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ISSN 2310-4090

Corporate Social Responsibility Expenditure and Profitability: An


Empirical Study of Listed Banks in Bangladesh
Mehedi Hasan Tuhin1
1

Assistant Professor, Dept. of Business Administration, Sylhet International University, Shamibabad, Bagbari,
Sylhet, Bangladesh

Keywords:
Corporate Social Responsibility; Profitability;
Listed Bank; Bangladesh.

Abstract

Correspondence:
Mehedi
Hasan
Tuhin.
Assistant
Professor,
Dept.
of
Business
Administration,
Sylhet
International
Un i ve rs i t y,
Shamibabad, Bagbari,

responsibility expenditure on the level of profitability of listed banks in

S ylh et , Ban g lad es h .


E-mail: mehedi_siu@yahoo.com

The aim of this paper is to measure the impact of corporate social

Bangladesh. The study is based on the secondary data of 10 listed banks


for the period 2007-2011. Banks are selected on the basis of random
sampling. The study has mainly employed regression analysis to assess

Funding Information:
No funding information provided.

the relationship. The findings indicate that there is a significant positive

Received:
03 February 2014; Accepted: 28 F e b r u a r y
2014
International Journal of Scientific
Footprints 2014; 2(1): 107115

association between corporate social responsibility expenditure and


profitability of the sample listed banks.

stakeholders demand (Moir, 2001). Though

Introduction
Now days, companies are getting increasingly
involved

in

social

activities

which

is

conveniently termed as Corporate Social


Responsibility
responsibility is
companys direct

(CSR).
a

Corporate

responsibility for
involvement with

a
the

betterment of the society. CSR means that

the concept of CSR is not new in the business,


formal research regarding CSR has performed
in the 20th century. In 1953, Bowen, the
father of CSR, define CSR as the obligation of
businessmen to formulate those policies, to
make those decisions, to follow those lines of
action which are in accordance with the

companies must not only fulfill shareholders

desires and values of the society. After

needs but also take into consideration other

Bowen, a number of researchers have defined


CSR, its dimension, scope and importance.

2014. The Authors, International Journal of Scientific Footprints


This is an open access article which permits use, distribution and reproduction in any medium, with the condition that original work is properly cited.

Int. j. sci. footpr.

Tuhin, M. H. (2014)

The concept of CSR includes various social

companys market position becomes stronger

and environmental areas such as relationship

through CSR activities.

with community, employees, human rights


and ethics. (Caroll, 1991) suggests that CSR
consists

of

four

different

types

of

responsibility: economic, legal, ethical and


philanthropic. In another study, (Caroll and
Shabana, 2010) identified five common
dimensions of CSR: interest dimension, social
dimension, economic dimension, voluntary
dimension and environmental dimension.
(Cochran, 2007) argued that CSR can be used

CSR practices by financial institutions have


brought a new dimension to the corporate
world in recent past. To keep pace with recent
trend banks in both developed and developing
countries are taking various initiatives to be
engaged in social activities. Social awareness,
regulatory requirements, pressure from social
activist and NGO etc. are playing as
motivating for this kind of practices.

to promote the reputation of a company as a

In reviewing literature, it can be noticed that a

good

takes

number of research has been carried out in

responsibility for its impact on society. Good

both developed and developing countries to

reputation creates value of a firm by not only

determine the impact of CSR on profitability

reducing negative rumors but also contribute

of a firm with many different approaches.

indirectly to profitability by attracting more

However,

customers. CSR activities can contribute to

inconclusive and hence there is need for more

better relationship with company stakeholders

studies to provide research evidences in this

which in turn lead to increased capital from

context. The current study has mainly focused

investors (Weber, 2008). (Falck and Heblich,

on the impact of CSR expenditure on the level

2007) indicated that CSR contributes to a

of profitability of listed banks. It is expected

good reputation of a firm which is essential to

that the study would enrich the existing

attract and retain skilled employees. Skilled

literature by providing empirical evidence

staffs are necessary for successful operation of

from Bangladesh in this regards and the

business

finding would be of great use of policy maker,

corporate

which

citizen

in

turn

who

increases

the

profitability. So they concluded that CSR

the

existing

evidence

is

researcher and decision maker as well.

contributes indirectly to the profitability of a


firm. They also argued that CSR indirectly
help to strengthen brand image and thus
creates companys goodwill. As a result a

The remainder of this paper is organized as


follows.

Section two outlines the research

objectives of the study. Literature review and

Int. j. sci. footpr.

Tuhin, M. H. (2014)

hypotheses development are discussed in

sample. Pearson correlation analysis was

section three and four. Section five describes

employed to assess the relationship between

research

discusses

CSR expenditure and financial performance.

findings of the study. Section seven outlines

The findings indicated that all sample banks

limitations

complied with the mandatory forms of CSR

method.

and

Section

section

six

eight

makes

concluding remarks of the study.

practices but there was a variation in the


involvement of recommended form of CSR

Research Objectives
1.

To

measure

practices. The study found a strong positive


the

trend

of

CSR

correlation between CSR expenditure and

expenditure by listed banks in Bangladesh.

sample banks deposit, loan and profitability.

2.

Bolanle

To assess the association between

et

al.,

(2012)

between

examined

corporate

the

CSR expenditure and profitability of the listed

relationship

social

banks in Bangladesh.

responsibility and profitability in the Nigerian


banking industry using First Bank of Nigeria

Literature Review

(FBN) Plc as the case study. Annual reports

Several studies have been carried out in the

for the period of 2001-2010 were used as the

developed and developing countries to assess

secondary source of data. The data were

the relationship between CSR expenditure and

analyzed using correlation and regression

firms profitability in financial institutions. In

analysis. The study concluded that there is

reviewing literature, it can be noticed that

positive relationship between banks CSR

CSR expenditure affected several variables.

activities and profitability.

The current study has mainly focused on the


impact of CSR expenditure on the profitability
of banks.

Emilsson, et al., (2012) investigated the


correlation between CSR and profitability.
The profitability of a firm was measured

Samina (2012) tried to find out whether the

through EVA (Economic Value Added). The

Islamic Banks of Bangladesh are adhering to

empirical data consists of interviews with

the prescribed forms of the CSR activities or

respondents

not. Moreover, the relationship between CSR

findings showed a low positive correlation

expenditure and deposit, loan and profitability

between profitability and CSR.

of Islamic banks had been examined. The

Arshad, et. al., (2012) examined the impact of

study took six full-fledged Islamic banks as

CSR

on

from

five

Malaysian

companies.

Islamic

The

banks

Int. j. sci. footpr.

Tuhin, M. H. (2014)

performance and found that CSR was

(Mosaid and Boutti, 2012; Teoh, et. al.,

significantly

(1999); McWilliams and Siegel, (1997)

positively

related

to

firm

performance as measured by ROA and ROE.

reported insignificant association between

Weshah,

profitability and the level of CSR expenditure.

et.

al.,

(2012)

examined

the

relationship between CSR, bank size, the level


of risk in the bank and Advertising intensity
on one hand and the Corporate Financial
performance on the other hand in the
Jordanian banking companies. The study is
based on the financial reports from banking
companies listed in Jordanian Stock Exchange
for the year 2011. Statistical techniques such
as simple and multiple regressions are used to

Different measures for profitability have been


used in the literature such as ROE, ROA,
ROI, and EPS. A number of studies combine
some measures in one measure while others
use one measure. However, there is no
criterion to choose the best proxy of
profitability. The current study measures bank
profitability by ROE.

assess the relationship. The study concluded

Based on the results of prior empirical

that there is a significant positive relationship

research in the context of developing country

between CSR, bank size, the level of risk in

and data availability, the following specific

the bank and advertising intensity on one hand

hypothesis has been tested regarding the

and corporate financial performance on the

relationship between profitability and CSR

other

expenditure.

hand

in

the

Jordanian

banking

companies.
Hypothesis: There is a positive association
between bank profitability measured by ROE

Hypothesis Development
The prior studies

provide contradictory

evidence of the relation between profitability


and the level of CSR expenditure. While some
studies

report

significant

and the level of CSR expenditure in the listed


banks of Bangladesh.
Methodology

positive

association between profitability and CSR


expenditure Such as Aupperle, et. al., (1985);
Bolanle, et. al., (2012); Arshad, et. al., (2012);
Samina, 2012; Weshah, et. al., (2012); other
studies report a negative association (such as
Wright and Ferris,1997). On the other hand,

The study concentrates only on the banking


sector in Bangladesh. 10 banking companies
listed on the Dhaka Stock Exchange (DSE)
and Chittagong Stock Exchange (CSE) are
randomly selected to be included in the
sample. On December 31, 2012 there are 30

Int. j. sci. footpr.

Tuhin, M. H. (2014)

banking companies listed on DSE and CSE.

x= CSR expenditure

The study is mainly based on secondary data.


e= Residual error

Secondary sources such as annual reports,


publication of Bangladesh bank, web-site etc.

Here, Y is the dependent variable, while x is

are used to collect the necessary data. The

the independent variable. Findings

period of study is from 2007 to 2011.


Descriptive Statistics:
Model

Development:

The

following
Table 1 reports the descriptive statistics of the

Ordinary Least Square (OLS) regression

profitability (ROE) and CSR expenditure of

model is developed in order to assess the

sample banks. The table indicates that the

effect of CSR expenditure on the profitability

mean of CSR expenditure is about 40.33

level:

million BD Taka. It also shows that the extent


of CSR expenditure has a considerable range.

Y = a + bx +e

While the minimum is 1 million BD Taka, the

Where, Y= Profitability level (measured by

maximum is 342 million BD Taka. As

ROE) for each bank

indicated in the table, ROE of listed banks has

a = Constant term
b=

Regression

coefficients

for

also wide ranges. It ranges from 3.19 % to

the

35.30.

independent variable

Table 1: Descriptive Statistics for Dependent and Independent Variable.


Variable

Mean

Minimum

Maximum

S.D.

ROE (Dependent variable)

75

21.2846

3.19

35.30

6.72879

CSR expenditure (Independent variable)

75

40.3282

1.00

341.83

59.21949

Regression Analysis
The results of the regression analysis of the

expenditure of listed banks are documented in

association between profitability and CSR

the following section.

Int. j. sci. footpr.

Tuhin, M. H. (2014)

Model Summary
Model

.321a

R
Adjusted
Square
R
Square
.103

.084

Std.
Error of
the
Estimate
6.43904

a. Predictors: (Constant), CSR expenditure

ANOVAb
Model

Sum of df Mean
F
Sig.
Squares
Square
Regression 228.415 1 228.415 5.509 0.23a
Residual 1990.136 48 41.461
Total
2218.551 49
a. Predictors: (Constant), CSR expenditure
b. Dependent Variable: Profitability in terms of ROE

Coefficientsa
Model

Unstandardize

Standardized

d Coefficients

Coefficients

Std.

(Constant)

Error

19.81

1.105

Beta

Sig.

17.927

.000

2.347

.023

4
CSR

.036

.016

.321

expenditure
a. Dependent Variable: Profitability in terms of ROE

Description of Analysis

implies that only 10.3 percentage of the


variation in the level of profitability can be

The result shows that the F-ratio is 5.509


(P=.023), which statistically supports the
significance of the model. R Square of .103

explained by the variations in the independent


variable. CSR expenditure coefficient shows

Int. j. sci. footpr.

Tuhin, M. H. (2014)

that this variable is significant and therefore,

profitability and reaches the conclusion that

hypothesis

CSR expenditure is significant (although

developed

in

the

study

is

supported. This implies that CSR expenditure

weak)

of bank explain the variation of profitability

profitability level of sample banks.

level among the listed banks although the

possible reason may be that though CSR

association between profitability and CSR

creates competitive advantages from different

expenditure

be

perspective, it is often very difficult to relate

emphasized that CSR is a long-term measure.

to CSR because most of these advantages are

In a developing country like Bangladesh, CSR

indirect in nature. For example, enhanced

is very new and still in naive stage. So it can

reputation, which may be the outcome of

take time for CSR initiatives to have a strong

increased CSR practices, is not so easy to

impact

is

directly link to CSR. This is one of the main

consistent with other previous studies such as

reasons why it is difficult to measure the

(Aupperle, et al., (1985); Waddock and

impact of CSR expenditure on profitability of

Graves, (1997); Bolanle, et. al., (2012);

a firm. Despite measurement problems there

Samina, 2012).

is

on

is

weak.

It

profitability.

needs

The

to

result

in

explaining

positive

the

variations

perception

in
The

among

the

stakeholders about the contribution of CSR to


Limitations

profitability. The findings of the current study

One of the limitations of the present study is

also support this evidence. But it is to be

that it covers only a single country and one

noted that in order for CSR to be profitable

specific sector. The findings would be more

banks should choose the CSR activities with

generalized if the study would undertake other

great care. Just adopting some CSR policies is

financial institutions such as insurance, non-

not enough to contribute to profitability. It

banking financial organizations etc. The study

must be implemented properly so that it

has considered only ROE in measuring

maximize the competitive advantage of the

profitability of a bank.

bank and also maximize benefit to the society.

Conclusion and Scope for Future Research

Another think needs to be taken into account


that CSR policies should be consistent with

The current study shows the association

long-term

between CSR expenditure and profitability of

profitability. The findings of this study

a bank in the context of Bangladesh. The

implied

study has considered ROE as proxy of

demonstrate high level of commitment to

profitability

that

rather

Bangladeshi

short-term

banks

should

Int. j. sci. footpr.

corporate social responsibility based on


stakeholders needs in order to enhance their
profitability in the long run.
The scope of the study can be expanded by
including unlisted banks, non-bank financial
institutions, insurance companies etc. Other
financial performance measuring factors such
as deposits, investments, ROA, EPS and EVA
can be investigated as outcome of CSR
activities. Moreover, the scope of the research

Tuhin, M. H. (2014)

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size and cross-country examination.
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Tuhin, M. H. (2014)