1. (Karagiorgos, 2010). This fact has addressed by


Corporate Social
Responsibility (CSR) is a concept that has attracted the world attention, both
practical and academic. The idea of having companies that contribute to the
societal welfare is neither new nor old; in fact its roots extend back to the
early fifties of the last century when CSR concept mainly characterized by
philanthropic actions. Few years later, the concept started to get clearer
features due to the increased awareness and recognition of the overall
responsibility of businesses toward community affairs (Carroll, 2008). Within the past two
decades, CSR has become a salient feature in almost all businesses including
the banking sector, this shift is mainly a result of many reasons including
globalization, international trading, competitiveness, as well as the increased
complexity within businesses that has increased the public demands for greater
accountability and transparency, so companies became more obligated to publish
“social reports” to enhance corporate transparency and citizenship.
Moreover, while governments previously held the sole responsibility to fulfill
societies needs, the increased level of societies’ requirements have exceeded
the capabilities of these governments to satisfy them alone, as a result, the
light has turned on the role of businesses to cooperate and satisfy community
requirements along with the governments (Guo et al., 2009). Despite the wide range
of definitions for CSR concept, most of them have agreed on that CSR means
“integrating companies’ objectives with social, economical, ethical and
environmental action plans aiming to provide sustainable improvements to the
stakeholders’ quality of life” (European Commision , 2001). Businesses have
switched their management approach from the shareholder theory to the
stakeholder theory. It is essential now for managers to consider all the issues
that concern their key stakeholders (Karagiorgos, 2010). This fact has addressed by Isaksson
and Steimle who define CSR as a way to act socially and environmentally
responsible while still targeting their economic benefits and goals (Isaksson & Steimle, 2009). The Banking sector
as other business sectors has witnessed this great hype in addressing CSR. For
many banks CSR has offered the best solution to integrate ethical practices
along with their banking activities (Mocan et al., 2015). CSR has been
observed by the Banks as a tool to create positive impression among the public,
therefore a way to rebuild the trust that may be shriveled during the periods
of financial instability. Many researchers have claimed that engaging to CSR
practices will bring numerous measurable benefits to these Banks including
improved financial performance, greater competitive advantage, better
reputational capital and enhanced win-win situation in which all parities benefit.
Other researchers claimed that CSR will cost these banks much more than what it
can give. Focusing on the financial outcomes, many studies were concentrated on
linking CSR and the firms’ economic and financial performance, however, there
were little consensus on the nature of this relationship. In fact, positive,
negative, and neutral relationships have been presented, with no consistent
evidence regarding this relationship. In the context of Lebanon, CSR as a
concept is relatively a new phenomena that has been characterized for being
amateurish and sketchy among the Lebanese firms (Jamali &
Mirshak, 2007).
Little research exists that takes the relationship between CSR and its impact
including the financial impact on the firms in Lebanon. This paper seeks
examine the extent to which CSR contributes to the financial performance of
Lebanese listed banks. The paper is structured to present a review for the
existing work on CSR and firms’ financial performance in the form of an overarching
literature review. The proceeding sections provide a description of the data
employed for the analysis and the used estimation models. They will further
present the analysis of data and interpretation of results, and finally a
summary for the findings and outcomes will be presented.

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Within the few recent
years CSR has become the new trend featuring the banking services. Most banks
have followed strategic approaches to plan, design, implement and report CSR
activities; they have developed their own CSR vision and strategy that directly
contributes to other strategies of Marketing, financial, and business
strategies. They are adopting different CSR practices in wide variety of social
fields including education development, environment protection, and social
support. Moreover, many Banks have developed training programs for their
employees to ensure their awareness and well recognition for the concept.
Because costs arise from performing activities –activity based costing
concept-, banks should expect expenses in return to CSR engagement process. CSR
planning, designing, implementing, and reporting, along with other associated
programs are not costs free; when a bank decides to practice CSR it uses part
of its capital and resources in terms of both cash and time, this includes
capital costs, recurrent costs, communication costs, staff costs and even
opportunity costs. In the light of this, there have been different opinions as
to what CSR can accomplish to the firm. Milton Friedman who proposed the
well-known shareholder theory, which tells that the only social responsibility
for firms is to increase shareholder profits within the boundaries of ethics
and laws, argues that firms should not focus on CSR unless it acts as a value
creator for the firms’ shareholders (Friedman, 1970). Friedman’s
shareholder theory supporters argue that investing in CSR activities will
reduce the opportunities for exploiting the resources into real profit making
projects. It will further increase costs, trigger conflicts of interest among
different stakeholders (Barnett, 2007), and thus induce
competitive disadvantage that will hurt companies performance (Shen & Chang, 2009). By contrast, other
researchers believe that investing in CSR can improve the relationship between
the firm and its stakeholders (Cheng et al., 2014). As a result,
engaging in CSR will improve brand image and public reputation (Orlitzy et al., 2003), increase their
appeal to employees, enhance customers trust (Greening & Turban, 2000), and can secure the
critical resources controlled by the stakeholders (Bitektine & Haack,
Thus supporters for CSR investing argue that, CSR will consequently boost
competitive advantages, bring benefits to the shareholders, and improve the
firm’s financial performance (Bird et al., 2007). Due to the debate
regarding CSR and its potential value creating capabilities, interest has
increased to investigate a potential linkage between CSR and financial
performance (Pava & Krausz, 1996). Unfortunately,
there was a lack of consistent evidence among studies of the impact of CSR on
the financial performance of firms. A survey of 95 empirical studies conducted
between (1972-2001) reported that: “when treated as independent variable,
corporate social performance is found to have a positive relationship to
financial performance in 42 studies (53%), no relationship in 19 studies (24%),
a negative relationship in 4 studies (5%), and a mixed relationship in 15
studies (19%)”. (Margolis & Walsh,
In the light of the previous exposition, this report is concerned with the
following questions:

RQ1) What is general
level of CSR engagement and reporting within the banking sector in Lebanon?

RQ2) Within the two years
examined, did the banks show any improvements regarding social engagement and

RQ3) What is the nature
of the relationship between CSR and financial performance among the banks?


1.2.Purposes and
Objectives of the Study

The main reason for
conducting this study is to investigate the relationship between CSR and
financial performance for the banking sector in Lebanon. More specifically, the
primary objective is to examine whether the implementation of CSR initiatives
is associated with an increased ROA and ROE for the sampled banks. To address
this primary objective the following secondary objectives will be directed:

RO1) To understand the
link between CSR and CFP based on previous theoretical and empirical research.

RO2) To examine how
Banks’ social performance and financial performance can be measured

RO3) To develop an
in-depth assessment for the real correlation between CSR and financial
performance for the sampled banks using statistical measures

RO4) To figure out the
level to which banks are engaging to CSR in the case of Lebanon

RO5) To explain how
transparent CSR reporting can impact stakeholder decision and ultimately,
financial performance.



In the development of
the hypotheses, this study bases its assumptions on Waddock and Graves study,
which presents three different kinds of associations between CSR and financial
performance. According to their study, there are three possible results for the
relationship between CSP and CFP: negative association, positive association,
and no association (Waddock & Graves, 1997). López et al. study in 2007 and Friedman study in 1970 are among the
various researchers who indicated a negative relationship when analyzing CSP
and the financial performance. The theory behind this finding refers to the
disadvantage of incurring unnecessary and avoidable costs by the companies that
engage to CSR. However, the limitation of these studies is that it only
analyzes the short-term relation between CSP and financial performance as they
do not take into their consideration the long-term impact (Palmer, 2012). Other empirical and
theoretical studies proposed a second possibility which is simply there is no
relationship between CSR and CFP. Aupperle
et al. study in 1985 is one of the most recent and reliable studies that support the no
relation assumption. In their study, they used ROA both short-term (one year
results) and long-term (five years) as a measure for CFP and develop their own
model in order to measure CSR, they then applied this study on 241 company. The
result indicated that it did not matter whether short-term or long-term ROA
were used, there is no statistical significant relationship between social
performance and financial performance. This result has not only proposed
another possibility for the relationship, but also assert on that methodology
for measuring social performance highly influence the results (Aupperle et al., 1985). In fact, the main
justification for this result is related to the invisible, un-quantitative
nature of corporate social performance, and that there are many measurement
problems accompanied with measuring it (Ullmann, 1985). The majority of
recent empirical and theoretical studies on CSP and CFP indicate that they are
positively correlated. Orlitzy
et al. study in 2003 is one of the popular studies asserted the positive relationship and
concluded that not only does CSP positively influence CFP, but vice versa as
well, hinting that a bidirectional relationship exists between the two
variables. Other studies which have found positive relationships when examining
CSP and CFP include: (Martínez?Ferrero & Valeriano, 2015), (Preston & O’bannon, 1997), and (Simpson & Kohers,
Each one of these articles has introduced several factors that contribute to
this positive association which include: enhanced firm reputation, increased
sales, increased ability to attract better employees, decreased operating
costs, and reduced business risk. Based on the previous exposition for each of
the three possibilities, there is stronger support for the positive association
between CSP and financial performance; accordingly, the hypothesis for this
study will be built on supporting the positive association between social
performance and financial measures (ROA and ROE):

Hypothesis 1, (H1):
There is a direct positive relationship between the banks’ CSR performance and
its accounting based financial measure ROA.

Hypothesis 2, (H2):
There is a direct positive relationship between the banks’ CSR performance and
its accounting based financial measure ROE.

On the other hand,
the Null hypothesis for the previous two alternative hypotheses can be stated

The Null Hypothesis
(H0): There is no supported evidence regarding the relationship
between CSR performance and the banks’ financial performance measures (ROA and

When the P-value for
the correlation shows a less than 0.05 result, this indicates a significant
correlation between the variables. In this case, the Null hypothesis will be
rejected, and the alternative hypotheses can be accepted. However, if the P-value
is larger than 0.05, there is a weak evidence against the null hypothesis, so
we fail to reject it.



Lebanon’s Liberal
economy is based mainly on competition and private ownership, by which services
and banking sector predominate, making about 70% of the country’s gross
national product, while the industrial sector makes 20% and the agriculture
sector constitutes the remaining 10% (The embassy of lebanon,
According to Carnegie Middle East Center the Lebanese financial sector plays a
vital role in fueling the growth of the country’s economy. Currently, the main
financial services offered are; commercial banking, investment banking and
insurance. From the 1950s to the start of the conflict in 1975, Lebanon was the
center of the region’s financial services. Despite the conflicts in the late
1980s, the commercial banking sector remains the centerpiece that nourishes the
economy (The embassy of lebanon,
During the global 2008 financial crises where many banks around the world
collapsed, many of the major Lebanese banks have shown great survival
capability, this is mainly due to the great experience in managing under
stressful, risky and politically unstable area like Lebanon along with many
other comparative advantages that added much to them such as; a strict
regulatory framework, skillful workforce, relatively stable currency, and most
importantly the strong regulations and conservative banking policies set by the
Central Bank ( the banks’ regulatory authority) and the direct supervision from
The Banking Control Commission ( the banks’ supervisory authority). According
to the Association of Banks in Lebanon article in 2015, the sector has
witnessed great progression, it’s been characterized for having:

Great contribution to the Lebanese industry,

Sustainable and favorable growth and performance,

The presence of large number of banks of different
sizes, nature and ownership style,

Significant openness to abroad,

Highly qualified human resources,

Provision of both traditional and modern financial

The adhesion to international norms and standards,

And last but not least, having strong ability to
overcome shocks and crises.


 In the recent few years Banks in Lebanon has
shown great attention and willingness to adopt socially responsible behaviors
in a more organized manner. Each bank has its own goals, motivations, goals,
investment intentions, and level of engagement that differ from other CSR


2.1. Corporate
Social Responsibility in Lebanese Banks: An emerging field

Many studies have
been conducted to explore the state of CSR in several countries around the
world. Moreover, CSR in the context of developing countries has been of great
interest in the research field. In Lebanon, CSR is not a popular research
object in terms of quantitative characteristics. CSR in Lebanon has somehow
different introduction and development phase. In contrast to the West, where
CSR was developed in the early 1950’s, the concept of CSR is relatively a new
phenomenon in Lebanon, it is clear that CSR is at a very early stage in
Lebanon, however, many Lebanese companies are showing serious efforts to be
socially responsible and sustainable. Banks in Lebanon were among the preceding
businesses which tried to include CSR strategy to their operations. However,
CSR is still lacking systematic planning and implementation. As Jamali
and Mirshak in 2007 suggested, many of CSR adopters lack clear targets, rigorous metrics,
and due diligence in their pursuit of CSR. Moreover, CSR is largely conceived
in the context of voluntary philanthropic initiative. According to Jamali
& Neville study in 2011, the scope of the social interventions is extremely diversified, ranging
from donations and programs involving orphans and handicapped, to art and
cultural development activities, to educational and learning programs, but all
these activities are consistently dominated by the philanthropic theme. 

CSR adoption by
Lebanese firms including banks is somewhat different from other countries, it
seems to be even more difficult and complicated task. The unstable political
and economical conditions in Lebanon surly represent the major obstacles.
Moreover, in the context of modern, well developed countries where governments
provide most of the social requirements to its people, firms are finding
themselves engaging to CSR practices related to their field of work; for
example, in a developed, economically grown country with good potentials for
agriculture, banks can provide farmers loans with low interest as a way to
practice CSR. However, the case of Lebanon differs; there is huge lack in
responding to many social demands, as a result Banks in Lebanon has found
themselves facing many fields where CSR can be practiced, although these fields
may not relate to their field of work (Salloum & Al Sayah, 2015). In this context,
the observer at the CSR practices in the Banking sector of Lebanon can notice
the diverse social activities that may range from infrastructure development to
poverty eradication, to other CSR practices in the fields of environment,
healthcare, education, culture, and even women empowerment and child
protection. For example, Byblos Bank in 2006 funded the reconstruction of Fidar
Highway Bridge in Jbeil after its destruction by the Israelis. Bank Med funded
the plantation of Cedar trees all over the country. BLOM Bank invests each year
in his social initiative BLOM marathon of Beirut. Bank Audi in 2016 has reached
a total contribution of $5.1 million in several community fields including
health, culture, NGOS support and donations to other fields and individuals.
The observers to the adopted CSR practices by the different banks can easily
notice the varied volume of CSR practices by which each bank invest in, it
seems that the size of the bank play important role in adopting CSR in Lebanon.
It is also noticeable that although many banks engage in CSR practices, small
number of these banks actually publish CSR reports, making it even more
difficult to assess the volume of CSR engagement by the Lebanese banking


was established with the aim of raising awareness about CSR concept and
sustainable businesses among firms in Lebanon. Since then and within the
subsequent eight years that followed, Banks have shown a noticeable maturation
in the CSR field; many have developed CSR policies and regulations that direct
the decision making process by bank’s Board of Directors. Moreover, many banks
have established CSR unit within their structure with its own employees to
plan, design, implement and evaluate socially responsible activities. Most of
the banks especially Alpha rated banks are now publishing annual reports for
their CSR activities. According to a research done by the AUB scholar works
center, Banks are even engaging employees in the CSR decision making,
communicate with them, and get their periodic feedback for improvement purposes (Bassam & Sleiman,

 It would be interesting to understand the main
reasons for the CSR engagement by these banks in Lebanon. According to Jamali
& Neville study in 2011, most firms engage to CSR due to regulatory obligations as well as
responding to NGOs pressuring actions. Moreover, several companies including
banks have admitted their concern with the benefits and payoffs of their CSR
programs (Jamali & Mirshak, 2007). Yet, direct
financial gain has not addressed as one of these benefits desired from engaging
to CSR practices.

The case of Lebanon
seems to be of great interest to get researched. In a country which does not have
a CSR history and in spite of the serious challenges that a bank has to face
when incorporates CSR strategies, Lebanese banks are showing an 


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