Effect of Corporate Social Responsibility on Financial Performance of Commercial Banks in Ethiopia
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Date
2021-03
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A.A.U
Abstract
Corporate social responsibility (CSR) is a self-regulating business model that helps a corporation to be socially accountable to itself, its stake holders, as well as the public in general. In a developing country like Ethiopia the banking sector can play an active role as part of its CSR activity while also benefiting i.e. attracting new customers, keeping existing customers loyal which in turn may have an impact on financial performance of the bank. The aim of the study is to determine the effect of corporate social responsibility on the financial performance of 11 commercial banks in Ethiopia. The study employed both primary and secondary sources of data. Primary data was collected using questioners with department heads responsible directly for issues relating to CSR, while secondary data was obtained from annual reports and other published documents of the banks. Econometric regression model was used to determine the relationship between CSR and Financial performance for the period of 7 years from 2013 – 2019. In addition, the study controlled for bank size, income diversification and credit risk, collected data was analyzed using E-views 9 and the findings show that social responsibility measured as a fraction of donation expense to total expense has a positive but insignificant effect on financial performance, rather size, income diversification and credit risk showed a significant effect on the dependent variable. Hence, the researcher concluded that CSR is an expense with no return for now but if implemented properly and disclosed consistently the outcomes will be different. Finally, the study recommended banks to improve in the areas of CSR disclosure, and to be proactive rather than reactive in carrying out these activities.
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Keywords
Corporate Social Responsibility, Financial Performance