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«CSR IN BANKING SECTOR A LITERATURE REVIEW AND NEW RESEARCH DIRECTIONS Tran, Yen Thi Hoang VNU University of Economics and Business, Vietnam ...»

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In addition, CSR is encouraged through the activism of stakeholder or a group of people who often acts to address the perceived failure of the market and government policy. Strategic planning is one such driver in that it creates awareness of and formulates responses to the firm‟s stakeholders, there by enabling CSR (Jeremy Galbreath, 2007). As a stakeholder group, employee motives are factored into a more systematic, strategically-driven effort to engage in CSR. Another driver of CSR activities among small and medium-sized companies is the requirements imposed by multinationals on their supplychains to meet the demand of globalization today.

Impacts of CSR on banks The bank‟ attitude towards current problems of society related culture and environment (Persefoni Polychronidou et al., 2013) become more and more recognized by bank clients. As a result, banks are recently motivated by goals other than profit, revenue, and marketshare because this alternative inspiration can be better both for the society and the bank itself.

The company engaging in CSR will indirectly gain competitive advantage in the market place through reduction or elimination of government imposed fines (Belkaoui, 1976; Bragdon & Marlin, 1972; Freedman & Stagliano, 1991; Shane & Spicer, 1983) and product differentiation (McWilliams& Siegel, 2001; Waddock & Graves, 1997). At the same time, it can minimize its overall company‟s exposure to risk (Godfrey, 2004). Besides, CRS positively affects present value of the firm‟s cashflows (McWilliams & Siegel, 2001; Waddock & Graves, 1997; Godfrey, 2004).

CSR initiatives are also likely to improve employee morale that leads to higher productivity, improved performance (McGuire et al., 1988), and fewer labor problems (L.Zu,

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2009). Besides those benefits, CRS also has a positive influence on banks, which can be analyzed in two key relationships of CSR and financial performances and bank reputation.

There has been significant and interest in the relationship between a firm‟s CSR initiatives and Corporate Financial Performance (CFP) in recent years. According to Margolis and Walsh, 2003, 122 published studies have been conducted to empirical measures the relationship between CSR and CFP during theperiod 1971 – 2001. Theoretically, the studies can be divided into three groups: positive relationship, negative relationship, neutral relationship (Theofanis Karagiorgos, 2010). However, after review all relevant studies we can conclude that most research results show a positive impact on financial performance (Orlitzky, 2003;

Theofanis Karagiorgos, 2010).

Positive relationship implies that CSR improves firms‟ value. Researches of Bass et al.

(1997); Sarre et al. (2001) and Deckop et al. (2006) indicated that the quality of CSR in banks might go a longway towards reducing the risk associated with financial institutions that lead to improve financial performance. Therefore, A diversity of CSR activities are not only engaged by bank but also financial institutions (Scholtens, 2009; Orlitzky M., Schmidt, F.L., Rynes, S.L, 2003). On the contrary, the overall CSR measure has a negative effect on stockreturns, so does CFP. By evaluating each social performance indicator, Brammer et al. (2006) proves that the measure of employee performance has significantly negative effect on stockreturns. By comparison, while community measure has positive but not little effect environment is the measure that has negative and no significance impact on stockreturns.

Discussing the neutral relationship between CSR and CFP, Fauzi (2009); Mahoney and Roberts (2007); Goukasian and Whitney (2008); and Folger and Nutt (1975) emphasizes that there is no significant correlation found between stock price and CSR parameters. The other reason is the problem of measuring CSP and pure marketing strategy (D‟Arcimoles and Trebucq, 2002). Moreover, those which found neutral relationship suggested that there were many factors preventing researchers from secure results (Kang et al., 2010).

Although there have been a fierce debate about this relationship, most of the studies have shown that CSR increases the financial performance in banking sector (Theofanis Karagiorgos, 2010).

Reputation that is in a relationship in CSR also deserves many studies. CSR is an important reputational driver and can create economic value over time. Stock markets will not value positively charitable and unpublicized contributions by a bank if they do not affect firm‟s reputation (Van Dijken, 2007; Hillenbrand and Money, 2007). Nevertheless, several keyresearch areas of CSR and bank reputation have remained under-explored and existing studies point out the need for further investigations. It is interesting to note that during financial crisis Licensed under Creative Common Page 7 © Tran several banks get involved in reputational crisis (Gabbi et al., 2009; Uslaner, 2010). Indeed, the comparative analysis of well-known cases have highlighted the importance of CSR in managing of such crisis, suggestion looking into the relationship between CSR and corporate reputation. It should be eventually noted that the most important thing to bank is to increase reputation because the banks want to receive trust from customers and stakeholders. Thus, CSR is one of the main strategies for bank to achieve the goal of maximizing profit.

Perceptions toward CSR Globally, the awareness of the bank manager, stakeholder, authorities, professors and customers about CSR, Sustainable Development and Non- Financial Reporting is increasing (Suman Kalyan Chaudhury, Sanjay Kanti Das, Prasanta Kumar Sahoo, 2011). Therefore, the contribution of financial institutions including banks to CRS recently become significant considering the crucial role playing in financing the economic and developmental activities of the world.

Managers‟ attitudes toward CSR are central to the CSR strategy process of the bank.

L.Zu (2009) illustrates that a large proportion of Chinese managers has a better understanding of the concept of CSR and is moderately in favor of CSR. Especially, in the context of current interdependent economic development, these managers allocated more responsibilities to such main three stakeholder groups as government, customers and employees, because these groups have a great impact on their reputation and the firm‟s performance. Especially, 93% of CEOs in North America and 82% of CEOs in Europe regarded responsible actions toward all stakeholders as a key influence on their company‟ social reputation(Maignan and Ferrell, 2003).

The managers in China recognize that the benefits of being a good corporate citizenship which enjoys firstly profit maximization, attracting the best employees, winning deep-seated customer loyalty, minimizing lawsuits, and possibly lowering cost of capital. CSR is consistent with the pursuit of profits (L.Zu, 2009).

As stated in other research about professionals‟ attitude about CSR, CSR professionals believe that effective management of CSR is the most important factor for the creation of shareholder value (Nima Hunter Inc, 2007). In addition, the authority form European banking industry has long ago realized the central importance of having a defined CSR policy due to the significant development of CRS in any modern economy (Europe Banking Federation, 2013).

From the perception of business and stakeholder, Richard Welfordet al. (2007) indicated that Businesses and stakeholders see all 15 factors as important, but in different level. Among them, good environmental performance is the most important factor that banks concern. Moreover, good health and safety and corporate governance ranked second and third, respectively.

Licensed under Creative Common Page 8 International Journal of Economics, Commerce and Management, United Kingdom Philanthropy is the last among the 15 factors. The quite traditional areas of CSR including environmental performance, health and safety, good governance and HR still dominate the concerns of both business and stakeholders.

From the analysis of the prior results, some conclusions related to consumers‟ perception are raised. More than 90% of the respondents in Greek believe that the CSR programs are importan tbecause CSR programs can bring a better future, the difference to the world. The majority of them believe that CSR can create profit for not only the bank but also the society (Persefoni Polychronidoua et al., 2014). In addition, the majority of them believe that these programs are useful for advertisement reasons and banks‟ reputation/ image. Besides, Persefoni Polychronidoua et al. (2014) concludes that the majority (54%) would change bank if their bank abolished its CSR program. Therefore, it can be learnt that, CRS and its reputation from CSR programs are crucial for bank existence and development. As stated above, the reputation of banks contribute greatly to increasing banks new clients and retaining old clients‟ satisfaction, from which banks can retain existing customers as well. Ironically, although most customers in Australia realize that CSR are useful and important, profit from CSR is neither visible nor direct, the respondents do not believe that banks have something to benefit from CSR programs (Alan Pomering & Sara Dolnicar, 2006).

CSR practices Nowadays, CSR practices differ from country to country (Adams, Hill & Roberts, 1998) and between developed and developing countries (Imam, 2000). Banks increasingly recognize CRS.

Thus, it promotes bank to endorse CSR strategies focusing on four main aspects including Environment, Society, Marketplace and Workplace. All of CRS sponsorship actions from bank are towards vulnerable groups and charitable nonprofit organizations.

First, Environment implementation is the most vital strategy that bank can apply in the CSR program (Hart, 1997; Levy & Egan, 2003). Because banks themselves naturally do not produce hazardous chemicals or discharge toxic pollutants into the environment, they do not appear to be involved with environmental issues. Besides, althoughit is the bank‟s duty to repay environment, there are many banks using recycling electrical and electronic equipment for environmental protection (Persefoni Polychronidou et al., 2013). Besides, through their lending practices, banks are inextricably connected to commercial activity that degrades the natural environment. In brief, it is important that the banking sector in every country be aware of its environmental and socialr esponsibilities (Gokce Akdemir Omur et al., 2012).

Second, banks contribute to the development of Society in CSR program. It is true that banks are paying more to their CSR activities but not so much as their earning increases. The

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involvement of the Eurobank on Education, Culture, Sport is the corner stone of social contribution since its inception until today (Eurobank EFG, 2012). Common CSR practices in the banking sector by different organization are centered on mainly poverty alleviation, healthcare, education, charity activities, cultural enrichment, youth development, women empowerment, patronizing sports and music, etc. especially in developing countries like Bangladesh (Alam Shafiul, et. al., 2010). For example, Grameen Bank provided micro-credit cards for 6,6 million people in which 97% is the poor in Bangladesh. Moreover, working with charities driven bank's contribution in the program "Child, Family and Health" is a strategic choicefor targeted social interventions in Greek. This contribution is well known through the "special green loans" that are issued (Piraeus Bank, 2012). Contribution made to scholarships for academic purposes are in the form of grants to universities, salaries, bursaries, and loans are one of the activities that the bank implement in Zimbabwe (Masuku Caven, 2000).

Third, CSR programs related to Market place is an effective way in the banking sector in order to improvere putation and financial performance with partners (Frenkel & Scott, 2002).

Many banks want to work in „the Green financial markets,' which ranges from environmental risk management in the banking and insurance sector. The aims of this program are creating positive environmental venture capital and private equity fund, environmental risk management, environmental screening in fund management and project finance (Jane Nelson and Dave Prescott,2003). In order to achieve this goal, banks focus on the responsibility in investment (Kurtz, 2008) and accountability (KPMG, 2005). Particularly, National bank offered in the field of renewable energy through the investment programs (National Bank, 2012).

Finally, Work place is the aspect that a bank want to focus on when implementing CSR activities due to the important role of employee. If banks want to attract highquality human resources and increase employee productivity, they have to improve their work place (Bhattacharya, Sen, & Korschun, 2008; Muthuri, Matten, & Moon, 2009). Banks normally recognized that human rights of the employees are placed beyond the scope of labor rights. The CSR principles focusing on the marketplace are incorporated into all policies and procedures implemented by the bank (Emporiki Bank, 2012). Therefore, the bank will have a clean and effective workplace that can make equality among employees.

CSR Reporting Non-financing reports are now getting more importance and are necessary for social organization including firms, banks, and necessarily is in addition to the financial report(Namrata Singh et al., 2013). Different scholars have described concept of CSR reporting in different ways. CSR Reporting calls for reflection of corporate ethical practices, transparency, sensitivity

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