Do Corporate Social Responsibility and Political Connections Matter to Financial Performance and Financial Stability in the Banking Sector? Evidence from Indonesia

Abstract

This study aims to determine the effect of Corporate Social Responsibility and political connections on financial performance and financial stability in the banking sector in Indonesia. Corporate Social Responsibility is widely seen as a form of the company's commitment to society, which can encourage sustainability. Meanwhile, political connections are seen as capable of maintaining the financial stability of banking companies, especially in countries with high levels of corruption and weak laws. The sample in this study were 26 banking companies listed on the Indonesia Stock Exchange for the period 2017-2020. The method used in sampling is purposive sampling method, with secondary data in the form of financial statements and company annual reports during the study period. This study uses a combined least squares regression analysis technique. The results showed that Corporate Social Responsibility had a positive effect on financial performance and had no effect on financial stability, while political connections had a negative effect on both financial performance and financial stability. This shows that banks that have political connections do not make people more trusting. Thus, the company's image in society becomes more important than political connections.