CORPORATE SOCIAL RESPONSIBILITY: HOW DOES IT AFFECT THE FINANCIAL PERFORMANCE OF BANKS?

EMPIRICAL EVIDENCE FROM US, UK AND JAPAN

^a Grace Keffas, and ^b Omiete Victoria Olulu-Briggs

^a Financial Markets Department, Central Bank of Nigeria, Abuja.

^b Department of Banking and Finance, University of Port Harcourt, Nigeria.

ABSTRACT

This paper examines the financial performance of CSR and Non-CSR banks using financial ratios and frontier efficiency analysis. We got accounting information for banks in Japan, US and UK quoted on the FTSE4Good global index from Bankscope database. They include thirty-eight (38) financial and economic ratios based on variables such as Asset quality, Capital, Operations and Liquidity; that captured major scope of financial performance. In addition, we used a non-parametric linear programming technique known as Data Envelopment Analysis to create a piecewise linear frontier that helps to determine the efficiency levels for both a common and separate frontier analysis. First, we find a positive relationship between corporate social responsibility and financial performance. Banks that incorporate CSR have better asset quality; capital adequacy; and are more efficient in managing their asset portfolios and capital. Second, we also find that geographic location regulates the relationship between CSR and FP during economic contraction, such that the relationship differs across relationship and transactional banking models. The findings are to an extent consistent with prior analysis on the CSR-FP link.

Keywords: Corporate Social Responsibility, Financial Performance, financial ratios, frontier analysis, value creation.