The Relation between Corporate Social Responsibility and Bank Reputation: A Review and Roadmap

Introduction

Over the past decades, scholars have paid greater attention to the relation between corporate social responsibility (CSR) and corporate reputation (Forcadell & Aracil, 2017).Recently, an increasing number of financial institutions are accepting the idea that there is room to increase their social and environmental responsibilities.The banking sector's commitment to more sustainable practices has interesting implications.The relationships between CSR and reputational risk in the banking sector can be interpreted via social-political theories, which recognize CSR as a tool available to companies to increase their legitimacy toward stakeholders and to improve their transparency toward investors (Carnevale & Mazzuca, 2014).Diverse stakeholders are requiring financial institutions to improve their social and environmental performance.As a result, some banks are developing CSR programs, corporate environmental responsibility (CER) policies, and management systems to reduce potential social and environmental risk, and improve their reputation and performance (Jo et al., 2015).However, despite a growing interest in this area, such linkages have remained relatively unexplored in the banking industry and the precise relationships are not clear (Lee et al., 2016).Moving from these considerations, this study proposes a systematic review of attempts in peer-reviewed scientific literature to analyze and synthesize past studies on the relationships between CSR and reputation in the banking sector.The aim of this study is to provide a complete picture of the research on these relationships by listing, classifying, and comparing existing studies.The review was carried out using the following databases: ISI Web, Google Scholar, and SSRN. I investigate a number of published academic works, summarizing the main approaches, results, and insights.I also provide a roadmap for future study and offer research questions about critical areas of this stream of research.The paper is structured as follows: in section 2 methodological details are provided; section 3 show a descriptive analysis; section 4 provides a discussion on the findings of the literature review; and in section 5 conclusions and future research directions are provided.

Research Methodology

A good systematic review should make it easier for practitioners to understand the research by synthesizing the extensive primary research papers from which it was derived (Tranfield et al., 2003).According to Mulrow (1994), “Systematic literature review is a fundamental scientific activity.Researchers use the review to identify, justify, and refine hypotheses.”Its aim is a conceptual consolidation of a fragmented body of research.A systematic review can be seen as especially appropriate to conceptually assess and map the state of the art of a nascent field (Hoon, 2013).My review was carried out following Tranfield et al.’s (2003) three-stage procedure: planning, execution, and reporting.

Planning

During the planning stage, primarily I identified key data sources, keywords, and search terms; finally I defined the initial selection criteria.The academic contributions were identified on the three most relevant existing databases: ISI Web of Knowledge, Google Scholar, and SSRN.The ISI Web of Knowledge database was chosen as a database of record, as it is one of the most comprehensive databases of peer-reviewed journals in the social sciences (Crossan & Apadyn, 2010).ISI Web of Knowledge is widely recognized as the most reliable, from a scientific point of view, for research scholars and academics (Paunescu, 2014).According to Harzing (2010), ISI Web of Knowledge is most often used to search for publications and citations for individual academics and has a complete coverage of citations in the more than 11,000 journal that are listed in it, going back to 1900.Furthermore, the study was carried out by integrating two further “open access” databases (SSRN and Google Scholar), with the explicit aim of providing better coverage of the research topics.Due to the fact that my research topic is fairly young, I also searched the SSRN for recent working papers.The review was undertaken using the following search strings: “corporate social responsibility and bank and reputation”; “CSR and bank and reputation”; “corporate social responsibility and reputation and banking industry”; “CSR and reputation and banking industry”. For all databases, the search options are provided in Table 1.

Table 1

Conducting a Review and Reporting

The last stage of my systematic review process, execution and reporting, consists of three steps: (1) data collection: list and group the academic publications by databases and keywords; (2) reporting and descriptive analysis; (3) data extraction and data synthesis.First, all databases were searched using combinations of the selected keywords.The initial sample of all databases was of 44,463 results.Then, the titles and abstracts of the articles found were reviewed for an initial analysis of their relevance to the research questions, and those that were not relevant were excluded.All duplicate articles, within and across databases, were discarded.The results of these initial steps are reported in Table 2 with keyword combinations and databases.After this process, 131 potentially relevant articles were retained and included in the fulltext research.

Table 2

The aim of this last step was to identify the main articles that deeply investigate the relationship between CSR and corporate reputation in the banking industry.To ensure a comprehensive list, the cited references in the identified academic papers were screened as a secondary source, but did not yield many additional papers.At the end of the process only 33 papers remained, constituting the final list of works analyzed in this study.

In the second stage, I provide a descriptive analysis of the final sample relating to distribution across the time period and journal, year of publication, and research methodologies applied.Lastly, the different studies were grouped and listed as in Appendix 1.The studies have been synthesized and categorized according to the research methodology applied.These data included author(s), year of publication, title, research methodology (quantitative, qualitative, or mixed methods), purpose of the study, and results.The works that stood out from the extraction process were used to sum up the main approaches, results, and insights.

Descriptive Analysis

Distribution Across Time and Main Journals

Table 3 reports the names of the publications where the reviewed studies have been published.The journals where most studies included in the review have been published are Journal of Business Ethics, Journal of Corporate Social Responsibility and Environmental Management, and International Journal of Bank Marketing.All other journals contain one article each.The remaining works, five articles, are published as book chapters or papers given at international conferences.

Table 3

Table 4 depicts the number of studies over time.The first study that analyzes the relationship between CSR and reputation in the banking sector dates back to 2005.Since then, there has been a fluctuating, but overall growing, trend in the number of studies published each year, with a quite rapid increase over the past four years.The peak of growth was reached in 2013 and 2015, with seven publications.

Table 4

Research Methodologies Applied

Table 5 reports the partitioning of studies based on research methodologies applied, divided into qualitative, quantitative, and mixed methods (employing both qualitative and qualitative methods). The results show that 5 studies (corresponding to 15%) are quantitative in nature and 15 (corresponding to 46%) are qualitative, whereas 13 (corresponding to 39%) are mixed methods.All quantitative studies used linear regression analysis.Most of the qualitative studies (7, corresponding to 47%) adopted case studies, whereas 5 of them (corresponding to 33%) adopted a literature review; content analysis (2, corresponding to 13%) and interview survey (2, corresponding to 7%) are the less adopted forms.Most of the mixed methods (7, corresponding to 54%) adopted a questionnaire and structural equation modeling, whereas 4 of them (corresponding to 31%) adopted a survey and structural equation modeling.Among these studies there are other mixed methodologies adopted, survey and maximum likelihood estimation and questionnaire and linear regression analysis, which correspond to 7.5% each.

Figure 1. Percentages of studies using different types of methodology

Quantitative = 15%

Mixed = 39%

Qualitative = 46%

Table 5

Discussion

This concluding section will point out the most important findings of the research and some directions for future research.To sum up, the different studies were grouped and listed as in Appendix 1.The analysis of these works reveals interesting aspects that are discussed below.

Quantitative Research Methodologies

The most-used methodology was quantitative, with five studies looking at the relations between CSR, reputation, and performance.According to the reputationbuilding hypothesis, good environmental management may provide firms with better reputations that subsequently help increase firm performance (Konar & Cohen, 2001).Dell’Atti et al. (2017), adopting a multiple econometric approach, highlighted that bank reputation is positively related to accounting performance and is negatively related to leverage and riskiness.The authors show positive relationships between reputation and social performance and negative relationships between reputation, corporate governance, and environmental performance.This last result is due to the fact that in the banking sector there is still no strong focus on the environmental impacts of banking activity.On the other hand, Sneekes et al. (2016) show that banks that perform highly on CSR indicators behave more transparently with regard to the presentation of earnings.Banks that engage in CSR activities to improve their reputation use managerial discretion to show socially desirable earnings numbers.For banks that value their reputation, pursuing societal trust is more important than the fulfilling of self-interest.In addition, bank managers should pursue CSR practice as a long-term survival strategy to enjoy different benefits, including enhanced reputation (Shen et al., 2016).Forcadell and Aracil (2017) show that banks' efforts to build a reputation for CSR benefits performance.Nevertheless, in periods of crisis, these efforts do not contribute to improved returns.According to the authors, investments in CSR can be justified as a way to boost both corporate reputation and firm performance, because CSR is a mechanism that contributes to restoring a tarnished reputation.In line with the reputation-building hypothesis, Jo et al. (2015) highlight that good environmental management provides firms with a reputational advantage that leads to increased marketing and financial performance.A major contribution of these quantitative studies is empirically testing the relationship between CSR and reputation and its impact on economic performance in the banking sector.In addition, these studies look at managerial behavior and its impact on banks' reputation.

Mixed Research Methodologies

All studies in this section were developed by subjecting customers or employees to a survey, interview, or questionnaire, validating the results with specific statistical models.Studies that apply mixed methodologies firstly show that the relationships between CSR and reputation depend mainly on the perceptions that customers and employees have toward the socially responsible policies implemented by banks (Pérez & Del Bosque, 2013; Ruiz et al., 2014; Pérez & Del Bosque, 2015).Among these, five studies show the same results but on five different areas of the world, respectively India, Chile, Iran, China, and the Basque Country (Mulki & Jaramillo, 2011; Saeednia & Sohani, 2013; Fatma et al., 2015: Zhao et al., 2016; Aramburu & Pescador, 2017).Banks not developing a CSR strategy in the current competitive scenario will surely face serious difficulties in recovering from the financial crisis and will quite surely undermine their own corporate image and reputation (Pérez & Del Bosque, 2015).According to Shen et al. (2016), “CSR is one of the approaches that can enhance the reputation of banks and acquire a greater sense of trust from customers.CSR is particularly important for the banking industry because banks sell intangible products to individuals who may not be equipped with financial knowledge.Banks sell financial products that mostly have similar risk and returns, resulting in difficulty distinguishing these financial products from one another.Brand recognition among banks helps differentiate financial products, particularly in wealth management.”From the analysis of the studies presented in this section, it emerges that the aforementioned positive relations between CSR and the degree of loyalty and customer satisfaction exist also in relation to the maintenance and retention of employees.Mushtaq (2013), in a study on Pakistani banks, revealed that there is a positive impact of CSR on employee retention and corporate reputation.Encouraging employees to remain in the organization for a long period of time can be termed employee retention.It is a process in which employees are encouraged to remain with the organization for the maximum period of time or until the completion of a project (Das & Baruah, 2013).Engizek et al. (2017) focus on the relationships among corporate social responsibility (CSR), overall service quality, company reputation, and affective commitment.The authors show that both CSR and overall service quality influence affective commitment through the mediating role of company reputation.Affective commitment refers to the psychological attachment of an individual to an organization.It is the desire reflecting the extent to which an individual wants to be involved in an organization.It includes a sense of belonging and connection (Gozukara & Yildirim, 2015).In addition, according to Ruiz et al. (2014), CSR is a positive antecedent of bank reputation.Traditional corporate reputation models have principally focused on cognitive antecedents, but emotional aspects such as satisfaction and trust have also been shown to be important antecedents of reputation among customers (Raithel et al., 2010).These results have direct implications for CSR and reputation managers, since it has been demonstrated that customers care particularly about all corporate concerns that most directly benefit these stakeholders.These ideas should motivate companies to strengthen their bonds with customers so that the latter are less sensitive to market changes and competitive strategies (Pèrez et al., 2013).

Qualitative Research Methodologies

Most of the qualitative papers show that socially responsible conduct gives rise to positive reputational outcomes that contribute to increasing performance (Decker & Sale, 2009; Ostalecka & Swacha-Lech, 2013; Yen, 2014).Among these, four studies show the same results but on four different areas of the world: Italy, Peru, India, and the USA and Australia (Bihari & Pradhan, 2011; Bowman, 2013; Lambroglia & D’onza, 2015; del Brío & Lizarzaburu, 2017).From these studies it emerges that banks operate within a social environment.The fact that banks are sensitive to the social environment in which they exist leads to increased reputation, and sensitivity to the social environment takes place in the form of supporting activities that benefit the public and are sensitive to the physical environment.Reputation that has emerged in this way contributes greatly to the intangible assets of the business (Okur & Arslan, 2014).With regard to other qualitative papers, three studies explicitly rely on relations between CSR reporting and reputation.According to legitimacy theory, CSR reporting is aimed at providing information that legitimizes a company’s behavior by intending to influence stakeholders’ and eventually society’s perceptions about the company in such a way that the company is regarded as a “good corporate citizen” and its actions justify its continued existence (Guthrie & Parker, 1989).Among these studies, Arshad et al. (2012) examine the effect of Islamic CSR disclosure and corporate reputation as well as performance.The authors argue that CSR activities communicated in corporate annual reports are significantly positively related to corporate reputation as well as firm performance, while Bartlett (2005) demonstrates that adoption of CSR reporting is linked to higher reputation indices in a sample of Australian banks.The literature review presented by Pérez (2015) demonstrates that CSR reporting and corporate reputation are positively correlated.These results highlight that banks are proactively implementing and disclosing CSR activities that meet and strengthen the needs of multiple stakeholders.Other qualitative studies confirm a positive relationship between CSR and reputation in the banking industry (Xifra & Ordeix, 2009).In addition, Xifra and Ordeix (2009) illustrate Banco Santander's management of reputation and propose the bank as a paradigmatic case for the importance of dialogue and reputation during a crisis.Finally, in contrast to the methods and results described so far, I have found works that show conflicting opinions with respect to the results of the field under study.These studies reveal that the motivations behind CSR programs remain driven by profit-led strategies, defining the relationship between CSR and reputation as a paradox and a moral trap (Bowman, 2013; McDonald, 2015; Vogler & Gisler, 2016).

Conclusions and Future Research Directions

This study provides in-depth analysis and synthesis of the body of knowledge so far produced in field of the relations between CSR and reputation.From the analysis of the works of this present review, it stood out that CSR is a multidimensional construct.CSR is of particular relevance in the banking sector because it promotes several competitive advantages, the most important of which is the enhancement of the bank's reputation, which is a determining factor in attracting and retaining customers, increasing employee retention, and yielding better financial results.For the banking sector, CSR practices become a relevant reputation driver that can add value over time.This study has important implications for banks and managers, as well as for scholars.With regard to banks aiming at successfully developing CSR policies, this study highlights the positive relationships between CSR and reputation.Indeed, by developing CSR practices, a bank sends signals aimed at meeting stakeholders' expectations and thus increasing the value of its corporate reputation.From this review it emerges that CSR reporting and corporate reputation are positively correlated.Banks that engage in CSR activities to improve their reputation use managerial discretion to show socially desirable earnings numbers.When investigating how CSR impacts reputation, an important element is managers’ ethical integrity.Zhu et al. (2014) conclude that when ethical leadership is weak, an increase in CSR will not be associated with an increase in reputation or performance.Regarding implications for scholars, this study provides a picture of the state of the art that can be a useful starting point for future research in this field.Nevertheless, this study presents some limitations.In this work I used three of the most important databases available (ISI Web of Knowledge, Google Scholar, and SSRN).The latter probably does not intercept all the most important works in the literature.Future studies may use other databases not queried in this paper and at the same time expand the keywords.

Appendix 1

References