1.

INTRODUCTION
Historically the main focus of businesses has been to make profits and increase shareholder value i.e. Corporate Financial Responsibility. However, in the past two decades there has been an increasing trend in the field of Corporate Social Responsibility (CSR). This report will attempt to determine the impact of Corporate Social Responsibility (CSR) on the financial performance of a firm.

Definition The term Corporate Social Responsibility came into existence after the term stake holders was introduced by MNEs in the early 1970s, meaning any individual or organization who either affects or is affected by the actions of a business. Even though the term Corporate Social Responsibility does not have any definite definition, we will attempt to define it generally. Corporate Social Responsibility means that a business conducts its operations in transparent ways which are ethical, legal and are at the same time friendly towards the society and the environment as a whole.

CSR in Pakistan: The concept of CSR is relatively in Pakistan as compared to western countries, about 8 years old. There are only a small amount of companies that have an existing CSR strategy and out of these; most of the companies are MNEs that follow their own set standards. Regrettably the local businesses seem to be either ignorant of the benefits that can be attained with the implementation of CSR strategies or they assume that such policies are not important enough to be implemented as their non-implementation will not cause the business to suffer any loss or competitive disadvantage. However, in the past decade a few researches and publications such as Corporate Social Responsibility (CSR) Theory and Practice in Pakistan by Syed Kamran Hameed and Corporate

social performance, financial performanceand market value behavior: An information asymmetry perspective by Kashif Hamid, Rana Shahid Imdad Akash , Muhammad Asghar and Sajjad Ahmad that have highlighted the lack of interest in CRS expressed by the local industry as well as the importance of incorporating such strategies to ensure the benefits of the stake holders as well as contributing towards the preservation of the environment. There has also been an effort to determine the perception of various businesses regarding what they think CSR really means. One such example is: The majority of domestic companies possess a different perception about CSR, 40% of companies have the perception that CSR is paying taxes, along with 30% having the perception that CSR is social welfare development, 15% have impression that CSR is employee welfare development, 10% assume CSR is related to working in areas where companies have deep interests, only 5% recognize that CSR is implementing social development activities. (Internet 1, CSR, Pakistan, 15/2-2010)

Relationship between CSR and Financial Performance of a Firm: In order to determine the relationship between CSR and financial performance of the firm, many studies have been conducted out of which 95 studies, between the years 1972-2001, have been surveyed by Margolis and Walsh (2001, p.10) who report that : When treated as an independent variable, corporate social performance is found to have a positive relationship to nancial performance in 42 studies (53%), no relationship in 19 studies (24%), a negative relationship in 4 studies (5%), and a mixed relationship in 15 studies (19%). This study aims to add to the existing literature by conducting an explicit research to determine the relationship between the Corporate Social Responsibility and the financial performance of a firm.

1.1. Objective of the Study:

The first objective of this study is to determine the degree of impact of Corporate Social Responsibility on the financial performance of a firm. The second objective of the study is to determine whether Corporate Social Responsibility has a positive, negative or a neutral effect on the performance of the firm.

1.2.Purpose of the Study: The purpose of this study is to explain the importance of CSR in organizations and find out how it contributes in the growth of an organization along with helping the organization in maintaining a competitive advantage through stake holder loyalty. This study is also undertaken with the hope that it might contribute towards the promotion of Corporate Financial Responsibility in Pakistan and encourage organizations to be more socially responsible, as this will not only benefit the environment and society but also have a positive impact on the overall financial performance of the firm.

1.3.Problem Statement:

Does CSR have an impact on the financial performance of a firm? And if yes, is the impact positive or negative in nature?

1.4. Importance of the Study:

This dissertation is crucial to the completion of my MBA (finance) degree.

1.5. Significance of the Study:

The findings of this study will help various organizations in determining how their financial performance will be effected if they incorporate CSR as a part of their normal operations. Since this study is based on the hypothesis that CSR has a positive effect on the financial performance of a firm, it will encourage business to take on CSR as a part of their normal operations which will in turn prove to be beneficial to the society, and thus this study plays a significant part in the improvement of the society.
1.6. Limitations

There are certain limitations to this study, one of them being the difficulty in identifying the companies in Pakistan that follow CSR. Another limitation of the study is the absence of any proper/definite method for the measurement of the CSR.