EFFECT OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON FINANCIAL PERFORMANCE IN BANKING INDUSTRY OF PAKISTAN

Abstract

Corporate social responsibility is now one of the main areas of study in the realm of finance and is taken into consideration when making investment decisions. Investigating the effect of corporate social responsibility (CSR) disclosure on financial performance in the Pakistani banking sector is the goal of this research study. The Pakistan Stock Exchange (PSX) official website and the annual reports of listed banks were the sources of the quantitative secondary data used in this study, which covered the years 2010 through 2020. Ordinary least squares (OLS) regression, a fixed effect model (FEM) or random effect model (REM), together with other prerequisite diagnostic tests, had been used for the quantitative data analysis. The study used the five dimensions of CSR disclosure as an independent variable, while return on assets (ROA) and return on equity (ROE), which measure financial success, are used as dependent variables. These aspects are, in order, financial, environmental, legal, moral, and charitable. In the study, control variables including business size, debt ratio, and capital ratio were also included. The study's conclusions showed a strong correlation between financial performance in Pakistan's banking sector and averages across all categories of corporate social responsibility. The findings also show a substantial correlation between each chosen CSR disclosure factor, such as ethical, environmental, economic, and philanthropic, however only the legal factor significantly affects the financial performance of Pakistan's banking sector. This study aids businesses in realizing the value of CSR disclosure, which is crucial for improving the banking sector's financial performance. The results of this study should have beneficial practical ramifications for businesses, decision-makers in government, financial advisors, and Pakistan's banking sector.