The impact of corporate social responsibility on corporate financial performance in the banking industry

Abstract

The present research aims to investigate the direct impact of CSR, both overall and dimension wise, on banks’ financial performance. While KLD ratings were used to operationalize CSR through overall and dimensional variables (environment, community, human rights, employee relations, diversity, product and governance); ROA and Tobin’s Q ratio were selected to measure CFP. A sample of 96 U.S. banks was drawn and analysed through correlations and OLS regressions. Results support CSR as a multidimensional concept, showing that richer insights were generally collected when banks’ CSR performance was considered at a dimensional level. In particular, this study suggests that: (i) statistical significance is rarely obtained when banks’ overall CSR performance is considered; (ii) banks’ CSR dimensions have differently changed after the 2008 financial crisis; (iii) individual dimensions of banks’ CSR have distinct impacts on CFP; (iv) the direct impact of banks’ CSR performance on their CFP has remained unchanged after the 2008 financial crisis; and (v) banks’ size and their geographical scope of activity moderate the impact of specific CSR dimensions on CFP.