Corporate Social Responsibility and Its Relation to Profitability: Evidence from Banks Operating in Palestine

Abstract

Purpose: The current study identifies the extent of corporate social responsibility (CSR) application in Palestine’s banking industry. It further signifies the relationship between the role of CSR and its four dimensions in banking operations and how it boosts profit. The CSR quadrant constitutes responsibility towards employees, marketplace, community, and environment.

Methodology: the current research study follows the positivist paradigm and is quantitative in nature. The study used the descriptive methodology to reflect the facts related to CSR and profitability. The population of this study consists of directors in regional administrations of banks operating in Palestine. A survey was conducted and 10 banks were the targeted population. Fifty questionnaires were distributed and 44 responses were recorded. Secondary data from the published financial statements was used to see the profitability indicators.

Findings and Results: This study investigates the profitability situation of the banking industry in Palestine during the period 2012-2016 using profitability indicators (ROA, ROE, NP, EPS). Statistical results of correlation shows a high level of social responsibility commitment by banks working in Palestine; the social responsibility towards marketplace was the highest, followed by the responsibility towards the community, employees, and environment. In addition, the study finds out a weak positive correlation between CSR and profitability.

Conclusion: CSR is an investment with substantial financial returns, despite any benefits that may accrue to society. It helps in identifying more opportunities to take a competitive advantage, increase company confidence, strengthen relationships with key stakeholders, and reduce transaction costs and thus generate financial gains.

Recommendations: The study comes out with several recommendations that directed to the three stakeholders (banks, government, public administration or institutions); such as the need of banks to move forward in social responsibility activities through volunteer projects related to employees and community like establishing housing projects for employees and infrastructure projects. The directions for government to conduct an awareness campaign of social responsibility dimensions and principles towards corporations or institutions. The directions for community/public institutions is to identify a comprehensive concept of social responsibility to suit the social and economic reality of the Palestinian community.