Corporate social responsibility and financial performance: An analysis of bank community responsibility

This paper investigates the impact of a bank’s community responsibilities on financial performance. It utilises various improved performance measures (short and long run performance, book and market value, labour productivity and overall productivity), as well as a test for causality. The paper finds significant evidence that banks were better off by adhering to their mandated community responsibilities. In fact, banks were more likely to be rewarded with lower cost of capital for both debt and equity. In terms of causality, the paper finds that social and financial performances could be codetermined; however, the relationship between these two variables seemed to be stronger in the direction of social responsibility having an impact on financial performance.