The Impact of Financial Performance on Corporate Social Responsibility
An Empirical Analysis of Conventional and Islamic Banks of Pakistan
Keywords:
banking sector, corporate social responsibility, financial performance
Abstract
Abstract Views: 1119
The study explores how financial performance (FP) affects the corporate social responsibility (CSR) of the banking sector of Pakistan. Further, it also elaborates the comparison between FP and CSR of Islamic and conventional banks of Pakistan. The study is based on the annual reports of banks listed at Pakistan Stock Exchange (PSE) for the years 2010-2016. The study used several panel data diagnostic tests and three regression models to check the relationship between FP and CSR of Islamic and conventional banks of Pakistan, while taking leverage and size as control variables. The results indicate that in case of conventional banks the relationship between ROE and CSR is negative. Here, the results are consistent with the agency theory which states that investment in CSR related activities is a waste of resources. While return on asset (ROA) is depicting negative and insignificant relationship with CSR, which depicts that FP does not have any impact on the investment in CSR initiatives. In the case of Islamic banks, the relationship between return on equity (ROE) and CSR is positive and significant. Here, the results support social contract and stakeholder theories. The research has important practical consequences that will help the banking industry managers to adopt optimal investment strategies about CSR related activities. The study provides guidelines to conventional banks to invest more in CSR in the same way Islamic banks are doing. The findings of the study lay some foundations upon which a more detailed analysis of CSR of banks could be based.
Downloads
Download data is not yet available.
References
Aga, G., Khan, S., Wasim, D., & Shah, A. (2012). The impact of corporate social responsibility on the company’s financial performance: A study of pharmaceuticals firms of Peshawar Pakistan. City University Research Journal, 3(1), 1–3.
Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28(2), 446–463.
Babalola, Y. A. (2013). An impact of social audits on corporate performance: analyses of Nigerian manufacturing firms. Research Journal of Finance and Accounting, 4(3), 96–101.
Bird, R., Hall, A. D., Momentè, F., & Reggiani, F. (2007). What corporate social responsibility activities are valued by the market? Journal of Business Ethics, 76(2), 189–206.
Carroll, A. B. A. (1979). Three-dimensional conceptual model of corporate performance. The Academy of Management Review, 4(4), 497–505.
Chen, C. H. (2011). The major components of corporate social responsibility. Journal of Global Responsibility, 2(1), 85–99.
Das, S., Dixon, R., & Michael, A. (2015). Corporate social responsibility reporting: A longitudinal study of listed banking companies in Bangladesh. World Review of Business Research, 5(1), 130–154.
Davidson, W. N., & Worrell, D. L. (1988). The impact of announcements of corporate illegalities on shareholder returns. Academy of Management Journal, 31(1), 195–200.
Decker, S., & Sale, C. (2009). An analysis of corporate social responsibility, trust and reputation in the banking profession. In Professionals' Perspectives of Corporate Social Responsibility (pp. 135–156). Heidelberg, Berlin: Springer.
Dunn, P., & Sainty, B. (2009). The relationship among board of director characteristics, corporate social performance and corporate financial performance. International Journal of Managerial Finance, 5(4), 407–423.
Farooq, S. U., Ullah, S., & Kimani, D. (2015). The relationship between corporate governance and corporate social responsibility (CSR) disclosure: Evidence from the USA. Abasyn Journal of Social Sciences, 8(2), 197–212.
Fiori, G., di Danato, F., & Izzo, M. F. (2010). Corporate social responsibility and firms’ performance: An analysis on the Italian listed companies. Retrieved from http://csringreece.gr/files/research/CSR-1289990292.pdf
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge: Cambridge University Press.
Gitundu, W., Kisaka, S. E., Kiprop, S. K., & Kibet, L. K. (2016). The effect of ownership and corporate governance reforms on efficiency of privatized companies in Kenya. Economics and Financial Issues, 6(1), 323–331.
Greening, D. W., & Turban, D. B. (2000). Corporate social performance as a competitive advantage in attracting a quality workforce. Business & Society, 39(3), 254–280.
Hiller, V., & Raffin, N. (2017). Corporate social responsibility and workers' motivation at the industry equilibrium (Economix Working Paper). Paris: University of Paris Nanterre, EconomiX.
Hopkins, M. (2012). Corporate social responsibility and international development: Is business the solution? London: Routledge.
Jackson, L. A., & Hua, N. (2009). Corporate social responsibility and financial performance: A snapshot from the lodging and gaming industries. The Journal of Hospitality Financial Management, 17(1), 63–78.
Javed, M., Saeed, R., Lodhi, R. N., & Malik, Q. Z. (2013) The relationship between corporate social responsibility and firm financial performance: A case of Pakistan. Journal of Basic and Applied Scientific Research, 3(11), 34–45.
Kiran, S. (2015). Corporate social responsibility and firm profitability: A case of oil and gas sector of Pakistan. City University Research Journal, 5(1), 110–119.
Malik, M. S., Ali, H., & Ishfaq, A. (2015). Corporate social responsibility and organizational performance: Empirical evidence from banking sector. Pakistan Journal of Commerce and Social Sciences (PJCSS), 9(1), 241–247.
Maqbool, S., & Zameer, M. N. (2018). Corporate social responsibility and financial performance: An empirical analysis of Indian banks. Future Business Journal, 4(1), 84–93.
McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification? Strategic Management Journal, 21(5), 603–609.
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.
Mecaj, A., & Bravo, M. I. G. (2014). CSR actions and financial distress: Do firms change their CSR behavior when signals of financial distress are identified? Modern Economy, 2014(5), 259–271.
Michelberger, K. (2016). Corporate governance effects on firm performance: A literature review. Regional Formation and Development Studies, 20(3), 84–95.
Murillo, R. H., & Martinek, C. J. (2009). Corporate social responsibility can be profitable. St.Louis: Federal Bank of St. Louis.
Murtaza, I. A., Akhtar, N., Ijaz, A., & Sadiqa, A. (2014). Impact of corporate social responsibility on firm financial performance: A case study of Pakistan. International Review of Management and Business Research, 3(4), 1914–1927.
Nejati, M., Quazi, A., Amran, A., & Ahmad, N. H. (2017). Social responsibility and performance: Does strategic orientation matter for small businesses? Journal of Small Business Management, 55, 43–59.
Okegbe, T. O., & Egbunike, F. C. (2016). Corporate social responsibility and financial performance of selected quoted companies in Nigeria. NG-Journal of Social Development, 417(3947), 1–22.
Oyewumi, O. R., Ogunmeru, O. A., & Oboh, C. S. (2018). Investment in corporate social responsibility, disclosure practices, and financial performance of banks in Nigeria. Future Business Journal, 4(2), 195–205.
Peloza, J. (2006). Using corporate social responsibility as insurance for financial performance. California Management Review, 48(2), 52–72.
Platonova, E., Asutay, M., Dixon, R., & Mohammad, S. (2018). The impact of corporate social responsibility disclosure on financial performance: Evidence from the GCC Islamic banking sector. Journal of Business Ethics, 151(2), 451–471.
Pletsch, CS, da Silva, A., & Hein, N. (2015). Social responsibility and economic-financial performance of the companies listed in the corporate sustainability index. Social and Environmental Management Magazine, 9(2), 53.
Rehman, A., Baloch, Q., & Sethi, S. (2015). Understanding the relationship between firm’s corporate social responsibility and financial performance: Empirical analysis. Abasyn Journal of Social Sciences, 8(1), 98–107.
Selcuk, E. A., & Kiymaz, H. (2017). Corporate social responsibility and firm performance: Evidence from an emerging market. Accounting and Finance Research, 6(4), 42.
Torres, O.-R. (2007). Panel data analysis fixed and random effects using Stata (v. 4.2): Data & statistical services. New Jersey: Princeton University.
Wu, M. W., & Shen, C. H. (2013). Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37(9), 3529–3547.
Yip, E., Van Staden, C., & Cahan, S. (2011). Corporate social responsibility reporting and earnings management: The role of political costs. Australasian Accounting, Business and Finance Journal, 5(3), 17–34.
Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28(2), 446–463.
Babalola, Y. A. (2013). An impact of social audits on corporate performance: analyses of Nigerian manufacturing firms. Research Journal of Finance and Accounting, 4(3), 96–101.
Bird, R., Hall, A. D., Momentè, F., & Reggiani, F. (2007). What corporate social responsibility activities are valued by the market? Journal of Business Ethics, 76(2), 189–206.
Carroll, A. B. A. (1979). Three-dimensional conceptual model of corporate performance. The Academy of Management Review, 4(4), 497–505.
Chen, C. H. (2011). The major components of corporate social responsibility. Journal of Global Responsibility, 2(1), 85–99.
Das, S., Dixon, R., & Michael, A. (2015). Corporate social responsibility reporting: A longitudinal study of listed banking companies in Bangladesh. World Review of Business Research, 5(1), 130–154.
Davidson, W. N., & Worrell, D. L. (1988). The impact of announcements of corporate illegalities on shareholder returns. Academy of Management Journal, 31(1), 195–200.
Decker, S., & Sale, C. (2009). An analysis of corporate social responsibility, trust and reputation in the banking profession. In Professionals' Perspectives of Corporate Social Responsibility (pp. 135–156). Heidelberg, Berlin: Springer.
Dunn, P., & Sainty, B. (2009). The relationship among board of director characteristics, corporate social performance and corporate financial performance. International Journal of Managerial Finance, 5(4), 407–423.
Farooq, S. U., Ullah, S., & Kimani, D. (2015). The relationship between corporate governance and corporate social responsibility (CSR) disclosure: Evidence from the USA. Abasyn Journal of Social Sciences, 8(2), 197–212.
Fiori, G., di Danato, F., & Izzo, M. F. (2010). Corporate social responsibility and firms’ performance: An analysis on the Italian listed companies. Retrieved from http://csringreece.gr/files/research/CSR-1289990292.pdf
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge: Cambridge University Press.
Gitundu, W., Kisaka, S. E., Kiprop, S. K., & Kibet, L. K. (2016). The effect of ownership and corporate governance reforms on efficiency of privatized companies in Kenya. Economics and Financial Issues, 6(1), 323–331.
Greening, D. W., & Turban, D. B. (2000). Corporate social performance as a competitive advantage in attracting a quality workforce. Business & Society, 39(3), 254–280.
Hiller, V., & Raffin, N. (2017). Corporate social responsibility and workers' motivation at the industry equilibrium (Economix Working Paper). Paris: University of Paris Nanterre, EconomiX.
Hopkins, M. (2012). Corporate social responsibility and international development: Is business the solution? London: Routledge.
Jackson, L. A., & Hua, N. (2009). Corporate social responsibility and financial performance: A snapshot from the lodging and gaming industries. The Journal of Hospitality Financial Management, 17(1), 63–78.
Javed, M., Saeed, R., Lodhi, R. N., & Malik, Q. Z. (2013) The relationship between corporate social responsibility and firm financial performance: A case of Pakistan. Journal of Basic and Applied Scientific Research, 3(11), 34–45.
Kiran, S. (2015). Corporate social responsibility and firm profitability: A case of oil and gas sector of Pakistan. City University Research Journal, 5(1), 110–119.
Malik, M. S., Ali, H., & Ishfaq, A. (2015). Corporate social responsibility and organizational performance: Empirical evidence from banking sector. Pakistan Journal of Commerce and Social Sciences (PJCSS), 9(1), 241–247.
Maqbool, S., & Zameer, M. N. (2018). Corporate social responsibility and financial performance: An empirical analysis of Indian banks. Future Business Journal, 4(1), 84–93.
McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification? Strategic Management Journal, 21(5), 603–609.
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.
Mecaj, A., & Bravo, M. I. G. (2014). CSR actions and financial distress: Do firms change their CSR behavior when signals of financial distress are identified? Modern Economy, 2014(5), 259–271.
Michelberger, K. (2016). Corporate governance effects on firm performance: A literature review. Regional Formation and Development Studies, 20(3), 84–95.
Murillo, R. H., & Martinek, C. J. (2009). Corporate social responsibility can be profitable. St.Louis: Federal Bank of St. Louis.
Murtaza, I. A., Akhtar, N., Ijaz, A., & Sadiqa, A. (2014). Impact of corporate social responsibility on firm financial performance: A case study of Pakistan. International Review of Management and Business Research, 3(4), 1914–1927.
Nejati, M., Quazi, A., Amran, A., & Ahmad, N. H. (2017). Social responsibility and performance: Does strategic orientation matter for small businesses? Journal of Small Business Management, 55, 43–59.
Okegbe, T. O., & Egbunike, F. C. (2016). Corporate social responsibility and financial performance of selected quoted companies in Nigeria. NG-Journal of Social Development, 417(3947), 1–22.
Oyewumi, O. R., Ogunmeru, O. A., & Oboh, C. S. (2018). Investment in corporate social responsibility, disclosure practices, and financial performance of banks in Nigeria. Future Business Journal, 4(2), 195–205.
Peloza, J. (2006). Using corporate social responsibility as insurance for financial performance. California Management Review, 48(2), 52–72.
Platonova, E., Asutay, M., Dixon, R., & Mohammad, S. (2018). The impact of corporate social responsibility disclosure on financial performance: Evidence from the GCC Islamic banking sector. Journal of Business Ethics, 151(2), 451–471.
Pletsch, CS, da Silva, A., & Hein, N. (2015). Social responsibility and economic-financial performance of the companies listed in the corporate sustainability index. Social and Environmental Management Magazine, 9(2), 53.
Rehman, A., Baloch, Q., & Sethi, S. (2015). Understanding the relationship between firm’s corporate social responsibility and financial performance: Empirical analysis. Abasyn Journal of Social Sciences, 8(1), 98–107.
Selcuk, E. A., & Kiymaz, H. (2017). Corporate social responsibility and firm performance: Evidence from an emerging market. Accounting and Finance Research, 6(4), 42.
Torres, O.-R. (2007). Panel data analysis fixed and random effects using Stata (v. 4.2): Data & statistical services. New Jersey: Princeton University.
Wu, M. W., & Shen, C. H. (2013). Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37(9), 3529–3547.
Yip, E., Van Staden, C., & Cahan, S. (2011). Corporate social responsibility reporting and earnings management: The role of political costs. Australasian Accounting, Business and Finance Journal, 5(3), 17–34.
