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Corporate social responsibility in the banking industry: Motives and financial performance

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  • Wu, Meng-Wen
  • Shen, Chung-Hua

Abstract

The current study investigates the association between corporate social responsibility (CSR) and financial performance (FP), and discusses the driving motives of banks to engage in CSR. Three motives, namely, strategic choices, altruism, and greenwashing, suggest that the relationship between CSR and FP is positive, non-negative, and non-existent, respectively. We obtained our sample, which covered 2003–2009, from the Ethical Investment Research Service (EIRIS) databank and Bankscope database. The data consists of 162 banks in 22 countries. We then classified the banks into four types based on their degree of engagement in CSR. This study proposes the use of an extended version of the Heckman two-step regression, in which the first step adopts a multinomial logit model, and the second step estimates the performance equation with the inverse Mills ratio generated by the first step. The empirical results show that CSR positively associates with FP in terms of return on assets, return on equity, net interest income, and non-interest income. In contrast, CSR negatively associates with non-performing loans. Hence, strategic choice is the primary motive of banks to engage in CSR.

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  • Wu, Meng-Wen & Shen, Chung-Hua, 2013. "Corporate social responsibility in the banking industry: Motives and financial performance," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3529-3547.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:9:p:3529-3547
    DOI: 10.1016/j.jbankfin.2013.04.023
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    2. Khurshid Djalilov & Jens Hölscher, 2016. "Comparative Analyses Of The Banking Environment In Transition Countries," Economic Annals, Faculty of Economics, University of Belgrade, vol. 61(208), pages 7-26, January -.
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    4. Fernández Olit, Beatriz & De La Cuesta González, Marta, 2014. "Evaluación de impactos ambientales y sociales del negocio de banca comercial en Europa durante el periodo 2006-2010/Assessment of Social and Environmental Impacts Originated in Europe during the Perio," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 32, pages 567-592, Mayo.
    5. Weber, Stefan, 2014. "Der Einfluss von Steuern auf Corporate Social Responsibility-Instrumente: Dargestellt am Beispiel von Spenden," arqus Discussion Papers in Quantitative Tax Research 159, arqus - Arbeitskreis Quantitative Steuerlehre.
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    7. Koh, SzeKee & Durand, Robert B. & Limkriangkrai, Manapon, 2015. "The value of Saints and the price of Sin," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 56-72.
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    19. Hoje Jo & Hakkon Kim & Kwangwoo Park, 2015. "Corporate Environmental Responsibility and Firm Performance in the Financial Services Sector," Journal of Business Ethics, Springer, vol. 131(2), pages 257-284, October.
    20. Kim, Moshe & Surroca, Jordi & Tribó, Josep A., 2014. "Impact of ethical behavior on syndicated loan rates," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 122-144.

    More about this item

    Keywords

    Corporate social responsibility; Strategic motive; Altruistic motive; Extended Heckman two-stage model;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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