explore into these measurement approaches in depth.

(a) Reputation indices

Reputation indices are the most commonly used method for measuring CSR. Data is compiled by
specialized rating agencies for measuring CSR performance in this method. Several studies have
used major indices for this purpose, including the Dow Jones Sustainability Index (Skare and
Golja, 2012), the Fortune Magazine Reputation Index (Preston & O'Bannon, 1997), the MSCI
KLD 400 Social Index (Erhemjamts et al., 2013), and the Vigeo Index (Gired-Potin, et. a, 2014).
The multidimensional nature of CSR, such as employee welfare, natural environment, social
welfare, and so on, is also reflected in reputation indices.

(b) Content Analysis

Content analysis is the second most commonly used index for measuring CSR performance.
"Content analysis typically includes determining a construct of interest and codifying qualitative
data to derive quantitative scales that can be used in subsequent statistical analyses" (Galant and
Cadez, 2017). Content analysis differs from other indices in terms of the number of dimensions
evaluated and the level of coding sophistication. The most basic method of coding is the count of
sentences and words (Aras et al., 2010), within annual reports and other communication
publications on the specific CSR dimensions under consideration, with binary variables ('0' and
'1'), 0 if disclosed and 1 if not disclosed or not reported.

(c) Survey Method based on Questionnaire

A questionnaire-based survey method is primarily used when a firm has not been rated by any
rating agency. This method is also used when a company's annual reports are unavailable for

20
content analysis. In these cases, researchers must collect primary data on CSR by sending
questionnaires to corporate managers, CEOs, and CSR directors, or conducting personal
interviews with them. As a result, Carroll (1979)'s CSR conceptualization is used for primary data
collection. The instrument is made up of four major CSR dimensions (legal, economic,
discretionary (philanthropic), and ethical) that are used to determine the firm's CSR contribution.
Recently, Maignan, Ferrell, and Hunt (1999) and Maignan and Ferrell (2000, 2001) improved on
the instrument presented by Carroll (1979).

(d) One dimensional Measures

The one-dimensional measure approach focuses on a single aspect of CSR, such as environmental
management or philanthropy. Pollution control investment data (Peng and Yang, 2014), and the
use of a carbon reduction strategy are examples of environmental activities (Cadez and Czerny,
2016). Many studies have been conducted on philanthropic activities such as donations (Lin,
2009), public health policies, and growth in charitable contribution (Lev, Petrovits and
Radhakrishnan, 2010). This construct, like others, has advantages and disadvantages. One of the
most important advantages is the availability of data in a one-dimensional measure of indices, as
well as minimal data collection efforts and easy firm comparison. However, when compared to
Carroll's (1979) multi-dimension concept, the use of a one-dimensional construct is theoretically
problematic. It is completely unjustified for a company to focus on one dimension, such as
employee welfare, while ignoring another, such as environmental protection. As a result, a
multidimensional operationalization will consider CSR to be normal, whereas a one-dimensional
operationalization will detect either a low or high CSR, both of which are unjustified in every
aspect of business organization. In short, one-dimensional measures are frequently used because
they are voluntarily available and comparable across firms, whereas for firms participating in
multi-dimensions of CSR, this method of measuring CSR performance is theoretically invalid
because CSR is a multidimensional phenomenon (Carroll, 1979).

In conclusion, while CSR annual reports are not fully disclosed the survey method is regarded as
the most appropriate tool for gathering CSR data (Saeidi et al., 2015). Thus, the survey method of
Carroll (1979), developed by Maignan, Ferrell, and Hult (1999), was used to measure the
independent variables in the study.

21
2.2.4 CSR in Ethiopian context
Most research studies on corporate social responsibility are conducted in developed countries such
as western countries, whereas developing countries have seen an under-researched attention on the
area of CSR where institutions are ineffective and inefficient (Arli & Lasmono, 2010) of which
Ethiopia is not an exception.

Several studies have been undertaken to investigate the relationship between corporate social
responsibility and financial performance across nations and mixed results were obtained.
Similarly, in Ethiopia a few studies have been conducted in the banking industry in utilizing one-
dimensional CSR measure, specifically in philanthropic contribution measures of CSR. However,
the outcomes of the few research that have been undertaken have yielded mixed results. For
instance, Dakito (2017) conducted research on the impact of CSR on commercial bank financial
performance in Ethiopia. The independent variable of CSR was quantified using philanthropic
contributions and CSR disclosures as proxies, while the dependent variable was corporate financial
performance measured as Return on Asset (ROA). According to his findings, there was no
significant relationship between the two variables.

Another study was conducted by Uvaneswaran and Hussien (2017) to assess CSR investment and
its effect on financial performance in Ethiopia. The study used financial performance in terms of
Net profit before tax (NPBT) as the dependent variable of financial performance (FP), and CSR
activities (philanthropic activities) as the independent variable of CSR. The findings indicate that
there is a significant relationship between CSR activities of (Education, health and Environment)
and NPBT.

2.3 GAP Analysis

The review of empirical and theoretical literature revealed an excellent contribution in body of
knowledge on association between CSR and company’s Financial Performance. However, several
studies conducted provides mixed results with some studies showing positive relationship, others
negative, and still other showing no relationship. A commonly identified reason for the diverse
and contradictory results is measurement issues pertaining to both concepts of interest. First, CSR
operationalization in empirical literature range from multidimensional to one- dimensional.
Second, CSR measurement approaches include reputation indices, content analyses, questionnaire-

22
based surveys and one-dimensional measures, whereas Financial performance (FP) measurement
approaches include accounting-based measures, market-based measures and combined measures
(Dahlsrud, 2008). The other reason is disclosure issue. CSR reporting in many jurisdictions is not
mandatory.

Moreover, a number of the studies that has been done have focused on a single aspect of CSR,
which was mostly philanthropic (for instance, see Dakito; Uvaneswaran and Hussien, 2017). In
every aspect of business organization, a one-dimensional operationalization will detect either a
low or high CSR, both of which are unjustified. As a result, this method of measuring CSR
performance is conceptually invalid since CSR is a multidimensional phenomenon (Carroll, 1979,
1991). Therefore, a multidimensional CSR operationalization is considered as normal. As
illustrated in this chapter, it is necessary to include all three components of CSR, namely legal,
economic, and ethical CSR activities, in order to fully cover CSR. Unlike what other studies have
presented, this study intends to include not only the effect of Philanthropic Responsibility but also
the effect of ethical, legal and Economic Responsibilities that would affect the Financial
Performance of company.

Besides, the above mentioned limitations, a review of the literatures also revealed that the majority
of studies have focused on developed countries, with little evidence from developing countries like
Ethiopia. To the best of the researcher's knowledge, no research on this topic has been conducted
at Ethio Telecom. Furthermore, the existing literature is not sufficient and lacks similarity and
consensus and it needs evidences from developing countries.

Therefore, the motivation behind the study is to enrich the literature by bridging the knowledge
gap identified in the literature pertaining CSR and FP.

2.4 Conceptual Framework

According to Magenta and Mugenda (2003), a conceptual framework helps readers to quickly see
proposed relationships between variables in the study diagrammatically. The conceptual
framework is developed from the review of the literature discussed above and presented in the
diagram below. It shows the relationship between the dependent variable and independent
variables of CSR.

23
Figure 2. 2 Conceptual Framework of Effects of CSR on Financial Performance

Source: Designed by the researcher (2022)

24
 CHAPTER THREE
Research Methodology
According to Koul, (2006) consistent and reliable research indicates that research conducted by
using appropriate data collection instruments and sources which increase the credibility and value
of research findings. This chapter explains the research design, data type & source of data, data
analysis technique, measurement of variables, and model specification.

3.1 Description of the Company

In this section, the study area, history of organizational reforms and CSR activities provided by
Ethio Telecom were presented.

3.1.1 Study Area

The study was conducted on Ethio Telecom, Head Office, which is located in Kirkos Sub-City,
Addis Ababa, Ethiopia. Geographically, the Head Quarter is located in the North of Kirkos Sub-
City at 5036" N to 13012" N latitude and 31012" E to 51054" E longitude as shown in Figure 3.1
below. In Ethiopia, Ethio Telecom is the largest telecom company which provides telecom services
and products in monopoly.

Figure 3 1 Map of the study area

Source: Researcher’s own drawing using ArcGIS and Google Earth Software.
25
3.1.2 History of Organizational Reform
Telecom service was introduced in Ethiopia by Emperor Menelik II in 1894 during the
commencement of the telephone line installation from Harar to Addis Ababa. Then the inter-urban
network was expanded in all other directions from the capital and many important centers in the
Empire were interconnected by landlines to facilitate long-distance communications with the help
of intermediate operators acting as verbal human repeaters. Ethio Telecom got its current name by
passing through the following historical reforms (Profile – Ethiotelecom, 2020).

1890: Central Administration of Telephone and Telegraph System of Ethiopia

1907: The central office of Post, Telegraph and Telephone (PTT) System of Ethiopia

1910: Ministry of Post, Telegraph and Telephone (PT&T)

1952: The Imperial board Telecommunication of Ethiopia (IBTE)

1975: The provisional Military of Socialist Ethiopian Telecommunication Services

1996: Ethiopian Telecommunication Corporation (ETC)

2010: Ethio telecom

3.1.3 CSR Activities of Ethio Telecom

Ethio Telecom has been involving in various social responsibilities. The company's CSR
interventions have a positive impact on society, the environment and all stakeholders. The
company's CSR projects focus on strengthening communities by targeting the fundamental drivers
of long-term development such as education, environment, humanitarian aid, volunteerism and
government projects.

Education: Education is an important lever for the development of nations and social changes. In
2021, Ethio Telecom donated 50,000 dozen exercise books to students enrolled in 665 schools
countrywide. The motto of the year's support of educational materials is “Equipping students is
building generation”.

Environment: Environment protection is one of the priority areas of CSR activity. By the year
2021, Ethio telecom planted more than 814,722 seedlings at 174 sites by mobilizing more than
10,513 employees across the country.

26
Humanitarian: Ethio telecom has played its corporate social responsibility role by giving
response for multiple kinds of support requests from the community as per the company policy.

▪ Financial Sponsorship: Sponsored several humanitarian and community requests to create

better lives to the society and engage our communities.
▪ Free Short Code: Offered short code numbers to humanitarian organizations and mega projects
to enable them raise fund from the community.
▪ Free Bulk SMS: Disseminated free bulk short messages to deliver vital information for the
community.
Humanitarian: Ethio telecom employees have been engaged in various kinds of volunteering
activities and contributed a lot for eliminating the social and economic complications of the
society. Accordingly, 1366 staffs donated blood, Birr 492K contributed to environmental
protection and RED Cross, and more than Birr 5.4 million Support in item.

Government Projects: Addressing tech-supported quality education, health, administration, etc.

will benefit for the community to get better service. It can also have a great impact on uplifting the
growth of the nation’s economy. Ethio Telecom provided a great discount for many government
projects and benefit the society to get improved service.

In general, Ethiotelecom CSR statistical data shows that a total of Birr 253.4 million was spent
by the company, specifically Birr 16.5 million for educational responsibilities, Birr 20.1 million
for environmental responsibilities, Birr 101.4 million for humanitarian responsibilities, Birr 87.1
million for voluntarism responsibilities, and Birr 43 million for government projects (CSR –
Ethiotelecom, n.d.).

3.2 Research Approach

To achieve the research objectives, the study adopted quantitative research approach. Quantitative
research methods emphasize objective measurements and the statistical, mathematical, or
numerical analysis of data collected through questionnaires, and surveys, or by manipulating pre-
existing statistical data using computational techniques (Creswell, 2013).

27
3.3 Research Design
To address the research problem and to achieve the stated objectives, both a descriptive and
explanatory research design were used. A descriptive research design was used to describe
respondents’ view of CSR activities that had been undertaken by the Ethio Telecom and its
financial performance in terms of graphs, tables, frequencies, and percent and inferential statistics.
In addition to this, the researcher employed an explanatory research design to examine the effects
of corporate social responsibility activities (Economic activities, ethical activities, legal, and
philanthropic activities) on financial performance.

3.4 Data Type and Sources of data

The study used both primary and secondary data sources. The primary data was collected directly
from the management and employees of the Ethio Telecom using well-designed and structured
survey questionnaires. The survey instrument has become a widely used and recognized research
method worldwide. It includes asking structured questions to a representative cross-section of the
population at a single point in time (Malhotra and Birks, 2000). The researchers also used
secondary sources of data related to the issue at hand from files, brochures, office manuals,
circulars, and policy papers to provide additional information where appropriate. Additionally, a
variety of books, published and/or unpublished government documents, websites, reports, and
newsletters will be reviewed to make the study more fruitful.

3.5. Target Population, Sample Size and Sampling Technique

3.5.1 Target Population
The study only includes the concerned division and section in order to maintain reliable data. As
a result, the sample includes Ethio Telecom Head Office employees of Finance division and CSR
section. Hence, the target population is as follows:
Finance division (N) = 149,
CSR section (N) = 6, and
Total (N) = 155

3.5.2 Sample Size

The sample size represents the actual magnitude of the targeted data sources which will be
considered to represent the entire population reasonably. Similarly, determining sampling

28
technique and sample size ultimately relay on the size of the target population because of
enhancing result accuracy and appropriateness.

Slovin's formula was used to determine the sample size for the questionnaire (Cochran, 1977).

n= N/ (1+Ne2)

Where, n = sample size, N = population size, e = 0.05 is the level of correctness. This formula was
used to calculate the sample sizes for the study as follows.

n = 155/1+155(0.05*0.05) = 112

3.5.3 Sampling Technique

The sampling technique for the study was simple random sampling. Accordingly, both
management and staff of Finance division and Corporate Social Responsibility (CSR) section were
chosen using a simple random sampling technique because this technique gives each unit of the
population an equal chance of being selected (Ghauri and Gronhaug, 2005). To do so, excel
“=RAND ()” function was used for selecting respondents randomly.
Procedures to create a simple random sampling are:
1) Use RAND () function for a single column and for entire rows
2) Paste it with a special paste tool
3) Select the entire row pasted value for sorting
4) Click on sort →custom sort → choose “Expand the selection” → click on sort → sort by:
(choose the target column for sorting) → click on ok
Finally, based on the above procedures, 112 respondents who have the smallest values were
selected from the list of 155 target populations or respondents. Then online survey questionnaire
was distributed through SMS, Telegram and email for them.

3.6 Method of Data Collection

Based on research objectives and the review of literatures, structured questionnaires was employed
for self-completing by the management and employees to collect primary data from finance
division and CSR section. Online survey questionnaire was distributed to respondents through
email, SMS and Telegram. Accordingly, respondents were asked to indicate the extent to which

29
each item reflected their company on a five (5)-point Likert scale, ranging from 1=strongly
disagree to 5= strongly agree. Respondents were asked to select the most appropriate option for
their company on a five (5)-point Likert scale ranging from 1=strongly disagree to 5=strongly
agree to measure the company's financial performance from 2020, after CSR section was
established and began to participate in CSR activities.

3.7 Data Analysis Technique

After collecting all the necessary data, a descriptive and explanatory analysis methods were used.
To examine respondents' opinions descriptive statistics such as percentages, mean, the standard
deviation was employed. In addition, to determine the association between the dependent and
independent variables, multiple regression analysis was used with the help of Stata 13 (Stata
version 13), excel, and Excel Analysis Tools.

3.8 Measurement of Variables

3.8.1 Independent Variable: Corporate Social Responsibility (CSR)
The measurement of CSR notion is very difficult because of lack unanimity on the meaning of its
theoretical foundation and concept (Dahlsrud, 2008). Besides, CSR is multidimensional with
relatively heterogeneous dimensions (Carroll, 1979). As a result of these difficulties such as lack
of agreement on the theoretical foundation as well as conceptualization, several approaches and
methods have been used to measure CSR performance in empirical literature. These approaches
according to their frequency of use are as follows: (a) reputation indices, (b) content analysis, (c)
questionnaire based surveys and (d) one dimensional measures.

Therefore, questionnaire based Survey is one of the methods which is basically used when a
particular company is not rated by a rating agency and corporate reports are unavailable or
insufficient for a meaningful content analysis. In such cases, researchers need to collect primary
data about CSR by sending questionnaires to knowledgeable respondents or interviewing them.
Hence, the CSR conceptualization presented by Carroll (1979) is used for primary data collection.
The instrument consists of four main dimension of CSR (legal, economic, discretionary, and
ethical) to determine the firms CSR contribution. Lately, the instrument presented by Carroll
(1979) was developed by Maignan, Ferrell, and Hunt (1999) to make more appropriate.

30
In conclusion, while CSR annual reports are not fully disclosed, survey method is considered as
the most appropriate tool for data collection about CSR (Saeidi et al., 2015). Thus, for the purpose
of this study, survey method of Carroll (1979) which was developed by Maignan, Ferrell and Hult
(1999) was used to measure the independent variables.

3.8.2 Dependent variable: Financial performance (FP)

Financial performance as the only dependent variable in this study is measured using four (4) items
developed by Samiee and Roth (1992) and also adopted by Adu, Asiedu and Muah (2018). These
items are return on investment (ROI), return on assets (ROA), revenue growth and profit growth
of the company as financial performance constructs.

31
Table 3. 1 The Constructs, Variables, and Measures of Conceptual Model

Constructs Sources of Construct Variables Indicators

responses for customer complaints
Quality of products
Customer satisfaction
Maximizing profits
Economic
Minimizing the operating costs
Monitor employees’ productivity
Engaging in Long-term business
strategy
Environmental laws
legal standards
contractual obligations
compliance with law
Legal Hiring laws regulation
Diversity of workforce
Avoiding the discrimination
follow internal policies of
remuneration among employees
Code of conducts
Corporate Social professional standards
Maignan, Ferrell and Hult
Responsibility monitor of activity
(1999)
(CSR) Ethical trustful company
fairness employees evolution
providing full &accurate information
to customers
competitive salary
support for education and job training
programs
encourage employees to join
philanthropic organizations
energy and materials program of
reduction support for the local
Philanthropic/
community
Discretionary
Direct involvement in community
projects and affairs
An employee - led approach to
philanthropy
Offers generous product warranties
Campaigning for environmental and
social change
Developed by Samiee and Return on Investment (ROI)
Financial
Roth (1992) and adopted Financial Return on Assets (ROA)
Performance
by Adu, Asiedu and Muah Performance Sales growth
(FP)
(2018) profit growth

32
3.9 Reliability and Validity of the Instruments
The most important action to ensure quality of research output is to confirm the validity and
reliability of data collection instruments. According to Creswell (2016) cited by Anna, Abebe and
Gemechu (2021), reliability measures the stability and consistency of the instruments used to
gather data, whereas validity is a measure of the meaningfulness of the data and soundness of the
data collection instruments.

As Kothari (2018) indicates, researchers can ensure validity by pretesting questionnaires to

identify vague questions and getting suggestions from pilot study participants to correct the
deficiencies of the instruments used. A pilot study gives the researcher a chance to check and
validate the research instruments for the actual research. Accordingly, a pilot study was undertaken
to check the validity of the questionnaire before distributing them to the actual samples in order to
generate quality data by using the specified instruments for this study.

To ensure the reliability of the instruments, the researchers conducted a Cronbach alpha test.
According to Anna, Abebe and Gemechu (2021), Cronbach’s alpha determines the internal
consistency or average correlation of items in a survey instrument to test its reliability.
Accordingly, the reliability of instruments used in this study was properly checked using Cronbach
alpha statistics.

3.10 Ethical Consideration

To ensure ethical concerns in this study, the researcher must first obtain complete consent from
the company and the participants. The researcher explains to the participants about the topic,
purpose, and overall benefit of the study. The researcher also ensures that participation in the study
is completely voluntary and risk-free. While collecting and analyzing the data, the name of the
participants remained confidential and questionnaires were administered without interrupting the
normal business operations.

33
3.11 Model Estimation
In the study a multiple linear regression model was established to determine the relationship
between the dependent and independent variables.

FP = β0+β1ECO+ β2LEG + β3ETH + β4PHI+ ε

Where,

FP- Financial Performance

βo – Constant coefficient

β1- β4-Regression coefficient

ECO – Economic responsibility

LEG – Legal responsibility

ETH – Ethical responsibility

PHI – Philanthropic responsibility, and

ε –Error term

34
 CHAPTER FOUR

Data Analysis, Interpretation and Discussion

4.1. Introduction
This chapter presents the data analysis and discussion of the research findings. The data analysis
done with the help STATA (STATA version 13.0) and AnalysisToolPak (Data analysis in Excel
Add-in). The demographic profile of the study sample, their view towards the company CSR
practice and analysis of its effect on its financial performance through its dimensions have been
describe using descriptive statistics. Multiple linear regression model was employed to test
hypothesis and achieve the study objective that focuses on determining the effect of the company
CSR on its financial performance.

4.2 Response Rate

From the total of 112 surveys, 109(97%) respondents completed the online survey questionnaire,
with a response rate of 105 (97%) and 4(100%) from Finance Division and Corporate Social
Responsibility (CSR) Section respectively. As a result, the analysis is based on 109 (97%) surveys
that were successfully completed and conducted in accordance with the study objectives.

Table 4. 1 Response Rate of Respondents

Respondents Category Questionnaire Items Frequency Percent

Completed 105 97%
Finance Division
Uncompleted 3 3%
Completed 4 100%
CSR section
Uncompleted 0 0%
Total Completed 109 97%
Total Uncompleted 3 3%
Grand Total 112 100%
(Source: Researcher’s survey, 2022)

35
4.3 Reliability and Validity Test
4.3.1 Reliability Test
To ensure the reliability of the instruments, the researchers conducted a Cronbach alpha test.
According to Anna, Abebe and Gemechu (2021), Cronbach’s alpha determines the internal
consistency or average correlation of items in a survey instrument to test its reliability.
Accordingly, the reliability of instruments used in this study was properly checked using Cronbach
alpha statistics. The value for Cronbach’s Alpha (α) started from 0.70 is the accepted value
(Kothari, 2004). The overall internal consistency of 33 items was tested and the result showed the
high Alpha value (á=0.9778 see table 4.2 below). Thus, it concluded that the questionnaire was
reliable and consistent, because the Alpha value is greater than 0.70.

Table 4. 2 Reliability Statistics

Test scale = mean(unstandardized items)

Average interitem covariance 0.0483111

Number of items in the scale 5
Scale reliability coefficient 0.9778
(Source: Researcher’s survey, 2022)

Additionally, it can be seen that all of the five items contribute positively to yield the highest
Cronbach’s alpha for the instrument. The total item result is shown in Table 4.3.

Table 4. 3 Total item statistics for Cronbach’s alpha

Test scale = mean(standardized items)

Item Obs Sign Alpha

Economic 109 + 0.9777
Legal 109 + 0.9742
Ethical 109 + 0.9742
Philanthropic 109 + 0.9738
Financial_Performance 109 + 0.9751
Test scale 0.9800
(Source: Researcher’s survey, 2022)

Table 4.4 below shows the inter-item correlation, which gives the correlation coefficients for items
in the study scale. Therefore, the study is required to use the inter-item correlation table to check

36
if the items were well interrelated. The inter-item correlation must be greater than 0.3 (Saunders,
Lewis, and Thornhill, 2019). Finally, the result of this study shows that the inter-item correlations
for all variables are well above 0.3.

Table 4. 4 Inter-item correlations

Interitem correlations (obs = 109 in all pairs)

Financial_Per
Economic Legal Ethical Philanthropic formance
Economic 1.0000
Legal 0.9032 1.0000
Ethical 0.8910 0.9119 1.0000
Philanthropic 0.8899 0.9162 0.9312 1.0000
Financial_Performance 0.8909 0.9073 0.9137 0.9173 1.0000
(source: Researcher’s survey, 2022)

4.3.2 Validity Test

According to Kothari (2004), a pilot study allows the researcher to test and validate the research
instruments before conducting the actual study. Accordingly, a pilot study was conducted to ensure
the validity of the questionnaires before distributing them to the actual samples in order to obtain
quality data using the instruments specified for this study. During the pilot testing, 10 employees
were chosen which are excluded in the actual samples of the study, and the questionnaire was
modified based on the results. The final questionnaire was distributed to the entire samples that
were selected.

4.4 Descriptive Analysis

4.4.1 Demographic Profile of Respondents
The table 4.6 given below describes the general findings regarding the respondents Gender, Age,
level of education, Division/Section, Position, and Experience. It could be seen that 109 (100%)
participated in the study.

From the respondents 59 (54.13%) were males and 50 (45.87%) were females. Here the shares of
males are higher than females.

The majority of the ages of respondents are fall in the age of 31-40 (55, 50.46%) and 41-50 (37,
33.94%) and the rest fall in the age of above 50 (10, 9.17%) and 21-30 (7, 6.42%) respondents.

37
Here, the majority of the respondents are in the age of 31-44 (55, 50.46%) years but, unfortunately,
no respondents who are aged above below 20 years.

In terms of education level, most respondents have a first degree (77, 70.64%) and MA/MSC,
followed by (32, 29.36%). But there are no respondents who have a certificate, diploma or PhD.

When grouped by department/section, most respondents were accounts from the finance division
(105, 96.33%) and the CSR department (4, 3.67%). In terms of position, most respondents were
staff (97.88.99%) and the rest are management (12.11.01%).

Of the total respondents, the majority of them (37, 33.94%) have experience between 11 and 15
years. while 28 (25.69%) and 25 (22.94%) of them are between 6-10 and 16-20 years old
respectively. The rest have above 20 (15.60%) and below 5 (2, 1.83%).

Table 4. 5 Demographic profile of Respondents

Category Frequency Percent Commulative
Entire observation 109 100 100
Gender
Male 59 54.13 54.13
Female 50 45.87 100
Age
21-30 years 7 6.42 6.42
31-40 years 55 50.46 56.88
41-50 years 37 33.94 90.83
Above 50 years 10 9.17 100
Education
First Degree 77 70.64 70.64
MA/MSC 32 29.36 100
Division/Section
Finance Division 105 96.33 96.33
CSR Section 4 3.67 100
Position
Staff 97 88.99 88.99
Management 12 11.01 100
Experience
Below 5 years 2 1.83 1.83
6-10 years 28 25.69 27.52
11-15 years 37 33.94 61.47
16-20 years 25 22.94 84.4
Above 20 years 17 15.6 100

(Source: Researchers survey, 2022)

38
4.4.2 Descriptive Statistics of Ethio Telecom CSR activities
One of the statistical approaches to determining equivalence between groups is to use simple
analyzes of means and standard deviations for the variables of interest for each group in the study
(Marczyk, Dematteo, and Festinger, 2005). The mean indicates the extent to which the sample
group agrees or disagrees with the different statement on average. The lower the mean, the more
likely it is that respondents disagree with the statement. The higher the mean, the more the
respondents agree with the statement. On the other hand, the standard deviation shows the
variability of an observed response from a single sample. Accordingly, the effect of CSR
dimensions (economic, legal, ethical and philanthropic) on the company’s financial performance
were analyzed using a descriptive statistic of central tendency measure (mean) and variability
measure (standard deviation).

4.4.2.1 Economic responsibility practices of Ethio Telecom

The study required finding of economic responsibilities in the Ethio Telecom. The findings of the
study are discussed in Table 4.6

The respondents’ views on the economic activities of the company had variously agreed on the
table 4.6 below. For the case of responses for customer complaints, there was a mean of 3.926606
and standard deviation of 0.028277. For the case of improved quality of products and services,
there was a mean of 4.045872 and standard deviation of 0.023982. For the case of satisfaction as
an indicator of business performance, there was a mean of 4.064220 and standard deviation of
0.026951. For the case of company’s profit maximization success, there was a mean of 4.009174
and standard deviation of 0.027636. For the case of minimizing the operating costs, there was a
mean of 3.706422 and standard deviation of 0.055763. For the case of close monitoring of
employees’ productivity, there was a mean of 3.000000 and standard deviation of 0.039103. For
the case of top management engagement in long term business strategy, there was a mean of
3.880734 and standard deviation of 0.033801.

The results in Table 4.6 show that the overall economic activities of the Ethio Telecom, as
measured by respondents, is well and above average. Majority of respondents agree that the
company focuses on improving the quality of products and services, customer satisfaction as an
indicator of business performance, and maximizing company profits.

39
Table 4. 6 Economic responsibility practices of Ethio Telecom

Mean estimation Number of obs = 109

Mean Std. Err. [95% Conf. Interval]

EcoQ1 [Our company has a procedure in place to respond to every
customer compliant] 3.926606 0.028277 3.870555 3.982656
EcoQ2 [We continually improve the quality of our products and services] 4.045872 0.023982 3.998335 4.093409
EcoQ3 [We use customer satisfaction as an indicator of our business
performance] 4.064220 0.026951 4.010799 4.117641
EcoQ4 [We have been successful at maximizing our profits] 4.009174 0.027636 3.954395 4.063954
EcoQ5 [We strive to lower our operating costs] 3.706422 0.055763 3.595890 3.816954
EcoQ6 [We closely monitor employees’ productivity] 3.000000 0.039103 2.922491 3.077509
EcoQ7 [Top management establishes long term strategies for our business] 3.880734 0.033801 3.813735 3.947733
(Source: Researchers’ survey, 2022)
4.4.2.2 Legal responsibility practices of Ethio Telecom
The study required in determining the legal responsibilities practices of Ethio Telecom. The results
of the study are discussed in Table 4.7.

Respondents' opinions on the legal activities of Ethio Telecom varied, as shown in Table 4.7
below. For responses to managers’ information about relevant environment laws, the mean was
3.825688 and the standard deviation was 0.038763. In the case of products and services regal
requirement fulfillment, the mean was 4.000000 and the standard deviation was 0.026069. In the
case of contractual obligation honorability, the mean value was 3.963303 and the standard
deviation was 0.025829. For managers’ compliance with law of the company, there was a mean of
4.027523 and a standard deviation of 0.027523. In case of company compliment with all laws
regarding hiring and employee benefits, the mean value was 3.816514 and standard deviation of
0.041557. In the case of diversity of workforce (in terms of age, gender and race), the mean value
was 3.816514 and the standard deviation was 0.041557. For the case of internal polices prevent
discrimination in employees’ compensation and promotion, there was a mean of 3.036697 and a
standard deviation of 0.028931.

The findings in Table 4.7 indicate that the overall legal activities of the Ethio Telecom, as measured
by respondents, is well and above average. The majority of respondents agree that the company’s
products and services meet legal requirements, and managers of the company comply with the law.

40
Table 4. 7 Legal responsibility practices of Ethio Telecom
Mean estimation Number of obs =109

Mean Std. Err. [95% Conf. Interval]

LegQ1 [Managers are informed about relevant environmental laws]3.825688 0.038763 3.748853 3.902523
LegQ2 [All our products and services meet legal requirements] 4.000000 0.026069 3.948327 4.051673
LegQ3 [Our contractual obligations are always honored] 3.963303 0.025829 3.912106 4.014499
LegQ4 [The managers of this company try to comply with the law]4.027523 0.027523 3.972968 4.082078
LegQ5 [Our company seeks to comply with all laws regarding hiring
and employee benefits] 3.816514 0.041557 3.734140 3.898887
LegQ6 [We have programs that encourage the diversity of our
workforce (in terms of age, gender or race)] 3.816514 0.041557 3.734140 3.898887
LegQ7 [Internal polices prevent discrimination in employees’
compensation and promotion] 3.036697 0.028931 2.979351 3.094044
(Source: Researcher’s survey, 2022)
4.4.2.3 Ethical responsibility practices of Ethio Telecom
The study required in determining the ethical responsibilities of Ethio Telecom. Respondents'
views on the ethical activities of Ethio Telecom varied, as shown in Table 4.8 below. For responses
to company’s comprehensive code of conduct, the mean was 3.889908 and the standard deviation
was 0.032818. In the case of professional standards of a company, the mean was 3.908257and the
standard deviation was 0.030683. In the case of top managers monitoring potential negative
impacts of activities on the community, the mean value was 3.091743 and the standard deviation
was 0.038094. For company recognition as trustworthy, there was a mean of 4.064220 and a
standard deviation of 0.029937. In case of fairness toward coworkers and business partners is an
integral part of employee evaluation process, the mean value was 3.834862 and standard deviation
of 0.038032. In the case of confidential procedure is in place for employees to report any
misconduct at work (such as stealing or sexual harassment), the mean value was 3.807339 and the
standard deviation was 0.042190. For the case of sales persons and employees of the company
who are required to provide full and accurate information to all customers, there was a mean of
3.935780 and a standard deviation of 0.035157.

The findings in Table 4.8 indicate that the overall ethical activities of the Ethio Telecom, as
measured by respondents, is well and above average. Furthermore, the majority of respondents
agree that the Ethio Telecom is recognized as a trustworthy company.

41
Table 4. 8 Ethical responsibility practices of Ethio Telecom
Mean estimation Number of obs =109

Mean Std. Err. [95% Conf. Interval]

EthQ1 [Our company has a comprehensive code of conduct] 3.889908 0.032818 3.824857 3.954960
EthQ2 [Members of our company follow professional standards] 3.908257 0.030683 3.847438 3.969076
EthQ3 [Top managers monitor the potential negative impacts of our
activities on our community] 3.091743 0.038094 3.016235 3.167251
EthQ4 [We are recognized as a trustworthy company] 4.064220 0.029937 4.004880 4.123561
EthQ5 [Fairness toward coworkers and business partners is an
integral part of our employee evaluation process] 3.834862 0.038032 3.759476 3.910249
EthQ6 [A confidential procedure is in place for employees to report
any misconduct at work (such as stealing or sexual harassment)] 3.807339 0.042190 3.723712 3.890967
EthQ7 [Our sales persons and employees are required to provide
full and accurate information to all customers] 3.935780 0.035157 3.866092 4.005467
(Source: Researcher’s survey, 2022)
4.4.2.4 Philanthropic responsibility practices of Ethio Telecom
The study required determining the ethical responsibilities of Ethio Telecom. Respondents' views
on the philanthropic activities of the company differed, as shown in Table 4.9 below. In the case
of a competitive salary offered by the company, the mean was 3.045872 and the standard deviation
was 0.039931. In the case of company supports for employees who acquire additional education,
the mean was 3.908257 and the standard deviation was 0.033337. For the case of company
encouragement for employees to join civic organizations that support the community, the mean
value was 3.926606 and the standard deviation was 0.028277. For the flexible company polices
that enable employees to better coordinate work and personal life, there was a mean of 3.082569
and a standard deviation of 0.037162. In case of company contributions to charities, the mean
value was 3.935780 and standard deviation of 0.026951. In the case of company program in place
to reduce the amount of energy and material, the mean value was 3.889908 and the standard
deviation was 0.032818. For the case of encourage partnerships with local business and schools,
there was a mean of 3.963303 and a standard deviation of 0.031732. For the company support of
local sports and cultural activities, mean value was 4.788991 with a standard deviation of
0.047129.

The findings in Table 4.9 indicate that the overall Philanthropic activities of the Ethio Telecom, as
measured by respondents, is well and above average. Moreover, the majority of respondents
strongly agree with the support of the company to local sports and cultural activities.

42
Table 4. 9 Philanthropic responsibility practices of Ethio Telecom
Mean estimation Number of obs = 109

Mean Std. Err. [95% Conf. Interval]

PhiQ1 [The salaries offered by our company are higher than any other
industries’ average] 3.045872 0.039931 2.966721 3.125023
PhiQ2 [Our company supports employees who acquire additional education] 3.908257 0.033337 3.842178 3.974336
PhiQ3 [Our company encourages employees to join civic organizations that
support our community] 3.926606 0.028277 3.870555 3.982656
PhiQ4 [Flexible company polices enable employees to better coordinate work
and personal life] 3.082569 0.037162 3.008908 3.156229
PhiQ5 [Our company gives adequate contributions to charities] 3.935780 0.026951 3.882359 3.989201
PhiQ6 [A program in place to reduce the amount of energy and material
wasted in our company] 3.889908 0.032818 3.824857 3.954960
PhiQ7 [We encourage partnerships with local business and schools] 3.963303 0.031732 3.900405 4.026200
PhiQ8 [Our company supports local sports and cultural activities] 4.788991 0.047129 4.695574 4.882408
(Source: Researcher’s survey, 2022)

4.4 Multiple Linear Regression Diagnosis Test

The researcher used multiple linear regression analysis to evaluate the impact of corporate social
responsibility on financial performance. To do this, the researcher tested the assumptions of the
classic linear regression for the model. There are several assumptions that are required to give
valid results in multiple linear regressions. Before performing the analysis, the researcher tested
some of the basic multiple linear regression assumptions that are commonly used, such as linearity,
normality, multi-collinearity, homoscedasticity and autocorrelation tests.

4.4.1 Linearity Test

Financial performance (the dependent variable) is supposed to be linearly related to the CSR
dimensions (the independent variables), meaning that financial performance is assumed to be
affected by changes in the CSR dimensions (economic, legal, ethics and philanthropic). The
relationship between the two variables should be linear. This means that the scatterplot of scores
should be a straight line, not a curve (Hatch, 2002). The scatterplots of this study show that there
is a nearly linear relationship between the variables as indicated in Figure 4.1. Therefore, the
assumption of linearity is fulfilled.

43
Figure 4. 1 Linearity Test

(Source: Researcher’s survey, 2022)

4.4.2 Normality Test

A normal distribution is a continuous, symmetric, bell-shaped distribution of a variable. The shape
and position of a normal distribution curve depend on two parameters, the mean and the standard
deviation (Bluman, 2009). Thus, as indicated in Figure 4.2 there is no problem of normality in this
model, as the data are normally distributed around the mean.

44
 Figure 4. 2 Histogram of normality test
50
40
30
Frequency

20
10
0

-.2 0 .2 .4
Residuals

(Source: Researcher’s survey, 2022)

4.4.3 Multi-collinearity Test

Table 4.10 shows the test for multi-collinearity, which is relatively easy to detect by calculating
the tolerance or VIF (variance inflation factor) values. Multi-col-linearity exists when there are
strong correlations among the predictors and the existence of R-values. Variance Inflation factor
(VIF) greater than10 in the correlation matrix are the causes for the multi-collinearity existence
(Field, 2009). Tolerance is a statistic used to indicate the variability of the specified independent
variable that is not explained by the other independent variables in the model. Therefore, there is
no a multi-collinearity problem with the variables.

45
Table 4. 10 Multi-collinearity Test

(Source: Researcher’s survey, 2022)

4.4.4 Homoscedasticity Test

For the regression, output of the model Breusch-Pagan/Cook-Weisberg test for Homoscedasticity
conducted to test for homogeneity of variance and a P-value of greater than 0.05 were acceptable.
As the result revealed in table 4.11 below and, for the model is greater than 0.05 the critical value,
shows homogeneity of variance across the model.

Table 4. 11 Homoscedasticity Test

(Source: Researcher’s survey, 2022)

4.4.5 Auto-correlation Test

Regression analysis is based on uncorrelated error/residual terms for any two or more observations
(Hatch, 2002). This assumption is tested for each regression procedure using the Durbin-Watson
test, which tests the correlation between the residuals of the variables. The test number can vary
between 0 and 4, with a value of 2 meaning that the residuals are uncorrelated (Patton, 1990). A
value greater than 2 indicates negative correlation between adjacent residuals, while a value less
than 2 indicates positive correlation. As a general rule, when the Durbin-Watson statistic is
approximately 2 and an acceptable range is 1.50 to 2.50, the residuals are independent

46
(uncorrelated) (Brooks, 2014). In this study, the Durbin-Watson value was 1.868, which is very
close to 2; Therefore, it can be confirmed that the assumption of an independent error has almost
certainly been fulfilled.

Table 4. 12 Auto-correlation test

. gen time=_n

. tsset time
time variable: time, 1 to 109
delta: 1 unit

. dwstat

Durbin-Watson d-statistic( 5, 109) = 1.867939

(Source: Researcher’s survey, 2022)

4.5 Model Estimation

In this study, the regression model presents how much of the variance in the measure of
organizational performance is explained by the underlying variables of corporate social
responsibility, as indicated in Table 4.13 below.

Table 4. 13 Model Estimation

(Source: Researcher’s survey, 2022)

47
R-square indicates how much the total variation in the dependent variable (Financial performance)
can be explained by the independent variables (economic activities, legal activities, ethical
activities, philanthropic activities). In this case, the value of R-square is 88.56%, which is very
strong. This means that about 89% of variance in the data can be explained by the variables; this
amount is considerably large.

Adjusted R-square indicates the percentage of variance in the dependent variable or outcome
variable explained by the independent variable or predictor variable. In this case, 88% of the
variance in financial performance can be explained by economic activates, legal activities, ethical
activities, and philanthropic activities. This means that other factors that are not included in this
research contribute about 12% of variance in the dependent variable.

Furthermore, the regression result shows how well the regression equation fits the data, that is,
predicts the dependent variable and also shows an overall fitness of the model used. From the result
of F-test, it is known that the F statistic is 201.34 and the p-value or the Significance value is 0.000,
which less than 5%. Thus F (4, 104) = 201.34, p < 0.05, and R = 0.8856. This indicates that the
overall regression model is statistically significant.

Using the regression coefficients for independent variables and the constant term given in Table
4.13, the researchers constructed the regression equation for predicting financial performance of a
company as follows:

FP = β0+β1ECO+ β2LEG + β3ETH + β4PHI

Where,
FP- Financial Performance
βo – Constant coefficient
β1- β4-Regression coefficient
ECO – Economic responsibility
LEG – Legal responsibility
ETH – Ethical responsibility
PHI – Philanthropic responsibility, and
FP = -0.4842365 + 0.2489214* ECO + 0.2558393*LEG + 0.3157135*ETH + 0.3378799*PHI

48
According to the above equation, if all factors (economic activities, legal activities, ethical
activities, philanthropic activities) remain constant at zero, the financial performance of the
company will be -0.4842365. The results also show that a percentage increase in economic
activities lead to a 24.89% increase in the company's financial performance; a percentage increase
in legal activities lead to an increase in the company's financial performance by 25.58%; and a
percentage increase in ethical activities results in a 31.57% increase in the company's financial
performance; A percentage increase in philanthropic activity results in a 33.79% increase in the
company's financial performance. This means that the most important variable is philanthropic
activities, followed by ethical activities, legal activities, and economic activities among the four
independent variables.

4.6 Discussion of Hypotheses

The finding of the study shows that there is a positive and significant relationship between
independent variables (economic activities, legal activities, ethical activities and philanthropic
activities) and financial performance. Therefore, the hypotheses of the study are discussed as
follows:

H1: Economic responsibility has a positive significant effect on financial performance of Ethio
Telecom.

Result: p = 0.029 and beta value = positive; then, hypothesis 1 is accepted.

H2: Legal responsibility has a positive significant effect on financial performance of Ethio
Telecom.

Result: p = 0.029 and beta value = positive; then, hypothesis 2 is accepted.

H3: Ethical responsibility has a positive significant effect on financial performance of Ethio
Telecom.

Result: p = 0.011 and beta value = positive; then, hypothesis 3 is accepted.

H4: Philanthropic responsibility has a positive significant effect on financial performance of Ethio
Telecom.

Result: p = 0.004 and beta value = positive; then, hypothesis 4 is accepted.

49
Table 4. 14 Summary of Hypotheses
Result
Hypothesis of the study Beta and P-Value
(Accept or Reject)
β = 0.2489214
H1: Economic responsibility has a positive significant effect on
P=0.029 Accepted
financial performance of Ethio Telecom.
P < 0.05
β = 0.2558393
H2: Legal responsibility has a positive significant effect on
P=0.029 Accepted
financial performance of Ethio Telecom.
P < 0.05
β = 0.3157135
H3: Ethical responsibility has a positive significant effect on
P=0.011 Accepted
financial performance of Ethio Telecom.
P < 0.05
β = 0.3378799
H4: Philanthropic responsibility has a positive significant
P=0.004 Accepted
effect on financial performance of Ethio Telecom.
P < 0.05
(Source: Researcher’s survey, 2022)

4.7 Discussion of Major Findings

This section presents the finding of the study, in line with the objectives of the study, based on the
analysis performed. The main objective of this study is to determine the effect of CSR on the
financial performance in the case of Ethio Telecom.

The demographic profile of the respondents was analyzed through descriptive statistics.
Accordingly, regarding the gender of the respondents, the study can conclude that most of the
respondents (54.13%) were males. In the case of age, majority of the respondents fall in between
31-40 years (50.46%), which are in the adult group. In addition, all of the respondents were
educated and first degree holders at minimum. Regarding the experience of the respondents, most
of them have 11 to 15 years of company experience.

As indicated by the employees' responses, many of them believe that Ethio Telecom engages in
varies CSR activities to contribute on the welfare and better living standard of the community
beyond maximizing company’s profits. The researcher also found that the company pays attention
to philanthropic, economic, ethical and legal issues as CSR to link to its business performance.
Based on the results, the researchers can conclude that the majority of respondents believe that
CSR has a positive effect on company’s financial performance.

50
Moreover, from the findings of descriptive analysis, it can be noted that the majority of the
respondents agreed that economic responsibilities have positive effects on financial performance
of the company. This means that economic responsibility can be improved by improving the
quality of products and services, customer satisfaction and profit maximization.

The researcher also analyzes the effect of legal responsibilities on the financial performance of
company. The results show that the majority of respondents agreed that legal responsibilities have
a positive effect on the company's financial performance. For instance, the provision of products
and services that comply with legal requirements and the awareness of managers to act in
accordance with the law were the company's main concerns as revealed by the findings. This is
also supported by Anna, Abebe and Gemechu (2021).

From the results of descriptive analysis, it can be noted that the majority of the respondents agreed
that ethical responsibilities have positive effects on organizational performance. In the present
context, the subject of company ethics has a particular importance to be a trustworthy company.
This result is also supported by Anna, Abebe and Gemechu (2021).

From the findings of descriptive analysis, it can be noted that the majority of the respondents
strongly agreed that philanthropic responsibilities have positive effects on financial performance
of the company. As it can be seen from the results, Ethiotelecom contributes its philanthropic
responsibilities in various activities. Of these philanthropic activities, the majority of respondents
strongly agree with the company's support for local sports and cultural activities as a major
contribution.

From the analysis of variables through the use of multiple regressions, the researcher also revealed
the effect of CSR on the company’s financial performance leaving other things remain constant.
The regression analysis obtained from model estimation further strengthens this claim.

Accordingly, the coefficient of economic responsibility was 0.2489214, which indicates that
keeping other factors constant, a unit change in philanthropic responsibility causes a 24.89%
increase in company’s financial performance and the effects of the independent factor (economic
responsibility), whose p-value of 0.029, which is less than 0.05 and that of the dependent variable
(financial performance) is found to be positive and statistically significant.

51
On other hand, legal responsibility has a positive relationship with the dependent variable
(financial performance). The value of the coefficient for legal responsibility was 0.2558393, which
means that a unit change in legal responsibility has an effect of 25.58% increase on financial
performance of a company and its significance level was 0.029, which is less than 0.05. This result
indicates that legal responsibility has a positive relationship with dependent variable and
statistically significant effects on financial performance.

The coefficient of ethical responsibility was also computed to be 0.3157135, which means that a
unit change in ethical responsibility has the influence to increase company’s financial performance
by 31.57%, assuming all other variables are constant. The p value was 0.011, which is less than
0.05. Thus, the result proves that there is a positive and significant relationship with the dependent
variable (financial performance).

In the case of philanthropic responsibility, the coefficient value was 0.3378799, which means that
a unit change philanthropic responsibility has the influence to increase company’s financial
performance by 33.79%, assuming all other variables are constant. The p value was 0.004, which
is less than 0.05. Thus, the result proves that there is a positive and significant relationship with
the dependent variable (financial performance).

The regression estimates also showed an adjusted R2 value of 0.8812, indicating that about 88.12%
of financial performance of the company under consideration was explained by the independent
variable, while the remaining 17.88% variation in the financial performance of the company was
caused by other factors not included in the model. This shows that the model has a good fitness of
the regression line. The computed F-statistic showed a value of 201.34, while the p-value was
0.000, which is less than the critical value of 0.05; as a result, the null hypothesis is rejected, while
the alternate hypothesis is accepted. This indicates that CSR has a significant effect on the financial
performance of the company. In general, based on the findings of this study the researcher tried to
determine the effects of CSR dimensions (economic, legal, ethical and philanthropic
responsibilities) on company’s financial performance.

52
 CHAPTER FIVE
Summary, Conclusion, Recommendations and Suggestions
for Future Research
This chapter provides the summary of the findings from chapter four, and also it gives the
conclusions and recommendations of the study based on the objectives of the study.

5.1 Summary of findings

Table 4. 15 Summary of Findings
Objectives Hypotheses Methodology Major findings
From Descriptive analysis:
1. To determine
H1: Economic
the effects of The study results show that economic
responsibility has a
Economic responsibility can be improved by
positive significant
responsibility on improving the quality of products and
effect on financial Research Approch: Quantitative
financial services, customer satisfaction and
performance of Ethio
performance of profit maximization.
Telecom. Research Design: Both
Ethiotelecom.
Descriptive & Explanatory
The findings also revealed that the
2. To determine provision of products and services that
H2: Legal Data Type: Primary
the effects of comply with legal requirements and
responsibility has a
Legal the awareness of managers to act in
positive significant Data Source: Online Survey
responsibility on accordance with the law were the
effect on financial Questionnaire
financial company's main concerns as revealed
performance of Ethio
performance of by the findings. This is also supported
Telecom. Target Population: 155 (From
Ethiotelecom. by Anna, Abebe and Gemechu
Finance=149, from CSR
(2021).
section=6)
3. To determine Majority of the respondents agreed
H3: Ethical
the effects of that, in the present context, the subject
responsibility has a Sample size:112
Ethical of company ethics has a particular
positive significant
responsibility on importance to be a trustworthy
effect on financial Sampling technique: Simple
financial company. This result is also supported
performance of Ethio random sampling using excel
performance of by Anna, Abebe and Gemechu
Telecom. RAND () function
Ethiotelecom. (2021).
As it can be seen from the results,
Data collection method: Online
Ethiotelecom contributes its
4. To determine survey questionnaire (through
H4: Philanthropic philanthropic responsibilities in
the effects of SMS, Telegram & email)
responsibility has a various activities. Of these
Philanthropic
positive significant philanthropic activities, the majority of
responsibility on Data analysis technique:
effect on financial respondents strongly agree with the
financial Descriptive & Explanatory
performance of Ethio company's support for local sports and
performance of
Telecom. cultural activities as a major
Ethiotelecom.
contribution.

53
 From multiple linear regression:
A unit change in economic
1. To determine responsibility has an effect of 24.89%
H1: Economic
the effects of increase on financial performance of a
responsibility has a Research Approch: Quantitative
Economic company. This result indicates that
positive significant
responsibility on legal responsibility has a positive
effect on financial Research Design: Both
financial relationship with dependent variable
performance of Ethio Descriptive & Explanatory
performance of and statistically significant effects on
Telecom.
Ethiotelecom. financial performance (at β =
Data Type: Primary
0.2489214, P=0.029: P < 0.05).
2. To determine A unit change in legal responsibility
H2: Legal Data Source: Online Survey
the effects of has an effect of 25.58% increase on
responsibility has a Questionnaire
Legal financial performance of a company.
positive significant
responsibility on Legal responsibility has a positive
effect on financial Target Population: 155 (From
financial significant effect on financial
performance of Ethio Finance=149, from CSR
performance of performance of the company at (β =
Telecom. section=6)
Ethiotelecom. 0.2558393, P=0.029: P < 0.05).
3. To determine A unit change in ethical responsibility
H3: Ethical Sample size:112
the effects of has the influence to increase
responsibility has a
Ethical company’s financial performance by
positive significant Sampling technique: Simple
responsibility on 31.57%. Ethical responsibility has a
effect on financial random sampling using excel
financial positive significant effect on financial
performance of Ethio RAND () function
performance of performance of the company (at β =
Telecom.
Ethiotelecom. 0.3157135 P=0.011: P < 0.05).
Data collection method: Online
A unit change in economic
4. To determine survey questionnaire (through
H4: Philanthropic responsibility has an effect of 33.79%
the effects of SMS, Telegram & email)
responsibility has a increase on financial performance of a
Philanthropic
positive significant company. Philanthropic responsibility
responsibility on Data analysis technique:
effect on financial has a positive significant effect on
financial Descriptive & Explanatory
performance of Ethio financial performance of Ethio
performance of
Telecom. Telecom (at β = 0.3378799 P=0.004:
Ethiotelecom.
P < 0.05).
(Source: Researcher’s survey, 2022)

5.2 Conclusion
This study attempts to determine the effect of CSR activities on company performance in the case
of Ethio Telecom. The result underlines that Ethio Telecom has taken various CSR aspects to
improve its financial performance; Therefore, the company pays attention to economic
responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities.
According to respondents, the company knows that CSR has a positive effect on its financial
performance. The researcher found that CSR has a positive effect on a company for continuous
growth. This was attributed to the fact that CSR activities provide a platform for the company to

54
improve corporate image (trustworthy) through the provision of high-quality products and services
that meet legal requirements to satisfy customers as an indicator of company business
performance, which also aims to retain employees and maximize profits. The findings also offered
sufficient evidence that CSR is increasingly relevant as a direct factor influencing a company's
financial performance. As a result, it is possible to conclude that emphasizing the implementation
of corporate social responsibility activities is critical to ensuring the company's continuing
financial performance. It is also possible to argue that corporate social responsibility activities in
companies cannot exist in isolation from other parts of the business.

5.3 Recommendations
The findings of study are helpful for management of Ethio Telecom and the company's respective
stakeholders in establishing policies based on the findings. The researcher provides the following
recommendations based on the findings of the study and conclusions

From the overall result of Ethio Telecom's economic activities, the researcher found that closely
monitoring employee productivity is one of the economic activities that the management of Ethio
Telecom should pay more attention for it by reviewing work in progress on a regular basis and
helping employees to use self-monitoring tools like project plan, check list and activity logs.

Based the overall result of legal activities of the Ethio Telecom, the researcher found that internal
policies in prevent discrimination in employees’ compensation and promotion is one of the
economic activities that the management of Ethio Telecom should look into it to improve. It can
be through developing a written policy that defines procedures and rules and by giving a training
for managers and hiring decision makers.

From the overall result of Ethio Telecom's ethical activities, the researcher noticed that less
attention is paid to monitoring the potential negative impact of the company's activities. Therefore,
the management of Ethio Telecom should give more credit for it through keeping its standards,
norms, and expectations which in turn reflect an obligation to do what is right, just, fair and to
avoid harm to others.

In the case of philanthropic activities of Ethio Telecom, the researcher found that flexible company
policies that allow employees to better coordinate work and personal life is one of the philanthropic
motives in CSR that needs to be given more focus by the company. It can be done by concentrating

55
on how the company adapts processes and features to align with changes in their external
competitive environments, with employees' considerations, in order to increase job satisfaction
and engagement for a better personal life.

The overall result of this study showed that philanthropic activities are a major contributor that
affects the financial performance of companies in recent times, so there is a need to increase
company’s contribution and participation in other CSR activities.

5.4 Suggestions for Future Research

Finally, the researcher has argued that this study should be expanded and is a good starting point
for further research. This opens up the possibility of looking into other areas of the economy to
see whether there is a positive connection between CSR and financial performance. Further
research on companies other than Ethio Telecom could be conducted with the aim of relating CSR
to financial performance. Furthermore, companies that are legally prohibited from advertising their
products, such as cigarettes and tobacco companies, are recommendable areas of research for
investigating how they use CSR to promote their products and the its impact on their financial
performance.

56
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Appendix I
Appendix II

Table 4.2 Reliability Statistics

Table 4.3 Total item statistics for Cronbach’s alpha

Table 4.4 Inter-item correlations

Interitem correlations (obs=109 in all pairs)

Economic Legal Ethical

Economic 1.0000
Legal 0.9032 1.0000
Ethical 0.8910 0.9119 1.0000
Philanthropic 0.8899 0.9162 0.9312
Financial_Performance 0.8909 0.9073 0.9137

Philanthropic Financial_Performance
Philanthropic 1.0000
Financial_Performance 0.9173 1.0000
Figure 4.2 Histogram of Normality Test

Table 4.13 Model Estimation