Empirical analysis of the corporate social responsibility and financial performance causal nexus: Evidence from the banking sector of Bangladesh

Abstract

In a culture like Bangladesh where social trust is low and corporate philanthropy is rare, corporate social responsibility (CSR) engagements of the banking sector have been in a conspicuously upward trend. It begs the question of whether the galvanization of CSR expenditure is validated by financial motivations or a genuine thirst for corporate philanthropy. The literature on the relationship between CSR and corporate financial performance (CFP) is without any overarching consensus. From an emotional viewpoint, we revere corporate philanthropy without necessarily analyzing its financial merits. This study extends the contemporary CSR literature horizon by examining 30 listed banks in Bangladesh from the years 2006 through 2018, with particular emphasis on methodology that attempts to validate the CSR-CFP relationship. In addition to examining the bidirectional causality between CSR and financial returns using Panel Vector Autoregression, the study examines the factor determinants of CSR. The study finds that better CFP leads to more CSR expenditure, but CSR expenditure does not necessarily influence CFP. Moreover, net income, total deposits, return on asset, and previous year's CSR have a significant positive relationship with CSR whereas firm age has a significant negative relationship.