Corporate Social Responsibility and financial performance among listed commercial banks in Sri Lanka: Is CSR a cost or profit driver?

Abstract

Corporations are increasingly moving towards integrating corporate social responsibility (CSR) in their corporate planning to gain competitive advantages. Although there are many studies on the relationship between CSR and financial performance in diverse contexts, the literature is still limited, particularly for emerging economies. This paper investigates the relationship between CSR and financial performance in Sri Lanka. This is a quantitative study, and the correlational design was adopted to conduct it. Secondary data were collected from annual reports of all commercial banks listed on the Colombo Stock Exchange for the period 2013–2018. CSR disclosure was measured by adopting content analysis; financial performance was measured by accounting and market-based performance measures (ROA, ROE and PE ratio). Bank size and bank age were the control variables and data were analyzed using panel regression. The findings reveal that CSR is not an influential factor in determining the financial performance of listed commercial banks in Sri Lanka. However, there is a significant positive relationship between the market-based performance measure (PE) and CSR. Thus, the findings provide an insight into bank management’s investment in CSR and integration of CSR in the strategic agenda to attract more investors and to address competition in the market where CSR appears to be a market-based performance driver.
Keywords: Corporate social responsibility, financial performance, bank size, bank age, listed commercial banks, competitive advantages