CSR Performance and Profitability of the Banking Industry in Southeast Asia Nations (ASEAN)

Abstract

Research Question: Is non-financial information in CSR reports associated with the banking profitability? Is CSR performance related to profitability of public banks in ASEAN? Motivation: Literature have provided comprehensive empirical findings with respect to the relationship between CSR performance and its economic consequences for companies operating in the Environmentally Sensitive Industries (ESIs). However, little is known when it comes to the context of Non-Environmentally Sensitive Industries (i.e., banks) in ASEAN. Idea: This study aimed to investigate the relationship between CSR performance and profitability in the banking industry of Southeast Asia Nations (ASEAN), which is of interest to practitioners and academics in accounting finance as it relates to driving a company's value. Data: The study used data from the banking industry of ASEAN (i.e., Indonesia, Malaysia, Singapore, the Philippines, and Thailand). Method/Tools: The study used panel data regression analysis to examine observations from 2011 to 2021. The results showed that CSR performance is not positively related to profitability in the banking industry in ASEAN. This was due to the use of CSR information availability and banks' CSR performance scores as the main proxies of CSR performance, which were tested against the banking industry's profitability measured using the market profitability value and the accounting net interest margin. Additionally, the study selected an appropriate model, clustering error standards, and several company-specific attributes as control variables to minimize estimation bias. Findings: The results contravened the proposed hypothesis, necessitating an intellectual discussion and a literature review. This means that CSR practices in the ASEAN banking industry have not met the expectations regarding non-financial information reporting. However, nonfinancial information reporting is an effort to show the public that the company is operating ethically and sustainably. Additionally, CSR practice is often considered symbolic rather than substantive in the ASEAN banking industry. Contributions: This study is among the first investigating the CSR performance and bank profitability nexus in ASEAN. Thus, it contributes to the new empirical evidence of CSR studies in the Non-Environmentally Sensitive Industry (NESI).