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The Cost of Corporate Social Responsibility: The Case of the Community Reinvestment Act

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  • Donald F. Vitaliano

    ()
    (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

  • Gregory Stella

    (The University at Albany, Albany, NY, USA)

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 $7.4 million or, 1.3% 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

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Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0412.

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Date of creation: Jun 2004
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Handle: RePEc:rpi:rpiwpe:0412

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  1. 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.
  2. Catherine M. Paul & Donald Siegel, 2006. "Corporate social responsibility and economic performance," Journal of Productivity Analysis, Springer, vol. 26(3), pages 207-211, December.
  3. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
  4. Loretta J. Mester, 1992. "Efficiency in the savings and loan industry," Working Papers 92-14, Federal Reserve Bank of Philadelphia.
  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.
  6. 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.
  7. Anjan V. Thakor & Jess C. Beltz, 1993. "An empirical analysis of the costs of regulatory compliance," Proceedings 434, Federal Reserve Bank of Chicago.
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Cited by:
  1. Parashar Kulkarni, 2010. "Pushing lenders to over-comply with environmental regulations: A developing country perspective," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 470-482.
  2. Leonardo Becchetti & Giovanni Trovato, 2011. "Corporate social responsibility and firm efficiency: a latent class stochastic frontier analysis," Journal of Productivity Analysis, Springer, vol. 36(3), pages 231-246, December.
  3. Becchetti, Leonardo & Ciciretti, Rocco & Giovannelli, Alessandro, 2013. "Corporate social responsibility and earnings forecasting unbiasedness," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3654-3668.
  4. Waymond Rodgers & Hiu Choy & Andrés Guiral, 2013. "Do Investors Value a Firm’s Commitment to Social Activities?," Journal of Business Ethics, Springer, vol. 114(4), pages 607-623, June.

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