Effect of Corporate Social Responsibility on Financial Performance of Licensed Commercial Banks in Sri Lanka

Abstract

Even though many companies pay attention to Corporate Social Responsibility (CSR), whether CSR activities improve financial performance remains a puzzle. Therefore, this study investigates whether corporate social responsibility affects financial performance using 17 licensed commercial banks in Sri Lanka as the sample. The data was collected for 11 years from 2010 to 2020 from the published annual reports. The CSR was measured under four main dimensions namely, environment, customer relations, human resources, and community involvement. Return on assets (ROA) and return on equity (ROE) were used to measure financial performance. Bank size and leverage were used as control variables. Results of the regression analysis indicated that CSR positively affects financial performance. This could be probably due to the fact that community-involved CSR practices such as, creating job opportunities, supporting education, supporting culture and sport, and funding scholarship programs are highly expected by society. Therefore, the reputation of banks might improve when they fulfil these societal expectations. This intern can positively affect financial performance.