ASSESSMENT OF THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON THE FINANCIAL PERFORMANCE OF THE BANKING INSTITUTION
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FIRST PART
INTRODUCTION
1.1 INTRODUCTION TO THE STUDY
Corporate social responsibility has become widespread among Nigerian financial firms. It is one of the newest management methods in which businesses attempt to have a beneficial impact on society. CSR was defined by Holme and Watts (2000) as the continual commitment of businesses to behave ethically, contribute to economic progress, and improve the quality of life of their employees, their families, the local community, and society at large. Businesses can utilize ethical decision making to safeguard their operations by making choices that minimize the participation of government authorities in their operations. Several explanations have been offered for why business institutions engage freely in social activities. Most businesses engage in social activities to fulfill their principal objective of presenting themselves as valid members of society (Bowen, 1953). This legitimacy has prompted businesses to pursue their core objective of sustaining profitability.
Aside from the reality that the corporate sector brings major economic advantages to society, there are rising worries that the greater society provides many opportunity for corporations to use public resources to operate (Carroll, 1979). Some experts believe that the majority of rules and regulations are the result of public uproar, which threatens profit maximization and the shareholder’s well-being, and that if there were no public outcry, there would be very little regulation (Carroll, 1999). A company is not socially responsible if it only complies with the minimum legal requirements, because a good citizen would do the same.
It is increasingly acknowledged that sustainable development and poverty reduction are the most important challenges that governments, particularly in the developing world, must address. The government, however, cannot accomplish this without assistance from the business sector. Policymakers are paying close attention to the private sector’s potential contribution to these policy objectives. As the topic of sustainable development becomes more significant, CSR becomes an element that tackles these challenges, and as a result, its importance in the everyday operations of financial institutions in the banking industry increases. According to Pranjali (2011), the World Business Council for Sustainable Development (WBCSD) defines CSR as a contribution to sustainable economic development; it is said that it is impossible to avoid paying serious attention to corporate social responsibility because the costs of failure are simply too high. Every action in a firm’s value chain overlaps in some manner with social variables, from how you buy or procure to how you do research, yet relatively few businesses have considered this. The objective is to harness your company’s particular strengths in promoting social causes while simultaneously enhancing your competitive position. According to Michael Porter (2005), the job of today’s leaders is to stop being defensive and start thinking systematically about corporate responsibility. Porter argues that successful executives or leaders are aware that CSR is inevitable and that their long-term success depends on maintaining good relationships with the society.
Corporate social responsibility is applicable to practically all organizations, but banks are particularly interested in these programmers since they must go above and above to satisfy their many stakeholders. According to Nwankwo (1991), the benefits of CSR include maximizing profit to shareholders, who are the true owners of the business, maintaining optimal liquidity for depositors, complying with regulators’ demands, satisfying the deficit sector’s demand for credit, contributing to the development of the economy, and meeting the needs of the local community in which they operate. Today, according to Nolan, Norton & Co., CSR is employed to build a positive relationship with the public (2009). It is also used by corporations as a preventative measure against unforeseen risks and corporate scandals, potential environmental accidents, governmental rules and regulations, and to protect eye-catching profits, brand differentiation, and a better relationship with employees based on volunteerism terms. In order to get the customer’s pity, corporations are now more conscientious of publishing their CSR initiatives on their websites, sustainability reports, and advertising campaigns. CSR is also done because both customers and governments demand more ethical behavior from businesses nowadays. According to Kashyap et al., firms are voluntarily incorporating CSR into their business strategies, mission statements, and core values in numerous domains, while obeying labor and environmental laws and balancing the conflicting interests of various stakeholders (2006).
During the sample period, the largest banks had continuously greater CSR strengths and CSR issues, according to a study. In addition, this group reports a sharp increase in CSR strengths and a sharp decline in CSR worries after 2009, when the worst of the economic crisis subsided. We also find that banks with greater profitability, higher capital ratios, and lower deposit fees have much greater CSR strengths. Consequently, the objective of this study is the evaluation of the influence of corporate social responsibility on the financial performance of the banking organization.
1.2 DESCRIPTION OF THE PROBLEM
As for the banking industry, the relationship between corporate social responsibility and financial success has not been fully studied, and the few studies that have been conducted have produced contradictory results. Due to a lack of documented evidence of the benefits, there is a significant gap about how corporate social responsibility improves organization performance; therefore, the researchers’ objective was to determine the effect of CSR on organization performance based on selected commercial banks in order to determine whether these institutions realize any benefits.
Good operating outcomes and strategies enable financial institutions to cut screening and monitoring expenses, diversify risk across many projects, and overcome liquidity issues, resulting in a high return for savers. Long-term financial success can attract investment in long-term initiatives while offering investors quick access to their savings (Levine, 1991).
These organizations permit cross-sectional diversification between projects, permitting risky inventive activity while assuring savers of their contractual interest rate (King and Levine, 1993). Identifying the entrepreneurs with the most promising ideas helps increase the rate of technological innovation by financial institutions. Successful institutions can assist in mitigating liquidity risk and facilitating long-term investment (Diamond and Dybvig, 1983). In addition to meeting the expectations of their shareholders, banks with solid long-term performance can provide job security to their staff, provide new employment prospects, and ensure the government of a steady revenue stream. These issues need an investigation into the influence of corporate social responsibility on the financial performance of the financial institution.
1.3 OBJECTIVES OF THE STUDY
This study’s overarching purpose is to analyze the influence of corporate social responsibility on the financial performance of the banking organization. Included among the specific aims are the following:
Determine the corporate social responsibility actions conducted by financial institutions.
Determine the factors that influence the performance of banks’ corporate social responsibility.
Determine if the corporate social responsibility of banks influences the level of client loyalty.
Determine the impact of corporate social responsibility on the organizational performance of financial institutions.
5. Determine if a relationship exists between corporate social responsibility and the financial performance of banking institutions.
1.4 RESEARCH QUESTIONS
The following are the pertinent research questions linked to this study:
What are the corporate social responsibility actions conducted by financial institutions?
What are the factors that determine the performance of banks?
ASSESSMENT OF THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON THE FINANCIAL PERFORMANCE OF THE BANKING INSTITUTION
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