The Impact of Corporate Social Responsibility (CSR) on Bank Reputation and Financial Performance (Case Study: Iranian Banks)

Journal of Economics and Environment Volume 1, Issue 1, 2020, Pages: 1-11 J. Econ. Environ. Journal web link: http:// www.dormaj.org/index.php/JEE https://doi.org/10.47277/JEE/1(1)11 The Impact of Corporate Social Responsibility (CSR) on Bank Reputation and Financial Performance (Case study: Iranian banks) Majid Lotfi Ghahroud1*, Seyedmehdi Hosseini2, Aghil Ariannejad3, Elmira Partovi4 1Business school of Hankuk University of foreign studies, Seoul, South Korea 2Cardiff business school, Cardiff University, Cardiff, England 3Department of Management, University of Tehran, Iran 4Department of Business and Law, University of West of England, Bristol, England Received: 09/02/2020 Accepted: 16/03/2020 Published: 18/03/2020 Abstract Banks and financial institutions play a significant role in the economy by facilitating the transfer of resources between lenders and borrowers. This article is an endeavor to map the corporate social responsibility (CSR) practices of major players in the Iranian banking sector and to find out the impact of such practices on their performance and image. This study examines the impact of CSR on bank reputation and financial performance. This research is based on a local sample of 24 private banks and financial institutions in Iran. We use a questionnaire for assessing reputation and for assessing performance we check bank income by their annual statements. The main hypotheses of research show the positive relationship between these indicators. The findings of the study suggest that banks in Iran have increased their CSR activities, which also have a positive impact on the performance of the business, apart from improving their reputation and goodwill. Keywords: Corporate social responsibility, Bank reputation, Bank performance, Bank income, Banks in Iran 1 Introduction and literature review1 Some have empirically assessed the relationship between Banks and financial institutions play an important role in CSR and banks’ income, banks’ efficiency and so on. They economic development in society (Shen and Lee, 2006). The examine the impact of CSR on bank efficiency by using a impact of corporate social responsibility (CSR) on firm's DEA Dynamic Network Model and it reveals a positive financial indicators has been the subject of many academic impact of CSR on bank efficiency (Belsari et. al., 2020). Also researches. Although studies linking CSR to finance generally some want to show a positive link between CSR and some do not assess the banking sector (Finger et al., 2018), Some bank profitability indicators such as return on equity or return studies show that CSR impacts the financial performance of on assets or sometimes income (Nizam et al., 2019, Wu and businesses like banking sector (Lins et al., 2017), and their Shen, 2013, Shen et al., 2016, Wu et al., 2017). To address the market value (Ding et al., 2016), or market price (Ferrell et al., deficiencies and shortages of CER (Corporate environmental 2016), and their financial risk (Kim et al., 2014). In recent responsibility), some researchers study employs content financial crisis in 2008–2009, many researchers have analysis method to establish CER performance measurement attempted to study CSR and it`s results in the banking sector. indicators based on the CER framework and rules (Chen and Also, compared to other businesses and fields, banks and et al., 2018). In Islamic banks some scholars aim to financial institutions are subject to strict expectations in terms understand CSR under the Islamic banking paradigm. One of providing feedback to stakeholders such as governments, paper in this area aims to understand corporate social media, or communities (Wu and Shen, 2013). Because banks responsibility (CSR) narrative under the Islamic banking make money mainly from society (e.g., through government paradigm by three aspects, narrative review of the literature, (Iannotta et al., 2013)), public opinion and organizations often review of the definitions of CSR and review of factors and stresses the need for them to engage in CSR especially in elements that cause divergence and contrast from environmental issues (Shen et al., 2016). So, the impact of conventional percepts. They find that religion brings new CSR on banks’ profitability remains argumentative debate. dimensions of ethics and expands the scope of morality in Although banks may be reluctant to engage in CSR because of business (Zafar and et al., 2019). In another study, researchers the costs of CSR activities, CSR could also have a positive seek to investigate whether Taiwanese retail banking impact on financial performance through its positive impact customers and depositors prefer corporate social responsibility on reputation of their brand. (CSR) initiatives that favor themselves or other stakeholder groups (community, environment), and whether these initiatives impact customer and depositor attitude and 1 *Corresponding author: Business school of Hankuk University behavioral intentions and purposes (McDonald and et al., of foreign studies, Seoul, South Korea, E-mail: 2011). The aim of another study is to empirically test [email protected]. 1 Journal of Economics and Environment Volume 1, Issue 1, 2020, Pages: 1-11 relationships such as sustainable behavior, firm reputation, and researchers to amend and improve CSR discussions and and economic performance regarding the banking sector and practices in the country where CSR undergoes a less for the sub‐prime crisis period (2008–2012). The result show structured platform. Also, Salehi and et al., 2007 (there is an that bank reputation is positively related to accounting expectation gap between actual level of CSR and expected performance and is negatively related to leverage and level from the viewpoint of stakeholders), Ghaderi et al., 2019 riskiness profiles (Dell'Atti and et al., 2017). One article (The paper aims to investigate and illuminate critical aspects which is related to green marketing (marketing companies that of the relationship between corporate social responsibility care about environment) intends to highlight the importance (CSR) and hotel performance with particular reference to four of green marketing and Corporate Social Responsibility (CSR) and five star hotels in the Iranian capital of Tehran), Golipour focusing particularly on Romanian financial and banking and et al., 2009 (The paper aims to investigate and illuminate sector. The benefits of CSR have been also presented. critical aspects of the relationship between corporate social Analyzing the main interest areas for CSR in the Romanian responsibility (CSR) and hotel performance with particular banking sector, the researchers find that banks focuses on reference to four and five star hotels in the Iranian capital of culture, education, sports and humanitarian and environmental Tehran), Esmaeelinezhad and et al., 2015 (In empirical study protection. The results show that these activities offer a great of a sample of 220 employees from the second most popular opportunity to live up the corporate responsibility and automotive industry in Iran shows the positive affect of promote business activities at the same time (Marta, 2018). ethical and philanthropic responsibility on employee The next study has two main goals which are analyzes the engagement) have some related studies. extent to which banks report online their corporate social responsibility (CSR) practices; second, it determines the 2 World Business Council for Sustainable impact of size, ownership structure and framework, multiple Development and CSR exchange listing, and the internationalization of banks and There is an increasing awareness and knowledge about financial institutions on the level of their online CSR Corporate Social Responsibility (CSR), Sustainable reporting. The findings of the study demonstrate that the most Development (SD), and Non-Financial Reporting (NFR) disclosed dimension on the websites of the banks is products around the globe. Stand on the WBCSD2’s journey CSR and customers. Particularly, there is a shortage of disclosure (2002) the main aim was to explore what corporate social on parts of environment and energy. Further, the findings of responsibility (CSR) means for business in a world where the research show that size, ownership structure and ever greater demands are being placed and located on framework, and multiple exchange listing are significant in companies and firms by local governments, NGOs and the explaining online CSR disclosure area (Kilic, 2016). In an general public. In fact, corporate social responsibility (CSR) is interesting academic research and book, the chapter explores the commitment of business to share and contribute to how a financial institution and bank can effectively implement sustainable economic development, working with employees environmental CSR strategies that contribute to the wellbeing and staff, their families, the local community and society at and sustainable development of the global and universal large to improve their quality of life. community. In particular, the case of Piraeus Bank, a leading As global and universal business faces new and complex player of the banking sector in Greece, has been extensively challenges and opportunities, WBCSD science-based analyzed. The analysis demonstrates that by immediately and approach and targeted business solutions (keys) goal to scale effectively responding to environmental and other social up business impact and access. The WBCSD target the issues, Piraeus Bank is fully aware of the imperative

Load more