The Effect of Corporate Social Responsibility, Credit Risk, and Leverage on the Financial Performance of Commercial Banks in Indonesia

Abstract

This study examines the relationship between corporate social responsibility, credit risk, and leverage with the performance of commercial banks in Indonesia. Hypothesis testing is conducted to explore the influence of independent variables, namely Corporate Social Responsibility (CSR), Credit Risk described by Capital Adequation Ratio (CAR), Loan To Deposit Ratio (LDR), and Non-Performing Loan (NPL), and Leverage defined by Debt to Asset Ratio (DR), on the dependent variable, namely Financial Performance measured using ROA and ROE. In contrast, Bank Size is used as a control variable. The sample of this study includes 33 conventional commercial banks listed on the Indonesia Stock Exchange (IDX), using secondary data obtained from financial reports and bank sustainability reports for six years (2016-2021). With the multiple regression method on panel data using the Eviews 12 tool, the results of this study indicate that the CSR variable has a significant negative effect on ROE and has no significant impact on ROA, CAR has no significant effect on ROE or ROA, LDR has a significant negative impact on ROE and ROA, NPL has no significant effect on ROE or ROA, and DR has a significant positive impact on ROE but has no significant effect on ROA. This study can provide empirical evidence to managers, investors, and regulators to better understand CSR, leverage, and bank risk in formulating better policies and careful decision-making.