CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Conceptual Framework

2.1.1 Nature and Meaning of Corporate Social Responsibility (CSR)

CSR literature ideally advocates the inclusion of the welfare of all interest

groups to firms’ operation in the planning, execution, appraising and reporting

of the firms’ operations. It is concerned with the incorporation of the benefits to

employees, environment, customers, society and shareholders which are

considered as stakeholders of the firm. The stakeholders are all the interested

parties that have directly or indirectly affected by the overall organizations

processes (Srivastava, 2012 in Mujahid and Abdullah, 2014). Companies and

business are attaching more importance to corporate social responsibility; they

are the ones who give the most whenever there natural calamities and disaster.

The globalization trend in every aspect of business organizations has made

attentions of corporate entities to shift from sole firm owners’ interest and the

satisfaction of customers’ needs, to include other relevant stakeholders that can

affect or are affected by companies’ activities.

Historically, corporate social responsibility, according to Odetayo, Adeyemi

and Sajuyigbe (2014) has been described as the act of the organization

responding positively to emerging societal priorities and expectations,

conducting business in an ethical way and in the interests of the external

environment; and balancing the shareholders’ interests with the interests of

other stakeholders in the society. Thus, the idea of CSR implies how

organization can manage its business process to produce an overall positive

impact on society. It also means how organizations behave ethically and

contribute to economic development of society by improving the quality of life

of the local community and society at large.

Boone et al (1984) in Okeudo (2012) gave the following categories in the

measurement of CSR;

 Community Projects: Those that the company played a significant role or

provided substantial support for. These include civic and cultural programs,

youth activities, student and social activities and local earth programs.

 Contributions: These include those made to federated drives, education

program, urban/civic affairs and cultural activities.

 Equal employment opportunities: These should cover women and minority

groups

 Environmental concerns and energy conservation: This is defined as the

existence of policies or procedures directed at energy conservation.

 Voluntarism: This measure according to the number of hour contributed by

persons loaned to or a given lease time for public service work, this is to

encourage individual involvement.

 Social Investment: These include those that would not otherwise have been

made under the company’s customary lending standards or those in which

social consideration played in the investment decision organizations that are

focused on corporate social responsibility would proactively promote the

public interest by encouraging community growth and development. By

having and positive impact to the society, the organizations are also making

a difference to themselves. It is not only when it comes to profits but also

how the employees think and the economy.

According to Schmitz (2012), the title corporate social responsibility has two

meanings. First, it’s a general name for any theory of the corporation that

emphasizes both the responsibility to make money and the responsibility to

interact ethically with the surrounding community. Second, corporate social

responsibility is also a specific conception of that responsibility to profit while

playing a role in broader questions of community welfare.

2.1.2 Principles of Corporate Social Responsibly

According to Onwe (2014), the underlying principles behind CSR shows that

companies that carries out social responsibility activities enjoy risk adjusted

above average returns. Corporate social responsibilities embrace large

principles or ideas and these ranges from corporate governance, business ethics

and sustainable development through human right and environmental concerns.

The principles identified by Amole Adebuyi and Awoloja (2012) include

Business ethics, sustainable development, corporate governance, the

environmental concerns social responsible investment.

2.1.3 Beneficiaries (Stakeholders) of CSR

An organization should fulfill its social responsibilities to the following

stakeholders for it to achieve its set objectives. For instance, using a Bank as a

case study, the stakeholders will include:

1. Customers:

a) Offer efficient services; Make savings and withdrawals of money

less time consuming by reducing the waiting time;

b) Ensure adequate liquidity so that cash withdrawals are met

promptly; Pay competitive rate of interest on saving and deposit, in

line with the CBN‘s credit and monetary guidelines; Charges

reasonable interest rates and commissions;

c) Ensure safety of deposit so much so that the customers can deposit

his money in the bank and go to sleep; and make secret of the

affairs between the bank and customers to protect the interest of the

customers.

2. Shareholders of banks are to guarantee continuous investment of their

shareholders, they have the duty of:

 a) Ensuring effective performance by utilizing the capital invested in

the bank to maximize profit.

b) Paying good dividends, i.e. reasonable returns commensurate with

the capital investment. Maximizing the owner’s wealth by ensuring

good market prices of the shares of the bank in the stock market;

c) Keeping the shareholders informed of the bank’s performances

through annual general meetings, newsletters and information

bulletins.

3. Employees:

a) Provide a conducive working environment i.e. make available

modern working tools and equipment, ventilated offices, good

infrastructure, decent and official cars, health and safety equipment

at the workplace etc;

b) Pay competitive salary remuneration commensurate with the level

of commitment;

c) Offer opportunities for career development, e.g. inducement for

taking professional examination;

d) Train and develop employees through continuous learning at

seminars, conferences, workshop, with the view to update their

 knowledge base, to meet rapid changes in the banking

environment;

e) Keep employees adequately informed on the policies, procedures

and rules relating to day-to-day banking operations. This can be

done through newsletters, bulletins, meetings, etc;

f) Involve employees in decisions affecting them, to ensure their total

commitment and loyalty; and maintaining equal opportunities

among employees, i.e. there should be no preferential treatment or

favourism.

4. Government:

Being a responsible corporate entity or citizen, provide credit facilities to

various sectors of the economy, with a view to ensuring the economic

development of the country; Comply with the laws and regulations

prescribed by regulatory authorities like the Central Bank of Nigeria, the

Nigeria Deposit Insurance Corporate, etc; and Assist government in

funding and promoting social activities, such as sponsoring sports

programmes, contributions towards combating diseases e.g. AIDS, etc.

5. Public:

Banks are socially responsible to the banking public, in general, and

members of the community in which they are situated, in particular, in the

 following ways: Development of the environment through provision of

basic facilities like good drinking water, donations to development

associations, bringing banking services to the rural areas, indigenous

lending, etc. creation and maintenance of employment opportunities to

qualified members of the community. This encourages loyalty,

commitment and cooperation from the community; Participation in

community activities, such as donations to community to celebrations,

awarding scholarship to deserving members of the community, and using

the skills of employees to develop charitable goods and services.

2.1.4 Benefits of Corporate Social Responsibility to the Firm

Some benefits have been credited to CSR strategy on banks performance. For

instance, Okeudo (2012) while citing Ernst and Young’s global survey result

asserts that a greater percentage of companies believe that the development of a

corporate social responsibility strategy can deliver real business benefits,

however only a few have made significant progress in complementing the

strategy in their organizations. The survey concluded that CEOs are failing to

recognize the benefits of implementing social responsibility strategy despite

increased pressure to include ethical, social and environmental issues into their

decision making processes. The author (Okeudo, 2012) observed that

organizations should conduct businesses ethically and demonstrate leadership in

satisfying their responsibility to the society; they should aim to support and

encourage employees and to demonstrate to the community that as a business, it

is committed to improving its environment.

Kotler & Lee (2005) in Stancu, Grigore & Rosca (2011) opine that the studies

regarding the benefits of CSR point out the following aspects: increases sales

and market share, strengthens brand positioning, enhances corporate image and

clout, increases the ability to attract employees, decreases operating costs and

increases appeal to investors.

It is therefore imperative to assert that modern business should embrace

responsibility for the impact of their activities on the environment, consumers,

employees, communities, stakeholders and all other members of the public

sphere.

A company’s CSR philosophy can be, compliance driven, profit driven, driven

by caring, synergetic or holistic. In the first stage of CSR category, which is

called the legal stage, companies engage in CSR as it is their duty and

obligation to follow laws and regulations. In the economic stage, companies use

CSR as a strategy to create a competitive advantage and gain improved financial

performance. The ethical and philanthropic stage has the aim to have a balance

between the profit, people and the planet. In this stage the company does not

only focus on profit but also on social welfare.

Several authors have argued that companies can gain enormous benefits by

being socially responsible (Idowu and Papasolomou, 2007). Hence, a large

number of different views of why companies engage in CSR and what benefits

a company actually gets from participating in CSR exist. Companies participate

in CSR in order to look better, feel better, do better and live longer. The authors

further explain that by participating in CSR the company will look good in the

view of potential customers, business colleagues, investors and in the media

etcetera. Furthermore, employees, customers, stockholders and board members

will actually feel good. Many researchers also argue that CSR improve the

brand, and some claim that companies with a strong reputation for CSR will last

longer.

Onwe (2014) opined that firms practicing good ethics and good corporate

governance are more rewarded by financial market while firms practicing poor

ethics and poor governance are punished in other words;there are cost benefit

for every actions or decisions.

According to Maneli (2002 cited by Amole et (2012), the market positive

consequences reward of CSR are reflected in employees and customer fidelity.

Corporate rewards positive consequence are viewed in two prospective “Carrols

for success and freedom from sticks”. This include not being subject to Non-

Governmental Organizations (NGO)attacks , not having government

impositions, not being boycotted from regions of market or not losing key
employees with different ethical values. ”Cannot for success” include good

public relations brand enhancement access to contract with CSR requirement

positive relations with NGO’s or attracting higher quality staff at however rate,

all lead to increased performance/profitability (Manelli, 2004)

In commercial organization, it is also seen that CSR leads to increase in

stakeholders’ value, Onwe (2014). Auka (2001), summarized the benefit of

CSR to financial institution as follow:

I. Improved corporate image

II. Keeping up with competition

III. Increased ability to attract and Retain employee

IV. Reduced risk

V. Improved sales and customer loyalty

Auka (2011) also identified the factors that influence the extent of the practice

of corporate social responsibly in financial institution as follows:

I. Corporate image

II. Moral obligations

III. Solving societal problems

IV. Company policies

V. Pressure from society

VI. Regulation compliance.

Amaefule (2016) asserted that the reasons for participating in CSR include

moral obligation, sustainability, license to operate and reputation.

The Key Drivers of Corporate Social Responsibility are:

 Enlightenment self-interest – creating synergy of ethics, a cohesive society

and a sustainable global economy where markets, labor and communities are

able to function well together.

 Social investment – contributing to physical infrastructure and social capital

is increasingly seen as a necessary part of doing business.

 Transparency and trust - business has two ratings of trust in public

perception. There is increasing expectation that companies will be more

open, more accountable and be prepared to report publicly on their

performance in social and environmental arenas.

 Increased public expectations of business- global companies are expected to

do more than merely provide jobs and contribute to the economy through

taxes and employment. (Aso, 2004) in Okeudo, 2012).

Johansson et al (2015) stated on their thesis paper that there was no significant

relationship between CSR and financial performance observed during their

study period.

Mujahid M & Abdullah A (2014) conducted a research to find out the impact of

CSR on shareholders wealth and firms financial performance. They were taken
10 CSR performing firms and 10 non performing CSR firms and simply

compare with them. They considered CSR is an independent variable and ROA

and ROE considered as the dependent variables to measure the firms

profitability and EPS was another dependent variable to measure shareholders

wealth. The results showed that there is a significant positive relationship

between CSR and firms financial performance and shareholders wealth.

Trang and Yekini (2014) conducted a study on 20 Vietnamese companies for 3

years to know the relationship between CSR and Firms’ financial performance.

The result showed that there was a significant positive relationship between

CSR and Firms Financial Performance.

McWilliams & Siegel (2000) conducted a research to know the impact of CSR

on firm’s financial performance. The result showed that there was neutral

impact of CSR on firm’s financial performance.

McGuire et al (1988) tried to analyses the relationships between perceptions of

firms' corporate social responsibility and measures of their financial

performance. The result showed that firms low in social responsibility also

experience lower ROA and stock-market returns than do firms high in social

responsibility.

Also, education, health and donation are highlighted as the determinants of

Corporate Social Responsibility (Malik & Nadeem, 2014)

2.1.5 Mode of delivery

According to Adeboyega and Tarit (2011), this has to do with ways of

delivering social responsibility by banks, firms or businesses to the host

communities. This could be seen in two modes which are as follows

I. internally and

II. externally

The internal mode requires the corporate entity to take charge of its CSR

achievement implementation and external mode implies out sourcing of CSR

implementation to third parties in both cases the corporate entities normally

have in house units or decisions whose duties includes to strategize, plan

performance, implement, monitor and report results

2.1.6 Banks and CSR Investments

Emerging trends suggest that the financial services industries remains an

economic sector mostly in need of proper sense of corporate social

responsibility (MHC. 2004). Aside from the areas of corporate social

responsibility other areas that are peculiar to financial services firms among

others bother on the lending criteria. These include the extents to which social

and environmental benefits should be factored into the business case: the extent
to which it should be made within the banks for business lending that is the idea

of social responsibility Ezeoha (2006). Financial institution in addition to be

involved in CSR activities are also expected to use the huge fund that are

invisible and available to them to influence other involvement in CSR activities

(Hopkins, 2004) Nigeria banks are busy acquiring assets to institutional

investment networks, pension funds, insurance Business, mutual and trust

funds. It is important to note that at present, only four of all large banks in

Nigeria are the license pension’s custodians and may be very influential in the

investment choices of the pension administrators (Ezeoha, 2006)

2.1.7 The Concept of Banks Performance

Banks performance like every other corporate firm’s performance widely use

return on total assets (ROT) and return on Equity (ROE) amongst other

performance measures, as key performance indices. However, in the United

States, bank performance is measured by Capital, Assets, Management,

Earnings, Liquidity, and Sensitivity to Market Risk (CAMELS). To understand

how well a bank is doing, we need to start by looking at a bank’s income

statement, the description of the sources of income and expenses that affect the

bank’s profitability. According to Al-Matari, Al-Swidi and Fadzil (2014),

performance measurement refers to the process of measuring the action’s

efficiency and effectiveness.

The most common measure of performance in firms is the financial

performance measurement although such other measures like output and

capacity utilization could be employed as measures of performance particularly

in manufacturing outfits. According to Malik and Nadeem (2014), financial

performance can be defined as measures that evaluate the financial position of a

company over a specified time period to know how efficiently a company is

using its resources to generate income. Return on asset, return on equity, net

profit, earning per share etc are evaluated to measure firm’s financial health.

Neely (2007) highlighted three different major functions for the use of financial

performance measures as follows:

(1) The use of financial measures of performance as a tool of financial

management. Here the focus is on the functional specialism of finance and

financial management. This is concerned with the efficient provision and use of

financial resources to support the wider aims of the organization, and to manage

the effective and efficient operation of the finance function.

(2) The role of financial performance as a major objective of a business

organization. Here some overarching financial performance measure, such as

profit, return on investment (ROI), is used to signify the achievement of an

important (perhaps the most important) organizational objective.

(3) The function of financial performance measures as a mechanism for

motivation and control within the organization. Here the financial information
provides a “window” into the organization by which specific operations are

managed through the codification of their inputs and outputs in financial terms.

Al-Matari et al (2014) stated the following as measures of a firm’s financial

performance: Profit Margin (PM), Tobin-Q, Earnings Per Share (EPS), Divided

Yield (DY), Price-Earnings Ratio (PE), Return on Sales (ROS), Return on

Assets (ROA), Return on Equity (ROE), Expense to Assets (ETA), Cash to

Assets (CTA), Sales to Assets (STS), Expenses to Sale (ETS), Abnormal

returns; annual stock return, (RET), Operating Cash Flow (OCF), Return on

Capital Employed (ROCE), Labor productivity (LP), Critical business Return

on Asset (CROA), Cost of Capital (COC), Market Value Added (MVA),

Operation Profit (OP), Return on Investment (ROI), Market-to-book value

(MTBV), Log of market capitalization, LOSS, Growth in Sales (GRO), Stock

Repurchases, Sales Per Employee (SPE), Return on revenue (ROR), Output per

staff (OPS), Cost Per Service Provided (CPSP) and Cost per Client Served

(CCS), Superior to cumulative abnormal returns (CARs), Profit Per Employee

(PPE) and Return on Fixed Assets (ROFA) etc. They however, further opined

that accounting-based measurement is generally considered as an effective

indicator of the company’s profitability and the business when compared to

benchmark rate of return equal to the risk adjusted weighted average cost of

capital. The accounting based measurement indicators to the profitability of

firms on the short term in the past years such as Return of Assets (ROA), Return
on Equity (ROE), Return on Sales (ROS), Profit Margin (PM), Return on

Investment (ROI), Operating Cash Flow (OCF), Earnings per Share (EPS),

Operating Profit (OP), Growth in Sales (GRO), Return on Capital Employed

(ROCE), Expense to Assets (ETA), Cash to Assets (CTA), Sales to Assets

(STA) and Expense to Sales (ETS).

Al-Matari et al (2014) also advanced the following calculation measures of

financial/profitability performance:

Table 1: Calculation of Profitability Measures

Measure How to Calculate

Return on Assets (ROA)
Return on Equity (ROE)
Return on Sales (ROS)
Return on Investment (ROI)
Profit Margin (PM)
Operating Cash Flow (OCF)
Earnings per Share (EPS)
Operating Profit (OP)
Growth in Sales (GRO)
Return on Capital
Employed (ROCE)
Expense to Assets (ETA)
Cash to Assets (CTA)
Sales to Assets (STA)
Expense s to Sale (ETS)
Source: Al-Matari, Al-Swidi and Fadzil (2014)
Net income over total assets at the end of the year
Profit after tax over Total equity shares in issue
Sales over Net Profit
Total Investment cost over returns on investment
Profit after tax over Turnover.
Net Income before Depreciation Expense over Total assets.
Nat Income over Total Shares
Operating Income before Depreciation value of Total Asset
calculated by dividing the difference between current sales and
previous year’s sales volumes
Profit before Tax over Total Issued Capital.
Total expenses over Total assets.
Cash over Total assets
Total Sales over Total Assets
Total Expenses over Total Sales.

2.1.8 Conceptualizing the Variables of the Study

The various proxies for the dependent variables of this work (Financial

performance) and the independent variable (CSR expenses) are conceptualized

as follows:
 Nigerian
Banks
Independent Variable
Dependent Variable

CSR Financial
Affects
PRACTICES Performance

Expenditures
on CSR
ROA
Obligations

ROE
CSRCD

CSRSE

CSREDS

Fig. 2.1 Researcher’s Conceptualization

Where:
CSRCD is Corporate Social Responsibility expenditure in Capacity

Development

CSRSE is Corporate Social Responsibility expenditure in Social Empowerment

CSRCEDS is Corporate Social Responsibility expenditure in Environmental

Development & Sustainability

ROA is Return on Assets

ROE is Return on Equity

- Return on Asset (ROA): This is the ratio of net income to total resource

(assets) of the establishment. It is also referred to as Return on Investment

(ROI). Return on Assets shows the profit generated by the assets of a firm

annually. It is an indicator of how much an organization is earning over its

total assets. In banks, ROA measures the efficiency of banks’ management

in generating profit out of its available scarce resource. The more the

amount of ROA, the better the efficiency of a bank’s management, which is

good for the bank (Gizaw, et al, 2015). Return on assets measures the

company's ability to utilize its assets in order to make profit. Dwi cited in

Nengzih (2015) asserts that this ratio measures the level of return on the

investments made by the company using all the funds (assets) it possessed.

ROA is the income a company generates during normal operation divided

by its total assets. This calculation determines how well a company is using

its assets to generate income (Nengzih, 2015). Niresh and Velnampy (2014)
 state that firms’ return of assets is calculated with the following formula:

Earnings Before Interest & Tax (EBIT) divided by Total Assets and

multiplied by 100. Lubyanaya, Izmailov, Nikulina and Shaposhnikov

(2016) posit that ROA measures the overall effectiveness of management in

generating profits with its available assets; thus, the higher the ROA, the

better for the organization. They highlighted the following formula for

calculating ROA: Return on Total Assets = Net Profit After Taxes / Total

Assets.

- Return on Equity: This is a measure of the profitability of a business in

relation to the book value of shareholders’ equity. It is the amount of net

income returned as a percentage of shareholders equity. ROE reveals how

much profit a company generates with the shareholders’ invested (equity)

capital. It is computed by dividing the fiscal year’s net income (after

preference stock dividend but before common stock dividends) with total

equity (excluding preference shares capital); expressed as percentage

(Wikipedia, 2020).

2.2 THEORETICAL REVIEW

Corporate social responsibility theory

Managerial Theory of Firm

Managerial theory of firm is also considered a relevant theoretical basis for this

study. The theory was developed by Bumole in the year 1967 in his book called

business behavior, value and growth; and was used by Sangosanya (2011) as
cited in Eze and Ogiji (2013). This theory is based on the complex nature of the

modern business organization like the banks in which case various interests are

needed to be coordinated in the pursuant of the organization’s broad objective.

The theory states that the reason why managers are hired is for revenue

maximization and not for profit maximization. Interestingly, the proponents of

corporate social responsibility believe that adherence to the corporate ethical

obligation would present the organization a corporate responsible citizen in the

sight of the public, particularly the host community; thus creating more value to

the organization through the friendly and responsible corporate image created

by the organization’s commitment in undertaking corporate social

responsibility.

The propositions of the theory (as highlighted above) are in tandem with the

argument of this study with regards to the ideals of the corporate social

responsibility; consequently, the study considered the managerial theory a

relevant theoretical framework to hinge the development of this study.

Business Ethics Theory of CSR

The business ethics theory is based on wider social obligation and the moral

duty that business has towards society (Bigg, 2004). This theory justifies CSR

on 3 varied but interrelated ethical grounds: Changing and emerging social

responsiveness and social expectations to particular social problems. Eternal or

intrinsic ethical values always inspired by Kantian ethics and denoted as some

normative and universal principles like social justice, fairness and human rights

Corporate citizenship i.e. corporation as a better citizen in a society to

contribute to social wellbeing. The business ethics theory views CSR more as

philanthropic and ethical responsibilities rather than legal and economic

responsibilities. CSR initiates where legal obligation declines.

The Shareholder Value Theory of CSR

The shareholder value theory a perspective denoted by the Nobel Laureate

Milton Friedman (1970) argues that only social responsibility of business is to

develop its profits while following legal norms. Neoclassical economists like

Hayek assert that the function of business is doing business that contributes to

society and economy and its function must not be confused with other social

functions performed by not for profit organizations and governments. Otherwise

it is not the most effective way of allocating resources in a free market.

Economists like agency theorists believe that the corporation owners are its

managers and stakeholders as agents have fiduciary duty to serve the

shareholders interest rather than any others.

Although maximizing the profit of shareholder is justified as the most

significant or only corporate responsibility, corporate social obligations are

regarded often as strategic instrument for corporate competitive benefit and

more profit gain.

One of the most used and quoted model is Carroll´s (1991) Pyramid of

Corporate Social Responsibility proposes that as a specific theory of the way

corporations interact with the surrounding community and larger world,

corporate social responsibility (CSR).

Assuming those legal limits are insufficiently strict to guarantee the barrels’

seal, the spirit of the law may seem violated. The positive economic aspect of

the decision to cut corners is the ability to stay in business. That means local

workers won’t lose their jobs, the familial stresses of unemployment will be

avoided, suppliers will maintain their contracts, and consumers will still be

served. The negative, however, is the possibility—and the reality at Woburn—

that those toxins will escape their containers and leave a generation of workers’

children poisoned.

Regardless, corporate social responsibility means every business holds four

kinds of obligations and should respond to them in order: first the economic,

then the legal, next the ethical, and finally the philanthropic (Caroll; 1991).

Carroll (1991) considers CSR to be framed in such a way that the entire range

of business responsibilities is embraced. Carroll suggests that CSR consists of

four social responsibilities; economic, legal, ethical and philanthropic. These

four responsibilities can be illustrated as a pyramid.

Fig. 2.2 The pyramid of Corporate Social Responsibility

(Carroll, 1991 with modification)

Be a good corporate
Philanthropic
citizen Responsibilities

Ethical Responsibilities

Be ethical

Legal
Responsibilities

Obey the law

Economic
Responsibilities

Be profitable

The pyramid illustrates the four components of CSR with economic

performance as the basic block. Next is the responsibility to be ethical. At its

most fundamental level this is the obligation to do what is right and to avoid
harming stakeholders. Finally, business is expected to be a good corporate

citizen. This is embedded in the philanthropic responsibility, where in business

is expected to contribute financial and human resources to the community and

to improve the quality of life.

Corporate Social Responsibility (CSR)

Theory of the corporation that emphasizes both the responsibility to make

money and the responsibility to interact ethically with the surrounding

community. Corporate social responsibility (CSR) is composed of four

obligations:

1. The economic responsibility to make money. Required by simple

economics, this obligation is the business version of the human survival

instinct. Companies that don’t make profits are—in a modern market

economy—doomed to perish. Of course there are special cases. Nonprofit

organizations make money (from their own activities as well as through

donations and grants), but pour it back into their work. Also,

public/private hybrids can operate without turning a profit.

2. The legal responsibility to adhere to rules and regulations. Like the

previous, this responsibility is not controversial. Laws are not boundaries

that enterprises skirt and cross over if the penalty is low; instead,

responsible organizations accept the rules as a social good and make good

faith efforts to obey not just the letter but also the spirit of the limits.
 3. The ethical responsibility to do what’s right even when not required by

the letter or spirit of the law. This is the theory’s keystone obligation, and

it depends on a coherent corporate culture that views the business itself as

a citizen in society, with the kind of obligations that citizenship normally

entails.

4. The philanthropic responsibility to contribute to society’s projects even

when they’re independent of the particular business.

The Triple Bottom Line

The triple bottom line is a form of corporate social responsibility dictating that

corporate leaders tabulate bottom-line results not only in economic terms (costs

versus revenue) but also in terms of company effects in the social realm, and

with respect to the environment. There are two keys to this idea. First, the three

columns of responsibility must be kept separate, with results reported

independently for each. Second, in all three of these areas, the company should

obtain sustainable results.

The notion of sustainability is very specific. At the intersection of ethics and

economics, sustainability means the long-term maintenance of balance. 

1. Economic sustainability values long-term financial solidity over more

volatile, short-term profits, no matter how high. According to the triple-

bottom-line model, large corporations have a responsibility to create

business plans allowing stable and prolonged action.

 2. Social sustainability values balance in people’s lives and the way we

live. As imbalance between rich and poor grow the chances that society

itself will collapse in anger and revolution increase. For a business to be

stable over the long term, opportunities and subsequently, wealth need to

be spread out to cover as many people as possible. Social sustainability

doesn’t end with dollars; it also requires human respect. All work, the

logic of stability dictates, contains dignity, and no workers deserve to be

treated like machines or as expendable tools on a production line. Finally,

social sustainability requires that corporations as citizens in a specific

community of people maintain a healthy relationship with those people. 

3. Environmental sustainability Conservation of resources, therefore,

becomes tremendously important, as does the development of new

sources of energy that may substitute those we’re currently using, given

that the resources are limited.

Stakeholder Theory

Stakeholder theory, which has been described by Edward Freeman and others,

is the mirror image of corporate social responsibility. Instead of starting with a

business and looking out into the world to see what ethical obligations are there,

stakeholder theory starts in the world. It lists and describes those individuals

and groups who will be affected by (or affect) the company’s actions and asks,

“What are their legitimate claims on the business?” “What rights do they have
with respect to the company’s actions?” and “What kind of responsibilities and

obligations can they justifiably impose on a particular business?” stakeholder

theory affirms that those whose lives are touched by a corporation hold a right

and obligation to participate in directing it. The shareholders, workers,

customers, suppliers, and community—are cited as five cardinal stakeholders.

In practical terms, however, a strict stakeholder theory—one insistently

bestowing the power to make ethical claims on anyone affected by a company’s

action—would be inoperable. There’d be no end to simply figuring out whose

rights needed to be accounted for. Realistically, the stakeholders surrounding a

business should be defined as those tangibly affected by the company’s action.

There ought to be an unbroken line that you can follow from a corporate

decision to an individual’s life.

Once a discrete set of stakeholders surrounding an enterprise has been

located, stakeholder ethics may begin. The purpose of the firm, underneath this

theory, is to maximize profit on a collective bottom line, with profit defined not

as money but as human welfare. The collective bottom line is the summed effect

of a company’s actions on all stakeholders. Company managers, that means, are

primarily charged not with representing the interests of shareholders (the

owners of the company) but with the more social task of coordinating the

interests of all stakeholders, balancing them in the case of conflict and

maximizing the sum of benefits over the medium and long term. In many cases
transparency is an important value for those promoting stakeholder ethics. The

reasoning is simple: if you’re going to let every stakeholder actively participate

in a corporation’s decision making, then those stakeholders need to have a good

idea about what’s going on. Stakeholder theory obligates corporate directors to

appeal to all sides and balance everyone’s interests and welfare in the name of

maximizing benefits across the spectrum of those whose lives are touched by

the business.

Theories of Financial Performance

Profit maximization

A key assumption in much of the literature is that banks are profit

maximizers. To be sure, standard theory tells us that a bank’s shareholders

are claimants for its profits and it is thereby in their interest to maximize

these profits. They maximize their return on investment by maximizing

revenue and by minimizing costs. Depending on the market power of the

bank in input and output markets respectively, it may be able to increase

output prices or decrease input prices. Bank management can select the mix

of inputs and outputs by which profits are maximized. In order to avoid

stating the obvious, and to clarify our motivation further we therefore begin

by asking why a bank should not be able to attain maximum profits. In this

section, we consider four issues related to profit maximization: (a) the role of
diversification and risk preferences; (b) principal agent problems between

shareholders and bank management; (c) imperfect competition; (d) inefficient

use of inputs and outputs.

A first consideration relating to bank profit maximization concerns the

concepts of risk and diversification. Shareholders balance their appetite for

maximizing expected profits and minimizing costs against the amount of risk

they are willing to take. Abstracting from speculative motives, shareholders

are generally assumed to be indifferent to the distribution of profits, receiving

a return on their investment in the bank either through an increase in the

bank’s share price or through dividends received. If all banks share the same

risk-return preferences, or if the risk-return relationship can be described by

some relatively simple homothetic continous function, then there is no

serious problem with the fact that we do not know how to control a bank’s

risk preferences.

This is different, however, inasituation where some banks (e.g. cooperative

banks) are highly risk averse and not well diversified. Such banks have

different preferences, forego high-risk, high-return opportunities and

optimize towards an altogether different maximum profit. 3 Although control

variables aimed at proxying for this risk attitude are frequently used in the

literature, comparatively little work has been done on modelling banks’risk-

return trade-off. Recent work by Hughes et al. (2000) and DeYoung et al.

(2001) has tried to incorporate risk into a bank benchmarking exercise.

Koetter (2004) has applied their model to German banks. Given that this type

of work is still in its infancy, we refrain from including it in our general

framework. Instead, we rely on control variables that aim to proxy for banks’

risk-return preferences.

A second consideration relating to banks’ profit maximization concerns

incentive structures. Even risk-neutral shareholders who are well diversified

may have problems translating their claim on profits into the actions required

to maximize revenue and minimize costs. In the absence of complete

information, principal–agent theory states that shareholders are unable to

adequately monitor bank management and that the resulting managerial

discretion may induce suboptimal behavior, i.e. profits are not maximized

and/or costs are not minimized As long as shareholders cannot monitor and

penalize bank management, the latter may show expense-preference behavior

or – if it is highly risk averse – any other strategy that reduces profits. 5 This

means that the information asymmetry between principal and agent that was

once used by Diamond (1984) to explain the existence of banks from the

reduction in audit costs for lenders to non-financial firms, now helps explain

why banks themselves may also suffer from moral hazard and other incentive

problems. A vast amount of literature exists on ways to minimize the

negative effects of these principal–agent problems. A detailed discussion is

beyond the scope of this chapter. Pecuniary and non-pecuniary incentives and

yardstick competition are ways to reduce managerial slack while keeping

managerial discretion intact. 6 Discretion itself is affected by, for instance,

external control mechanisms, supervisory institutions, collateralized debt and

takeover bids. 7 Price and non-price competition, the substitutability of a

bank’s products and the contestability of its markets may also serve to ensure

a bank’s optimal performance by putting competitive pressure on its

management, provided management compensation is performance-based. 8 A

similar role may be played by signalling devices such as ratings. Whether

incentive problems are important in European banking is questionable. First,

few studies have attempted to test empirically the impact of principal–agent

conflicts on the performance of European banks. Translations into empirical

tests of the situations described above where hidden action by or hidden

knowledge of bank management results in suboptimal performance are rare.

9 Second, to the extent that the principal–agent relationship results in moral

hazard conflicts, this will only create problems if the principal (i.e. the

shareholder) can not insure himself against excessive risk taking by the agent

(cf. Tirole (1993), paragraph 2.1). Third, although incentive problems lead to

suboptimal performance by a bank, the extent to which this affects European

banking dynamics is unclear. There is little reason to suspect that the

incentive problems that can cause a bank to make less profit or experience

above-minimum average costs are significantly different from bank to bank,

or from country to country. The separation between ownership and control is

highly similar for commercial banks across Europe, even if institutional

supervision is not. 10 Summing up, even if incentive problems can help

explain bank performance, testing empirically whether they can explain

differences in bank performance is difficult and to date results have been far

from conclusive. Banks’ performance is related to changes in their

environment and the behavior of their competitors. Therefore, a third

consideration relating to banks’ profit maximization concerns market power.

Economic theory also tells us that in a perfectly competitive situation, profit

maximization is equivalent to cost minimization. In practice however, we do

not necessarily observe maximization of profits and/or minimization of costs.

Of course, exogenous factors such as regulation or (economic) shocks can

cause suboptimal performance. To the extent that such factors do not have

similar effects on both cost minimization and profit maximization, they can

drive a wedge between the two. Imperfect competition causes a situation

where profits are maximized at an output level where average costs are no

longer minimized.It can thus be used to explain changesin profitability over

time as well as between banks. Therefore, the first class of models considered

in the next chapters is that of market power models.

Iwata Model (1974)

The model allows for the estimation of conjectural variation values for

individual banks supplying a homogeneous product in an oligopolistic

market. This measure has been applied only once to the banking industry, it

is included in the present overview for completeness’ sake. A generic

problem with this type of model, is the fact that some of the profitability

determinants are interrelated and/or cannot be observed in practice.

Bresnahan (1982)

Contrary to Iwata (1974), Bresnahan (1982) and Lau (1982) assume that all

banks are equal and identical and make an aggregate analysis. In this short-

run model, they thereby determine the level of market power in the banking

market and take averages. Banks maximize their profits by equating marginal

cost and perceived marginal revenue. The perceived marginal revenue

coincides with the demand price in competitive equilibrium and with the

industry’s marginal revenue in the collusive extreme (Shaffer, 1993). For the

average bank in a perfectly competitive market, the restriction λ = 0 holds,

as, in a competitive equilibrium, price equals marginal cost. Since prices are

assumed to be exogenous to the firm in a perfectly competitive market, an

increase in output by one firm must lead to an analogous decrease in output

by the remaining firms. Empirical applications of the Bresnahan model are

scarce. The model has been estimated by Shaffer (1989 and 1993) for,

respectively, the US loan markets and the Canadian banking industry.

Suominen (1994) applied the model in its original one-product version to the

Finnish loan market for the period 1960–1984. An adapted two-product

version is applied to the period after deregulation (September 1986–

December 1989). Suominen finds zero λ’s for the period with regulated

interest rates in both markets, and values of λ indicating use of market power

after the deregulation of the loan market. Swank (1995) estimated

Bresnahan’s model to obtain the degree of competition in the Dutch loan and

deposit markets over the period 1957–1990, and found that both markets

were significantly more oligopolistic than under Cournot equilibrium. Bikker

(2003) presents applications of the Bresnahan model to loans markets and

deposits markets in nine European countries over the last two or three

decades.

Panzar–Rosse

Most of the models assume Cournot competition. Panzer – Rosse posit that

price information is notoriously scarce and unreliable for banking markets,

not much is known about the role of Cournot and Bertrand competition,

respectively, in banking. The method developed by Panzar and Rosse (1987)

estimates competitive behavior of banks on the basis of the comparative

static properties of reduced-form revenue equations based on cross-section

data. Panzar and Rosse (P–R) show that if their method is to yield plausible

results, banks need to have operated in a long-term equilibrium. While the

performance of banks needs to be influenced by the actions of other market

participants. Furthermore, the model assumes a price elasticity of demand, η,

greater than unity, and a homogeneous cost structure. To obtain the

equilibrium output and the equilibrium number of banks, profits are

maximized at the bank as well as at the industry level when marginal revenue

equals marginal cost.

Structure-Conduct-Performance

The Structure-Conduct-Performance (SCP) model assumes that market

structure influences bank behavior (conduct), which in turn affects bank

performance. In a market with a higher concentration, banks are more likely

to show collusive behavior, and their oligopoly rents increase performance

(profitability). Conduct is an unobservable and is measured indirectly

through market concentration.

Cournot model

A relationship between industry performance and market concentration.

Concentrates on the impact of market structure. it more accurately captures

asymmetric market structures, differences in cost structures and collusive

behavior.

The Stigler approach

Presuming the de facto existence of collusive behavior, the extent to which

banks will engage in collusive behavior is directly and positively related to

their market share. Stigler’s rule that the (pricing) behavior of firms must be

inferred from the way their customers react. The assumption then is that

‘There is no competitive price-cutting if there are no shifts of buyers among

sellers’ (Stigler (1964), p. 48). Thus, the stronger the loyalty of customers,

the less likely a bank is to behave collusively. Intuitively, the stronger

customer loyalty, the less a bank will stand to gain by cutting prices: it does

not need to do so to keep its old customers nor does it expect to gain many

new customers.

2.3 EMPIRICAL REVIEW

The literature provides empirical evidence on the effect of firms’ corporate

social responsibility expenses on their performance. Some of the empirical

works reviewed in this study are as follows:

Amadi and Zhao (2020) investigates the relationship between corporate social

responsibility (CSR) and financial performance in the food and beverage

industry in China. The study adopts a multivariate regression approach and

considered different dimensions of CSR which are stakeholder-oriented,

customer-oriented, employees-oriented, society-oriented, and environment-

oriented CSR. The study used panel data of 577 samples from 64 food and

beverage companies for the period of 2010 to 2019, and the results show that

there is a positive and significant relationship between the various

dimensions of CSR and financial performance, which validates the

stakeholder theory. The study makes a significant contribution to knowledge

in that it enriches the debate of CSR and financial performance in a

significant industry (food and beverage) in an emerging economy (China).

An implication for society and government might be to enact policies and

incentives as well as adopt moral suasion to encourage firms, irrespective of

industry, to consider the needs of all stakeholders in business decisions and

be more socially responsible.

Siueia and Wang (2019) examined Corporate Social Responsibility and

financial performance as a comparative study in the Sub-Saharan Africa

banking sector. Building on the Stakeholder theory, their study examined the

impact of voluntary CSR disclosure on Financial Performance (FP) in the Sub-

Saharan banking sector by comparing the top-ranked banks in Mozambique and

the Republic of South Africa. Their study applied content analysis to assess the

Corporate Social Responsibility dimensions and the general measure of FP such

as Return on Asset (ROA) and Return on Equity (ROE), which are published in

the annual reports in accordance with International Financial Reporting

Standards (IFRS). Based on a panel data covering the period of 2012–2016,

their study regresses FP on CSR disclosure and found a significant and positive

relationship between FP and CSR disclosure, suggesting that CSR behavior is

helpful to improve the performance of banks. Their findings indicate that the

Republic of South Africa banks are slightly over performing Mozambican

banks, and the Republic of South Africa banks are disclosing more information

regarding CSR than Mozambican banks. Also, the influence of the positive CSR

disclosure index is much stronger than that of the negative CSR disclosure

index on improving FP. In practical terms, it is believed that the voluntary

report on CSR commitment could help the banking sector to improve its FP.

The evidence from the study can help regulators and investors to understand the

banks' business practices in these two countries.

Maqbool and Zameer (2017) empirically studied corporate social responsibility

and financial performance in Indian banks. Their study attempted to examine

the relationship between corporate social responsibility and financial

performance in the Indian context. Secondary data was collected for 28 Indian

commercial banks listed in Bombay stock exchange (BSE), for the period of 10

years (2007–16). Their results indicate that CSR exerts positive impact on

financial performance of the Indian banks. The findings provides great insights

for management, to integrate the CSR with strategic intent of the business, and

renovate their business philosophy from traditional profit-oriented to socially

responsible approach.

Abdelkbir and Faiçal (2015) examined corporate social responsibility and

financial performance morocco. Their article support the use of econometrics

panel data to analyze the influence of corporate social responsibility (CSR)

on the financial performance measured by several indicators. From a sample

of 20 firms listed on the stock exchange of Casablanca between 2007 and

2010. Their research found a negative and significant impact of the CSR on

financial performance. The negative influence is important in large

companies, which means it is a mediating factor

Chetty, Naidoo and Seetharam (2015) evaluated the impact of corporate social

responsibility on firms’ financial performance in South Africa covering the

periods from 2004 to 2013. The authors used regression analysis to analyze the
data collected. Findings from the analysis show that CSR activities lead to no

significant differences in financial performance.

Afsheen (2015) examined the Impact of Corporate Social Responsibility on

Firm’s Performance utilizing survey sampling design where a sample of 101

staff in Pakistan was conducted and employing correlation and regression

analysis in analyzing the data. The study found that CSR strongly impact on

firm’s performance; and that it performs activities contribution in term of

enhancement of profitability, increasing market worth, value and stakeholder

interest of firms.

Osisioma, Nzewi and Nwoye (2015) appraised Corporate Social Responsibility

and Performance of selected firms in Nigeria. Ten (10) listed firms in the NSE

were studied for periods from 2007 – 2011. The authors applied the Pearson’s

product moment correlation in the study’s analysis, Results showed a strong

significant positive relationship existing between social responsibility cost and

corporate profitability.

In their own study, Awan and Akhtar (2014) examined the Impact of Corporate

Social Responsibility (CSR) on Profitability of Firms: A case study of Fertilizer

& Cement Industry in Southern Punjab, Pakistan. Fertilizer and Cement

Industries in Southern Punjab formed the sampling frame of the study. Delphi

and OLS Regression methods were utilized in the analysis. Findings show that
the relationship between CSR and human rights, environment, labor standard,

corporate governance and organization’s interest, are positive and significant.

Iqbal, Ahmad, Hamad, Bashir & Saltar (2014) evaluated the possible impact of

Corporate Social Responsibility on Firm’s Financial Performance of Banking

Sector in Pakistan. United Bank Limited was the focus of the study and the

periods between 2005 and 2011 were covered. It utilized Conceptual Model and

cross-case analysis. It found that there is positive relationship between the firm

disclosure of corporate social responsibility and the Firm's performance in terms

of Net Profit Margin and Earning per Share.

Mujahid and Abdullah (2014) evaluated the impact of corporate social

responsibility on firms’ financial performance and shareholders wealth. 10

highly rated firms on CSR and 10 non-CSR firms were sample. Simple

percentage & ratio analysis were employed. The study’s analysis result shows a

significant positive relationship between CSR and firm’s financial performance

and shareholders wealth.

Odetayo, Adeyemi and Sajuyigbe (2014) studied the impact of corporate social

responsibility on profitability of Nigeria Banks. The study sampled six banks,

for the period of 10 years (2003 – 2012). Simple regression analysis was

employed; the regression results revealed that there is a significant relationship

between expenditure on corporate social responsibility and profitability of

Nigerian Banks.
Cornetta, Erhemjamtsa and Tehranian (2014) analyzed the impact of Corporate

Social Responsibility on Financial Performance: Investigation of U.S.

Commercial Banks. The study utilized the OLS regression in its analysis and

found that the largest banks appear to be rewarded for their social responsibility,

as both size adjusted ROA and ROE are positively and significantly related to

CSR scores.

Malik and Nadeem (2014) appraised the impact of Corporate Social

Responsibility on the Financial Performance of Banks in Pakistan. The study

used regression model in its analysis of data collected for the period of 2008-

2012. Findings show that there is positive relationship between profitability

(EPS, ROA, ROE, and Net Profit) and CSR practices; and that the financial

institutions which implements CSR in their operations earn more profit for the

long term periods. Also, Yingxi-Jiao (2013) assessed how CSR influence a

firm’s profitability? A case study of Sandvik. Descriptive statistics of tables and

percentages were employed in the analysis of the variables of the study. The

study found that the CSR-profitability relationship in the case company is not

clear in last five years; the prior finding shows ambivalent view and

inconsistency with the positive mediating process, a process used to define the

CSR-profitability association, of the case company.

Similarly, Kanwal, Khanam, Nasreen and Hameed (2013) evaluated the impact

of Corporate Social Responsibility on the Firm’s Financial Performance. The

authors studied 15 companies listed on Karachi stock exchange, using

correlation analysis The study result shows that there is a considerable positive

relationship between the CSR and Financial performance of the firm, and firms

spending on CSR not only benefits from continuous long term sustainable

development but also enjoy enhanced FP.

Jaenick (2013) carried out an analysis of how Corporate Social Responsibility

(CSR) policies create Value-Added for Companies Cross-sectional survey

design on and non-probability sample method were used. Descriptive statistics

(tables, bar-charts & Pie-charts) and the Economic Value Added concept,

developed by Stern Stewart & Co. were utilized in its analysis. It finds that CSR

improves organizational performance by enhancing the positive reputation of

the organization with all stakeholders; CSR policies as a whole create absolute

value added within the company.

Babalola (2012) studied the Impact of Corporate Social Responsibility on firms’

profitability in Nigeria. Ten (10) randomly selected firms annual report and

financial summary between “1999-2008 were studied. It utilized OLS

regression analysis; finding shows that negative relationship exists between

firm’s performance measure with profit after tax and investment in social

responsibility. This implies that the more the profit recorded by firms in Nigeria

the less they invest in corporate social responsibilities. This suggests that these

organizations’ survival and ability to make profit in the long run could be
threatened as various stakeholder particularly there host communities could

threaten their existence.

Namita, Batra, and Pathak (2021) based on the escalating demand of

stakeholders’ interests in social performance has put pressure on corporations

to embark on social responsibility reporting and practices in order to gratify

the demands and to gain public support carried on Linking CSR and financial

performance. Some organizations have already responded well to this

perspective, either by publishing a separate report regarding their social

activities, or by providing such information in their annual report or on their

web site. Previous research on the relationship between corporate social

responsibility and financial performance has largely been based on

international data. The selected CSR indexes and financial performance

(annual reports) measures to allow the estimation of regression analysis

conducted to examine the relationship between CSR and financial

performance. Their preliminary results revealed statistically significant

relationship between corporate social responsibility (CSR) and financial

performance (CFP) as measured by sales revenue and profits of five hundred

Indian companies and thus they concluded that, there is a marked financial

benefit for companies that are innovative to invest in CSR.

Other literatures related to the study are examined thus:

Waddock and Graves (1997) assessed 469 companies while surrogated KLD

measurement for CSR. He examined the impact from both slack resources and

good management theory. He found CSR positively associated with prior and

future financial performance, hence supports both slack resource and good

management theory.

Similarly, Kim and Kim (2014) studied CSR in tourism industry, examines

whether CSR enhances value for shareholders. The study used ESG rating from

1991 to 2008, to specifically test the effect of CSR on two different types of

equity-holder risks (i.e., systematic and unsystematic risks). He suggested that

social responsibility was found to enhance shareholder value by increasing

Tobin's Q, while firms having minimal CSR reduced shareholder value by

increasing the risk. The main hypothesis which supports the positive

relationship is CSR enhances competitiveness of a firm. From an innovation

perspective, CSR reduces firm costs, create value for stakeholders, and craft

internal capabilities, such as being first mover in an industry (Preston &

O'bannon, 1997), all these contribute to the competitive advantage of a firm.

The three basic channels through which CSR exerts competitiveness in the firm;

cooperation with different stakeholder, developing new business opportunities

through addressing key societal challenges, improving working conditions, that

increases the confidence of workers and pay better attention towards workers.

Thus, by investing in superior social responsibility, a firm builds up a stock of

reputational capital, and hence boosts its financial performance. Further, CSR

helps in building the positive relationship with customers, attracting motivated

employee, lowering companies risk and spreading positive word of mouth

which might otherwise impose a cost (Bird, Hall, Momentè, & Reggiani, 2007).

Similarly, Hammond and Slocum, (1996) highlighted that CSR can enrich

corporate reputation and lower financial risk, thus firms having minimal chance

of getting bankrupt, compared to non-CSR firms.

In the late 60s, Milton Friedman came up with an argument, that there is

nothing like the social responsibility of business. CSR is "fundamentally

subversive doctrine" in the free society, otherwise, the company will be at a

detrimental position; the only goal for the business is to increase profit while

respecting legal and ethical decorum (Friedman, 1970). This argument is

substantiated by several empirical studies. For instance, Wright and Ferris

(1997) examined the effect of divestment in South Africa (as a proxy for CSR)

on stock market performance. Using data from 116 companies for 10 years in

cross-section industries, the study showed that share price is affected negatively

by announcing divestment in South Africa. These results are supportive of the

premise that non-economic pressures may influence managerial strategies rather

than value-enhancement goals.

Similarly, Cordeiro and Sarkis (1997) in a sample of 523 US firms demonstrate

a negative correlation between environmental activism and earnings per share

while taking Toxic Release Inventory data as the proxy for environment

protection. This line of thinking argues that those engaged in the CSR activities

incur a competitive weakness because they incur costs which should have been

borne by other institutions. For instance, eco-friendly operations, philanthropy,

customer welfare, health care centers and environment preservation.

Likewise, Hemingway and Maclagan (2004) believes that CSR is a cover-up for

fraudulent activities imitated by management, which imposes negativity in

CSR. Skeptics have accused CSR as a projection of good image, regardless of

their unpublicized unethical practices (Caulkin, 2002). Similarly, Moon (2002)

brought up that inspiration for CSR is constantly determined by some self-

intrigue, paying little mind to whether the movement is deliberately determined

for business purposes alone, or whether it is also partly driven by what appears,

at least superficially, as an altruistic concern. The hidden supposition is that

commercial imperative isn't sole purpose behind CSR. The astute directors

advance their altruism in a deceptive way.

The debate regarding CSR and financial performance has led to another

possibility, that, CSR works independently lacking any financial upshots. Both

the variables mutually exclusive and the relation is only by chance. The

proponent of this line of reasoning argues that there are so many interposing

variables between CSR and financial performance that relationship hardly exists

(Ullmann, 1985).
Similar results were highlighted by Abbott and Monsen (1979), and Griffin and

Mahon (1997). McWilliams and Siegel (2000) investigated the relationship

between CSR and financial performance in the sample size of 524 for a period

of 6 years. The result shows upwardly biased estimates of the financial impact

of CSR, but when the model was properly specified, by incorporating R&D, the

result shows neutral effect of CSR on financial performance. Kenneth and Hage

(1990) relate community service with different organizational characteristics in

the sample of 82 companies. The results highlighted that community service has

no effect on profit goals, low price niche, and multiplicity of outputs, and

workflow continuity.

Similarly, Griffin and Mahon (1997) examined the relationship between CSR

and corporate financial performance, while measuring CSR employs both

perceptual based data (KLD Index and Fortune reputation Survey) and

performance-based (TRI database and corporate philanthropy). The result

shows that Fortune and KLD indices very closely track one another, whereas,

TRI and corporate philanthropy shows neutral relationship.

Louis W. Fry, Gerald D. Keim, Roger E. Meiners (1982) revealed that firms

spending on CSR have to spend less on advertising. This helps in reducing costs

and creating a corporate identity or building the reputation of the firm. Sue

Annis Hammond and John W. Slocum (1996) have concluded that CSR can

improve corporate reputation and lower the financial risk, which implies such
organizations are less likely to go bankrupt as compared to those which do not

engage in CSR. Klassen, Robert D, McLaughlin and Curtis P. (1996), have

proposed a theoretical model that strong environmental management to

improved future financial performance.

Waddock and Samuel Graves (1998) have shown that Corporate Social

Performance (CSP) is positively associated with prior financial performance.

Paterson (2000) have found that financial incentives are not the key to attract

and retain quality staff. They reported that as high as 82% of UK professionals

would turn down a lucrative job offer if the company failed to accord with their

own personal values.

Bennett Daviss (1999) concluded that companies will grow their profits only by

embracing their new role as the engine of positive social and environmental

change. Lord Tim Clement (2002) is of the view that CSR has bottom line

relevance and the way it is communicated and reported is important. CSR helps

an organization in building loyalty with customers, counteracting allegations of

corporate greed, avoiding expensive class action suits, helps in attracting,

motivating and retaining a talented workforce and lowering company’s equity

risk premium.

Wilks (2002) linked the idea of corporate social responsibility with the idea of

the triple bottom line, whereby business success should be judged on not just

financial terms but also on social and environmental grounds.

Boutin-Dufresne and Savaria (2004) shown that socially responsible companies

show less diversifiable risk in their stock behavior than non-socially responsible

companies. Crawford and Scaletta (2005) have suggested use of Balanced Score

Card to make CSR reporting more effective. Falck and Heblich (2007) opined

that shareholders react favorably towards the stock prices of companies’

strategically practicing corporate social responsibility (CSR).

Younghwan, Jungwoo and Taeyong developed a corporate transparency index

and accessed transparency of 237 Korean companies. They concluded that

financial, corporate, operational, and social transparencies play an important

role in firm’s profitability.

Boorman (2011) shown that a healthy and happy work force can improve a

company’s bottom line. 2.2. Literature for CSR having negative impact on

profitability. Henderson (2001) has given a case against social responsibility.

According to him, the concept of CSR is severely damaged. Adoption of CSR

increases the possibility of cost escalations and impaired performance. He

highlights that managers will get loaded by wide ranging goals, involvement in

time consuming process of discussion with outside consultants, need of new

accounting, auditing and monitoring systems if they practice CSR. All this may

offset any gains from CSR.

Friedman (2007) is of opinion that a business is responsible only to increase

profits and not responsible to society. Reich (2008) argues that the firms
practicing CSR have to sacrifice freedom of profits to attain social goods.

Promotion of corporate social responsibility by companies misleads the public

to believe that more is being done by the private sector for the well-being of

society than is in fact the case. Robert remarks negatively about CSR saying

that it is an expense that is only to mislead public opinion. 2.3. Literature for

CSR having no impact on profitability (neutral).

O’Neill, Saunders and Derwinski McCarthy (1989) investigated the relationship

between corporate social responsiveness and profitability in a sample of

corporate directors. Their findings show no relationship between the level of

director social responsibility and corporate profitability. Kenneth L. Kraft and

Jerald Hage (1990) correlate community service goals from 82 business firms

with various organizational characteristics, including goals, niches, structure,

context, and performance. Their results demonstrate that communityservice

goals were not related to profit goals, lowprice niche, and multiplicity of

outputs, workflow continuity, qualifications, or centralization.

Griffin and Mahon (1997) examined the relationship between corporate social

performance and corporate financial performance, with particular emphasis on

methodological inconsistencies. They focused on chemical industry and used

multiple sources of data both perceptual based (KLD Index and Fortune

reputation survey), and performance based (TRI database and corporate

philanthropy). They used the five most commonly applied accounting measures
in the corporate social performance and corporate financial performance

(CSP/CFP) literature to assess corporate financial performance. They concluded

that priori use of measures may predetermine the CSP/CFP relationship

outcome. Their results show that Fortune and KLD indices very closely track

one another, whereas TRI and corporate philanthropy differentiate between high

and low social performers and do not correlate to the firm’s financial

performance.

Balabanis, Phillips and Lyall (1998) concluded that CSR disclosure positively

affected firm’s CSR performance and its concurrent financial performance.

Involvement in environmental protection activities had negative correlation with

subsequent financial performance. Policies of a firm regarding women’s

positions resulted in positive capital market performance in the subsequent

period. Donations to the Conservative Party were not to be related to companies

past, concurrent or subsequent financial performance. McWilliams and Siegel

(2000) conclude that CSR has a neutral impact on financial performance. Quazi

and O’Brien (2000) conclude that corporate social responsibility is two-

dimensional and universal in nature. Differences in cultural and market settings

in which managers operate have very less impact on the ethical perceptions of

corporate managers. Their study did not find any significant effect of CSR on

the profitability.
McWilliams and Siegel (2001) outlined a supply and demand model of

corporate social responsibility (CSR). On the basis of this framework, they

hypothesized that a firm’s level of CSR depends on its size, level of

diversification, research and development, advertising, government sales,

consumer income, labor market conditions, and stage in the industry life cycle.

From these hypotheses, they concluded that there exists an “ideal” level of CSR,

which managers can determine by doing costbenefit analysis. They established

a neutral relationship between CSR and financial performance. Husted and

Allen (2007) conclude that although CEOs and government leaders insist in

public that CSR projects create value for the firm, privately they admit that they

do not know if CSR pays off.

Mackey, Mackey and Barney (2011) debate about whether firms should involve

in socially responsible behavior. They have proposed a theoretical model in

which the supply and demand of socially responsible investment opportunities

determines whether these activities improve, reduce, or have no impact on a

firm’s market value. Their theory shows that managers in publicly traded firms

might fund socially responsible activities that do not maximize the present value

of their firm’s future cash flows however maximize the market value of the

firm.

2.4 RESEARCH GAP

There is clear indication of the apparent gap in existing literature from the

empirical review above. For instance, it is evident that most studies in this

research area were foreign based. Locally based studies appear scanty in this

subject area. Besides, the issue of corporate social responsibility should be the

concern of every firm operating in a given environment, irrespective of the

sector. Most scholars tend to ignore areas like the banking sector in issues about

CSR; attention is usually paid on oil and gas industries, manufacturing and

explorative firms, etc. hence, reason for scanty literature on CSR with respect to

banks performance. But in reality, banking sector operations has obvious

negative impact within the society they operate; typically, exposure to activities

of hoodlums, insecurity, noise pollution, etc. The development of this study thus

bridges this gap in literature.

It is also worth noting that most of the empirical works reviewed utilized data

up to 2012. Between then and 2016 is a wide gap that has remained latent in

literature. The present study utilizes data for up to 2016; marking an obvious

contribution in knowledge.