January 1, 2025

Does Corporate Social Responsibility (CSR) affect Financial Performance and Market Value? An Evidence from Banking Industry of Bangladesh

Key Points

A strong relationship exists between corporate social responsibility and market value, indicating potential for financial growth.
Return on equity serves as a key measure of financial performance, reflecting profitability in relation to shareholders' equity.
Time series data from 2017 to 2021 across 23 banks provided a robust basis for analysis of CSR impacts in the banking industry.
Findings suggest CSR allocations can enhance both financial performance and market value for banks in Bangladesh.

Abstract

Corporate Social Responsibility has grown into a fundamental concept in the corporate world, reflecting how companies integrate environmental, social, and governance (ESG) aspects into their decision-making processes. The goal of the research is to analyze the impact of CSR on both financial performance and market value. Banks of Bangladesh prepare a handsome budget for CSR activities, and this study's aim is to explore the impact that CSR has on the market value and financial performance of banks. The dependent variables are Return on Equity (ROE) and Tobin’s Q. ROE is used for the purpose of evaluating financial performance, whereas Tobin's Q is used for the purpose of evaluating market value. This study used time series data for the period of 2017-2021 of 23 banks listed on the Dhaka Stock Exchange (DSE). Linear regression analysis is used to know the relationship. This study revealed a positive relation between CSR and financial performance, although it was not deemed statistically significant. There is a positive and strong relationship between CSR and market value. The allocation of an organization's CSR funds contributes to the enhancement of their financial performance and a boost of their market value.

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