The Impact of Corporate Social Responsibility Disclosure on Financial Performance: Evidence from the GCC Islamic Banking Sector

Elena Platonova,Rob Dixon,Sabri Mohammad,Mehmet Asutay

doi:10.1007/s10551-016-3229-0

Abstract

This paper examines the relationship between corporate social responsibility (CSR) and financial performance for Islamic banks in the Gulf Cooperation Council (GCC) region over the period 2000–2014 by generating CSR-related data through disclosure analysis of the annual reports of the sampled banks. The findings of this study indicate that there is a significant positive relationship between CSR disclosure and the financial performance of Islamic banks in the GCC countries. The results also show a positive relationship between CSR disclosure and the future financial performance of GCC Islamic banks, potentially indicating that current CSR activities carried out by Islamic banks in the GCC could have a long-term impact on their financial performance. Furthermore, despite demonstrating a significant positive relationship between the composite measure of the CSR disclosure index and financial performance, the findings show no statistically significant relationship between the individual dimensions of the CSR disclosure index and the current financial performance measure except for ‘mission and vision’ and ‘products and services’. Similarly, the empirical results detect a positive significant association only between ‘mission and vision’ dimension and future financial performance of the examined banks.

Highlights

In recent years, the subject of corporate governance has begun to take an ever-increasing prominent space in the public sphere as a result of high profile corporate failures, such as Barings, Lehman Brothers and others, and the consequences of such failures
This paper examines the relationship between corporate social responsibility (CSR) and financial performance for Islamic banks in the Gulf Cooperation Council (GCC) region over the period 2000–2014 by generating CSR-related data through disclosure analysis of the annual reports of the sampled banks
This study examines the relationship between CSR disclosure performance and the financial performance of Islamic banks in the GCC region

Summary

Introduction

The subject of corporate governance has begun to take an ever-increasing prominent space in the public sphere as a result of high profile corporate failures, such as Barings, Lehman Brothers and others, and the consequences of such failures. Such a shift, based on new model of good corporate governance, incorporates ethical considerations and values in the business strategy of corporations, including banks, making it necessary for corporations to be considerate of the wider environment within which the organisation operates and prioritise ‘corporate social responsibility’ (CSR). This means that corporations understand and address stakeholders’ demands though their CSR practices as it is believed that ‘‘CSR connects to governance at the values level, determining the boundaries and accountabilities of the company in relation to a broad universe of stakeholders and its social and environmental responsibilities’’ It is argued that all these favourable results can have a positive effect on the financial performance of a corporation, such as improved profitability (Peloza and Shang 2011)

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Conclusion