HOW DOES CORPORATE SOCIAL RESPONSIBILITY IMPACT BANKING EFFICIENCY: A CASE IN CHINA

Much of the earlier literature was focused on the link between corporate social responsibility and corporate financial performance, with contradictory conclusions regarding the impact of corporate social responsibility upon corporate financial performance in the literature. Departing from conventional parametric techniques, this paper employs a fully nonparametric approach to analyze the link between corporate social responsibility and corporate financial performance in Chinese banking sector. Specifically, the slack-free Multi-directional Efficiency Analysis is extended into the conditional efficiency framework. The results indicate that corporate social responsibility has a significant impact on banking performance, where an increase in CSR generally leads towards an increase in conditional efficiency, but the attainable frontier might be shifted to any direction for the highest values of corporate social responsibility. In details, the analysis of “pure” efficiency indicates that corporate social responsibility has a stronger impact on increasing net profit if compared to that on contracting the amount of non-performing loans. In other words, it turns out that corporate social responsibility is likely to affect the attainable frontier in the direction of expanding net profit rather than contracting non-performing loans, because the portfolio of non-performing loans is difficult to reduce and therefore the impact of corporate social responsibility is not significant either on the frontier or on average efficiency. However, there exists a trade-off between corporate social responsibility and bank performance when a certain limit is exceeded in Chinese banking. Thus, a minimal increase in corporate social responsibility is likely to contribute to improvements in banking performance (productivity), whereas a negative effect is observed at the highest levels of corporate social responsibility.