Peer pressure, CSR spending, and long-term financial performance

We investigate the role of peer pressure on banks’ Corporate Social Responsibility (CSR) activities and the long-term impacts of their CSR spending on financial performance. We find that a bank’s CSR expenditure increases with that of its peer-banks. However, there is no association between a bank’s CSR expenditure and that of banks of its non-peer group. Our results are robust to addressing the sample selection and bank-specific omitted variable bias, alternative definition of peer pressure, and addressing the concern of alternative explanation that CSR expenditure is driven by tax incentive. Additional analysis suggests that a bank’s CSR spending increases not only the current profitability but also its future profitability. This study establishes the evidence of the peer pressure on CSR spending, and the value of CSR in terms of short – and long-term benefits.