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Do Corporate Social Responsibility Disclosures Improve Financial Performance? A Perspective of the Islamic Banking Industry in Pakistan

Author

Listed:
  • Zia Ur Rehman

    (Department of Management Sciences, City University of Science and IT, Peshawar 25000, Pakistan)

  • Muhammad Zahid

    (Department of Management Sciences, City University of Science and IT, Peshawar 25000, Pakistan)

  • Haseeb Ur Rahman

    (Institute of Management Sciences, University of Science and Technology, Bannu 28100, Pakistan)

  • Muhammad Asif

    (Department of Management Sciences, City University of Science and IT, Peshawar 25000, Pakistan)

  • Majed Alharthi

    (Finance Department, College of Business, King Abdulaziz University, Rabigh 21911, Saudi Arabia)

  • Muhammad Irfan

    (Electrical Engineering Department, College of Engineering, Najran University Saudi Arabia, Najran 61441, Saudi Arabia)

  • Adam Glowacz

    (Department of Automatic, Control and Robotics, AGH University of Science and Technology, 30-059 Krakow, Poland)

Abstract

This study aims to investigate the impact of corporate social responsibility disclosures (CSRD) on the financial performance of the Islamic banking industry of Pakistan. The study employed the method of content analysis for collecting the required data from annual reports of all four full-fledged Islamic banks operating in Pakistan from 2012 to 2017. The study developed a novel comprehensive CSRD index by using the “Global Reporting Initiative” (GRI) and “Accounting and Auditing Organization of Islamic Financial Institutions” (AAOIFI). This index consists of five dimensions and 105 sub-dimensions of CSRD. The use of Ordinary Least Squares (OLS), Panel Corrected Standard Errors (PCSEs), and Generalized Least Squares (GLS) using random-effect (RE) and fixed-effect (FE) estimators revealed a significant negative relationship between CSRD and the financial performance of the sample firms. Regarding separate dimensions, the relationship of the Environmental and Economic dimensions of CSRD is significantly positive with current performance, but it is insignificant for the relationships of Legal, Philanthropic, and Ethical dimensions of CSRD with the current financial performance. In addition to contributing to the scarce literature in the Islamic banking industry of a developing country like Pakistan, the study will also help the policymakers and other stakeholders, including the AAOIFI, to develop a comprehensive CSRD policy or index and further improve the already established standards for CSRD.

Suggested Citation

  • Zia Ur Rehman & Muhammad Zahid & Haseeb Ur Rahman & Muhammad Asif & Majed Alharthi & Muhammad Irfan & Adam Glowacz, 2020. "Do Corporate Social Responsibility Disclosures Improve Financial Performance? A Perspective of the Islamic Banking Industry in Pakistan," Sustainability, MDPI, vol. 12(8), pages 1-18, April.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:8:p:3302-:d:347309
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    References listed on IDEAS

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    2. Muhammad Zahid & Haseeb Ur Rahman & Musa Khan & Wajahat Ali & Fazaila Shad, 2020. "Addressing endogeneity by proposing novel instrumental variables in the nexus of sustainability reporting and firm financial performance: A step‐by‐step procedure for non‐experts," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 3086-3103, December.
    3. Ahmad Ali Jan & Fong-Woon Lai & Muhammad Umar Draz & Muhammad Tahir & Syed Emad Azhar Ali & Muhammad Zahid & Muhammad Kashif Shad, 2022. "Integrating sustainability practices into islamic corporate governance for sustainable firm performance: from the lens of agency and stakeholder theories," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(5), pages 2989-3012, October.
    4. Rita Wijayanti & Doddy Setiawan, 2022. "Social Reporting by Islamic Banks: The Role of Sharia Supervisory Board and the Effect on Firm Performance," Sustainability, MDPI, vol. 14(17), pages 1-25, September.
    5. Thanh Hung Nguyen & Quang Trong Vu & Duc Minh Nguyen & Hoang Long Le, 2021. "Factors Influencing Corporate Social Responsibility Disclosure and Its Impact on Financial Performance: The Case of Vietnam," Sustainability, MDPI, vol. 13(15), pages 1-16, July.
    6. Haseeb Ur Rahman & Muhammad Zahid & Ali Muhammad, 2022. "Connecting integrated management system with corporate sustainability and firm performance: from the Malaysian real estate and construction industry perspective," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(2), pages 2387-2411, February.
    7. Yubin Zheng & Md. Harun Ur Rashid & Abu Bakkar Siddik & Wei Wei & Syed Zabid Hossain, 2022. "Corporate Social Responsibility Disclosure and Firm’s Productivity: Evidence from the Banking Industry in Bangladesh," Sustainability, MDPI, vol. 14(10), pages 1-19, May.

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