Assessing the Impact of Corporate Social Responsibility Disclosure on Financial Performance and Investor Confidence in Pakistani Banks

Abstract

This paper focuses on exploring the association between the disclosure of corporate social responsibility (CSR), financial performance, and investor confidence in the Pakistani banking industry. The research design used is quantitative and involves the analysis of panel data of twenty scheduled banks listed in the Pakistan Stock Exchange in the year 2019 to 2023. The study is based on the creation of a complete index of CSR disclosure through content analysis of the annual report, and the financial performance is analysed on the basis of the return on assets (ROA) and the return on equity (ROE). The proxies of investor confidence are volatility of stock prices and price to earnings ratios. Based on the stakeholder theory, legitimacy theory, and signaling theory, the research proposes the question of the impact of transparent CSR reporting on accounting-based and market-based performance indicators. The results indicate that there is a strong positive relationship between disclosure of CSR and long-term financial performance especially ROE, whereas the correlation with short-term ROA is statistically non-significant. Moreover, increased CSR disclosure has a negative association with stock price volatility, which indicates a better investor confidence. The research has its role in offering strategic guidance to regulators of banking institutions and practitioners in developing economies and contributes to the limited empirical evidence existing in the literature. The study points to the need to have uniform CSR reporting systems in the changing regulatory environment in Pakistan.

Keywords: Corporate social responsibility disclosure, financial performance, investor confidence, Pakistani banking sector, stakeholder theory, legitimacy theory, signaling theory, return on equity, stock price volatility.