Exploring the role of corporate social responsibility as a moderating factor in influencing bank financial performance in Ethiopia

As the global challenges facing sustainability issues continue to expand, the issues of corporate social responsibility (CSR) and ethical governance have become the focus of continued academic attention. This study aims to investigate the nature and intensity of the changes in Bank’s Financial Performance (FP) due to the interactive effects of CSR practices via enhancing or weakening the link between bank/industry-specific determinants and FP in banking sector of Ethiopia. Using secondary panel data of listed banks from 2016 to 2022, this study empirically investigated the effects of bank/industry-specific variables (CAMELs) on the company FP, and the level of interactive effects of CSR disclosures on Firm’s FP was tested using Heyes Process Micro on IBM SPSS (v25). Analysis results from regression coefficient revealed that the independent variables significantly predict FP as measured from ROA, ROE and EPS. The results indicate that CA (ß = 0.0434, p = 0.0003), MgtQ (ß =—0.2481, p = 0.0048), and Lq (ß =—0.06, p = 0.007) have shown vital impact on ROA. However, AQ (ß =—0.1742, p = 0.0188), and MgtQ (ß =—2.9690, p = 0.0003) both have shown significant and negative impact on ROE. Whereas, results also indicate that AQ (ß =—60.1212, p = 0.02), and MgtQ (ß =—638.4351, p = 0.0007) have shown significant and unfavorable impact on EPS. In addition, CSR has shown some degree of interactive effects between determinants-FP relationship, this particularly holds for ROA and EPS. Only, interactive effects of AQ*CSRI (ß = 0.0605, p = 0.0042) significantly impact ROA. However, the effects of AQ*CSRI is conditional, and holds only at lower values of the moderator (CSRI), where the moderator value(s) defining Johnson-Neyman (J-N) significance region(s) is ≤ -0.2626. On the other hand, analysis results depict the interactive effects of CA*CSRI (ß = -136.0960, p = 0.0119), AQ*CSRI (ß = 130.2145, p = 0.0030), and ConR*CSRI (ß = 8.2266, p = 0.0036) is vital for EPS. Interactive effects of CA*CSRI influences EPS, conditionally, where J-N significance region(s) is ≤ -0.1098. Similarly, there are significant interactive effects of AQ*CSRI on EPS, where the conditional effects of the focal predictor at values of the moderator (CSRI), where J-N significance region(s) is ≤ 0.0671. And also, there exists a significant interaction of ConR*CSRI affecting EPS. The conditional effects of the focal predictor at values of the moderator (CSRI) is two values, i.e., where J-N significance region(s) shows ≤ -0.5656, and ≥ 0.2051. Overall, the results reveal that there is significant direct path and/or interactive means between bank/industry-specific factors and Firm’s FP. This suggests that it’s not CSR alone, rather other internal factors such as good governance/management efficiency might lead the firm to implement CSR, strengthen management, and improve Bank’s FP. The present work help managers in financial institutions to understand their current status in governance/managerial efficiency regarding to CSR. The study enriches the mechanism of CSR on firms’ FP, and provides a theoretical basis for Ethiopian banking industry to fulfill CSR. Moreover, this study also discusses about the theoretical contributions and policy implications. Nevertheless, the present work might suggest further investigation on the potential effect of other internal factors such as Corporate Governance that might contribute to fostering CSR and Firms’ FP.