Are Socially Responsible Banks More Risk Averse and Dividends Providers? Empirical Evidence from a Developing Economy

Amin Md. Al(Department of Accounting Mawlana Bhashani Science and Technology University)
Sikder Rana(Department of Accounting Mawlana Bhashani Science and Technology University)
Sohan Tanvir Rahman(Department of Management Mawlana Bhashani Science and Technology University)

Abstract

Purpose: This study examines whether socially responsible firms are uninterested in risk-taking and whether socially responsible banks are more dividend providers than socially irresponsible ones. We conducted the analysis using the least-squares method for 290-panel data observations of 32 commercial banks operating in Bangladesh from 2008 to 2018. Methodology: We employed Ordinary Least Squares Regression for 290-panel data observations of 32 commercial banks operating in Bangladesh from 2008 to 2018 using EViews software version- 8. Moreover, we conducted descriptive analysis and correlations using SPSS software. We considered CSRI and CSRPI as the indicators of corporate social responsibility, dividend per share and stock dividend as a proxy of dividend policy, LEV (leverage), and non-performing loan to total loan as the indicators of financial risk, and lastly, Z score as the indicator of financial stability.Findings: Studies have shown that banks prioritizing social responsibility tend to pay dividends to their shareholders more frequently and consistently than banks that do not. In particular, banks that invest heavily in corporate social responsibility (CSR) tend to maintain a stable dividend payout, which can help address agency problems that arise from overinvestment in the CSR sector. Additionally, we found that banks that make huge expenditures on CSR also seem to have a low eagerness for risk-taking. Again, we found that the financial stability of a socially responsible bank is high and stable enough, which will help efficiently handle the bank’s financial risks, reduce price fluctuations, and increase financial assets that generally influence a bank’s monetary stability.Implications: Banks implementing fruitful CSR strategies can produce substantial shareholder advantages through high dividend payout levels. An expansion in CSR-related expenditure does not prompt a cut-down or reduce the portion of income paid out as dividends to shareholders. Therefore, the Output of our study will help provide critical information and a thorough understanding of corporate social responsibility and its association with the dividend policy, risk, and financial stability in the banking sector. This will also be useful to the researcher, students, and corporate policymakers while making a critical decision about whether a firm should make expenditures on CSR purposes, how it impacts a firm's dividend decision, and its connection with its overall risk and financial stability. According to the study, corporate social responsibility should be integrated into a firm's mission and strategy rather than appearing to be a mere act of generosity.Originality/ Value: This study uniquely considers CSR, dividend policy, risk, and financial stability simultaneously in a developing country. Besides, the three-dimensional measures of CSR used in the research focused on developing the economy are a precious contribution.

Keywords

Corporate Social Responsibility; Business stability; Risk; Stakeholders; Dividend policy; Bangladesh

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DOI: http://dx.doi.org/10.26549/jsbe.v7i2.16842