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The cost of Corporate Social Responsibility: the case of the Community Reinvestment Act

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Author Info
Donald Vitaliano ()
Gregory Stella

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Abstract

A Data Envelopment Analysis (DEA) cost minimization model is employed to estimate the cost to thrift institutions of achieving a rating of ‘outstanding’ under the anti-redlining Community Reinvestment Act, which is viewed as an act of voluntary Corporate Social Responsibility (CSR). There is no difference in overall cost efficiency between ‘outstanding’ and minimally compliant ‘satisfactory’ thrifts. However, the sources of cost inefficiency do differ, and an ‘outstanding’ rating involves annual extra cost of $6.547 million or, 1.2% of total costs. This added cost is the shadow price of CSR since it is not an explicit output or input in the DEA cost model. Before and after-tax rates of return are the same for the ‘outstanding’ and ‘satisfactory’ thrifts, which implies a recoupment of the extra cost. The findings are consistent with CSR as a management choice based on balancing marginal cost and marginal revenue. An incidental finding is that larger thrifts are less efficient. Copyright Springer Science+Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11123-006-0018-2
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Publisher Info
Article provided by Springer in its journal Journal of Productivity Analysis.

Volume (Year): 26 (2006)
Issue (Month): 3 (December)
Pages: 235-244
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Handle: RePEc:kap:jproda:v:26:y:2006:i:3:p:235-244

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Web page: http://www.springerlink.com/link.asp?id=100296

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Related research
Keywords: Corporate Social Responsibility; Community Reinvestment Act; Data Envelopment Analysis; Cost efficiency; M14; G28; D21;

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  2. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer, vol. 23(2), pages 113-132, April. [Downloadable!] (restricted)
  3. Anjan V. Thakor & Jess C. Beltz, 1993. "An empirical analysis of the costs of regulatory compliance," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 549-568.
  4. Benjamin E. Hermalin & Nancy E. Wallace, 1994. "The Determinants of Efficiency and Solvency in Savings and Loans," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 361-381, Autumn. [Downloadable!] (restricted)
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  5. Cebenoyan, A Sinan & Cooperman, Elizabeth S & Register, Charles A, 1993. "Firm Efficiency and the Regulatory Closure of S&Ls: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 540-45, August. [Downloadable!] (restricted)
  6. Mester, Loretta J., 1993. "Efficiency in the savings and loan industry," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 267-286, April. [Downloadable!] (restricted)
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  7. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November. [Downloadable!] (restricted)
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