Last Updated on October 5, 2023 by Fiza Khurram
Ummara Fatima and Uzma Bashir from The Minhaj University’s School of Commerce & Accountancy investigated the complex relationship between corporate social responsibility (CSR), corporate governance (CG), and financial performance (FP) of both conventional and Islamic banks in Pakistan.
In a period when profit-sharing through CSR efforts is gaining traction, the purpose of this study was to determine the influence of CG on the FP of Pakistani banks. It also investigated the moderating influence of CSR in the CG-FP connection, distinguishing between Islamic and conventional banks. The study, which spanned the years 2010 to 2018, used a regression model to examine the effect of CG on FP and a moderated regression to investigate the moderating effect of CSR on this connection. To address the issue of endogeneity, a two-stage least squares (2SLS) approach was used.
According to the study findings, CSR favourably moderates the CG-FP relationship, confirming a favourable association between CG and FP in Islamic banks. These findings were consistent with the social contract theory and the stakeholder theory. CSR, on the other hand, positively moderates the relationship between institutional ownership and FP in traditional banks. The findings further supported the agency theory by indicating a negative moderating effect between management ownership and FP.
The practical ramifications of this study are significant, providing useful data for bank management looking to make educated decisions about CSR programmes. Managers can deliberately participate in programmes that benefit society while also contributing to the financial success of banks by understanding the intricate interplay between CSR, CG, and FP.
Finally, this study offers light on Pakistan’s banking sector’s delicate balance of social responsibility and financial performance, contributing to the emerging conversation on sustainable and responsible banking practices.
