Corporate social reporting in the banking industry of Bangladesh: a test of legitimacy theory

Abstract

PurposeThe purpose of this study is to test the legitimacy theory (LT) argument in the context of the banking industry of a developing country, taking Bangladesh as a case by interpreting the bank managers’ perceptions in legitimizing corporate social (CS) reporting.Design/methodology/approachThis study uses the Dhaka Stock Exchange (DSE) listed banks data during a 10-year period (2004–2013) and uses Islam and Kokubu (2018) CS reporting index. The LT variables are tested by using multiple regression method. A mixed-method of research with “triangulation design” has been used in this study for a comprehensive understanding of LT variables. In addition, a total number of 28 interviews (ranges from Corporate Social Responsibility Operational Manager to Managing Director/Chief Executive Officer) from 24 listed banks have been conducted to interpret bank managers’ legitimate perception in CS reporting.FindingsThis study supports the applicability of the broader thrust of LT for the banking industry of the developing economies in three ways. First, for companies with lower “proximity to end-users” by density in population disclose more social information than the companies with higher ones to gain/regain/maintain market legitimacy. Second, newer banks with less scope to reach proximity to end-users disclose more social information to fill proximity to tertiary clients’ gap to meet community expectation. Third, companies disclose more social information in their annual reports to legitimize corporate actions in response to the CS reporting initiatives taken by the stakeholders, particularly regulators.Research limitations/implicationsThe main implication of this study is that it extends the applicability of the LT for the developing country, in general, and for the banking industry, in particular.Originality/valueThe study enriches the existing LT literature of the developing economies’ banking industry by providing empirical evidence from the banking system in Bangladesh.