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Are corporate social responsibility reports informative? Evidence from textual analysis of banks in China

Author

Listed:
  • Jerry C. Ho
  • Ting-Hsuan Chen
  • Jia-Jin Wu

Abstract

Purpose - The authors investigate the association of the constructed corporate social responsibility (CSR) measures with the banks’ profitability, social contributions and CSR spending as well as the market reaction to CSR spending. Design/methodology/approach - Using textual analysis of the CSR reports of banks listed on the Chinese market, the authors construct CSR measures in six domains: business, environment, human rights, corporate governance, charity and social capital. Our textual-based CSR measures contain substantial and valuable information beyond what Rankins CSR ratings offer. Findings - The findings suggest that banks with stronger engagements and interests in the business-related CSR domain experience higher profitability, while those that are more committed to the corporate governance and charity-related domains create larger social contributions. Banks tend to incur higher CSR spending when they are more active in corporate governance. Although the stock market reacts positively to CSR expenditures, the reaction is less favorable for banks with CSR expenditures above the industry norm. Practical implications - This study offers insights to policymakers of the regulatory bodies and the banks in China. To enhance the financial safety and soundness of the banking system, the regulatory bodies should encourage banks to strategically allocate corporate resources to achieve higher CSR ratings and engage more business-related CSR activities. To create larger social values, bank management should invest more in philanthropic CSR initiatives such as corporate governance and charity activities. To pursue higher corporate profits, they should engage more in self-centered business-related CSR activities. However, according to the reaction of the market, they should not over-invest in CSR activities. Originality/value - While the use of textual analysis to evaluate CSR disclosure has recently emerged in the literature, few studies focus on banks in China. Using the term frequency–inverse data frequency (TF-IDF) method, the authors constructed a score for each of the six CSR domains: business (BUS), environment (ENV), human rights (HR), corporate governance (GOV), charity (CHY) and social capital (SCAP). To the best of our knowledge, no studies have adopted the textual approach to evaluate social reporting quality and CSR activities in the context of the banking industry in China.

Suggested Citation

  • Jerry C. Ho & Ting-Hsuan Chen & Jia-Jin Wu, 2021. "Are corporate social responsibility reports informative? Evidence from textual analysis of banks in China," China Finance Review International, Emerald Group Publishing Limited, vol. 12(1), pages 101-120, September.
  • Handle: RePEc:eme:cfripp:cfri-04-2021-0081
    DOI: 10.1108/CFRI-04-2021-0081
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    Citations

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    Cited by:

    1. Jinchi Liu & Xiong Xiong & Ya Gao & Jin Zhang, 2023. "The impact of institutional investors on ESG: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S2), pages 2801-2826, June.
    2. Lin, Xiaowei & Li, Ao & Zhang, Pengdong & Chen, Wenchuan, 2023. "The disciplinary role of product market competition on cash holding," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 653-671.

    More about this item

    Keywords

    Corporate social responsibility; Textual analysis; Chinese banks; Corporate governance; G21; M14;
    All these keywords.

    JEL classification:

    • 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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