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

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  • Donald Vitaliano

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  • Gregory Stella

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

Suggested Citation

  • Donald Vitaliano & Gregory Stella, 2006. "The cost of Corporate Social Responsibility: the case of the Community Reinvestment Act," Journal of Productivity Analysis, Springer, vol. 26(3), pages 235-244, December.
  • Handle: RePEc:kap:jproda:v:26:y:2006:i:3:p:235-244
    DOI: 10.1007/s11123-006-0018-2
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Heung-Jun Jung & Dong-One Kim, 2016. "Good Neighbors but Bad Employers: Two Faces of Corporate Social Responsibility Programs," Journal of Business Ethics, Springer, vol. 138(2), pages 295-310, October.
    3. Xiaoling Wang & Haiying Lin & Olaf Weber, 2016. "Does Adoption of Management Standards Deliver Efficiency Gain in Firms’ Pursuit of Sustainability Performance? An Empirical Investigation of Chinese Manufacturing Firms," Sustainability, MDPI, Open Access Journal, vol. 8(7), pages 1-18, July.
    4. Giuliana Birindelli & Paola Ferretti & Mariantonietta Intonti & Antonia Iannuzzi, 2015. "On the drivers of corporate social responsibility in banks: evidence from an ethical rating model," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(2), pages 303-340, May.
    5. 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.
    6. 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.
    7. 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.
    8. Shou-Lin Yang, 2016. "Corporate social responsibility and an enterprise’s operational efficiency: considering competitor’s strategies and the perspectives of long-term engagement," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(6), pages 2553-2569, November.

    More about this item

    Keywords

    Corporate Social Responsibility; Community Reinvestment Act; Data Envelopment Analysis; Cost efficiency; M14; G28; D21;

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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