1.     INTRODUCTIONCorporate SocialResponsibility (CSR) is a concept that has attracted the world attention, bothpractical and academic. The idea of having companies that contribute to thesocietal welfare is neither new nor old; in fact its roots extend back to theearly fifties of the last century when CSR concept mainly characterized byphilanthropic actions.

Few years later, the concept started to get clearerfeatures due to the increased awareness and recognition of the overallresponsibility of businesses toward community affairs (Carroll, 2008). Within the past twodecades, CSR has become a salient feature in almost all businesses includingthe banking sector, this shift is mainly a result of many reasons includingglobalization, international trading, competitiveness, as well as the increasedcomplexity within businesses that has increased the public demands for greateraccountability 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 fulfillsocieties needs, the increased level of societies’ requirements have exceededthe capabilities of these governments to satisfy them alone, as a result, thelight has turned on the role of businesses to cooperate and satisfy communityrequirements along with the governments (Guo et al., 2009).

Despite the wide rangeof definitions for CSR concept, most of them have agreed on that CSR means”integrating companies’ objectives with social, economical, ethical andenvironmental action plans aiming to provide sustainable improvements to thestakeholders’ quality of life” (European Commision , 2001). Businesses haveswitched their management approach from the shareholder theory to thestakeholder theory. It is essential now for managers to consider all the issuesthat concern their key stakeholders (Karagiorgos, 2010).

This fact has addressed by Isakssonand Steimle who define CSR as a way to act socially and environmentallyresponsible while still targeting their economic benefits and goals (Isaksson & Steimle, 2009). The Banking sectoras other business sectors has witnessed this great hype in addressing CSR. Formany banks CSR has offered the best solution to integrate ethical practicesalong with their banking activities (Mocan et al., 2015). CSR has beenobserved 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 periodsof financial instability. Many researchers have claimed that engaging to CSRpractices will bring numerous measurable benefits to these Banks includingimproved financial performance, greater competitive advantage, betterreputational capital and enhanced win-win situation in which all parities benefit.Other researchers claimed that CSR will cost these banks much more than what itcan give.

Focusing on the financial outcomes, many studies were concentrated onlinking CSR and the firms’ economic and financial performance, however, therewere little consensus on the nature of this relationship. In fact, positive,negative, and neutral relationships have been presented, with no consistentevidence regarding this relationship. In the context of Lebanon, CSR as aconcept is relatively a new phenomena that has been characterized for beingamateurish and sketchy among the Lebanese firms (Jamali & Mirshak, 2007).Little research exists that takes the relationship between CSR and its impactincluding the financial impact on the firms in Lebanon. This paper seeksexamine the extent to which CSR contributes to the financial performance ofLebanese listed banks.

The paper is structured to present a review for theexisting work on CSR and firms’ financial performance in the form of an overarchingliterature review. The proceeding sections provide a description of the dataemployed for the analysis and the used estimation models. They will furtherpresent the analysis of data and interpretation of results, and finally asummary for the findings and outcomes will be presented. 1.1.ResearchProblemWithin the few recentyears CSR has become the new trend featuring the banking services. Most bankshave followed strategic approaches to plan, design, implement and report CSRactivities; they have developed their own CSR vision and strategy that directlycontributes to other strategies of Marketing, financial, and businessstrategies. They are adopting different CSR practices in wide variety of socialfields including education development, environment protection, and socialsupport.

Moreover, many Banks have developed training programs for theiremployees to ensure their awareness and well recognition for the concept.Because costs arise from performing activities –activity based costingconcept-, banks should expect expenses in return to CSR engagement process. CSRplanning, designing, implementing, and reporting, along with other associatedprograms are not costs free; when a bank decides to practice CSR it uses partof its capital and resources in terms of both cash and time, this includescapital costs, recurrent costs, communication costs, staff costs and evenopportunity costs. In the light of this, there have been different opinions asto what CSR can accomplish to the firm. Milton Friedman who proposed thewell-known shareholder theory, which tells that the only social responsibilityfor firms is to increase shareholder profits within the boundaries of ethicsand laws, argues that firms should not focus on CSR unless it acts as a valuecreator for the firms’ shareholders (Friedman, 1970). Friedman’sshareholder theory supporters argue that investing in CSR activities willreduce the opportunities for exploiting the resources into real profit makingprojects.

It will further increase costs, trigger conflicts of interest amongdifferent stakeholders (Barnett, 2007), and thus inducecompetitive disadvantage that will hurt companies performance (Shen & Chang, 2009). By contrast, otherresearchers believe that investing in CSR can improve the relationship betweenthe 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 theirappeal to employees, enhance customers trust (Greening & Turban, 2000), and can secure thecritical resources controlled by the stakeholders (Bitektine & Haack, 2015).Thus supporters for CSR investing argue that, CSR will consequently boostcompetitive advantages, bring benefits to the shareholders, and improve thefirm’s financial performance (Bird et al., 2007). Due to the debateregarding CSR and its potential value creating capabilities, interest hasincreased to investigate a potential linkage between CSR and financialperformance (Pava & Krausz, 1996). Unfortunately,there was a lack of consistent evidence among studies of the impact of CSR onthe financial performance of firms. A survey of 95 empirical studies conductedbetween (1972-2001) reported that: “when treated as independent variable,corporate social performance is found to have a positive relationship tofinancial performance in 42 studies (53%), no relationship in 19 studies (24%),a negative relationship in 4 studies (5%), and a mixed relationship in 15studies (19%)”.

(Margolis & Walsh, 2001).In the light of the previous exposition, this report is concerned with thefollowing questions:RQ1) What is generallevel of CSR engagement and reporting within the banking sector in Lebanon?RQ2) Within the two yearsexamined, did the banks show any improvements regarding social engagement andreporting?RQ3) What is the natureof the relationship between CSR and financial performance among the banks? 1.2.Purposes andObjectives of the StudyThe main reason forconducting this study is to investigate the relationship between CSR andfinancial performance for the banking sector in Lebanon. More specifically, theprimary objective is to examine whether the implementation of CSR initiativesis associated with an increased ROA and ROE for the sampled banks. To addressthis primary objective the following secondary objectives will be directed:RO1) To understand thelink between CSR and CFP based on previous theoretical and empirical research.

RO2) To examine howBanks’ social performance and financial performance can be measured RO3) To develop anin-depth assessment for the real correlation between CSR and financialperformance for the sampled banks using statistical measures RO4) To figure out thelevel to which banks are engaging to CSR in the case of LebanonRO5) To explain howtransparent CSR reporting can impact stakeholder decision and ultimately,financial performance. 1.3.

ResearchHypothesisIn the development ofthe hypotheses, this study bases its assumptions on Waddock and Graves study,which presents three different kinds of associations between CSR and financialperformance. According to their study, there are three possible results for therelationship 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 thevarious researchers who indicated a negative relationship when analyzing CSPand the financial performance. The theory behind this finding refers to thedisadvantage of incurring unnecessary and avoidable costs by the companies thatengage to CSR.

However, the limitation of these studies is that it onlyanalyzes the short-term relation between CSP and financial performance as theydo not take into their consideration the long-term impact (Palmer, 2012). Other empirical andtheoretical studies proposed a second possibility which is simply there is norelationship between CSR and CFP. Aupperleet al. study in 1985 is one of the most recent and reliable studies that support the norelation assumption. In their study, they used ROA both short-term (one yearresults) and long-term (five years) as a measure for CFP and develop their ownmodel in order to measure CSR, they then applied this study on 241 company.

Theresult indicated that it did not matter whether short-term or long-term ROAwere used, there is no statistical significant relationship between socialperformance and financial performance. This result has not only proposedanother possibility for the relationship, but also assert on that methodologyfor measuring social performance highly influence the results (Aupperle et al., 1985). In fact, the mainjustification for this result is related to the invisible, un-quantitativenature of corporate social performance, and that there are many measurementproblems accompanied with measuring it (Ullmann, 1985). The majority ofrecent empirical and theoretical studies on CSP and CFP indicate that they arepositively correlated. Orlitzyet al. study in 2003 is one of the popular studies asserted the positive relationship andconcluded that not only does CSP positively influence CFP, but vice versa aswell, hinting that a bidirectional relationship exists between the twovariables. Other studies which have found positive relationships when examiningCSP and CFP include: (Martínez?Ferrero & Valeriano, 2015), (Preston & O’bannon, 1997), and (Simpson & Kohers, 2002).

Each one of these articles has introduced several factors that contribute tothis positive association which include: enhanced firm reputation, increasedsales, increased ability to attract better employees, decreased operatingcosts, and reduced business risk. Based on the previous exposition for each ofthe three possibilities, there is stronger support for the positive associationbetween CSP and financial performance; accordingly, the hypothesis for thisstudy will be built on supporting the positive association between socialperformance and financial measures (ROA and ROE): Hypothesis 1, (H1):There is a direct positive relationship between the banks’ CSR performance andits accounting based financial measure ROA.Hypothesis 2, (H2):There is a direct positive relationship between the banks’ CSR performance andits accounting based financial measure ROE.On the other hand,the Null hypothesis for the previous two alternative hypotheses can be statedas:The Null Hypothesis(H0): There is no supported evidence regarding the relationshipbetween CSR performance and the banks’ financial performance measures (ROA andROE).When the P-value forthe correlation shows a less than 0.05 result, this indicates a significantcorrelation between the variables. In this case, the Null hypothesis will berejected, and the alternative hypotheses can be accepted.

However, if the P-valueis larger than 0.05, there is a weak evidence against the null hypothesis, sowe fail to reject it.  2.     OVERVIEW OFTHE BANKING SECTOR IN LEBANONLebanon’s Liberaleconomy is based mainly on competition and private ownership, by which servicesand banking sector predominate, making about 70% of the country’s grossnational product, while the industrial sector makes 20% and the agriculturesector constitutes the remaining 10% (The embassy of lebanon, 2017).According to Carnegie Middle East Center the Lebanese financial sector plays avital role in fueling the growth of the country’s economy. Currently, the mainfinancial services offered are; commercial banking, investment banking andinsurance. From the 1950s to the start of the conflict in 1975, Lebanon was thecenter of the region’s financial services. Despite the conflicts in the late1980s, the commercial banking sector remains the centerpiece that nourishes theeconomy (The embassy of lebanon, 2017).

During the global 2008 financial crises where many banks around the worldcollapsed, many of the major Lebanese banks have shown great survivalcapability, this is mainly due to the great experience in managing understressful, risky and politically unstable area like Lebanon along with manyother comparative advantages that added much to them such as; a strictregulatory framework, skillful workforce, relatively stable currency, and mostimportantly the strong regulations and conservative banking policies set by theCentral Bank ( the banks’ regulatory authority) and the direct supervision fromThe Banking Control Commission ( the banks’ supervisory authority). Accordingto the Association of Banks in Lebanon article in 2015, the sector haswitnessed 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 differentsizes, nature and ownership style,·        Significant openness to abroad, ·        Highly qualified human resources, ·        Provision of both traditional and modern financialservices, ·        The adhesion to international norms and standards, ·        And last but not least, having strong ability toovercome shocks and crises.  In the recent few years Banks in Lebanon hasshown great attention and willingness to adopt socially responsible behaviorsin a more organized manner. Each bank has its own goals, motivations, goals,investment intentions, and level of engagement that differ from other CSRadopters. 2.1. CorporateSocial Responsibility in Lebanese Banks: An emerging fieldMany studies havebeen conducted to explore the state of CSR in several countries around theworld. Moreover, CSR in the context of developing countries has been of greatinterest in the research field.

In Lebanon, CSR is not a popular researchobject in terms of quantitative characteristics. CSR in Lebanon has somehowdifferent introduction and development phase. In contrast to the West, whereCSR was developed in the early 1950’s, the concept of CSR is relatively a newphenomenon in Lebanon, it is clear that CSR is at a very early stage inLebanon, however, many Lebanese companies are showing serious efforts to besocially responsible and sustainable.

Banks in Lebanon were among the precedingbusinesses which tried to include CSR strategy to their operations. However,CSR is still lacking systematic planning and implementation. As Jamaliand 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 conceivedin the context of voluntary philanthropic initiative. According to Jamali& Neville study in 2011, the scope of the social interventions is extremely diversified, rangingfrom donations and programs involving orphans and handicapped, to art andcultural development activities, to educational and learning programs, but allthese activities are consistently dominated by the philanthropic theme.

  CSR adoption byLebanese firms including banks is somewhat different from other countries, itseems to be even more difficult and complicated task. The unstable politicaland economical conditions in Lebanon surly represent the major obstacles.Moreover, in the context of modern, well developed countries where governmentsprovide most of the social requirements to its people, firms are findingthemselves engaging to CSR practices related to their field of work; forexample, in a developed, economically grown country with good potentials foragriculture, banks can provide farmers loans with low interest as a way topractice CSR. However, the case of Lebanon differs; there is huge lack inresponding to many social demands, as a result Banks in Lebanon has foundthemselves facing many fields where CSR can be practiced, although these fieldsmay 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 noticethe diverse social activities that may range from infrastructure development topoverty eradication, to other CSR practices in the fields of environment,healthcare, education, culture, and even women empowerment and childprotection. For example, Byblos Bank in 2006 funded the reconstruction of FidarHighway Bridge in Jbeil after its destruction by the Israelis. Bank Med fundedthe plantation of Cedar trees all over the country.

BLOM Bank invests each yearin his social initiative BLOM marathon of Beirut. Bank Audi in 2016 has reacheda total contribution of $5.1 million in several community fields includinghealth, culture, NGOS support and donations to other fields and individuals.

The observers to the adopted CSR practices by the different banks can easilynotice the varied volume of CSR practices by which each bank invest in, itseems 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, smallnumber of these banks actually publish CSR reports, making it even moredifficult to assess the volume of CSR engagement by the Lebanese bankingsector.   In 2009, CSR LEBANONwas established with the aim of raising awareness about CSR concept andsustainable businesses among firms in Lebanon. Since then and within thesubsequent eight years that followed, Banks have shown a noticeable maturationin the CSR field; many have developed CSR policies and regulations that directthe decision making process by bank’s Board of Directors. Moreover, many bankshave established CSR unit within their structure with its own employees toplan, design, implement and evaluate socially responsible activities.

Most ofthe banks especially Alpha rated banks are now publishing annual reports fortheir CSR activities. According to a research done by the AUB scholar workscenter, Banks are even engaging employees in the CSR decision making,communicate with them, and get their periodic feedback for improvement purposes (Bassam & Sleiman, 2014). It would be interesting to understand the mainreasons 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 asresponding to NGOs pressuring actions.

Moreover, several companies includingbanks have admitted their concern with the benefits and payoffs of their CSRprograms (Jamali & Mirshak, 2007). Yet, directfinancial gain has not addressed as one of these benefits desired from engagingto CSR practices. The case of Lebanonseems to be of great interest to get researched. In a country which does not havea CSR history and in spite of the serious challenges that a bank has to facewhen incorporates CSR strategies, Lebanese banks are showing an