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

  • Donald Vitaliano


  • Gregory Stella

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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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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  1. 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.
  2. Loretta J. Mester, 1992. "Efficiency in the savings and loan industry," Working Papers 92-14, Federal Reserve Bank of Philadelphia.
  3. Anjan V. Thakor & Jess C. Beltz, 1993. "An empirical analysis of the costs of regulatory compliance," Proceedings 434, Federal Reserve Bank of Chicago.
  4. Catherine M. Paul & Donald Siegel, 2006. "Corporate social responsibility and economic performance," Journal of Productivity Analysis, Springer, vol. 26(3), pages 207-211, December.
  5. 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.
  6. 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.
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