Title: Does corporate social responsibility affect financial performance? Revisiting this vexing question under Arellano-Bond framework

Authors: Habib Ur Rahman; Mehwish Awan; Syed Muhammad Amir Shah

Addresses: Faculty of Higher Education, Accounting and Finance, Holmes Institute, Gold Coast, QLD 4217, Australia ' Department of Business Administration, Allama Iqbal Open University, Islamabad, Pakistan ' Department of Commerce, Allama Iqbal Open University, Islamabad, Pakistan

Abstract: This study examines the impact of corporate social responsibility (CSR) on the financial performance of commercial banks of Pakistan under the regulatory environment of SECP Voluntary Guidelines 2013. Our framework of analysis is based on slack resource theory, good management theory, and stakeholders' theory of CSR. The existing empirical literature on CSR might be subject to potential issues, including multicollinearity, profit persistence, and endogeneity. Therefore, we apply the dynamic panel model under the Arellano-Bond framework to avoid the estimation issue and arrive at the unbiased and consistent estimates. The results of this empirical investigation reveal mixed evidence on this nexus. Community investment deteriorates the financial performance of the banking sector in Pakistan. Commercial banks switched their reporting and reporting disclosures due to some regulatory and operational changes in 2015. Considering this fact, we conduct a restricted analysis under the Arellano-Bond framework. The results of our restricted analysis reveal that product responsibility plays a positive and significant role in the financial performance of Pakistani banks under certain conditions. We could not find any other evidence of the positive impact of any other dimension of corporate social responsibility on the financial performance of the Pakistani banking sector.

Keywords: corporate social responsibility; CSR; financial performance; stock returns; product responsibility; community investment; work-life balance; WLB; bank size; return on assets; return on equity.

DOI: 10.1504/IJCG.2021.10043028

International Journal of Corporate Governance, 2021 Vol.12 No.2, pp.157 - 184

Accepted: 16 Jun 2021
Published online: 30 Nov 2021 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article