Corporate Social Responsibility and Profitability: A Case Study

on Dutch Bangla Bank Ltd.

Suraiya Mahbuba
Lecturer, Stamford University Bangladesh
Email:
s.mahbuba@gmail.com
usrat !ar"ana
Lecturer, Stamford University Bangladesh
Email: nusrat_du@hotmail.com
ABS#RAC#
In Bangladesh, the banking sector has a glorious history of getting engaged themselves in different
kinds of social activities which is formally known as CSR (Corporate Social Responsibilities) !he paper
e"amines the relationship between CSR and profitability of #utch Bangla Bank $td (#BB$) which is the
initiator of CSR activities in the banking sector of Bangladesh !he study used annual reports of #BB$
for the year %&&% to %&'' (rdinary least s)uare (($S) model of regression was analy*ed using S+SS
', to assess the impact as well as test the hypothesis of the study whether there is a relationship and
the e"tent of the relationship between the independent variable (corporate social responsibility
e"penditure) and the dependent variable (profit after ta") -bove all, the analysis revealed that .&/0 of
the variance of profit after ta" of #BB$ has been e"plained by the benefit accrued from corporate social
responsibility !he hypothesis that was formulated was tested and the result shows that there is
significant positive relationship between corporate social responsibility and profitability in case of #BB$
$ey%ord: Cororate social resonsibility, cororate financial erformance, !BBL, rofitability
1. &ntroduction
"n develoed economics the concet of business has changed from rofit ma#ing activities to social
$elfare activities $here businesses are not only resonsible to it%s shareholders but also to all of its
sta#eholders &"slam '()'*. CS+ &Cororate Social +esonsibilities* is relatively a ne$ concet in
Bangladesh and all the institutions try to maintain this resonsibility along $ith other resonsibilities.
"n Bangladesh, the ban#ing sector has a glorious history of getting engaged themselves in different
#inds of social activities $hich is formally #no$n as CS+ li#e donations to different organi,ations,
country beautification, atroni,ing cultural activities etc. But in some recent years there is tremendous
gro$th in this involvement, because in '((- Bangladesh Ban# .uideline suggested the Ban#s to involve
in these activities in a more structured $ay. /his aer in basically focused on the CS+ activities of the
ban# and ho$ it is related $ith rofitability and in $hat e0tent Ban#s are eager to involve in these sort of
CS+ activities. Ban#s are rofit based organi,ations, so in this ersective they surely $ant to send
money in those sectors $hich $ill directly or indirectly bring money for them, so obviously there are
some ositive relationshis bet$een CS+ and ban#s rofitability. /o analy,e ho$ much imact CS+
create on rofitability !BBL &!utch Bangla Ban# Limited* has been choose. !utch1 Bangla Ban# had
adoted the olicy of contributing to the social cause since its incetion in )223. !uring the last )4 years
it has been continuing its effort as a ioneer in the ban#ing sector and has become the leader much
ahead of the other ban#s. /he ban# also $ants to eliminate the imroriety in the society, to create
fello$ feeling among the citi,ens of the country, motivate eole to do good $or#s and conserve nature.
/hus education, health care, human resource develoment, conservation of nature, creation of social
a$areness, rehabilitation of destitute eole, communication and address human sufferings arising out
of manmade and natural causes are some of the imortant areas $here the Ban# has been carrying out
its social and hilanthroic activities.
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International 1ournal of Business and Social Research (I1BSR), 2olume 34, 5o36,
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2. Literature Re'ie%
CS+ is one of cororation%s resonsibilities to its sta#eholder and also a voluntary contribution by
cororation to sustainable develoment &Crane and 8atten, '((9*. "n the eriod of increasing cororate
financial scandals CS+ has become an imortant strategy for comanies $orld$ide to imrove their
image as these activities can otentially create a brand image for comanies and develo ositive
relations $ith sta#eholders &:oon et al, '((3*.Cororate social resonsibility may be referred to as
;cororate citi,enshi; and can involve incurring short1term costs that do not rovide an immediate
financial benefit to the comany, but instead romote ositive social and environmental change. /he
term generally alies to comany efforts that go beyond $hat may be re<uired by regulators or
environmental rotection grous. /he recent globali,ation demand comanies to be more engaged in
CS+ activities &Chale and 8oon, '((4*. /he concet of cororate social resonsibility has been
gaining imortance in the ast t$o decades. +ecent studies suggest that cororate social resonsibility
is an instrument to increase firms% legitimacy in the eyes of their sta#eholders and to develo ositive
social resonsibility images to burnish their reutations &8aigan and +alson, '(('*. =CS+ goes beyond
hilanthroy and is a comrehensive strategy to lin# core business strategy to issues of environment,
human rights and labor $elfare, good governance and sustainable social investment measures>, said
Shahamin S. ?aman, CE@, CS+ Centre in Bangladesh at the launch.
"dentifying the relationshi bet$een cororate social resonsibility and cororate financial erformance
&Cambell, '((9* is the main attemt of the academicians. /he relationshi bet$een cororate social
erformance &CS7* and CA7 has been a toic of hot debate of scholars for a half century &!odd, )25'B
Carrell and 7elt,man, )2-4B Doffer et al., )2--B 7reston and @%Bannon, )229B Eaddoc# and .raves,
)229B .riffin and 8ahon, )229B 8cEilliams and Siegel, '(((B and Simson and Fohers, '(('*.
/he relationshi bet$een cororate social resonsibilities and cororate financial erformance has
roduced mi0ed results $ith some studies concluding for a ositive others negative and even others for
the ine0istence of such a relationshi &8cEilliams Siegel '(()B 8argoslis, Elfenbein and Ealsh '((9B
/soutsoura '((G*./he emirical studies conducted in develoed mar#ets on the relationshi bet$een
CS+ and CA7 are essentially of t$o distinct categories &8argolis and Ealsh, '((5*. /he first category
considers the short1run financial imact if the comany is involved in either socially or irresonsible
actions. /he results are mi0ed. Aor instance, Eright and Aerris &)229* found negative relationshis,
$hile other researchers found ositive relationshis &Dall and +iec#, )22-B 7osni#off, )229B Eright and
Aerris, )229 and /eoh et al, )222* and no relationshi $as evidenced in the study conducted by /eoh et
al &)222*. /he second category, e0amines the relationshi of CS+ and CA7 in the long1run, using
accounting and mar#et based measurements. /he findings are also mi0ed. Harious studies reort a
negative relationshi bet$een CS+ and CA7 &8oore, '(()B Hance, )294*, $hile other studies reveal a
neutral or no relationshi &8ahoney and +oberts, '((9B 8cEilliams and Seigel, '(((B 7atten, )22(B
Ile0ander and Buchhol,, )29-*. 8ost of the rior studies found a ositive relationshi bet$een CS+
and CA7 & Simson and Fohers, '(('B +oman et al, )222B .raves and Eaddoc#, )22GB +oberts, )22'B
8c.uire et al, )2--B Igain, sta#eholder theory suggests that Cororate Social 7erformance &CS7* is
ositively associated $ith CA7 &Areeman )2-GB !onaldson and 7reston )224*. 8os#o$it, &)29'* found
a ositive relationshi bet$een socially resonsible business ractices and cororate e<uity returns. /he
study of 8uhammad, Saleh and ?ul#ifli reveal that CS+ and all its dimensions are ositively related to
CA7.
(. Methodology and Model De'elop)ent
(.* Methodology
Secondary data $as the chief source of information for the study. /he study used annual reorts of
!utch Bangla Ban# Ltd. !ata used include cororate social resonsibility e0enditure and rofit after ta0
for the eriod of '(('1'()). In e0tensive literature vie$ed to gras the concet of CS+ and the
relationshi bet$een CS+ and the erformance of ban#ing business. !ata relating to
costJinvestmentJe0enditure for the ban# on cororate social resonsibility and rofitability $as used to
construct ordinary least s<uare &@LS* model of regression to $hich $as analy,ed using S7SS )3. to
assess the imact as $ell as test the hyothesis of the studyB if there is relationshi and the e0tent of the
relationshi if any bet$een the indeendent variable &cororate social resonsibility e0enditure* and
the deendent variable &rofit after /a0*.
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Cororate Social +esonsibility and 7rofitabilityKKKKKK..
Suraiya 7ahbuba85usrat 9ar*ana
Aor this urose the follo$ing hyotheses are tested to measure the relationshi bet$een CS+
initiatives reresented by CS+ e0enditure &CS+* and the rofitability of !utch Bangla Ban# Ltd.
&!BBL*.
+
,
: there is no significant relationshi bet$een Cororate Social +esonsibility e0enditure and Ban#
7rofitability +
*
: there is significant relationshi bet$een Cororate Social +esonsibility e0enditure
Ban#
7rofitability
(.- Model de'elop)ent:
+egression model $as used to e0amine the relationshi bet$een the indeendent variable CS+ and the
deendent variable 7I/ $hich is sho$n in e<uation &)*:
7
t
L M
(
N O
)
CS+
t
N &)*
Ehen 7 &ban#s 7rofitability* is the deendent variable and CS+ is indeendent variable. EhereB t is the
t1th year &time series annual data*, 7t is the CS+ of t1th year.
/his study also attemted to use the 7earson correlation analysis method, this is consistently in line $ith
revious studies &Dein,e, )293B 8c.uire et al., )2--B Stan$ic#, )22-B 7reston and @%Bannon, )229B
Charles1Denri et al., '(('B Dull et al., '((-* and regression analysis &Aogler Putt, )294B Hance, )294B
Stan$ic#, )22-B 8cEilliams et al., '(((B Dull et al., '((-* to understand the CS+ and 7rofitability lin#
and its relational degree and direction.
.. Data Presentation/ analysis and discussion
#able *: DBBL data on CSR 01penditure and Profit after #a1
2ear CSR 01penditure Profit After #a1
'((' 9,9-2,G95 )99,3((,(((
'((5 )(,(44,((( ')(,)3(,(((
'((G '3,2G4,G4( '53,54(,(((
'((4 53,'((,--( 539,-'(,(((
'((3 5-,9-2,(G2 53',)-(,(((
'((9 52,'(3,4(( G92,-)(,(((
'((- )9),()3,4(( -'),39(,(((
'((2 )42,'(3,4(( ),)59,32-,(49
'()( )3-,-3(,((( ',((',5)4,235
'()) 552,GG9,39G ',)4G,---,4)(
Source: Innual +eort &'(('1'())*
"n order to reduce magnitude of the data for easy elasticity, the data resented in the table ), the data
$as logged for easy interretation of the data. /he logarithm of the magnitude of the data is resented
in the table '.
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International 1ournal of Business and Social Research (I1BSR), 2olume 34, 5o36,
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#able -: DBBL L34 data
2ear CSR 01penditure Profit After #a1 Log CSR Log PA#
'((' 9,9-2,G95 )99,3((,((( )4.-3-'-5( )-.224(GGG
'((5 )(,(44,((( ')(,)3(,((( )3.)'54- )2.)355929
'((G '3,2G4,G4( '53,54(,((( )9.)(25''G )2.'-(-'G5
'((4 53,'((,--( 539,-'(,((( )9.G(G425( )2.9'5)(G5
'((3 5-,9-2,(G2 53',)-(,((( )9.G953G-4 )2.9(934)2
'((9 52,'(3,4(( G92,-)(,((( )9.G-G545) )2.2--2((-
'((- )9),()3,4(( -'),39(,((( )-.249'9(3 '(.4'3-G2G
'((2 )42,'(3,4(( ),)59,32-,(49 )-.--49)'9 '(.-4''9'-
'()( )3-,-3(,((( ',((',5)4,235 )-.2GG4-(4 ').G)949(5
'()) 552,GG9,39G ',)4G,---,4)( )2.3G'-5(G ').G2)((G-
Source: Innual +eort &'(('1'())*
Using S7SS )3 to run the table ', the logarithm data on CS+ e0enditure and 7rofit after /a0 &7I/* of
!BBL for the eriod of '(('1'()). /he outut is resented in table '. Arom the outut the result sho$s
high association or relationshi bet$een the t$o variables under e0amination.
#able ( Correlations bet%een CSR and profit after #a1
CS+ 7I/
CS+ 7earson Correlation ) .245
QQ
Sig. &)1tailed* .(((
P )( )(
7I/ 7earson Correlation .245
QQ
)
Sig. &)1tailed* .(((
P )( )(
QQ. Correlation is significant at the (.() level &)1tailed*.
#able .: Regression result on the i)pact of corporate social responsibility on profitability )odel
Change Statistics
+
IdRuste
d
+ Std. Error
of the + S<uare A Sig. A !urbin1
8odel
+
S<u
are S<uare Estimate
Chang
e
Cha
nge
df) df'
Change Eatson
)
.245
a
.
2(9 .-23 .'2G592'
.
2
(
9
9-.G
-' ) - .((( ).92)
1. 7redictors: &Constant*, CS+
2. !eendent Hariable: 7I/
/his establishes relationshi bet$een CS+ e0enditure and 7I/ $as found to be significant at (.() or
)S. /o evaluate the imact of cororate social resonsibility e0enditure on rofitability in Bangladeshi
ban#s revealed &BetaL (.245, T.()*, the results of the @rdinary Least S<uare regression analysis is
sho$n in table G. /his means that for every unit change increment the CS+ e0enditure $ill lead to .245
or 24.5S increase in the rofit after ta0 of the comany. "t also sho$s that +1s<uare $as (.2(9 $hich
accounted for about 2(.9S of the variation in the rofit after ta0 of !BBL. "t is also indicating that
cororate social resonsibility is imortant in achieving effective financial erformance of ban#s in
Bangladesh. /he overall significance of the model is sho$ed in the table &A1statisticL 9-.G-S, T.()*
and the !urbin1Eatson sho$ that the model is fit at ).92. @ver all, the model
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Cororate Social +esonsibility and 7rofitabilityKKKKKK..
Suraiya 7ahbuba85usrat 9ar*ana
states that 2(.9S of the variance of rofit after ta0 of !BBL has been e0lained by the benefit accrued
from cororate social resonsibility.
Arom the above table G, the value of &=r>L (.245, T .()* $hich stand for =r> calculated. /his sho$s that
there is a ositive correlation bet$een cororate social resonsibility e0enditure and the rofit earned
by the comany $hich is significant at the (.() level &)1tailed*. /his means that the null hyothesis is
reRected and leading to the accetance of the alternative hyothesis.
#able 5: Regression Co6efficient
Un standardi,ed
Coefficients
Standardi,ed
Coefficients
24S Confidence "nterval
for B
8odel t
S
ig
. B Std. Error Beta
Lo$er
Bound
Uer
Bound
)
&Constant
* 9.294 ).595
4.
-(
3
.
(
(
( G.-(- )).)G'
CS+ .3-' .(99 .245
-.
-4
2
.
(
(
( .4(4 .-3(
!eendent Hariable: 7I/
Ibove are the &un standardi,ed* and standardi,ed regression $eights for the regression analysis of
cororate social resonsibilities and rofitability. /he standardi,ed regression coefficient &beta $eight*
for CS+ is .245. Ehat this $eight means is that for every unit change in CS+, rofitability $ill increase
by a multile of .245 standard deviations. Pote that the beta coefficients are significant at T .(().
/he columns headed =24S confidence intervals> sho$s confidence intervals around the un standardi,ed
regression coefficients. /hus it can be said that, $ith 24S confidence the value of the constant lies
some$here bet$een G.-(- and )).)G', and the value of the regression coefficient b &un standardi,ed*
lies some$here bet$een .4(4 and .-3(*
..- Discussion of !indings
/he results of the ordinary least s<uare regression analysis as sho$ed the imact of cororate social
resonsibility e0enditure on rofitability in !BBL $hich revealed &BetaL (.245, T.()*. /his means that
for every unit change increment the CS+ e0enditure $ill lead to .245 or 24.5S increase in the rofit
after ta0 of the comany. /he +1s<uare $as (.2(9 $hich accounted for about 2(.9S of the variation in
the rofit after ta0 of !BBL. "t is also indicating that cororate social resonsibility is imortant in
achieving effective financial erformance of cororate organi,ation in Bangladesh. /he overall
significance of the model is sho$ed in the table &A1statisticL 9-.G-, T.()* and the !urbin1Eatson sho$
that the model is fit at ).92. Ibove all, the model revealed that 2(.9S of the variance of rofit after ta0 of
!BBL has been e0lained by the benefit accrued from cororate social resonsibility. /he hyothesis
that $as formulated $as tested and the result sho$s that there is significant relationshi bet$een
cororate social resonsibility and rofitability
5. Conclusion
Arom the above analysis it is clear that CS+ has significant imact on the rofitability of !BBL. So the
CS+ e0enditure rovides good returns for the ban#s in the short run and in the long run it $ill rovide
better return surely. /he study concludes that there is a significant relationshi bet$een CS+ and
rofitability and the null hyothesis is reRected. "t should be ointed out that this study has several
limitations. Airst, the study is based only on the net rofit after ta0 of the ban# $hich is one of the maRor
indicators of ban#%s financial erformance but not the only one. Second, the study considers only one
ban# of Bangladesh $hich does not reflect the overall ban#ing sectors of Bangladesh.
"n Bangladesh, CS+ initiatives by ban#s have risen significantly. So Bangladesh Ban# should carefully
monitor the activities of the Ban#s $hether they are comlying the mandatory involvement in the CS+
activities from net rofit $hich is no$ )(S or more from its revious year%s net rofit. Ibove all, ne$
la$s regarding CS+, legal
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International 1ournal of Business and Social Research (I1BSR), 2olume 34, 5o36,
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restrictions, to do CS+ activities for the betterment of the eole not for rofit ma#ing or mar#eting
strategies $ill surely bring more sustainable gro$th in the ban#ing sectors of Bangladesh.
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