Research On The Relationship Between Corporate Social Responsibility And Corporate Financial Performance Of German Banks

Germany used large amounts of public funds to manage the 2008 financial crisis,public debt has risen to a critical level.Due to the drop in real economy,Germany faced unemployment and economic fall back that are still unresolved to this day.After the crisis,many were concerned how to restore the confidence in financial institutions and how banks can better contribute to sustainable social and economic growth.It is not surprising to see that CSR is subject to considerable amount of debate and criticism.Advocates argue that banks benefit in many ways by operating with a perception broader and longer than their own immediate,short-term profits.Opponents argue that CSR diverts from the basic economic role of banks;others argue that it is nothing more than superficial window-dressing.Largely,the banking industry does not realize the central importance of having a defined CSR policy.Many banks do not fully understand the worth of CSR.Yet,there are banks that do well in this area.The purpose of this paper is to study the relationship between banks in Germany to fulfill their social responsibilities and its financial performance.The work is extended to three bank types of Germany: cooperative banks,private banks,and public savings banks.For this purpose,I measured corporate social responsibility disclosure in terms of published CSR keywords on the annual reports of 64 banks over six years ranging from 2012 till 2017,using the software SPSS and a self-programmed Macro in VBA to double check the number of keywords in annual reports.The financial performance of the firms is measured as return on assets(ROA),return on equity(ROE),and net income margin(NIM).A matrix correlation analysis and linear regression analysis is then performed on the data to validate the impact of corporate social responsibility disclosure on the financial performance of banks.In addition,interview results were evaluated in which it was about what opinion German banks have to social responsibility and what they already do.Thereafter,various CSR behaviours were examined by German banks as a case study and the results were transferred to a social responsibility maturity level model.This study provides the following results:(1)the results have shown positive and significant impact of CSR disclosure on the financial performance of all the sample banks.(2)If we divide by bank type,then the results are mixed.Private Banks show a positive and significant impact between CSR and financial performance.But the results for corporate banks relationship between CSR and financial performance are mixed.Depending on what model and financial measure is used the results are either negative and significant or positive and signicant.For public savings banks the results are mixed as well,but the impact is either only weak positive or weak negative.Therefore,it can be concluded that CSR of public savings banks only has a moderate impact on financial performance.(3)In the study,the average number of CSR clauses in the bank's annual report steadily declined between 2012 and 2017.A major reason may be that after the financial crisis,all banks have improved their CSR practices and more words have appeared in the annual report,but this trend has declined again in a few years,because of the bank's opinion,they already have improved their reputation in front of customers enough.Of particular note is that private banks have the lowest value,but remain unchanged during the study period.Combined with the strong positive impact of CSR on the economic performance of private banks,it can be argued that sustainable corporate social responsibility concepts and consistent corporate social responsibility work will have a positive impact on economic performance.In contrast,the value of corporate social responsibility of corporate and public banks fluctuated significantly during the review period and further declined.Therefore,the results between corporate social responsibility and economic performance are also very variable.Because it clearly lacks constant concepts and sustainability.(4)In assessing the annual report of the German bank,it is surprising that there is no uniform business data reporting structure,especially CSR activities.As a result,it is often difficult to obtain all the financial data for analysis,especially the leverage ratio,and other financial data from previous years have been deliberately hidden.Some banks set a negative example,such as Sparkasse Karlsruhe,Sparkasse Karlsruhe and TargoBank found that their financial data was not clear and transparent.Banks like Sparkasse K?ln Bonn obviously use the same template every year to produce annual reports,because the number of words is basically the same every year.Therefore,it is difficult to measure the CSR activities of these banks and whether you have actually implemented these CSR practices.To be positively evaluated,such as KFW,Volkswagen Bank,IB.SH F?rderbank,Nordbank and Staatsbank Baden-Würtemberg,this obligation is irrelevant to corporate social responsibility,but still listed in recent years because these banks have a transparent list of financial data,as well as many supporting services,financial indicators.(5)It can be stated that in most institutes additional activities are necessary to dovetail / coordinate the individual activities and thus to make the best use of the sustainability efforts with justifiable use of resources.In summary,it can be stated for Germany that the banking market has already developed significantly beyond the "business as usual" phase with regard to sustainability.In addition to the three banks presented here,the survey presented in the sector showed that most banks are moving between the areas of "Sustainability 1.0" and "Sustainability 2.0",whereby some institutions are already clearly above and examples such as the GLS already in the area " Sustainability 3.0 " have arrived.However,due to the size of the market and the large number of institutions,the scope of development is much greater than in the other economies.This paper offers several contributions to the previous literature.First,the paper completely considers CSR disclosure by investigating both the quantity and they way banks report of disclosure in annual reports,thus going beyond limitations associated with CSR disclosure analysis.Second,although there have been a few empirical studies investigating the link between CSR and CFP in the banking sector in other countries,there are no previous studies focused on the relationship between CSR and FP in German banking sector.Third,given the importance of banks in the German economy and the changes that the crisis has determined for the banking system,considering the crisis period can contribute to add new insights to the literature on banks.Fourth,this paper analysed the CSR pratices,current problems,development,and structure of the banking sector in Germany.On this basis a guideline with suggestions was developed,which can be used by banks,customers,government,scholars,and other institutions to help better understand how to establish a better CSR Pratice in the future in banking sector in Germany.