Recent Advances in Energy, Environment and Financial Science
The link between Corporate Social Performance and Corporate
Financial Performance in the Banking Sector
NIKOLETT DEUTSCH
Department of Strategy and Project Management
Corvinus University of Budapest
1093 Fővám tér 8.
HUNGARY
nikolett.deutsch@uni-corvinus.hu
ÉVA PINTÉR
Department of Finance and Accounting
University of Pécs
7623 Pécs Rákóczi út 80.
HUNGARY
pintereva@ktk.pte.hu
Abstract: - Hectic economic changes and the subsequent regulatory rigor of the past decade have a significant
and negative impact on the functioning of the banking industry worldwide. Banks has been trying to resolve
and re-establish their decreasing trends in profitability; their weakening relationships with their customers; as
well as their former competitive positions by such kind of approaches which depicted them as socially
responsible institutions in the money and capital markets, and led to the spread of the different concepts of
responsible banking, green banking, or ethical banking. However, it is hard to measure the real extent of the
banks’ social responsibility and the effects of these activities on their financial performance on the long run.
This paper attempts to review the different methodologies used for the evaluation and measurement of social
and financial performance of banks. The authors also try to show what kind of relationship can be found
between social and financial performance of banks according to the relevant literature and the results of an
empirical analysis using the sample of seven dominant market players in the Hungarian banking sector between
2006 and 2013.
Key-Words: - corporate social performance (CSP), corporate financial performance (CFP), banking sector,
Scholtens’ CSP framework
incorporation of responsible banking products [53]
and the fact that sponsoring and donating activities
[59] have become a general habit as part of the
responses to the changes on the capital market and
to the tightening regulations of the general banking
operations. The financial recession has put the
banks’ operational and regulation problems in the
focus. The Basel Committee ordained the fractional
installation of the Basel III principles and measures
between 2012 and 2019 for the European banks for
systematic risk management. Keeping the sectorspecific accounting regulations across the European
Countries, the Basel Committee’s guidelines and
measures guarantee the security of capital adequacy.
In the Basel III regulation the term of leverage has
changed, the countercyclical capital puffer has been
introduced and the calculation of capital has been
tightened as well. The consequence of the
introduction of capital puffer will be the rising of
the capital adequacy indicator’s level on the long
run. The bank’s toolbar is mostly formed of the
1 Introduction
The concept of corporate social responsibility and
its practical realisation in the last decade became a
serious interest for both academics and practisers.
While the question of a generalizable business case
for CSR is still unanswered, in the relevant literature
a number of reasons are listed supporting CSR
activities such as the ability to strength the
reputation and image of an organisations [20], [32],
to increase customers’ loyalty and trust [36], to
decline business risks and cost of capital [5], to
explore the growth opportunities towards new
products, services and markets [55], the ability to
attract and keep skilled workers [16], [32], all in all
the ability to enhance profit.
Since the financial crisis of 2008, banks have made
significant steps towards the intensification of their
CSR activities which can be certified by the
growing number of CSR disclosures [62], the
ISBN: 978-1-61804-361-0
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assets against clients, loan offices and other
outsiders. Asset quality is basically the level of the
quality that is equivalent to the risk of outstanding
assets’ recovery, therefore the provision created for
the obligations in connection with the loans
complete the risk management methods and
guidelines. According to the study by [19] the
integration of Basel capital requirements (raising the
capital adequacy ratio to 9%) would mean a
profitability loss of 1.5%-4% to European banks on
the long run. In bank management, just as in case of
any other organisation, the aim is profitability, to
insure profit. However the profit of banks mostly
comes from the interest margin, which was
negatively affected by the super tax and the
transaction fee since 2013. Furthermore, this aim
must be reached with keeping the bank system’s
specific operational regulation – Basel standards,
national regulations on banking and financial
companies – and by also keeping three basic
requirements – liquidity, solvency and prudent
operation. Therefore banks need to generate yield in
a way that on the long run they can guarantee the
safety of their clients i.e. the capital needs to cover
the potential losses and on the short run they must
have enough cash to ensure their operation. The
basic condition of solvent and efficient banking
operation is the efficient capital handling because
equity guarantees the bank’s liquidity on the long
run and it is also suitable to correct the occurring of
potentially adverse events, with this, eviting
bankruptcy. Liquid banks can fill the assets against
them at any time, meaning they always have enough
liquid assets on hand. The recession forced the
banks to adapt significantly, which showed in the
lessening of loan-deposit ratio. With the recapturing
of lending, at the same time to keep sustainable
profitability the focus is put on the growth of
deposits. The consequence of lending’s recapturing
is squarely the weakening of competition on the
market. Deposit expansion has created strengthening
deposit market’s competition, where today banks
have to compete with other, non-financial institutes
(unit linked products) while since the start of the
financial recession the rate of non-performing loans
has grown significantly. Moreover it is the
management’s role to solve the inner conflicts of
interests, make the organisation transparent and
ascertainable, and enlarge the bank’s efficiency
while dropping the operational risks. Beside these
regulatory landscape banks had to face the mistrust
created during the recession, the mistrust which was
directed to the financial institutions. They had to
show, that while they keep the depositors’ safety in
front, they take the responsibility for their clients on
ISBN: 978-1-61804-361-0
the social level as well. To strengthen the trusting
relationship and to keep their clients banks started to
publish CSR reports in order to amend and confirm
the regulations they follow. According to [35],
social responsibility saves the banks from building
in every risk in their financial products, it enhances
the transparency of financial risks in their products
and it helps to serve reforms in case of pro-cycle
settings. However it is possible to identify numerous
other motivational cases of CSR activities being put
in front like compliance with regulations, fall of
operational costs and risks, fixing the relationship
system with stakeholders, perceived environmental
visibility, reputation fixing, insuring competitive
advantage and attracting investors ([58], [60]). This
study seeks to undertake an up-to-date assessment
of the potential link between corporate financial
performance
(CFP)
and
corporate
social
performance (CSP) in the case of seven Hungarian
banks.
2 Literature review
In the last decades a number of empirical and
normative analyses have been born dealing with the
examination of the potential link between corporate
social and financial performance, trying to answer
the question on how corporate social performance
with its huge list of motivation factors impacts the
financial results of an organisation. However metaanalysis studies (e.g. [18], [41], [42], [12], [66], [6],
[27]) highlighted that there is no clear consensus or
overwriting evidence among the different papers
regarding the nature and direction of this
relationship. Some authors [15] agree that there is a
positive link between corporate social and financial
performance arguing that good CSP leads to good
CFP, while others [28], [14] find negative
relationship between CSP and CFP indicating that
CSR cannot determine higher financial results
because of the inherent costs that decidedly superior
to profits. Mixed results [11] can even be found for
the impacts of CSP on CFP supporting the theory of
non-constant, U-shaped relationship between the
two variables. Finally studies with no significant
results like [57] and [35] suggest that CSP and CFP
are independent variables and no correlation exists
between them or as [63] stress the link between
social and financial performance is too complex to
be described by a direct relationship. Researches
like [49], [7], and [26] suggest that in the
background of these contradictory consequences
theoretical and methodological reasons can also be
explored. According to them these reasons can be
traced back to the use of different views on the
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accessible in the firms’ social disclosures are
analysed and summarised by dummies or multidimensional indicators. Some authors develop their
own CSP measuring frameworks and use
questionnaire surveys completed by company
managers, directors, employees or even customers
and clients. All of these commonly applied
methodologies for quantifying CSP have their own
limitations, since by using questionnaires mainly
personal perceptions of social responsibility from
both sides can be evaluated, content analysis is
inseparable
from the
organisation’s
own
declarations, reputational and ethical ratings mirror
third party considerations who often do not have
knowledge of the inner conditions and are based on
agency-specific quantification models and CSR
cost-based analysis ignores aspects which cannot or
hardly be expressed in monetary terms. Moreover
thanks to their subjective CSP calculation models
regarding stakeholder consideration, indicator
selection and weighting methods of these five
approaches it is difficult to compare the
consequences of the specific CSP-CFP studies or
the unique CSP values of the same organization
measured by the different approaches.
importance of the driving forces and conceptual
determinants of CSP, the lack of clear theoretical
foundations of CSP, the absence of systematic and
widely accepted measurements for CSP and CFP,
the various theoretical expectations of the potential
link between CSP and CFP and the methodological
differences of sample sizes, control variables and
time horizons.
As [17] already stated both CSP and CFP are metaconstructs which explains the numerous definitions
used in the literature for both concepts with strong
subjectivity reflecting the unique and different
thoughts of the pursued theoretical bases like
neoclassical theory, stakeholder theory, shareholder
theory, institutional theory or even new institutional
theory. The active and constructive attention
surrounding corporate social responsibility practices
has left appreciable marks on the economic and
management disciplines leading to the appearance
or strengthening of various theories and research
streams such as the renaissance of stakeholder
theory and value orientation [1], [44], [46], good
management theory [8], slack resource theory [15],
social marketing [24], business model innovation
[52], corporate accountability in business ethics
[23], or the different assessment tools of CSR.
However there is a lack of consensus not only on the
definition of corporate social responsibility but on
the typology of CSR practises, their main elements
and the measuring approaches suitable for corporate
social performance. As [18], [41], [42], [12], [66],
[6], and [27] agree that in the CSP-CFP literature
one- and multi-dimensional measuring methods can
also be found for quantifying corporate social
performance. In most of the papers examined by the
aforementioned meta-analysis studies corporate
social performance is measured by, or with the help
of reputational indexes or ethical ratings such as
Dow Jones Sustainability Index, FTSE4Good index,
Domini
400
Sustainable
Index,
Ethibel
Sustainability Index, or the special indexes of KLD,
CRA, CSRHub, and Asset4esg datasets. Using
indicators of one single aspect of various socially
responsible practices can form another group. The
CSR proxies in this respect are in connection with
CSR costs i.e. the costs of donation and sponsoring
activities,
environmental
engagements
or
representing the distribution of the economic value
created by the given organisations. Content analysis
of annual CSR or Sustainability reports measures
the amount of corporate social performance as it is
declared in the published documents of the
organisations. In this regard words, lines, sentences
and special information on social activities
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Corporate financial performance reflects the
financial health of the firm. Wide array of financial
variables used to measure CFP which can be
grouped into two main categories: accountingbased,
market-based
and
perception-based
indicators. Although market based indicators are
exposed to information asymmetry they reflects
external market responses to organization.
Accounting-based
indicators
measures
the
efficiency of the internal decisions in a firm over a
given period in spite of their historical, easy-tomanipulate and strongly dependent nature on
accounting policies and procedures. Meta-analysis
studies (e.g. [18], [41], [42], [12], [66], [6], [27])
have shown that ROA, ROE and ROS are the most
widely accepted accounting based indicators and
most frequently used market based CFP indicators
are Tobin-Q and price per earnings ratios, however
in some studies CFP is approximated by the
outcomes of questionnaire surveys filled by
corporate directors and managers.
The existence of a link between social performance
and financial performance has been usually
examined by means of linear regression models.
Most of these regression analysis has explored the
impact of CSP on CFP, only few authors examined
the influence of CFP on CSP, or the interactive link
between the two performance metrics. Traditional
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OLS regression models are usually criticized in the
relevant literature because of the assumed
curvilinear relationship between CSP-CFP [4], its
ability to give rise to the missing third variable
problem [54], and the problem of reverse causality
[54], [63], i.e. good CFP leads to good CSP and vica
versa which is supported by good management and
slack resource theories as well, has to be treated
with the help of two-staged linear regression models
and Granger-casuality test [27], [54]. While
according to the meta-analysis studies (e.g. [18],
[41], [42], [12], [66], [6], [27]) control variables
used in the investigations revised appears to be
disparate, the majority of cross-sectional studies
take into account the effects of firm size, the
industry or industry specific factors, ownership,
capital structure and leverage, systematic and nonsystematic risks, R&D and advertising expenses on
CSP or CFP respectively. In the case of
international
comparisons
control
variables
reflecting local, regional or national circumstances
such as GDP growth rate, population, or inflation
are also built-in. Some authors (e.g. [17], [64]) draw
attention to the fact that unique characteristics of a
company, an industry, a region or a country make
the nature of both CSP and CFP unique based on the
different internal and external circumstances and
institutions leading to different mechanisms in the
background of the relationship of social and
financial performance.
[37], [2], [21], [31], [22], [38], net income (e.g. [37],
[39]), net interest income or net non-interest income
[67], however the usage of special indicators, like
non-performing loans [58], [65], or deposit per
employees [45] can also be observed. Market based
measures used to express banks’s corporate
financial performance incorporate Tobin-Q,
earnings per share and price per equity ratios [2],
[9], [29], [51]. Approaches used for quantifying the
social performance of banks and financial
institutions were the same as it was observed for
cross-sectoral studies. Of the most recent
quantitative studies revised on the subject CSP has
been approximated by multidimensional CSR or
ethical ratings, such as KLD, CRA, ESI, EIRIS,
Asset4esg in three cases (e.g. [51], [56], [57]) and
by own CSP indicators based on the stakeholder
theory or Carroll’s framework in the case of [30],
[43] and [65]. Of the two studies used content
analysis, [48] develops her own rating model of
CSR disclosures by following the principles of the
stakeholder theory whereas [37] bases their
investigation on the main categories grounded by
Carroll’s framework. However in the most recent
studies corporate social performance is usually
expressed by environmental or CSR costs (e.g. [22],
[29], [37], [39], [40]), or corporate social
performance is approximated by the outcomes of
questionnaire surveys completed by employees and
managers (see [2], [21], [29], [38], [46]) or even
clients.
In spite of the fact that most studies employ a crosssectional research design and focus on large
manufacturing and service organizations [27], [41]
sector-specific researches concentrates mainly on
the banking and financial sectors especially due to
the consequences and impacts of the financial crisis
of 2008. It was shown earlier, after the financial
crisis of 2008 driving forces towards corporate
social responsibility behaviour for banks and
financial institutions has been intensified. However,
the assumptions and consequences of these
researches examining the potential linkage between
corporate social and financial performance in the
case of the banking industry can neither be unified.
Most of the recent studies have adopted factors such
as different methodology for social and financial
performance quantification, different sample sizes
and composition, or time spans, as well as distinct
control variables that were not consistent with each
other. For measuring the corporate financial
performance of banks accounting based indicators
are generally used. In this regard financial results
are expressed by traditional indicators such as ROE
(e.g. [57], [37], [21], [31], [38]); ROA (e.g. [57],
ISBN: 978-1-61804-361-0
Regarding the methodologies of statistical analysis
used in CSP-CFP studies specified in the banking
and financial sectors correlation and linear
regression analysis are outstanding, and from the
studies revised only [65], [29], and [22] attempt to
consider and treat the potential appearance of
endogeneity phenomenon between the social and
financial performance of banks. The use of control
variables seems to also be dispersed as beside
traditional variables - like size, age, ownership,
GDP, and inflation - variables reflecting the unique
aspects of corporate governance or the stricter
regulatory expectations induced by Basel I and II
can also be identified. In the latter case capital
adequacy, asset quality, coverage and liquidity
ratios are employed suggesting the intention towards
the use of the CAMELS framework.
Overall, according to the studies examined the link
between social and financial performance in the
banking industry seems to be either positive ((e.g.
[56], [31], [30], [21], [65]) or neutral ([2], [37], [45],
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[57]), only [45] find evidence for the negative
relationship between CSP and CFP.
As Table 1 shows we choose three generally
accepted measures of financial performance in the
banking sector: average return on assets, average
return on equity and net income. Average return on
assets measures how profitable a bank is relative to
its total assets, which reflects the ability of bank
management to use their assets i.e. loans and
securities to generate income efficiently. Average
return on total equity reflects the amount of net
income generated with the money have been
invested by the shareholders. The use of net income
as a dependent variable is justified by the fact that
“the application of ratio measures may exaggerate
relations and can cause the distortion of results
since independent variables can influence the
numerator, the denominator or both” [3].
3 Empirical analysis of the link
between CSP and CFP in the case of
the biggest Hungarian Banks
In our research we are looking for the connection
between the society performance and financial
performance in the domestic banking sector during
the 2006-2013 period with a special interest to the
dominant seven banks that are joint stock companies
according to the Hungarian National Bank. Besides
being joint stock companies, it is also to their
advantage that they are dominant on the market,
they were present during the whole research period
and that they have publicly available information
about their CSR activity on the long term. During
the research 56 bank-years were analysed. The data
that looks at the links of civilian and financial
performance was analysed through a regressionanalysis on the whole sample, with the help of the
SPSS 22.0 statistical analysis software. According
to the literature that deal with the links of the
civilian and financial performance of the banks,
Table 1 has been compiled, listing the main
elements of the regression model.
Table 2. Values of CSP1 and CSP2 for the banks
examined, 2006-2013 (in %)
CSP1
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
16,67
31,67
25,00
47,98
8,33
47,38
16,67
20,24
31,67
25,00
47,98
8,33
47,38
16,67
23,81
50,48
25,00
55,48
43,81
49,88
32,50
23,81
59,64
20,83
55,48
43,81
53,45
32,50
27,98
62,14
28,57
64,64
46,31
53,45
32,50
32,14
62,14
28,57
68,21
46,31
53,45
32,50
32,14
62,14
36,07
68,21
32,14
53,45
31,07
27,98
62,14
36,07
68,21
32,14
53,45
31,07
1
2
3
4
5
6
7
14,64
45,71
9,95
45,88
18,47
38,99
9,83
21,38
47,17
18,09
50,76
13,86
62,43
13,84
24,91
63,89
19,61
63,43
56,66
66,91
38,49
24,19
67,62
21,95
61,67
59,09
67,98
36,82
41,39
69,36
28,99
75,56
62,87
68,28
28,98
41,63
69,43
38,99
75,95
40,42
68,29
28,96
32,58
69,44
39,01
75,86
40,34
68,47
32,38
CSP2
Table 1: Variable definition
Variable
Variable description
name
Dependent variable(s)
NI
Net profit (HUF)
Net profit/ Average equity
AROE
(%)
Net profit/ Average total
AROA
assets (%)
Independent variable(s)
CSR behaviour measured
according
to
the
CSP1
framework of Scholtens
(%)
CSR behaviour measured
CSP2
according to the modified
framework of Scholtens (5)
Control variables
Capital
Equity/Total assets
adequacy
(CA)
Asset quality Risk
provisions
and
(AQ)
impairment/Equity
Management
Overhead expenses/Total
efficiency
assets
(ME)
Debts/(Deposits+Short
Coverage (LC)
term self-issued funds)
(Cash+Monetary
Liquidity (LI)
funds)/Total funds
Natural logarithm of total
Size (FS)
assets
Source
Annual reports
Source: own calculation
Thanks to the deficit in CSR indexes listed by the
rating agencies, the enumeration of CSR
performance of banks can be done in two ways
according to the framework of [53]. Firstly,
similarly to [25] the average performance of the
banks (CSP1) will be examined with the help of the
Scholtens framework’s 29 indicators (See Appendix
1). Secondly, the CSR performance of the banks
will be analysed (SCP2) with changes in the criteria
system of the Scholtens model. In the modified
Scholtens model (See Appendix 2), the main and
sub criteria have been adjusted so that it makes it
possible to resolve the shortcomings of the original
model, with the help of the following elements:
validation of employee aspects, incorporation of the
CSR in the strategy and the organisation,
additionally the direct and indirect social
CSR
or
Sustainability
reports, websites
Annual reports
Source: own model
ISBN: 978-1-61804-361-0
37,15
67,74
28,99
73,73
62,86
68,31
36,99
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engagement. It was a goal to exclude those elements
that were less relevant for domestic banks, also to
exclude those variables which cannot be analysed
sufficiently because of lack or data. Both CSP1 and
CSP2 indicators have been calculated according to
the annual financial reports, the CSR or
Sustainability reports of the banks and information
from their respective websites. At the individual and
also at some cases at the parent banks, for all years
averages were calculated and according to these
averages, performance indicators were assigned
(See Table 2.).
multiple correlation coefficient between the
dependent and independent variables (rNI=0,803,
rAROE=0,728, rAROA=0,7283) show a middle-strong
linear tightness. According to the multiple
determinant coefficient (r2) values, the deviation
according to the change in the independent variables
can be explained by the following percentages: 1)
deviation of the net present value 64,5%, 2) average
return on equity 53%, 3) average return on assets
52,2%. Similar results can be observed at the
modified Scholtens CSP indicators. At this case,
there is a stronger linear tightness correlation
between the dependent and independent variables,
the explanatory power of the independent variables
is also stronger. It has to be stated that a change in
the dependant variables can be also influenced by
factors that are not considered in this analysis, also
that it would be recommended to perform the same
analysis on a longer time-interval. The F-statistics
and significance values according to the variance
table of the regression analysis (Table 4) indicates
that all established models explain well the
deviation of the financial performance indicators.
The control-variables of the regression analysis,
according to the sector specific researches, were
chosen from the elements of the CAMELS credit
institution performance measurement model. The
effects of the organisational size were quantified
with the size indicator (FS indicator), according to
the natural logarithm of all assets. The financial
performance indicators and the values of the control
variables were based and quantified according to the
annual financial reports of the banks, also on the
Golden Books of the Hungarian National Bank
(MNB). According to the regression tests of the
examined data, the links of the dependent and
independent variables can be described by a linear
regression equation. It can be described by the
following equation:
Table 4: Coefficients for CSP1 and CSP2
DEPENDENT VARIABLE
NI
Cons
CSP1
CA
Table 3. Summary of Linear regression models –
dependent variables: NI, AROE, AROA and CSP1,
CSP2 as independent variables
R
R2
Adjusted R Square
Durbin-Watson
R
R2
Adjusted R Square
Durbin-Watson
CSP1
AROE
AROA
0,803
0,645
0,593
2,027
0,728
0,530
0,448
2,094
0,723
0,522
0,445
2,194
NI
CSP2
AROE
AROA
0,813
0,660
0,611
2,040
0,739
0,546
0,467
2,146
0,742
0,551
0,478
2,265
AQ
ME
LC
LI
FS
F
Sig.
Cons.
CSP2
CA
AQ
ME
LC
Source: own calculation based on SPSS 22.0
LI
FS
Table 3 summarises the results of the linear
regression analysis, based on the net income,
average return on equity and return on assets
according to each of the individual civilian
performance indicators. According to the table, the
Scholtens CSP indicator (SCP1) the values of the
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AROA
VIF
VIF
CSP1
CFPi=ß1CSPi+ß2CAi+ß3AQi+ß4MEi+ß5LCi+ß6LIi+ß7
FSi+ε
NI
AROE
VIF
F
Sig.
484602,8*
(0,015)
-86006,1*
(0,037)
265947,83
2
(0,244)
-38128,4*
(0,000)
399423,2
(0,321)
-48543,3*
(0,029)
8355,0
(0,535)
39421,1*
(0,003)
12,43
0,000*
-534735,8
(0,007)
-84948,8*
(0,011)
357765,7
(0,116)
-36800,5*
(0,000)
297101,9
(0,450)
-48410,6*
(0,026)
7392,9
(0,575)
42887,7*
(0,001)
13,32
0,000*
0,311
(0,573)
1,45
2,19
1,64
1,84
1,91
1,15
1,61
1,56
2,26
1,65
1,85
1,91
1,15
1,65
-0,185
(0,131)
-1,366*
(0,036)
-0,208*
(0,000)
1,233
(0,292)
-0,118**
(0,063)
-0,009
(0,815)
0,013
(0,707)
12,43
0,000*
CSP2
0,186
(0,735)
-0,196**
(0,055)
-1,135**
(0,082)
-0,202*
(0,000)
0,940
(0,420)
-0,121**
(0,052)
-0,010
(0,789)
0,023
(0,525)
13,32
0,000*
0,000
(0,998)
1,58
2,00
1,47
1,93
1,93
1,15
1,77
1,79
2,11
1,50
1,99
1,93
1,15
1,83
-0,019
(0,135)
1,54
0,025
(0,714)
2,03
-0,015
(0,000)
0,177
(0,155)
-0,012**
(0,081)
0,002
(0,556)
0,002
(0,620)
12,43
0,000*
-0,021
(0,715)
-0,023*
(0,027)
0,050
(0,454)
-0,015*
(0,000)
0,146
(0,227)
-0,012**
(0,068)
0,002
(0,589)
0,004
(0,356)
13,32
0,000*
*p=5%, **p=10%
Source: own calculation based on SPSS 22.0
64
1,54
1,84
1,99
1,13
1,75
1,69
2,11
1,55
1,87
1,99
1,13
1,80
Recent Advances in Energy, Environment and Financial Science
Next step is the examination of the conditions of the
regression calculation are met. It is evident to see
from Table 4 that the values of the Variance
Inflating Factor (VIF) at the civilian performance
indicator, regardless of its type, don’t reach 3.
According to the correlation matrixes, the
relationship between the examined independent
variables is weak-medium. Their respective value
never goes above the 0.7 border-value, thus it can be
stated that there is no multicollinearity at any of the
models [50]. Regarding the error-members, the
homoscedasticity, the autocorrelation and the
normal distribution has to be further examined.
According to the Durbin-Watson tests, there is no
autocorrelation of the error-members at any cases.
The histograms, that examine the normal
distribution of the residuum’s, and the significance
levels of the Kolomogorov-Smirnov one-sample
probe (in case of CSP1 are: NI:0,66; AROE:0,205,
AROA:0,117; in case of CSP2 NI: 0,530,
AROE:0,254, AROA: 0,089) show that in no case
does the distribution of the residuum variate
significantly from a normal distribution. The
variance of the error-members has been examined
through a graphical representation and the BreuschPagan test that’s values (in case of CSP1 NI:0,56;
AROE:0,57, AROA:0,36; in case of CSP2 NI: 0,51,
AROE:0,63, AROA: 0,49) show that the
homoscedasticity presumed in the Null Hypothesis
cannot be rejected at any case.
case of the modified Scholtens indicators (CSP2) it
can be verified.
4 Conclusion
In the past decade, there have been effectmechanisms and sector based changes present that
lead not only in the domestic banking sector to new
competition and a market restructuring. One of the
most important consequences were the processes
aimed at security at the capital adequacy, also
known as the Basel defined policies and guidelines
that became to apply to the Hungarian banks
according to the Hungarian accounting standards
from January 2008. The concept of leverage has
been modified in the Basel III. Regulations, there
has been also an addition of the anti-cycle capital
buffer, and the calculation methods of the capital
have also become stricter. The required level of the
capital adequacy ratio has become higher in line and
as an effect of the introduction of the capital buffer.
The European Banking Authority requires that those
financial organizations that are important in terms of
the systematic risk to have to have a 9% capital
adequacy rate from June 2012. To the risk
management methods and guidelines there is an
addition of a strategic reserve that is attached to the
lending related commitments. This reserve and the
equity loans coverage capabilities are important on a
practical basis because in 2013 the Hungarian
National Bank (MNB) started a growth loan
program that caused an overall growth of the loans.
In this case, the level of the asset quality shows the
recovery risk of the receivables. This is relevant
since from the start of the financial crisis, default
rates have gone up significantly in the banking
sector and its value is showing only a modest fall.
Examining the effects of the financial performance
of the regression coefficient (see Table 4) it can be
stated that there is a negative correlation between
the net income and the following: 1) civilian
performance (CSP1 and CSP2), 2) asset quality and
3) liquidity coverage. In case of size, there is a
positive correlation. While the management
efficiency, liquidity and capital adequacy cannot be
proven on a p=5% level. The negative effect of the
capital adequacy can be detected on the following
levels: In case of the equity based return (CPS1) the
indicators are on a p=5% level, while at the
modified Scholtes model (CSP2) the indicators are
on a p=10% level. The negative effect of the asset
quality can be verified at both of the linear
regression models at a p=5%. The negative effects
of the civilian performance on the ROE can only be
verified in the case of the indicators in the modified
Schlotens model (CSP2) on a p=10% level. In the
case of the average asset return rates, the negative
effect of the asset quality as a control factor can also
be verified. In the case of the Scholtens indicators
(CSP1) the negative effect of the civilian
performance on the return on assets cannot be, in
ISBN: 978-1-61804-361-0
Although our research didn’t consider the whole of
the Hungarian market and it is in contradiction with
international banking researches, it is still showing a
clear evidence that those most relevant players of
the Hungarian banking sector experienced a
negative impact on their return on income, return on
equity and return on assets. The causes of this
negative impact were: the subsidized and micro
loans in their product portfolio, the support of
civilian actions through CSR activity like
sponsorships, education and foundations. This was a
response reaction to the global financial crisis and
the loss of market space that made the banks
prioritized on customer retention and the strict
enforcement of financial regulations. These factors
that have a short term negative effect on returns can
have a positive return on the long term, since it has
65
Recent Advances in Energy, Environment and Financial Science
been proven that capital adequacy has a positive
correlation to net income. This is only consequential
and this will only mean higher net income if the
banking sector on the long run can achieve the same
capital adequacy with an improvement of the size
and quality of the loan portfolio and better risk
management. The growth of the reserve requirement
operations, brought forward by the regulatory
barriers has a negative short term effect on the
return on equity. The restructuring and
reclassification of the loan portfolio, stricter risk
management and higher liquidity coverage because
of the success of the Growth Loan-Program have a
positive effect on the overall asset quality.
Unfortunately this is in ever better light because of
the alternative savings possibilities (for eg. unitelinked) that cause a decline in the deposit collection.
These last two factors have a negative impact on the
return on assets, and although the corporate
responsibility and performance also has a short term
negative effect on the ROA, it is still in turn
restoring the confidential relationship that was lost
from the customer relationships of the banks during
the crisis. On the long term, this same customer base
will be the factor to ensure the survival of the banks,
the market competitiveness and a growth in
profitability with a fundament on a more secure and
better risk management.
Between Corporate Social and Financial
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ISBN: 978-1-61804-361-0
68
Recent Advances in Energy, Environment and Financial Science
Appendix 2: Modified Corporate Social
Responsibility Framework of Scholtens
Environmental management
8.
9.
10.
11.
12.
13.
14.
15.
II. Benc
hmark
ing
I. Social
conduct
Responsible
financial products
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
Adopted Y/N)
Adopted Y/N)
Adopted Y/N)
Adopted Y/N)
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Adopted
(yes/no)
Adopted
(yes/no)
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
Incorporation of CSR into the
organisation
Environmental
protection
policy
Supply Chain management
Qualitative goals in terms of
environmental protection
Transparency
at
environmental
protection
performance
Exclusion of special sectors
Economic
value
for
governments
Economic
value
for
employees
Economic value for those
providing capital
Economic value for suppliers
Ration of Donation and
Sponsorship
Community activity and
volunteering
Organisation of Education
and trainings
Social communication
Own foundation
Development and training of
employees
Diversity and equal rights
Employee feedback
Motivational programs
Source: own model
Source: Scholtens (2008: 165)
ISBN: 978-1-61804-361-0
Sponsorship
Community action
Training and education
Diversity and equal rights
Employee feedback
Business ethics
Product policy
3.
4.
5.
6.
7.
ICC Business Charter for
Sustainable Development
UNEP FI
Equator’ principles
Global Compact
‘Who Cares Wins”
Certified environmental
management system (EMAS)
Certified environmental
management system (ISO14001)
Environmental policy
Supply chain management
Quantitative environmental
management targets
Transparency of environmental
performance
Environmental risk management
in lending policy
Exclusion of specific sectors
World Bank guidelines
environmental risk management
OESO guidelines environmental
risk management
Sustainable responsible
investments
Sustainable responsible savings
Sustainable financing
Microfinance
Environmental advice services
Climate products
Other sustainability products
Sponsoring
Community involvement
Training and education
Diversity and opportunities
Feedback from employees
Business ethics
Dow Jones Sustainability Index
FTSE4Good
Domini Social Index
ESI Europe
Definition
0: No separate
report,
1:
Separate report
Adopted (Y/N)
Socially
responsible
investments
Socially responsible savings
Sustainable financing
Micro-loans
Climate-products
Other sustainable products
Employees
2.
Indicator name
Sustainability/CSR report
Environmental-management
Business ethics
1.
Social activity
Group
Socially
responsible
investments
Socially responsible savings
Sustainable financing
Micro-loans
Environmental
protection
consultancy
Climate-products
Other sustainable products
Environment-management
system (EMAS)
Environmental management
system (ISO14001)
Environmental
protection
policy
Supply Chain management
Qualitative goals in terms of
environmental protection
Transparency
at
environmental
protection
goals
Examination
of
environmental impact at
lending
Exclusion of special sectors
World-Bank guidance for
environmental risks, OESO
guidance for environmental
risk
Environmental protection
Appendix 1: Corporate Social Responsibility
Framework of Scholtens (2008)
Sustainability Report
ICC Business Charter for
Sustainable Development
UNEP FI
Equator principles
UN Global Compact
„Who Cares Wins”
Modified Scholtens framework
Corporate
sustainability
report
Defining CSR strategic goals
Independent CSR committee
or functional department
Systems for environmental
protection and guidance
GRI standards
Equator principles
UN Global Compact
Compliance
Independent ethical and
attitude/behaviour codex
Direct effect on the
society
Product policy
Business ethics, CSR report
Scholtens framework
Indirect
effect on the
society
Strategic Management Journal, Vol.18, No.4,
1997, pp.303–319
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69