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Corporate social responsibility and customer loyalty: mediating role of

corporate reputation among Generation Z customers of Nepali commercial
banks

Article in International Journal of Organizational Analysis · September 2023

DOI: 10.1108/IJOA-03-2023-3701

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Generation Z
Corporate social responsibility customers
and customer loyalty: mediating
role of corporate reputation
among Generation Z customers
of Nepali commercial banks Received 31 March 2023
Revised 3 August 2023
18 August 2023
Gopal Subedi and Laxman Pokhrel Accepted 21 August 2023
Department of Marketing, SAIM College, Kathmandu, Nepal, and
Dinesh Basnet
Faculty of Management, Tribhuvan University, Kathmandu, Nepal

Abstract
Purpose – Drawing on social identity, signalling and stakeholder theories, this paper aims to examine
corporate reputation’s (CR) mediating role concerning corporate social responsibility (CSR) and customer
loyalty (CL) among Generation Z customers of Nepali commercial banks.
Design/methodology/approach – The research applied a cross-sectional survey research design to
collect data from 281 customers of Nepali commercial banks. The study used a purposive sampling method to
reach the respondents and partial least squares structural equation model was used to test the hypotheses.
Findings – The results reveal that CSR significantly influences CR and CL. Likewise, CR positively
influences CL. Moreover, CR partially mediates the relationship between CSR and CL. It implies that CSR and
CR are critical variables for CL among Generation Z customers of Nepali commercial banks.
Practical implications – This study focuses on understanding the importance of CSR to Nepalese
commercial bank managers to create a better customer base by focusing on the CSR dimensions, i.e. economic,
environmental and social. It adds to the literature on the theoretical aspect of the study of CSR, particularly in
the banking industry.
Originality/value – It has initially investigated CSR as a higher-order construct to explain the
meditational mechanism of CR concerning CSR and CL. Moreover, the study examined the issue of
endogeneity.
Keywords Corporate social responsibility, Corporate reputation, Customer loyalty,
Signalling theory, Social identity theory
Paper type Research paper

Introduction
The modern corporate social responsibility (CSR) era started many decades ago, beginning
in the 1950s (Carroll, 2021; Hartmann et al., 2022; Mishra, 2019). Rasoolimanesh et al. (2023)
define it as a self-regulating business model that helps a company be socially, economically
and environmentally accountable to itself, its stakeholders and the public. CSR incorporates
various aspects of society that include economic (Carroll, 2021; Dahlsrud, 2008), social,
environmental (Dahlsrud, 2008) and moral obligation (Veersalu, 2011), satisfying
International Journal of
Organizational Analysis
© Emerald Publishing Limited
1934-8835
Conflict of interest: No potential conflict of interest was reported by the authors. DOI 10.1108/IJOA-03-2023-3701
IJOA management and its employees (Perry and Towers, 2013), and obey the laws (Mullerat,
2013). Among various dimensions, the outbreak of COVID-19 rose significant social,
economic and environmental crises. Customers began to observe the company’s CSR
activities in Nepali society and found that the CSR activities were not adequate. This
inadequacy has come out from informal communication with the customers as there are no
CSR rating agencies in Nepal (Chapagain, 2020). As a result, the Nepali context ignores CSR
practices (Chapagain, 2020). Moreover, CSR is a less-understood area of research in the
context of emerging economy countries like Nepal (Carroll and Brown, 2018; Chapagain,
2020; Visser, 2008; Kumar and Tiwari, 2011) over developed ones despite its importance in
today’s business world for enhancing company’s reputation and brand image (Youssef et al.,
2018), company’s financial performance (Apaydin et al., 2021) and long-term sustainability
(Aslam et al., 2023). Hence, CSR activities are a crucial area for investigation in emerging
economies like Nepal. Nepal Rastra Bank, the Central Bank of Nepal, has mandated banks
and financial institutions (BFIs) to set aside at least 1% of their net profit and deposit it in a
separate CSR fund beginning with the fiscal year 2016/2017 (Sthapit, 2021). However, there
is doubt that the BFI’s are properly using these funds, as there is a lack of transparency in
disclosing information about CSR activities (Bidari and Djajadikerta, 2020). Not only BFI’s
but also every field in Nepal lacks the knowledge and practice of CSR, as evidenced in the
operation of the service sector of travel and tour (Baniya et al., 2019).
Earlier studies found that consumer buying behaviour (Eshra and Beshir, 2017),
perceived corporate reputation (CR) (Maden et al., 2012; Lee et al., 2017), customer loyalty
(CL) (Maden et al., 2012; Lee et al., 2017), customer satisfaction (CS) (Maden et al., 2012),
purchase intention (Maden et al., 2012) and brand image (Lee et al., 2017), among others, are
crucial predictors of CSR. Among various predictors, CL is one of the essential predictors of
CSR and it can also influence factors such as the bank’s network, the convenience of its
services and the level of trust customers have in Nepali banks (Hakim, 2018). Reichheld
(1996) refers to CL as a customer’s behaviours and attitudes in response to repeated positive
experiences with a company or its products and services. Some studies showed that there is
a positive relationship between CSR and CL. For example, Vahdati et al. (2015) found an
association between CSR and consumer loyalty. Furthermore, in the Nepali context, Baniya
et al. (2019) found CSR affects CL. On the other hand, Eshra and Beshir (2017) found no effect
of CSR on consumer loyalty. There is an inconsistent result in the previous findings. Hence,
further research is required.
From a methodology perspective, previous studies have not investigated CSR as a
higher-order reflective formative construct (Aslam et al., 2023; Rasoolimanesh et al., 2023;
Vuong and Bui, 2023). Hair et al. (2019) documented that using higher-order constructs
(HOC) is appropriate for multidimensional latent constructs to reduce complexity and
increase the parsimoniousness of the models (such as CSR). By validating CSR as a higher-
order reflective formative construct, this paper has contributed to understanding CSR as a
HOC of social, economic and environmental dimensions. In addition, endogeneity has
become a burning issue in social science research. However, it has remained ignored in the
existing literature (Ali et al., 2021; Latif, Perez, and Sahibzada, 2020; Vuong and Bui, 2023)
(Table 1). As a call of Aramburu and Pescador (2019) investigated the study in different
countries and included other issues, such as endogeneity. By testing the endogeneity issue of
CSR and CL influenced by the presence of CR as a mediator variable, this paper contributed
to the existing literature (Aramburu and Pescador, 2019) to better understand CSR and CL
variables. Finally, a plethora of studies have investigated the CSR, CR and CT in different
samples (Aramburu and Pescador, 2019; Aslam et al., 2023; Baniya et al., 2019; Latif, Perez,
and Sahibzada, 2020; Rasoolimanesh et al., 2023). Despite the existing literature, the
Author/year
Aslam et al. (2023)
Rasoolimanesh et al. (2023)
Vuong and Bui (2023)
Leclercq-Machado et al. (2022)
Ali et al. (2021)
Islam et al. (2021)
Muflih (2021)
Latif et al. (2020)
Park (2019)
Notes: AT = attribution theory; CT = cognitive theory; CCT = commitment trust theory; ET = equity theory; RBV = resource-based view theory; SCT =
self-categorization theory; SET = social exchange theory; SIT = social identity theory; ST = signalling theory; SHT = stakeholder theory
Source: Developed by the authors
Table 1.
Review of literature
Fundamental theories Country and category Findings Research gap
ST, SHT Pakistan, 550 CSR-CL CSR has considered a unidimensional construct
banking customers
AT, BRT, SHT, SET Malaysia, 221 CSR-R, R-L, CSR-R-L CR has been investigated and CSR was treated
students as a unidimensional construct
ST Vietnam, 417 CSR-CL, CSR-R The endogeneity issue has not been addressed.
employees Likewise, CSR has considered a unidimensional
construct
CTT Peru, 390 employees CSR-CL The study considers the Generation Z
population groups might have different
perceptions about CSR
SIT, SCT, CT, ET, Pakistan, 322 CSR-CL, CSR-CR, CR-CL, The issue of endogeneity has not been
SHT, CTT customers of food CSR-CR-CL addressed. CSR has regarded as a
chain multidimensional construct
ST, SHT, SIT, RBV Pakistan, 313 CSR-CL, CR-CL, CSR-CR- CSR should be considered multidimensional
customers of telecom CL construct
service users
SHT Indonesia, 283 CSR-CL, CSR-CR, CR-CL, The endogeneity issue has not been addressed.
customers of banks CSR-CR-CL Likewise, CSR has considered a unidimensional
construct
SIT, ST, SHT Pakistan and Italy, CSR-CR, CR-CL, CSR-CL The endogeneity issue has not been addressed.
181 employees, hotel Likewise, CSR has considered a unidimensional
industry construct
ST Republic of Korea, CSR-CR, CSR-CL, CR-CL The endogeneity issue has not been addressed
967 customers airline
industry
customers
Generation Z
IJOA consumer behaviours of Generation Z have remained underexplored (Table 1). This paper
contributed to consumer behaviour literature by investigating the current topic in
Generation Z. Therefore, drawing from social identity, signalling and stakeholder theories
(SHTs), this paper examined the mediating role of CR with CSR and CL among Generation Z
customers of Nepali commercial banks.

Literature review and hypotheses development

Corporate social responsibility and customer loyalty
This study applied the signalling theory of Spence (1973) to explain the relationship
between CSR and CL. The signalling theory states that people and organisations use
specific signals or cues to inform people about their traits, features and intentions
(Spence, 1973). When financial institutions invest their resources in CSR activities such as
education, health, sustainable livelihood and environmental projects, these CSR activities
signal customers about their financial institution and develop their loyalty to those
institutions in the long run. Several studies applied signalling theory to explain the
relationship between CSR and CL (Latif, Perez, and Sahibzada, 2020; Park, 2019; Vuong
and Bui, 2023). Likewise, studies have revealed that CSR has a significant influence on CL
(Ali et al., 2021; Aslam et al., 2023; Gu, 2023; Leclercq-Machado et al., 2022; Vuong and
Bui, 2023). The perception of the customer regarding financial institutions through social,
economic and environmental CSR efforts sends a positive signal and, as a result, develops
loyalty towards the financial institutions. Based on theoretical and empirical evidence,
this paper hypothesised:

H1. CSR activities positively influence CL.

Corporate social responsibility and corporate reputation

The SHT is commonly used to explain the relationship between CSR and CR. The SHT
posits that CR is closely linked with how well it fulfils its responsibilities to various
stakeholders, including customers, employees, investors and the community (Freeman,
1984). By engaging in socially responsible practices and maintaining good relationships
with its stakeholders, a company can enhance its reputation, bringing numerous benefits,
such as increased CL. A significant number of studies have applied SHT to explain the role
of CSR on CR in the different service sectors (Aslam et al., 2023; Islam et al., 2021; Muflih,
2021; Rasoolimanesh et al., 2023). When consumers as stakeholders perceive the services
provided by commercial banks as socially responsible, customers develop a positive image
of CR in their minds.
Furthermore, researchers have documented that CSR has a significant influence on CR
(Aslam et al., 2023; Baruah and Panda, 2021; Berber et al., 2022; Lai et al., 2010; Latif et al.,
2020; Maden et al., 2012; Zhao et al., 2021). However, Lee et al. (2017) found no direct
relationship between CSR and CR. The previous research found inconsistent findings in
the relationship between CSR and CR. Hence, further research is required in the Nepali
context. Based on theoretical and empirical foundations, this paper proposes to apply
SHT to investigate the relationship between CSR and CR. The study assumes that
commercial banks could enhance their reputation by engaging in socially responsible
practices and maintaining good relationships with their stakeholders. Therefore, this
paper hypothesised:

H2. CSR activities positively influence CR.

Corporate reputation and customer loyalty Generation Z
The social identity theory (SIT) of Tajfel and Turner (1979) explains the relationship between customers
CR and CL. The SIT suggests that people derive their sense of self and identity from their
groups and that individuals can have multiple identities activated in different situations (Tajfel
and Turner, 1979). Several previous studies have applied SIT to explain the influence of CR on
CL (Ali et al., 2021; Islam et al., 2021; Latif, et al., 2020). When consumers develop an identity
with their organisational values and reputation, CR can influence CL because of this
identification’s personal and social benefits. To substantiate the argument, several researchers
reported that CR has a significant influence on CL (Hoyer and Stokburger-Sauer, 2020; Huang
and Li, 2021; Islam et al., 2021; Maden et al., 2012; Wang and Wang, 2021). However, Helm and
Tolsdorf (2013) found that the CL is lower in well-reputed firms during a crisis than in ill-
reputed firms. Based on the theoretical and empirical grounds, the researchers are interested in
looking at the relationship between CR and CL in Nepal. This paper assumes that based on the
reputation and values of Nepali commercial banks, customers identify themselves with these
organisations that further leads to customers’ loyalty to the commercial banks. Based on the
argument, this paper hypothesised:

H3. CR positively influences CL.

Corporate social responsibility and customer loyalty: mediating role of corporate reputation
Several previous studies have investigated the relationship between CSR and CL (Ali et al.,
2021; Gu, 2023; Vuong and Bui, 2023), CSR and CR (Aslam et al., 2023; Baruah, and Panda,
2021; Latif et al., 2020) and CR and CL (Hoyer and Stokburger-Sauer, 2020; Islam et al., 2021;
Wang and Wang, 2021). The result implies that CSR activities improve CL and CR and CR
could improve CL among customers. Moreover, several studies have investigated CSR, CR
and CL in the same study. Firstly, Kim and Park (2021) studied the relationship between
CSR, CR and CL in the airline industry. The result indicated that a commitment to
companies’ social responsibility improves their reputation and increases CL.
Moreover, CR positively affects CL, indicating that customers are more likely to remain loyal
to a company with a positive reputation. Secondly, Chen et al. (2020) examined the relationship
between CSR, CR and CL in the hotel industry. Their findings indicated that CR partially
mediates the relationship between CSR and CL, highlighting CSR signals in building a positive
reputation and enhancing CL. It highlights the importance of CSR and CR in building and
maintaining CL, particularly in industries where companies may have high public visibility and
scrutiny. Finally, Sun et al. (2019) investigated the effect of CSR on CL in the e-commerce
industry. Their study found that CSR activities affect CR, influencing CL positively.
Despite the plethora of studies, the mediating role of CR to CSR and CL has remained an
interesting area for research. Firstly, CSR has not been investigated as a HOC (Aslam et al.,
2023; Rasoolimanesh et al., 2023; Vuong and Bui, 2023). Secondly, the issue of endogeneity is
understudied (Ali et al., 2021; Latif, Perez, and Sahibzada, 2020; Vuong and Bui, 2023).
Thirdly, previous studies ignored the Generation Z population (Aramburu and Pescador,
2019; Aslam et al., 2023; Baniya et al., 2019; Rasoolimanesh et al., 2023). Based on the
research gap and empirical evidence, this paper argues that CSR activities of Nepali
commercial banks send a signal to customers and, simultaneously, customers identify with
the values and activities of the banks as a stakeholder, resulting in strong CR among
customers and becoming loyal to Nepali commercial banks (Figure 1). Based on the
argument, this paper hypothesised:

H4. CR mediates the relationship between CSR and CL.

IJOA Research methods
Population and sampling design
This paper selected customers of 27 Nepali commercial banks as a population of the study to
investigate the proposed conceptual framework (Figure 1). As the commercial banks of
Nepal have to spend mandatorily 1% of their earning on CSR, this paper selected
commercial banks to capture the essence of CSR. Likewise, the regulatory department of
CSR activities is located in the Kathmandu Valley; therefore, it is reasonable to select the site
of the Kathmandu Valley.
Secondly, the sample for this paper was Generation Z customers of Nepali commercial
banks. Twenge and Campbell (2012) documented that Generation Z is more caring,
community-oriented and politically engaged than previous generations. We assumed that
Generation Z would be more aware and engage in CSR and could capture the essence of our
variables of interest, such as CSR, CR and CL.
Thirdly, this paper applied a purposive sampling technique to reach the Generation
Z sample of the study. Firstly, Nepali commercial banks could not share information
about the customers because of legal and ethical issues related to privacy. Secondly,
previous studies regarding CSR have paved the pathway for reaching the sample by
applying a purposive sampling technique (Aslam et al., 2023; Islam et al., 2021; Muflih,
2021; Rasoolimanesh et al., 2023). Thirdly, the paper used different inclusion criteria.
The researchers requested Nepali commercial bank customers to recall CSR activities
performed by the banks in which they currently hold their accounts. Therefore, we
assume that the purposive sampling technique would represent the study’s target
population.
Finally, the sample size for this paper was 281 Generation Z customers. Ideally, the
sample size for advanced multivariate characteristics should be five times (or 10 times)
larger than for single variables (Bullen, 2021). In this research, there are 31 items to
capture the response of three variables. The study’s sample size ranges from 200 to 350
based on the recommendation of Hair et al. (2016). Therefore, the selected sample was
deemed representative of the population based on the shared characteristics of
Generation Z.

Measures or instruments
We used a six-item survey to measure demographic variables. We applied Likert scale to
measure the CSR, CR and CL variables. The scale was anchored with a seven-point Likert
scale ranging from 1 to 7 (Strongly Disagree ¼ 1, Disagree ¼ 2, Somewhat Disagree ¼ 3,
Neutral ¼ 4, Somewhat Agree ¼ 5, Agree ¼ 6 and Strongly Agree ¼ 7). In the following
paragraphs, we give a succinct description of the measures.

H4

Corporate Reputation

H2
H3
Corporate Social Responsibility
Social Dimension H1
Economic Dimension
Figure 1. Customer Loyalty
Environmental Dimension
Conceptual
framework
Source: Aramburu and Pescador (2019)
Corporate social responsibility scale Generation Z
CSR was conceptualised as a formative construct with three dimensions (social, customers
environmental and economic), as suggested by several authors (Isa and Reaste, 2010;
Lez-Ramos et al., 2014; Martinez et al., 2014). The sample items include “With regard to
society, you think that the financial institution you habitually use does try to improve
the quality of life of the local communities in which it operates”. It comprises nine items
in social, seven in environmental and eight items in economic. The CSR scale has 24
items.

Corporate reputation scale

CR was measured using the scale developed by Ponzi et al. (2011). The Cronbach’s alpha
values of this scale are higher than 0.7 (Ponzi et al., 2011). The sample items include “Based
on your experience, the financial institution you habitually use is an institution that
transmits good sensations”. It comprises four items.

Customer loyalty scale

CL scale includes only items measuring attitudinal aspects (Perez and Del Bosque, 2015;
Salmones et al., 2010). The Cronbach’s alpha values of the three-item scale are higher than
0.7. The sample items include “Based on your experience of the financial institution you
habitually use, you think you really would recommend this bank to anyone asking me for
advice”.

Data collection procedure

We used printed questionnaires to gather data for this investigation. We informed all
respondents that their involvement in the data collection was completely optional and that
they might cancel anytime. Respondents received assurances of the privacy of the
information. We gathered the data from the client’s various commercial banks between
November 5, 2022, and January 12, 2023. We distributed 400 questionnaires. Of these, we
received 314 responses and used 281 for subsequent statistical analysis.

Demographic profile of respondents

We calculated the demographic profile of 281 respondents to know the nature of the
respondents, such as age, gender, financial transaction frequency, education, occupation and
economic operation period.
In Table 2, the majority of respondents in the study were male (n ¼ 146, 52.0%) and the
most common category respondents were (n ¼ 182, 64%) with bachelor’s degrees. Most
responders (n ¼ 181, 64.4%) were unemployed. Moreover, about 44.8% of respondents used
financial transactions (n ¼ 126) at least once a week. Finally, 45.9% of the respondents (n ¼
129) used commercial banks for one to three years.

Descriptive statistics and inter-items correlation

As indicated in Table 3, social dimension (SD) is positively related to environment
dimension (END), economic dimension (ED), CR and CL (g ¼ 0.802, p < 0.01; g ¼ 0.648, p <
0.01; g ¼ 0.634, p < 0.01; g ¼ 0.606, p < 0.01, respectively). Secondly, END is positively
related to ED, CR and CL (g ¼ 0.602, p < 0.01; g ¼ 0.528, p < 0.01; g ¼ 0.541, p < 0.01,
respectively). Thirdly, ED is positively related to CR and CL (g ¼ 0.542, p < 0.01; g ¼ 0.550,
p < 0.01, respectively). Finally, CR is positively related to CL (g ¼ 0.657, p < 0.01). The
above result indicates that the relationships between the various study variables are
IJOA Variables Frequency %

Gender
Male 146 52.0
Female 135 48.0
Financial transaction frequency
At least once a day 62 22.1
At least once a week 126 44.8
At least once a month 86 30.6
At least once a year 7 2.5
Education
Below bachelor 6 2.1
Bachelor level 182 64.8
Master and above 93 33.1
Occupation
Unemployed 181 64.4
Employed or entrepreneurs 100 35.6
Financial operation period
Less than six months 9 3.2
Six months to one year 39 13.9
One to three years 129 45.9
More than three years 104 37.0
Table 2.
Demographic profile Source: Calculated by the authors using data from questionnaire survey

Constructs Mean STD 1 2 3 4 5

1. Social dimension (SD) 5.192 0.791 1

2. Environmental dimension (END) 5.188 0.937 0.802** 1
3. Economic dimension (ED) 5.462 0.727 0.648** 0.602** 1
4. Corporate reputation (CR) 5.258 0.909 0.634** 0.528** 0.542** 1
Table 3.
5. Customer loyalty (CL) 5.231 1.067 0.606** 0.541** 0.550** 0.657** 1
Descriptive statistics
and inter-items Notes: *p < 0.05, **p < 0.01
correlation Source: Based on the authors’ calculation

significant and in the expected direction. However, as suggested by several management

researchers, these correlation analyses are insufficient to test the proposed hypotheses. The
mediating role of CR in relation to CSR and CL was estimated using partial least squares
structural equation model (PLS-SEM).

Common method biases

This paper applied Harman’s single-factor method to test whether a single factor can
explain the amount of variance. The variation explained by an unrotated single
factor is 31.939%, less than the required criterion of 50% (Podsakoff et al., 2003).
Thus, it can assume that the data set does not have the issues of common method
biases.
Structure equation model Generation Z
SEM is a helpful technique for a wide range of research problems due to its capacity to customers
model latent variables, account for various types of measurement error and test complete
hypotheses (Henseler et al., 2016). The two SEM techniques are covariance-based SEM and
variance-based SEM (PLS-SEM). Hair et al. (2021) documented that the PLS-SEM technique
is the better option when formative constructs are included in a model. As this study intends
to higher-order CSR formative construct, PLS-SEM, the combination of measurement and
path model deems appropriate for researchers.
This paper applied CSR as a formative HOC. Researchers can model a construct on a
more abstract dimension (referred to as a higher-order component) and its more concrete
sub-dimensions using HOC, also known as hierarchical component models in the context of
PLS-SEM (referred to as lower-order components) (Ringle et al., 2012). The embedded two-
stage approach (Ringle et al., 2012) and disjoint two-stage approach (Agarwal and
Karahanna, 2000; Becker et al., 2013) slightly differ in their model specification in both
stages.
But both versions of the two-stage approach lead to similar results (Cheah et al., 2019)
and there is no compelling reason to prefer one. Therefore, the study has used the disjoint
two-stage approach of testing HOC.

Measurement model of lower-order construct

The study used three measurement model criteria – reliability, convergent and discriminant
validity to demonstrate reliability and validity (Ringle et al., 2015). The most commonly
used methods for establishing reliability are Cronbach’s alpha (CA) and composite reliability
(CR). As the values of CA and CR are higher than 0.72 (Table 4), indicating the reliability of
the measurement model (Hair et al., 2011). Moreover, convergent validity results based on
the AVE statistics in the current study show only two constructs, CL and CR, have AVE
values greater than 0.50, i.e. 0.672 and 0.544, respectively. However, the values of CSR are
less than 0.50 AVE and convergent validity was unable to establish as recommended value
should be greater than 0.50 (Fornell and Larcker, 1981).

Discriminant validity
It refers to the degree to which measures of different concepts are distinct (Bagozzi et al.,
1991). We used Fornell and Larcker (1981) and heterotrait-monotrait ratio (HTMT) criteria to
test the discriminant validity. When a construct’s square root of AVE is higher than its
correlation with all other constructs, discriminant validity has demonstrated. The study
found the values of square roots of AVEs greater than its correlation with other constructs
in CL and CR (Table 5). The threshold level for HTMT has been debated in the existing
literature; Kline (2011) suggested a threshold of 0.85 or less, whereas Teo et al. (2008)
recommended a liberal threshold of 0.90 or less. The HTMT results show that ratio was less
than the required threshold of 0.90 in the entire construct except in the SD, which shows
0.995 (Table 5). These results indicate two constructs have not been able to establish
discriminant validity.

Validating reflective-formative higher-order construct of corporate social responsibility

This paper considered CSR as a HOC of three lower-order constructs SD, ED and END.
Firstly, CSR is theoretically well-established as a triple-bottom-line framework of ED, SD
and END (Bigne et al., 2005; Garriga and Mele, 2004; Mercade et al., 2014; Panwar et al.,
2006). Likewise, a previous study of CSR has considered a reflective-formative HOC
IJOA Constructs Indicators Loadings VIF CR (rho_a) CR (rho_c) CB AVE

Customer loyalty CL1 0.776 1.523 0.772 0.860 0.758 0.672

CL2 0.829 1.456
CL3 0.853 1.690
Customer reputation CR1 0.718 1.332 0.721 0.827 0.720 0.544
CR2 0.693 1.234
CR3 0.77 1.506
CR4 0.767 1.443
Economic dimension ED1 0.554 1.220 0.757 0.820 0.751 0.365
ED2 0.578 1.254
ED3 0.587 1.234
ED4 0.652 1.392
ED5 0.656 1.477
ED6 0.607 1.366
ED7 0.682 1.450
ED8 0.495 1.197
Environmental dimension END1 0.664 1.400 0.822 0.867 0.822 0.483
END2 0.675 1.415
END3 0.69 1.481
END4 0.706 1.615
END5 0.762 2.047
END6 0.716 1.872
END7 0.647 1.365
Social dimension SD1 0.475 1.296 0.806 0.846 0.795 0.383
SD2 0.679 1.657
SD3 0.677 1.601
SD4 0.655 1.483
SD5 0.469 1.170
SD6 0.663 1.431
SD7 0.633 1.389
Table 4. SD8 0.597 1.330
Validity and SD9 0.676 1.460
reliability of
constructs Source: Calculated by the authors using data from questionnaire survey

Latent construct 1 2 3 4 5

1. Customer loyalty 0.820 0.886 0.722 0.686 0.789

2. Corporate reputation 0.658 0.738 0.737 0.691 0.848
3. Economic dimension 0.564 0.554 0.604 0.771 0.838
4. Environmental dimension 0.562 0.538 0.611 0.695 0.995
5. Social dimension 0.636 0.646 0.648 0.801 0.619
Table 5. Notes: Diagonal italics represents the square root of AVE. Below the diagonal elements are the correlations
Fornell-Larcker between the construct’s values. Above the diagonal elements are the HTMT values
criterion and HTMT Source: Calculated by the authors using data from questionnaire survey

(Aramburu and Pescador, 2019). Finally, the lower-order construct violated the criteria of
discriminate validity. Therefore, CSR is regarded as a reflective-formative HOC.
The researchers performed the collinearity test with variance inflation factor (VIF) to
estimate the HOC. As all VIF values are higher than 5, the data set does not have the issue of
multi-collinearity (Hair et al., 2021). Likewise, the study revealed that values of outer Generation Z
loadings were greater than 0.50 (Table 6) and significant for each of the indicators of the customers
higher-order formative CSR construct (Sarstedt et al., 2019a, 2019b). As all criteria are
satisfied, the study established the HOC validity.

Measurement model of higher-order construct

This paper applied CR and CA to test the reliability of the HOC measurement model. Firstly,
the values of CA and CR are higher than 0.70 (Table 7), indicating measurement model is
reliable (Hair et al., 2011). Secondly, the values of AVE are higher than 0.545 (Table 7),
establishing the convergent validity of the model.

Discriminant validity
The values of square roots of AVEs are more significant than their correlation with other
constructs in CL and CR (Table 8). The HTMT results show that the ratio was less than the
required threshold of 0.90 in the entire construct except in the SD, which shows 0.995
(Table 8). The results illustrate the discriminant validity of the HOC.

Structural model
This paper applied the structural model to test four hypotheses. Before testing the
hypotheses, this paper has tested assumptions of multi-collinearity. All the VIF values are
less than 5. Therefore, we estimated the structural model with HOC (Figure 2).

HOC LOCs VIF t-statistics p-value Outer loading

CSR ED 3.147 3.688 0.000 0.837

END 2.913 0.379 0.353 0.820
SD 1.796 4.985 0.000 0.958 Table 6.
Notes: CSR = corporate social responsibility; ED = economic dimension; END = environmental dimension; Higher-order
SD = social dimension construct validity of
Source: Calculated by the authors using data from questionnaire survey CSR

Constructs Indicators Estimate VIF CR (rho_a) CR (rho_c) CA AVE

Customer loyalty CL1 0.787 1.523 0.766 0.861 0.758 0.673

CL2 0.824 1.456
CL3 0.849 1.69
Customer reputation CR1 0.734 1.332 0.724 0.827 0.720 0.545
CR2 0.669 1.234
CR3 0.773 1.506
CR4 0.772 1.443
Corporate social responsibility EDL 0.837 3.147 0.876 0.919 0.868 0.792
ENDL 0.820 2.913
Table 7.
SDL 0.958 1.796 Validity and
reliability of
Source: Calculated by the authors using data from questionnaire survey constructs
IJOA The relationships between the constructs on the suggested models are illustrated in the
structural model (Table 9). H1 examines the commercial bank’s CSR initiatives to see
whether they benefit CL. The findings demonstrated that CSR significantly influences CL
(b ¼ 0.405, t ¼ 4.920, p < 0.05). H1 is, therefore, supported. H2 investigates whether the
commercial bank’s CSR initiatives have a favourable impact on CR. The findings
demonstrated that CSR significantly influences CR (b ¼ 0.667, t ¼ 18.270, p < 0.05). H2 is,
therefore, supported. H3 tests whether the commercial bank’s CR favours CL. The findings
demonstrated that CR significantly affects CL (direct effect) (b ¼ 0.390, t ¼ 4.156, p < 0.05).
Hence, H3 is supported.

Latent constructs 1 2 3

1. Customer loyalty 0.820 0.886 0.802

2. Corporate reputation 0.660 0.738 0.821
3. Corporate social responsibility 0.660 0.652 0.890
Table 8. Notes: Diagonal italic represents the square root of AVE. Below the diagonal elements are the correlations
Fornell-Larcker between the construct’s values. Above the diagonal elements are the HTMT values
criterion and HTMT Source: Calculated by the authors using data from questionnaire survey

Figure 2.
Structural model

Hypotheses Standardised beta (b) t-statistics p-value Decisions

1. CSR ! CL 0.405 4.920 0.000 Supported

2. CSR ! CR 0.667 18.270 0.000 Supported
Table 9. 3. CR ! CL 0.390 4.156 0.000 Supported
Results of structural
model path Notes: CR = corporate reputation; CL = customer loyalty; CSR = corporate social responsibility
coefficient Source: Calculated by the authors using data from questionnaire survey
Mediation analysis Generation Z
This paper used bootstrapping method to conduct the mediation analysis, which included customers
bias-corrected confidence estimations (Preacher and Hayes, 2008). With 5,000 resamples, a
95% confidence interval for the indirect, direct and total effects was estimated (Preacher and
Hayes, 2008) (Table 10). H4 examines whether CR mediates the effect of CSR on CL.
Table 10 shows that the result revealed a significant indirect effect of CSR on CL through CR
(H4: b ¼ 0.260, t ¼ 3.893, p < 0.01). The total effect of CSR on CL was significant (b ¼ 0.666,
t ¼ 17.170, p < 0.01), and with the inclusion of the mediator CR, the effect of CSR and CL was
significant (b ¼ 0.405, t ¼ 4.920, p < 0.01). This shows CR’s complementary partial
mediating role in the relationship between CSR and CL. Hence, H4 was supported.

Endogeneity
Gaussian copula approach states that the threshold value of the p-value is greater than 0.05
to avoid the problem of endogeneity (Park and Gupta, 2012). Endogeneity is not present in
the three Gaussian models as shown in Table 11. When observing the first and second
Gaussian coupla models, one can see endogeneity as p-values are smaller than 0.5 (Park and
Gupta, 2012). This concludes that CS could influence CL other than CSR (Alafi and Hasoneh,
2012).

Discussion
The study focused on examining the consumer perception of the potential mediating role of
CR in the relationship between CSR and CL. The finding of this study confirms that CSR has
a significant influence on CL and it is consistent with previous studies (Akbari, 2019;
Iglesias et al., 2020; Leclercq-Machado et al., 2022; Raza et al., 2020) and signalling theory of
Spence (1973). This study substantiates that customers’ perception regarding CSR activities
has signalled to bank customers by creating positive attitudinal brand loyalty. When
customers have to choose commercial banks for their banking functions, they will likely
visit the banks with a soundtrack of CSR activities.
Similarly, this study confirms the influence of CSR on CR. It aligns with the findings of
Grover et al. (2019), Hasan and Yun (2017) and Latif et al. (2020). In addition, the study’s
result is consistent with the SHT of Freeman (1984) that suggests CSR initiative can create
value for multiple stakeholders, leading to improved CR. This result implies that the amount
of money invested in CSR can improve CR among customers of Nepali commercial banks.
Furthermore, investing in CSR can build stronger relationships with their stakeholders,

Constructs Standardised beta (b) t-statistics p-value Decisions

Direct effect
CSR ! CL 0.405 4.920 0.000 Supported
Specific indirect effects
CSR ! CR ! CL 0.260 3.893 0.000 Supported
Total effects
CSR ! CL 0.666 17.170 0.000 Supported
Table 10.
Notes: CSR = corporate social responsibility; CR = corporate reputation; CL = customer loyalty Mediation analysis
Source: Calculated by the authors using data from questionnaire survey results
IJOA Test Path Coefficient p-value

One Gaussian copula

Gaussian copula of Model 1 CR ! CL 0.917 0.000
(Endogenous variables; CR) CSR ! CR 0.667 0.000
CSR ! CL 0.403 0.000
GC (CR) ! CL 0.553 0.003
Gaussian copula of Model 2 CR ! CL 0.390 0.000
(Endogenous variables; CSR) CSR ! CR 0.982 0.001
CSR ! CL 0.405 0.000
GC (CSR) ! CR 0.327 0.149
Gaussian copula of Model 3 CR ! CL 0.375 0.000
(Endogenous variables; CSR) CSR ! CR 0.667 0.000
CSR ! CL 1.094 0.000
GC (CSR) ! CL 0.704 0.003
Two Gaussian copula
Gaussian copula of Model 4 CR ! CL 0.787 0.005
(Endogenous variables; CR, CSR) CSR ! CR 0.667 0.000
CSR ! CL 0.895 0.004
GC (CR) ! CL 0.428 0.049
GC (CSR) ! CL 0.502 0.052
Gaussian copula of Model 5 CR ! CL 0.917 0.000
(Endogenous variables; CR, CSR) CSR ! CR 0.982 0.001
CSR ! CL 0.403 0.000
GC (CR) ! CL 0.553 0.003
GC (CSR) ! CR 0.327 0.149
Gaussian copula of Model 6 CR ! CL 0.375 0.000
(Endogenous variables; CSR, CSR) CSR ! CR 0.982 0.001
CSR ! CL 1.094 0.000
GC (CSR) ! CL 0.327 0.149
GC (CSR) ! CR 0.704 0.003
Three Gaussian copula
Gaussian copula of Model 7 CR ! CL 0.787 0.005
(Endogenous variables; CR, CSR, CSR) CSR ! CR 0.982 0.001
Table 11. CSR ! CL 0.895 0.004
GC (CR) ! CL 0.428 0.051
Assessment of GC (CSR) ! CR 0.327 0.149
endogeneity test GC (CSR) ! CL 0.502 0.052
using the Gaussian
copula approach Source: Calculated by the authors using data from questionnaire survey

including regulators, investors and local communities, which can improve Nepali
commercial banks’ CR.
This study revealed CR has a significant relation with CL. It is consistent with the
findings of previous studies (Ali et al., 2021; Islam et al., 2021; Muflih, 2021) and with the SIT
of Tajfel and Turner (1979). It illustrates that a strong reputation may attract new customers
and promote positive word-of-mouth referrals, further enhancing the bank’s market
position. Customers perceive the bank’s CR as reflecting their social identity and status,
leading to a positive attitude towards the bank’s services and increasing CL.
This study posits that CR has a partial mediating impact on the relationship between
CSR and CL. It aligns with the findings of the study of Islam et al. (2021) and Rasoolimanesh
et al. (2023). An increase in CR strengthens the association between CSR and CL among
customers of Nepali commercial banks. Furthermore, it is consistent with the theoretical Generation Z
model, i.e. signalling theory (Connelly et al., 2011). By engaging in socially responsible customers
activities and building a positive reputation, banks signal to customers that they are
trustworthy and committed to meeting their needs, leading to increased CL. It suggests
Nepali commercial banks can benefit from investing in CSR initiatives and managing their
reputation to improve CL and enhance their market position.

Implications of the study

Theoretical implications
Numerous empirical studies examined the relationship between CSR, CR and CL (Aslam
et al., 2023; Baruah and Panda, 2021; Islam et al., 2021; Latif et al., 2020; Muflih, 2021; Zhao
et al., 2021). Although CSR has been the subject of numerous studies, this paper contributed
to validating CSR as a higher-order reflective formative construct. This result could enrich
the existing literature on CSR by reducing the complexity and increasing the parsimony of
the model (Hair et al., 2019). Future studies could incorporate CSR as a higher-order
reflective formative construct instead of the unidimensional construct used by previous
studies (Aslam et al., 2023; Rasoolimanesh et al., 2023; Vuong and Bui, 2023). Secondly, this
paper tested the issue of endogeneity in the existing model. The result revealed that
endogeneity is not the issue in CR that could affect the estimated relationship between CSR
and CL and potentially bias the results. However, endogeneity issues have arisen concerning
CSR and CL, indicating whether the CL is affected by only CSR or if another variable is
present that affects CL. The findings of Park (2019) noted that variable satisfaction is one of
the critical factors for mediating the relationship between CSR and CL; therefore, testing for
endogeneity in this context is essential to ensure the relationship between CSR, CR and CL.
This study could shed light on avoiding incorrect inferences about the causal links
between these constructs made by previous studies (Ali et al., 2021; Latif, Perez, and
Sahibzada, 2020; Vuong and Bui, 2023). Thirdly, previous studies investigated the
relationship between CSR, CR and CL (Ali et al., 2021; Leclercq-Machado et al., 2022; Vuong
and Bui, 2023); however, this study investigated CSR activities perceived by Generation Z as
a population of the study. It is among the earlier study to study the unique area for research
in Nepali commercial banks. It could help to manage the consumers’ behaviours of
Generation Z by applying different promotional strategies of Nepali commercial banks. This
study provides a critical juncture for future researchers.

Managerial implications
This research has significant managerial implications. Customers are well informed about
CRS activities through different media and the finding of this study suggests that corporate
managers should focus on CRS activities to maintain good corporate image and to make
good relations with their stakeholders, eventually leading to CL. Firstly, this study
highlights that the CL of commercial banks among Generation Z consumers is directly and
indirectly connected with CSR. Banks could strengthen the loyalty of Generation Z
consumers by getting into the specific CSR that leads to enhancing CR. Positive word-of-
mouth could help to improve CR.
Furthermore, the banks might allocate their time, effort and financial resources more
effectively to yield the most significant benefits in enhancing CR and CL. By identifying the
specific CSR activities that resonate with their target customers, management can develop
more effective strategies for enhancing CR and CL to give them a competitive edge. The
findings also help management conduct various CSR activities that fit according to
population generation that builds a strong CR, which in turn can enhance CL. As a result,
IJOA the organisation could increase CS and ultimately enhance sales and profits. Secondly, the
findings indicate that the commercial banks of Nepal focus more on economic factors of CSR
than social and environmental factors. Hence, Nepal’s commercial banks might focus on
CSR’s social and environmental dimensions to enhance CL.
Moreover, the result shows that the direct effect of CSR on CL is lower than the indirect
effect of CSR on CL through CR. Therefore, the organisation might focus on corporate image,
social acceptance and trustworthiness to enhance CL. It means that if the customer has a
positive impression towards the organisation’s image, this will increase CL.

Limitations and directions for the future research

Although this study provided invaluable contributions to the existing literature, this paper
should be interpreted with caution. Firstly, this study investigated the mediating role of CR
with CSR and CL. The result of endogeneity suggested that there are other variables to
explain CL. Therefore, future studies should incorporate CS, trust and brand image as
mediating and moderating variables. Secondly, despite the enriching findings, this study is
limited to the Nepali context. Therefore, future studies could undertake in a cross-cultural
context to increase the generalisability of this result. Finally, this paper investigated in
Generation Z population of the Kathmandu Valley. In the future, researchers can compare
Generation Z with different age groups, such as Generations X and Y.

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Corresponding author
Dinesh Basnet can be contacted at: dinesh.usms@gmail.com

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