Corporate Social Responsibility and Financial Performance in Islamic Banks

Journal of Economic Behavior & Organization, 2014

41 Pages Posted: 29 Aug 2017

See all articles by Chris Mallin

Chris Mallin

Norwich Business School, University of East Anglia; University of Birmingham - Birmingham Business School

Hisham Farag

University of Birmingham - Birmingham Business School

Kean Ow-Yong

University of Birmingham - Birmingham Business School

Date Written: july 1, 2014

Abstract

This paper examines the relationship between corporate social responsibility (CSR) and financial performance in Islamic banks. Using a comprehensive CSR index covering ten dimensions, we analyse the CSR disclosures in a sample of 90 Islamic banks across 13 countries. The CSR disclosure index shows that Islamic banks engage across the range of social activities, both as individual banks and as countries. However Islamic banks seem to show more commitment to the vision and mission, the board and top management, and the financial product/services dimensions, whilst least attention is paid to the environment dimension. Islamic banks also show a considerable awareness of the mandatory disclosure recommendations of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) however, they pay less attention to the voluntary CSR disclosure. Moreover, we find a pronounced emphasis in Islamic banks strategy towards more universal disclosures, suggesting the legitimacy of these banks is reinforced through disclosure to the wider stakeholder community . The empirical analysis highlights a positive association between CSR disclosure and financial performance. We also find a positive and highly significant association between the Shari’ah supervisory board (SSB) size and CSR disclosure index. Finally, the results of the three-stage least squares estimation show that the causality between the two endogenous variables runs from financial performance to CSR disclosure. Thus CSR disclosure is determined by financial performance.

Keywords: Corporate social responsibility (CSR); Islamic banks; Social reporting; Shari’ah Supervisory Board.

JEL Classification: G21

Suggested Citation

Mallin, Christine and Farag, Hisham and Ow-Yong, Kean, Corporate Social Responsibility and Financial Performance in Islamic Banks (july 1, 2014). Journal of Economic Behavior & Organization, 2014, Available at SSRN: https://ssrn.com/abstract=3027644 or http://dx.doi.org/10.2139/ssrn.3027644

Christine Mallin

Norwich Business School, University of East Anglia ( email )

Norwich Research Park
Norwich, NR4 7TJ
United Kingdom

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Hisham Farag (Contact Author)

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Kean Ow-Yong

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

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