The financial aspects of the Corporate Responsibility Index in Egypt: A quantitative approach to institutional economics

Abstract

Purpose

The purpose of this paper is to examine the financial aspects of high vs low-ranked firms in the Corporate Responsibility Index in Egypt, and to construct a Z-score model to discriminate between high- and low-ranked firms in the Corporate Responsibility Index.

Design/methodology/approach

This study empirically examines a comprehensive list of financial ratios for 24 firms listed in EGX30 for four fiscal years, 2007-2010. The authors calculate 90 financial ratios to provide better insights and evaluation of the firms’ financial performance. The ordinary least square regression method and discriminant analysis are utilized to explain differences between the low- and high-ranked firms regarding their corporate social governance index.

Findings

The results show that corporate governance and corporate social responsibility (CSR) are positively related to the firms’ financial performance in terms of sales turnover and customer loyalty. This suggests that in the long run, the market mechanism should be able to provide additional resources to those companies that are better at maximizing a widely defined bottom line of their social governance. The results also show that highly ranked firms are characterized financially by: strong bargaining power with suppliers; financing growth in fixed assets using debt mainly.

Originality/value

The study contributes to the literature in terms of providing practical insights on the financial strategies that help support effective CG and CSR in Egypt. In addition, this study offers a unique quantitative attempt to measure and examine the benefits of incorporation of socioeconomics into business practices.

Citation

Eldomiaty, T., Soliman, A., Fikri, A. and Anis, M. (2016), "The financial aspects of the Corporate Responsibility Index in Egypt: A quantitative approach to institutional economics", International Journal of Social Economics, Vol. 43 No. 3, pp. 284-307. https://doi.org/10.1108/IJSE-06-2014-0118