The link between Corporate Social Responsibility and Business … 3.pdf · 2019-08-19 · responsibility and bank performance in Indian scenario . Survey method was used to collect

37Amity Journal of Corporate Governance

Volume 2 Issue 2 2017 AJCG

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Amity Journal of Corporate Governance2 (2), (37-45)

©2017 ADMAA

The link between Corporate Social Responsibility and Business Performance: Evidence from Indian Banking Industry

Pooja Chopra & Monica BediPanjab University, Chandigarh, India

Kirandeep KaurAmity University, Noida, India

AbstractIn the corporate world, many organizations are actively involved in Corporate Social Responsibility.

Today, businesses are not just restricted to producing and selling goods/services to end customers but at the same time companies must think about stakeholders’ interests.CSR activities should be consistent with business interests and overall corporate goals. Numerous studies supports that companies with sound CSR practices are able to build up positive social identity and win loyalty from both customers and employees which results in better financial outcomes.The association between corporate social responsibility and business performance has been comprehensively researched in developed nations but has not received much attention in developing nations. For this reason, the primary objective of this paper is to examine the link between corporate social responsibility and business performance in Indian banking sector. For the sake of study, corporate social responsibility was measured on three dimensions; Philanthropic CSR activities, Ethical CSR activities and Environment CSR activities. Around 204 respondents were selected to undertake the research. The questionnaires were administered randomly among bank management, bank employees and customers of selected Indian banks. Both public and private sector banks were selected to collect data. Analysis indicates that the adoption of corporate ssocial responsibility practices significantly and positively affects the business performance in Indian Banking sector.

Key words: Corporate Social Responsibility, Business Performance, Banking, India

JEL Classification: M14, G21

Paper Classification: Research Paper

Introduction In this fast-paced global economy, Corporate Social Responsibility (CSR) has become a matter

of concern for many decades amongst researches across the globe since its inception in the 1950s, for multiple viewpoints like cost perspective, agency theory, instrumental stakeholder theory, resource-based view, and reputation theory (Friedman, 1970; Godfrey, et al., 2009; Muller &

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Volume 2 Issue 2 2017AJCG

Kraussl, 2011).However, because of that there is a growing realization by the corporates that they should make constant endeavor to improve the quality of life of the communities where they operate. Now a days, corporates take genuine interest in bridging the gap in the society and enhancing the quality of life (Shinde, 2005). India is at such a challenging phase of economic development, where it is coping with many social and economic issues like corruption, inflation, poverty, terrorism etc. Hence, it is imperative that corporates should come forward and join hands in sharing the responsibilities with the government for sustainable healthy growth of our country. This will assist corporates in building strong brand portfolio along with facilitating faster and systematic socio economic development of our society. It has been proved by the researches that environmental concerns have a multi dimensional cascading effect not only on present generation, but on future generations as well (Aras and Crowther, 2008). Thus, this social investment, calls for rigorous social accountability and ethics in their business (Freeman, 1984; Elkington, 2001) and embraces a holistic viewpoint of their responsibilities towards stakeholders considerations (Deegan, 2010).

Review of Literature Corporate social responsibility tries to underpin the effect that businesses have on societal

expectations at large. The roots of CSR are deeply clinked to the philanthropic activities that are encompass to a wide range of acts like donations, charitable acts, rehabilitation assignments, etc. (Singh & Verma 2014). The firms these days focus their CSR activities to strategically leverage stakeholders loyalty (Garriga & Melé, 2004), and the nucleus revolves largely around philanthropic ethos directed towards paying back to society (Albdour & Altarawneh, 2012). Philanthropic activities are geared towards stemming the altruistic motives aligned towards corporate competitive advantage (Melwar & Akel, 2005). Corporate philanthropic contributions, are a potential source of extrinsic value which has a potential to enhance organizational performance since it entails the ethical benefit (Noked, 2011). The view works as a public relations tool to create a positive image which glossifies their organizational performance (Gibson-Sweet, 1999; Line et al., 2002). Philanthropic activities are oriented towards accepting moral responsibility and sharing wealth with stakeholders and society at large resulting in costs efficiencies, minimizing risk, boosting revenue and better access to human capital (Atherya, 2009; Ellen et al., 2000). Banking fraternity tries to device risks aversive strategies in order to improve their financial strength and profitability (Gonzalez et al., 2006). Thus corporate philanthropy works as a golden opportunity to attain national visibility, improve corporate goodwill, and boost organizational overall performance (Varadarajan & Menon, 1988). This is done by helping the less fortunate strata of our society and making a remarkable difference in their lives. The doctrinal of ethical CSR gave impetus to probe and understand the mechanism in which a corporation works with a sense of responsibility towards society. A socially ethical organization strives to reap revenues, under the ambit of rules and regulations, (Fukukawa, et al., 2007) and works hard for the benefit of the society (Carroll, 1991). Business houses intertwine corporate responsibility with ethical issues while taking strategic decisions (Fassin et al., 2011) so that employees enthusiastically, keep an eye on ethical and responsible predisposition expected from them to meet customer requirements (McWilliams & Siegel, 2001). Business ethics are linked to moral decisions implying normative judgments (Velasquez, 2002). Ethical initiatives in form of corporate responsibility result in legitimate and sustainable way of doing businesses thereby resulting in enduring brand equity. These actions lay a concrete foundation for strengthening relationship between stakeholders and contribute towards improving conditions within the internal and external business, environment engulfing the organization (Barnett, 2007; Bhattacharya et al., 2008). Additionally, it provides an



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economic landscape where corporates do right things, without external pressure or governmental constraint, providing valid answer to the ethical dilemmas engulfing businesses (Kohlberg, 1969; Trevin˜o, 1986). The environmental dimension of CSR became particularly significant after Rio Declaration on Environment and Development which encouraged sustainable development as a priority across the globe (Wirth, 1994). The relationship between environmental CSR activities and financial performance has been widely studied among the practitioners and academicians (Clarkson et al., 2011; Delmas & Toffel 2004; Semenova & Hassel, 2016). Studies have suggested that there is positive correlation between Environment CSR activities and business performance (Misani & Pogutz 2015; Perez-Batres et al., 2010). Also, the past researches concluded that by adopting sustainable development practices, companies can attain a competitive advantage and increase financial outcomes (Elsayed & Paton 2005; Farag et al., 2015). According to the stakeholder-agency theory, companies can expect better financial outcomes by balancing the demands of different stakeholders and environmental practices (Freeman & Evan 1990). Numerous studies found that environmental compliance had a positive outcome on organisation’s financial performance like return on assets (Cohen et al., 1997; Lioui & Sharma 2012).

Objective of StudyThe present research aims to examine the impact of corporate social responsibility on business

performance in Indian Banking Sector.

Hypotheses of the Study The hypotheses that were formulated for the present study are as follows:

HI: There is significant impact of corporate social responsibility on Business Performance in Indian Banking Sector.

H1a: There is significant impact of Philanthropic CSR Activities dimension on Business Performance in Indian Banking Sector.

H1b: There is significant impact of Ethical CSR activities dimension on Business Performance in Indian Banking Sector.

H1c: There is significant impact of Environment CSR activities dimension on Business Performance in Indian Banking Sector.

Research MethodologyThis section discusses the research methodology that was used to study the association

between corporate social responsibility and Business Performance in Indian banking sector. The research study employed a descriptive design to study the association between social corporate responsibility and bank performance in Indian scenario . Survey method was used to collect data from 204 respondents. The sample of respondents consisted of 120 customers, 84 Bank employees and Bank management. Simple random sampling was employed to collect data from respondents from public and private sector banks. The questionnaire was the tool of data collection. The independent construct i.e. corporate social responsibility was measured with the help of three dimensions Philanthropic CSR activities, Ethical CSR activities, Environment CSR activities, and the dependent construct of bank performance was measured with six different variables i.e. Good risk management policy & strategy, market share, customer satisfaction; increase in sales; profitability; operating cost .The respondent were asked to reply to the questions on five



point likert scale. The Cronbach Alpha Values and the Content Validity for the two constructs along with their sub scales had values above 0.5.Multiple regression was applied to establish the relationship.

Findings and Discussion

Profile of Sample for StudyOverall 250 questionnaires were dispersed out. After editing, around 204 questionnaires were

found fit for analysis. It can be seen in Table 1 that the sample has 67.2 % of male respondents and 32.8% of female respondents. More than 44.60 % of the respondents have a monthly income of Rs 25,001 to Rs 40,000. The table also shows that more than 50% of the respondents are educated.

Table 1: Sample Characteristics

all(n= 204)

N %

Type of respondent

Management 14 6.86

Bank employee 70 34.31

Customers 120 58.82

Gender

Male 137 67.2

Female 67 32.8

Monthly Income

INR 10,001 to 25,000 64 31.37

INR 25,001 to 40,000 91 44.60

INR 40,001 and more 49 24.0

Education Qualification

Matric/ higher secondary 12 5.80

Graduation 63 30.80

Post Graduation 61 29.90

Professional degree 68 33.33

Occupation

Management 14 6.86

Bank employee 70 34.31

Housewife 18 8.82

Student 40 19.6

Business/Self-employed 27 13.2

Employed/Service 35 17.1



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Relational AnalysisTable 2 depicts results of correlation coefficients for construct of Corporate Social

Responsibility (CSR) and Bank Performance (BP) as framed in the hypotheses. The study suggests that there is a significantly positive association between Corporate Social Responsibility (CSR) and BankPerformance(BP)(r=.743,p≤.05)asshownintheTable2.Itcanbenotedthattheallthreeconstructs of Corporate Social Responsibility (CSR) i.e. Philanthropic CSR activities (r=0.491, p≤.05), Ethical CSR activities (β=0.653, p≤.05), Environment CSR activities (β=0.579, p≤.05),were found to influence Bank Performance (BP). There is no violation of the linearity assumption and all associations were statistically significant at 95% level.

Table 2: Correlation Analysis Results

Hypothesis Hypothesized Relationship Pearson CorrelationAnalysis Results

H1 Corporate Social Responsibility and Bank Performance ( BP) -------positive

r=0.743p≤0.05

H1a Philanthropic CSR activities and Bank Performance ( BP) ---------positive

r=0.491p≤0.05

H1b Ethical CSR activities and Bank Performance ( BP) ---------positive

r=0.653p≤0.05

H1c Environment CSR activities and Bank Performance ( BP) ---------positive

r=0.579p≤0.05

Note: Sample size = 204

Regression AnalysisRegression analysis was employed to establish the extent to which the dependent variable

(bank performance ) can be predicted or explained from the independent variables (Philanthropic CSR activities, Ethical CSR activities, Environment CSR activities) having a stronger influence on Bank Performance (BP). In the projected model, three constructs are treated as independent variables and Bank Performance (BP) as dependent variable. The projected model was established to be significant at p≤.05 level of significance and the calculated value of adjusted R2 =0.202.Table 3 illustrates the beta coefficients indicating the explanatory power of the independent variables. Three constructswere significant (at p≤ 0.05 level) in explainingBankPerformance(BP). The constructs, based in order of importance with respect to beta coefficients, are Ethical CSR activities (ER) (β=0.344,p≤0.05),EnvironmentCSRactivities(EnR)(β=.223,p≤0.05),andPhilanthropic CSR activities ( PR) (β=.113,p≤0.05).Allofthecoefficientsareintheanticipateddirection. The results maintain the framed hypotheses i.e. , H1a, H1b, H1c. Multicollinearity was examined with respect to independent variables. It can be seen from the Table 3 that tolerance value is towards the upper side and VIF does not surpass the maximum value. The Durbin Watson value is calculated to identify the existence of autocorrelation. Since the calculated value is less than 3, autocorrelation is not noticed in the regression model.



Table 3: Regression Results

Independent Variables

Standardized RegressionCoefficients

T-value Probability Tolerance Value

Variation Inflation

Value

Constant .210(.498) .422 .673

Philanthropic CSR activities

.113 2.112 .002 0.691 1.327

Ethical Responsibility .344 5.122 .000 0.821 1.485

Environment CSR activities

.223 3.398 .001 0.739 1.629

Multiple R .466

R2 .218

adjusted R2 .202

Durbin- Watson Test 1.949

F 13.83 .000

Sample Size 204

Suggestions, Recommendations and Managerial ImplicationsIt can be concluded from the results that constructs i.e Philanthropic CSR activities, Ethical

CSR activities, Environment CSR activities, have an impact on Bank Performance (BP). It can be inferred that increase in philanthropic CSR activities in the society like contributions towards charities, providing social facilities, social finance, corporate giving programmes etc. will result in increasing the profitability of banks. It will create positive bank reputation and positive recognition in the mind of customers resulting in expansion of customer base. Also, it was found that environmental management activities (like waste management, employing renewable energy sources, using environment friendly products, complying with local and international environmental laws) also tends to play significant role in increasing bank performance. Moreover, banks ought to chalk out well defined ethical code of conduct for its employees that will help in boosting the performance of the banks. This will make customer feel appreciated and recognized by the bank leading to increase in subscription of potential customers and retention of existing ones.

Limitations and Further ResearchThis study has a number of limitations. Firstly, some respondents were unwilling to respond

since they did not have much knowledge about the topic of the study. Bank management and employees were unwilling to give data as it is perceived to be confidential. Finally, the research only takes into account selected banks, and therefore, the results obtained cannot be generalised. Future research should be done on a larger geographical area with more respondents. Research should also be done on how organizations manage their corporate social responsibility practices. Research needs to undertake on comparison of corporate social responsibility practices of Indian banks with the banks of other countries.

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Authors’ Profile

Monica Bedi, MBA, Ph.D, is an Assistant Professsor at University Business School, Panjab University Chandigarh, India. Her area of specialisation is marketing and international business. She has 15 years of experience in teaching and research She has published papers in reputed journals in areas such as brand equity, green consumer behaviour, emotional intelligence. She has presented papers in both national and international conferences, and chaired sessions in national and international conferences. She has been the



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member of graduate and post graduate Board of Studies, Panjab University Chandigarh, Chandigarh, India.

Pooja Chopra is ICSSR Post Doctoral Fellow at the University Institute of Applied Management Sciences, Panjab University, Chandigarh, India. Her current topic of research is “Making Digital Transaction Systems Citizen Centric: A Strategic Orientation. She is MBA M.Com and Ph.D in management and commerce from Himachal Pradesh University Business School, Himachal Pradesh University Shimla, India. She has five years of corporate experience and over 10 years of teaching experience. Her research work focuses specifically on customer loyalty and customer relationship management. She has presented her papers in many conferences. Her papers are published in journals of national and international repute.

Kirandeep Kaur is an Assistant Professor at Amity University, Uttar Pradesh, Noida, India. She has done Masters from University Business School, Panjab University, Chandigarh and Ph.D in Commerce. She has over 10 years of teaching and research experience in Finance and Marketing. Her research work is on capital structure, profitability, corporate social responsibility, emotional intelligence, brand equity and supply chain management. She has presented papers in both national and international conferences and is associated as an Assistant Editor in a number of international, refereed, indexed journals of repute.

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The link between Corporate Social Responsibility and Business … 3.pdf · 2019-08-19 · responsibility and bank performance in Indian scenario . Survey method was used to collect