The Relationship Between Financial Performance, Firm Size, Leverage and Corporate Social Responsibility

The Relationship Between Financial Performance, Firm Size, Leverage, and Corporate Social Responsbility by Fraser T. Nega MBA, North Central University, 2013 MA, Financial Economics, Ohio University, 2007 BA, Economics, The Ohio State University, 2004 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University December 15, 2017 Abstract Approximately $25.2 trillion in total assets under management in the United States is involved in some strategy of socially responsible and sustainable investing. Grounded in the stakeholder theory, the purpose of this correlational study was to examine the relationships between financial performance, firm size, leverage, and corporate social responsibility. A random sample included 119 large companies located in the United States from the population of companies listed in the Russell 100 index. The data were collected via Bloomberg Terminal. Multiple linear regression analysis was used to predict Environmental, Social, and Governance (ESG) activity scores. The 3 predictor variables accounted for approximately 7% of the variance in ESG activity scores and the result was statistically significant, F(3,115) = 2.83, p < . 04, R2 = . 07. Although the p value was significant, the R2 was low representing a poor model fit. In the final analysis, total revenue was added to the model and was a significant predictor and negatively correlated with ESG activity scores; However, return on equity and leverage were not significant predictors of ESG activity scores suggesting the potential need to transfer some corporate social initiatives from business leaders to government policy makers. Future researchers should consider incorporating additional variables to make the modelApproximately $25.2 trillion in total assets under management in the United States is involved in some strategy of socially responsible and sustainable investing. Grounded in the stakeholder theory, the purpose of this correlational study was to examine the relationships between financial performance, firm size, leverage, and corporate social responsibility. A random sample included 119 large companies located in the United States from the population of companies listed in the Russell 100 index. The data were collected via Bloomberg Terminal. Multiple linear regression analysis was used to predict Environmental, Social, and Governance (ESG) activity scores. The 3 predictor variables accounted for approximately 7% of the variance in ESG activity scores and the result was statistically significant, F(3,115) = 2.83, p < . 04, R2 = . 07. Although the p value was significant, the R2 was low representing a poor model fit. In the final analysis, total revenue was added to the model and was a significant predictor and negatively correlated with ESG activity scores; However, return on equity and leverage were not significant predictors of ESG activity scores suggesting the potential need to transfer some corporate social initiatives from business leaders to government policy makers. Future researchers should consider incorporating additional variables to make the model more useful. The implications for positive social change include the potential to identify fiscal incentives for corporate social programs by policy makers which benefit stakeholders such as employees, suppliers, customers, communities, and the environment. The Relationship Between Financial Performance, Firm Size, Leverage and Corporate Social Responsbility by Fraser T. Nega MBA, North Central University, 2013 MA, Financial Economics, Ohio University, 2007 BA, Economics, The Ohio State University, 2004 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University December 2017 Dedication First, I would like to thank the Holy Savior and his Mother Virgin Mary for giving me the strength and patience to finish this long and frustrating but fruitful journey. I started this milestone with unbroken faith and completed in the same manner despite the multitude challenges. I would like to dedicate this work to my father Nega Tsehay who has incredibly high value to education and for his unyielding support and motivation since my childhood. Sadly, my father passed away on October 23, 2017 right before he sees my accomplishment. I love you Abushu, may God rest your soul in heaven. I also dedicate this work to my beloved mother Tsige Ayele whose constant prayers and love had been the driving forces behind my success. Acknowledgments First, I would like to thank God for giving me the strength and motivation to achieve this milestone. I am grateful to my father, my mother, my brothers, and my sister for their relentless support and encouragement. I would like to thank my doctoral study chairperson, advisor, and mentor, Dr. Ify Diala, and the second committee member Dr. Sean Stanley for their unyielding mentoring and guidance. Finally, yet importantly, I would like to thank Dr. Al Endres, for his valuable input and additions to this study.