The Effect of Corporate Social Responsibility Practices on Financial Performance: Evidence from Selected Star Hotels in Hawassa

Abualem Mengistu

Abstract

This research investigated the effect of Corporate Social Responsibility (CSR) on the financial performance of selected star hotels in Hawassa City, employing an explanatory research design and quantitative methods. The study focused on five CSR dimensions: Environmental Sustainability Practices (ESP), Community Engagement Practices (CEP), Philanthropy and Charity Practices (PCP), Employee Well-being Practices (EWBP), and Ethical Business Practices (EBP). Data were collected through questionnaires from seven selected star hotels, achieving a high response rate of 97.75% (87 out of 89 distributed), with 85 valid responses analyzed, representing a completion rate of 95.50%. Correlation analysis revealed strong positive relationships between financial performance (FP) and the CSR dimensions, with Pearson correlations of 0.792 (ESP), 0.646 (CEP), 0.497 (PCP), 0.868 (EWBP), and 0.792 (EBP), all significant at p < 0.01. Regression analysis showed the model explained 90.3% (R² = 0.903) of the variance in financial performance, identifying Ethical Business Practices (EBP) as the only significant predictor (β = 0.468, t = 2.357, p = 0.021). Other dimensions like ESP (p = 0.168), CEP (p = 0.149), PCP (p = 0.806), and EWBP (p = 0.161) were not statistically significant. The findings highlighted that while various CSR practices were positively correlated with financial performance, Ethical Business Practices (EBP) had the most substantial impact. Thus, hotel managers should have emphasized ethical practices to improve financial outcomes while maintaining social responsibility. Recommendations included incorporating CSR into strategic planning, investing in sustainability, enhancing community engagement, supporting philanthropy, and improving employee well-being to achieve better financial performance and fulfill CSR commitments effectively.