Financial Performance and Corporate Social Responsibility (CSR): Empirical Evidence from Banks in India

Abstract

In the era of changing business dynamics and evolving socio economic systems the concept of Corporate Social Responsibility (CSR) has become widespread. In the recent decades this ideology is gaining momentum in both academic and business life, i.e., the company exists for and has responsibilities towards a wider group of stakeholders and it must have some objectives other than profitability. The Friedman’s formulation that “The Business of Business is Business” has outlived its utility, and corporate social responsibility and being a good corporate citizen are the buzzwords today. It is believed that organizations which do not consider any social responsibility towards society will ultimately tend to lose in the long run. It is questioned whether any relationship exists between financial performance and social performance. The present study aims to examine the impact of financial performance on CSR investments of selected banks in India. The research based on 20 banks (listed in BSE) investigates the impact of financial indicators viz a viz Profit After Taxes (PAT) and Earning Per Share (EPS) on CSR investments in some selected banks in India. Correlation and multiple regressions have been used to analyze the relationship among these financial profitability indicators and CSR investments. Results indicated a high significant positive correlation between PAT and CSR investments indicating that with an increase in profits, banks are increasingly spending on their CSR initiatives and vice versa. On the contrary though a significant positive correlation exits between PAT and EPS, the association between EPS and CSR investments though positive was found to be insignificant.