The Impact of Corporate Social Responsibility on Financial Performance: Evidence from the Listed Banks in Pakistan

Abstract

Corporate social responsibility has recently gained substantial attention from researchers across the world. This is due to its multifaceted impact on a firm’s operational efficiency, financial outcomes, reputational gain, and market valuation. Corporate sector strives to find the areas to invest into society which can potentially bring a win-win scenario for society and organization in the sense that CSR should make a society a better place to live and simultaneously an organization should also be benefited by holding an image of being prestigious and responsible firm. Banks play a very important and vital role for prosperity, development and sustainability of society as well as for the growth of innovative businesses in communities. The main objective of this study is to assess the impact of corporate social responsibility initiatives on the financial performance with moderating variable of bank size in the context of Pakistan. The quantitative approach was adopted to data collection and data analyzing. The survey questionnaire was designed as a tool to collect the primary data from respondents. Based on extensive literature review, in total eight hypotheses were developed and empirically tested using structural equation model (SEM). In total 500 survey questionnaires were distributed and 441 fully completed questionnaires were returned, indicating a response rate of 88.2%.  The descriptive statistics and direct path coefficients show that all four dimensions of CSR (i.e., economic, legal, ethical and discretionary) are having substantial positive bearings on the financial performance of banks. Based on the magnitude of coefficient parameters, discretion dimension of CSR is the most effective tool in enhancing financial performance of a firm. General stakeholders like it the most when banks invest in communities taking a discretionary approach under CSR initiatives. The results of moderating path coefficient show that size of a firm further stimulates the impact of CSR dimensions on financial performance in a way that higher a firm in size, better it is in a position to invest into CSR projects. Precisely, moderating parameter estimates indicate size plays an important role in magnifying the impact of legal, ethical and discretionary aspects of CSR on financial performance, whereas the moderating result for economic dimension is insignificant, pointing out to the fact that ethical consideration as CSR strategy is equally important for small and large sized banks.