ABSTRACT This study provides the results about the impact of corporate social responsibility (CSR) on the financial performance of banks in six Western Balkans (WB6) over the 2011–2023 period. CSR index was constructed from 11 estimated indicators on a Likert scale with six levels (from 1 to 6) to measure the intensity of social responsibility practices of the banks. The sample included 70 banks from the WB6 that were used to investigate the impact and relationship between CSR and financial performance. The research employed an advanced empirical framework by integrating OLS, 2SLS, fixed effects (FEs), and GMM to address possible endogeneity and to obtain consistent findings. The results show that the banks with higher implementation of CSR have higher returns and financial sustainability than those where CSR has been less implemented, suggesting that an approach based on ethics toward generating bank performance indicators contributes to sustainable performance. Larger banks are motivated to respect the standards of CSR more, which is an indication of a strategic orientation toward building a long‐term reputation and consolidation of trust among the stakeholders. In addition, this study shows that CRS is positively and comprehensively related to bank performance indicators such as return on assets (ROA) and return on equity (ROE), while its effect on ratio of efficiency (RE) is found to be negative but economically small and statistically insignificant. The study finds that foreign banks operating in the respective region are at least 2.5 points better off than their local counterparts in CSR application. The results show that CSR plays a strategic role in strengthening financial stability, institutional trust, and sustainable gains, especially in environments with higher risk and uncertainty.
Krasniqi et al. (Wed,) studied this question.