Khan 2010 - Groups (13, 14, 15)
Khan 2010 - Groups (13, 14, 15)
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IJLMA
52,2
The effect of corporate
governance elements on
corporate social responsibility
82 (CSR) reporting
Empirical evidence from private commercial
banks of Bangladesh
Md. Habib-Uz-Zaman Khan
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Introduction
To undertake social responsibilities and to report such activities at a regular interval
have been recognised an essential device for organizations towards ensuring the long-
term continued existence. Corporate social responsibility (CSR) reporting has been
International Journal of Law and receiving a considerable attention to researchers and practitioners for more than two
Management decades (for a detailed review on the development of CSR reporting, see Mathews,
Vol. 52 No. 2, 2010
pp. 82-109 1997). Price Water House Cooper’s international survey in early 2002 found that nearly
# Emerald Group Publishing Limited
1754-243X
70 per cent of the global chief executives believed that addressing CSR was vital to
DOI 10.1108/17542431011029406 their companies’ profitability (Simms, 2002). A review of related literature suggests
that CSR reporting issues have become a necessary facet of businesses to substantiate Effect of CG
companies’ commitment to the society. A number of earlier researches analysing CSR elements on
information have directed towards many fundamental issues. For example, research
endeavours attempted on investigating the types of information, extent of social CSR reporting
disclosures firms report (see Andrew et al., 1989; Guthrie and Parker, 1990; Harte and
Owen, 1991; Adams et al., 1995; Deegan and Gordon, 1996; Newson and Deegan, 2002
for a review) establishing any connection between companies CSR initiatives and 83
attributes of economic performance or factors such as size, industry membership, risk,
market reaction, external influences, firm reputation, country of origin or proximity to
individual consumers (e.g. Roberts, 1992; Herremans et al., 1993; Tilt, 1994; Newson
and Deegan, 2002) have been increasing across time. Moreover, other research efforts
(e.g. Guthrie and Parker, 1989; Patten, 1992; Roberts, 1992; Donaldson and Preston,
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1995; Deegan and Gordon, 1996; Deegan and Rankin, 1997; Adams et al., 1998; Neu
et al., 1998; Deegan, 2000) evidenced the motivations of corporate managers to CSR
activities. Nevertheless, most of the earlier international researches were dealt with
company-specific attributes and proxies. Few studies considered attributes of
corporate governance (CG) that might tend to positive CSR activities. International
CSR research is further being limited in that the majority of studies focus on non-
financial sector in developed nations. Very few studies (e.g. Barako and Alistair, 2008)
focused on banking sector of developing countries and no such study was carried out
in the specific context of commercial banks in Bangladesh.
The objectives of this paper are twofold. First, to investigate CSR reporting
information of private commercial banks (PCB) of Bangladesh with a view to observe
the levels and varieties of CSR information on annual reports. Second, to examine the
variability of CSR reporting information for CG elements. The country Bangladesh and
the PCB are interesting and ideal to study for a number of motivational reasons. First,
because not many research studies on CSR reporting issues in banking institutions
(Hossain et al., 1994; Khalid, 2005; Leung and Horwitz, 2004) are evidenced in both
developed and developing countries setting due to the existence of strict regulatory
requirements, this study will fill up research dearthness by addressing the CSR
reporting practice in the specific context of a developing country’s banking sector.
Second, investigating CSR reporting practices in annual reports of Bangladeshi
banking sector over a given time period and making out governance construction as
potential explanatory factors tends to create an understandable contribution to the
literature. The findings of the study might be inclined to construct few inferences for
other developing countries where the respective standard setters take particular
attention in designing CSR-led business strategies for banks. Third, empirical research
studies investigating environmental information within CSR reporting domain have
gained little attention to the financial institutions viewing that this sector has an
insignificant straight environmental shock. However, many research studies (see e.g.
Simpson and Kohers, 2002; Jeucken and Bouma, 1999; Coulson and Monks, 1999)
addressed both internal and external issues for evaluating likely environmental impact
for banks. By concentrating on banking industry, this study takes the opportunities to
see banks’ extended focus on social and environmental responsibility and reporting
practices. Fourthly, Khan et al. (2009) in a recent research revealed that PCB in
Bangladesh initiated a number of excellent programs on CSR issues. Finally, civil
societies in Bangladesh motivate CSR issues for all sectors in the recent years by
spawning greater societal demands and expectations of business responsibility in the
IJLMA form of organising different seminars, press release or with other initiatives (Rahaman
and Jabed, 2003).
52,2 The remainder of this paper is structured as follows. The next section documents
the CG and CSR reporting environment in banking sector of Bangladesh followed by
a short review of the literature on organisational legitimacy theory (LT) to validate CSR
activities and reporting practice for the firms. A short review of CSR reporting with CG
has afterward addressed. The paper then out lines the development of hypotheses.
84 Next, the details of the research method used in the study are discussed. In the final
section, it reviews the finding of the study together with the implications, limitations
and the further scope of study.
While CSR reporting has traditionally been observed as the developed countries event
(Belal, 2000), in recent years it has also been received significant interest in both CSR
and CG writing in developing countries context. In Bangladesh, five enterprises
namely the Securities and Exchange Commission (SEC), Bangladesh Bank (BB), the
Institute of Chartered Accountants of Bangladesh (ICAB), the Bangladesh Enterprise
Institute (BEI), the Institute of Cost and Management Accountants of Bangladesh
(ICMAB) are the pioneer bodies working for ensuring CG regulations (Ahmed, 2006). A
range of activities in relation to governance are executed by these institutions
including publication of code of CG for Bangladesh, different reports, organization of
seminars, issuance of notification, enforce various regulations and standards, such as
the Bangladesh Accounting Standards (BAS) and Bangladesh Auditing Standards
(BSA), the Companies Act 1994, the SEC rules and others stock exchange listing
requirements (Mir and Rahaman, 2005). Earlier, accounting reports were mainly
drafted and audited along the lines of regulations set out in two sets of regulations: the
Companies Act 1913 and the stock exchange listing requirements which was later
being changed in 1993. Being advised and funded by the donor agencies, the SEC was
established as an autonomous body in order to strengthen the capital market.
Subsequently, the Companies Act 1913 was replaced by a new Act in 1994. The listed
companies must comply with the listing requirements of SEC to operate in the stock
exchanges in addition to the requirements of the Companies Act 1994. Imam (2006)
mentioned that the SEC has promulgated different orders and notifications time to time
to ensure good CG practice in the listed public limited companies. SEC strives to
stimulate the listed companies to comply the CG guidelines so that suppliers of funds
can ensure a fair return on their investment. Researchers (e.g. Amin and Tareq, 2006;
Jensen and Meckling, 1976; Chaudhury, 2004) illustrated that banking companies entail
unique CG attention because they differ greatly from other types of firms in terms of a
broader extent of claimants on the banks’ assets and funds. Numerous studies (e.g.
Ahmed, 2006; Shliefer and Vishny, 1997; Imam, 2006) explained that the general
approach to CG argues in support of the shareholders’ rights only. This is because
managers or executives may not always work in the best interest of the shareholders.
However, from banks’ perspectives, the shareholders actually provide a very
insignificant part of the bank’s assets and funds. Rather, majority of its investments are
financed by the depositors’ funds. As a result, the risks of losing depositors’ savings
demand stern priority in protection of depositors. This necessitates the broader view of
CG that advocates the interest and benefits of the suppliers of funds for a firm must
be maintained in a consistent manner. Similarly, researchers (Afroze and Jahan,
2005; Bhuiyan and Biswas, 2007; Arun and Turner, 2003) supported the need for the
broader approach to CG and the inevitability of government intervention for Effect of CG
banking institutions of Bangladesh to bring the behaviour of bank management under
control.
elements on
In Bangladesh economy, banking institutions play the fundamental role and CSR reporting
dominant financier for the industrial and commercial activities. Since independence in
1971 until 1982, when the ‘‘ownership reform’’ measures started in the financial sector,
the government had carried out the regulation and ownership of all financial
institutions. During the reform period, two out of six National Commercials Banks
85
(NCBs) were denationalised and PCB were allowed to operate in the country. In 2006,
out of the 49 banks operating in Bangladesh, ten belong to the public sector, 30 are local
PCB and ten are foreign-owned banks (Bangladesh Bank, 2007). As with the line of
global practice, the central bank of Bangladesh, BB, has been entrusted with the
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community concerns (Clarke and Gibson, 1999). As a result, Bangladeshi people might
expect the banking sectors to report information on their constructive social activities
such as managing the domestic social problems that are rampant in the country. In
view of that, banking sectors’ management may legitimise their existence by reporting
on banks’ positive actions to restrain poverty, eradicate illiteracy and unemployment,
contribution to educational sector and to the community as a whole. Lindblom (1993)
described that organisational legitimacy is a concept that can be used to gain insight
into the motivation a firm has for providing CSR information voluntarily. Guthrie and
Parker (1989) narrated that legitimacy is one of the factors that motivate the
management to adopt and report social practices. Grounded in LT, Branco and
Rodrigues (2008) mentioned a positive association between public visibility and
CSR reporting information. As a matter of fact, LT is in particular helpful as a
rationalization of any type of disclosure when there are good reasons for assuming that
the type of disclosure being analyzed is attempting to address a particular legitimacy
gap and that the disclosure program is intended to close that gap. For example,
companies change their CSR reporting practices after particular incidents such as an
environmental disaster (an oil spill or gas explosion) that puts the companies in the
spotlight (see, for example, Patten, 1992; Deegan et al., 2000; Walden and Schwartz,
1997). On the other hand, a variety of research (e.g. Deegan et al., 2000; Deegan, 2002;
Barako and Alistair, 2008) addressed that legitimacy can be vulnerable even when
companies activities are in agreement with society’s expectations. This may be for the
reason that the company has failed to correspond that its activities are in congruent
with social values. Buhr (1998) opined that companies can attempt to achieve
legitimacy by appearing to do the ‘‘right things’’ or not be involved in doing the ‘‘wrong
things’’ when this appearance may have little in common with a company’s actual
performance. According to Branco and Rodrigues (2008), LT suggested CSR reporting
as an important way of communicating with stakeholders. They added that LT
convinces stakeholders that the company fulfills their expectations (even when actual
corporate behaviour remains at variance with some of these expectations).
In banking context, depositors and borrowers are the major stakeholders of
banks which represent extremely large and diverse stakeholder groups. As a result,
in addition to shareholders and managers, depositors and regulators have a straight
stake in bank performance. These stakeholders enjoy all three of Mitchell et al. (1997)
stakeholder attributes: power, legitimacy and urgency (Yamak and Süer, 2005;
Griffiths, 2007). Griffiths (2007) argues that borrowers have a legitimate claim on banks
by entering in lending agreements, acquire power and urgency through their cause
being adopted by other stakeholders such as regulators and consumer organisations.
These considerations guide researcher to sense that banking is both a high-street Effect of CG
presence and a high public visibility sector. The escalating customer consciousness all
over the world and in some other developing nations together with Bangladesh have
elements on
been seen as a powerful driver of corporate performance, which tends to promote CSR reporting
different sectors positively towards the country’s corporate social activities (Patten,
1992; Sharma and Talwar, 2005; Belal and Owen, 2007; Khan et al., 2009). There has
been an increasing trend of CSR activities by banks in both developed and developing
countries. This may be basically due to the sectors’ vital role in economic development
87
and sustainability or perhaps the realising the legitimacy. A CSR research by Douglas
et al. (2004) on Irish banks stated that Irish banks are well behind the leading European
banks with regard to the quality and quantity of social disclosures. Tsang (1998) in his
CSR reporting study on banking, food & beverage and hotel industries in Singapore
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revealed the few CSR disclosures. Halabi et al. (2006) analysed CSR information in
annual reports of top Australian banks. They found that four banking companies are
in Australia’s top ten implement GRI and all banks make disclosures in relation to the
environment, labour practices and human rights. In his study on the banking sector in
Greece, Nikolaou (2007) suggested that this sort of information is disclosed through an
ad hoc environmental accounting method. The recent study conducted by Branco and
Rodrigues (2008) on the banks in Kenya revealed that Kenyan’s banks involve CSR
activities although the level of CSR reporting was low. Another recent study by Branco
and Rodrigues (2008) on Portuguese banks found that community relations disclosure
is an important part of the social reporting disclosures items. For the purposes of the
current study, the essential aspect is that legitimacy calls for a reputation that must be
maintained by the banks, which necessitates a bank to think and convey to the
appropriate users groups that their actions are harmonious with their values.
Demonstration of positive social image towards the general public by involving
activities leading to social welfare is more on the point of gaining higher public
acceptance by the banks. Given that CSR reporting is attempted to underline how the
company relates to society in the course of its different social activities, it should be
maintained in an accelerating manner which might carry an opening to generate more
incentives (financial as well as non-financial) for such involvement. Research studies
documented that companies with high public profiles are more eager to present a
positive social image through community involvement activities than those of less well
known to justify that such activities are taken for greater public interest and to validate
their continuation to society. From the perspective of CG, Macey and O’Hara (2001)
argue that a broader view of CG should be adopted for banking institutions. They
opined that CG mechanisms for banks should encapsulate depositors as well as share
holders due to the existence of peculiar contractual form of banking. Therefore banks
are believed to put superior significance to community involvement and CSR reporting
as part of their CSR practices.
investment. For company stakeholders it can provide an assurance that the company
manages its impact on society and the environment in a responsible manner’’ ( p. 5).
While the message mentioned by Maier is very coherent, one could expect such an
approach from representatives of the fair investment community. Given that
stakeholder interests are accounted for, it has been suggested that firms are to be bear
in mind their degree of dependence on a stakeholder for resources (McLaren, 2004). The
literature revealed that CG has a considerable impact on CSR issues within the
organizations such as employee conditions (Deakin and Whittaker, 2007) and ethical
aspects related to remuneration, managerial and employee behaviour (Ryan, 2005;
Wieland, 2005). Research studies (Dahya et al., 1996; Carter et al., 2003; Branco and
Rodrigues, 2008) also documented the likely impact of CG elements on firms’ CSR
disclosure initiatives the detailed of which are addressed in the next section.
It has been evidenced in the CG literature that board diversity has turned into a
significant element of CG arrangement in recent years. Branco and Rodrigues (2008)
mentioned the theme of board diversity correctly match into the structure of
stakeholder theory. Prior research indicated that board diversity is associated with
stronger orientation towards corporate social reporting and higher intensity of social
performance (for review, see Ibrahim and Angelidis, 1994; Sicilian, 1996). Carter et al.
(2003) argue supporting board diversity that ‘‘[it] increases board independence for the
reason that with a unlike gender, ethnicity, or cultural background might ask questions
that would not appear from directors with more traditional backgrounds’’ ( p. 37).
Carter et al. (2003) revealed empirical evidence of a significant positive relationship
between board diversity, defined as percentage of women, African American, Asians
and Hispanics on board of directors and firm value. Huse and Solberg (2006) illustrated
that women could involve to boards through forming alliance, preparing and involving
themselves in board matters, taking part of vital decision making. Adams and Ferreira
(2004, p. 3) suggest that boards with a higher proportion of women directors tend to
make the more board meetings possible and special attendance patterns at board
meetings, which make different boards more successful than homogenous boards.
They also argued that women are inherently more ‘‘stabilising’’ than men. Therefore,
based on the above-mentioned discussion, the second hypothesis of this study is:
H2. The provision of higher proportion of women directors on the board, the
greater is degree of CSR reporting information for banks.
The ownership structure of the firm may lead to legitimacy gaps. Branco and
Rodrigues (2008) explained the involvement between the proportions of foreign
nationals and reporting might lead to raise the issue of causality. Fields and Keys
(2003) found that heterogeneity of experiences, ideas and innovations that individuals
carry to a company tends to impact on company performance. Erhardt et al. (2003)
argue that ethnic representation on boards raises financial performance of business. At
the same time, Ayuso and Argandona (2007) illustrated that foreign directors are
typically assumed to play a key role in supporting CSR reporting strategies. Haniffa
and Cooke (2005) revealed empirical evidence of positive association between
proportion of Malay directors on the board and the extent of voluntary disclosure by
Malaysian companies. However, a study by Branco and Rodrigues (2008) on Kenyan
banks found no association between the ratio of foreign directors on the board and CSR
reporting initiatives, the result consistent with study. In Bangladeshi banking sector,
board diversity has become an important component of CG structure in the recent
years as foreign representation on boards has now been practised (Haque et al., 2007).
IJLMA Thus based on the above discussed literature, this paper assumes that that board
diversity measured as percentage of foreign national, (non-Bangladeshi nationalities),
52,2 on the board of directors may have power on banks CSR reporting. Hence, the
following hypothesis is examined:
H3. The provision of higher proportion of foreign nationals on the board, the
greater is degree of CSR reporting information for banks.
90
Control variables (firm-specific characteristics i.e. size, profitability
and gearing)
The study considers size, profitability and gearing as the control variables. Previous
studies have indicated a positive relationship between the extent of CSR reporting and
company size, profitability and gearing. One rationalisation for the relationship of large
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firms with CSR reporting is that large firms assume more activities and have greater
impact on society (Trotman and Bradley, 1981; Andrew et al., 1989). Besides, various
groups in society scrutinise larger companies therefore they would be under greater
pressure to report their social activities to legitimise their business (Cowen et al., 1987).
The relationship between profitability and CSR reporting is also conclusive (see
Mangos and Lewis, 1995; Patten, 1991; Roberts, 1992). A likely clarification for this
association is that management enjoys more autonomy and flexibility to initiate and
report wide-ranging CSR initiatives to shareholders. Haniffa and Cooke (2005) opined
that profitable firms reveal social information to show their role to society’s well being
with an aim of validating their existence. Moreover, Gearing has been found to be an
important explanatory variable in the earlier studies (e.g. Belkaoui and Kahl 1978;
Malone et al., 1993; Wallace et al., 1994). Highly geared companies disclose more
information to give surety to the creditors that shareholders and management are less
likely to evade their covenant claims (Myers, 1977; Schipper, 1981) and to meet some of
the needs of lenders (Cooke, 1996). Thus, based on above-mentioned discussion, the
hypotheses are:
H4. The extent of CSR reporting is greater for: larger firms; highly profitable
firms; and firms having highly gearing ratio.
Research design
The data collected for the purpose of the study involves the examination of annual
reports for the year 2007-2008 of PCB listed on the Dhaka Stock Exchange (DSE). The
banking companies considered in the research include all PCB[2]. The listed banks
were studied owing to their investor orientation and legislative obligations. The annual
reports of selected banks were examined after downloaded from the respective banks’
official web sites. The official web addresses of all firms were collected from the
‘‘companies profile section’’ maintained by DSE. However, incomplete annual reports of
seven banks were available (only financial information) at the web. A letter was then
sent to head office addressing to the company secretary requesting for a complete
annual reports. Two weeks after sending the mail, a reply was received from the banks
concerned. As a result, annual reports of the entire population of 30 PCBs were
examined in the study. While firms may exercise other medium of communication for
exhibiting CSR reporting such as internet, newspaper, media, this study concentrates
on published annual reports. The selection of annual reports is consistent with other
prior studies (see, for example, Adams et al., 1995, 1998; Gray et al., 1995a, b; Guthrie
and Parker, 1990; Roberts, 1990; Singh and Ahuja, 1983). A further reason for choosing
annual reports is that annual report is the most widespread and accepted document Effect of CG
produced regularly by the companies in Bangladesh. Belal (1999, 2000) and Khan et al. elements on
(2009) illustrated that annual reports are considered as the major means through which
information about the company is communicated. Furthermore, researcher’s early CSR reporting
examination in this regards exposed that sample banks did not publicise any separate
social reports and their CSR is restricted to the annual reports only. The intention for
deciding on all the PCB was made on the argument that these banks are expected to 91
reveal more social disclosures than others. Moreover, these banks represent around
60 per cent of the total assets base and deposit of entire the banking sectors in
Bangladesh. As a result, the sample population considered for the study has a
significant illustration of firms representing the banking sectors listed on the DSE.
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Measurement of variables
Dependent variable – CSR reporting
For the purpose of collecting and codifying the data, content analysis technique, a
method of codifying the text (or content) of a piece of writing into various groups (or
categories) based on chosen criteria (Weber, 1988) was used. Content analysis is an
established method of studying annual reports and has widely been used which is
seemed to be empirically valid in the corporate social, ethical and environmental
reporting fields of accounting research (see Gray et al., 1995a, b, 2002; Guthrie and
Parker, 1990; Holsti, 1969 for a review). An important element of content analysis is the
collection and development of categories into which content units can be classified (Ali
et al., 2008). The categories and items were taken out from earlier research in the area
(e.g. Ernst and Ernst, 1976; Cowen et al., 1987; Guthrie and Parker, 1989, 1990; Gray
et al., 1995a, b) and applicability to the Bangladeshi business environment (Ali et al.,
2008; Khan et al., 2009). For the study, a research instrument encompassing the seven
broad premises of CSR reporting (e.g. contribution to health sector, contribution to
education sector, activities for natural disaster, other donations, and activities for
employees, environmental issues, and product, services, statements) was developed.
Effort was also made to ensure that the checklist guaranteed each of the items was
unambiguous and mutually exclusive of others. The checklist was then validated in a
pilot-study, which was deemed valuable. This is because pilot survey resulted in
improvements of checklist and ensured that items were unique or important to the
context of Bangladesh banking sector were added and those not relevant omitted.
Moreover, it ensured that items peculiar to a particular industry were taken into
account. The final checklist instrument consisted of 60 CSR reporting items. This
study considers ‘‘frequency’’ and ‘‘words count’’ as the unit of communication due to its
(Zeghal and Ahmed, 1990; Deegan and Rankin, 1996; Deegan and Gordon, 1996) more
practicability and categorisation ease. Although prior research studies employed
different unit of analysis such as number of pages (Patten, 1992; Deegan and Rankin,
1996) or proportion of pages (Guthrie and Parker, 1990; Gray et al., 1995a, b) in using
content analysis, word counts are seems to be quite relevant in Bangladesh contexts,
since CSR and its reporting endeavours are the new phenomenon. The frequency was
decided by the number of times a particular CSR reporting item was narrated either
qualitatively or quantitatively. The frequency provides the intensity (quantity) of a
given CSR reporting item while the words count indicates the space allocated for a
given CSR reporting item (volume). In order to ensure reliability in coding, the
researcher and a research assistant were involved in the coding process.
IJLMA CSR reporting index (CSRRI)
Basically, an item in the research instrument was coded ‘‘1’’ if disclosed and ‘‘0’’ if it is
52,2 not although no retribution is applied if the item is considered irrelevant. In other
words, the study captured that if a company discloses an item of CSR reporting (e.g.
donation for flood victims information) in the annual reports, it awarded ‘‘1’’ and
otherwise ‘‘0’’. The score of each items were then added to get the ultimate score for the
company. The disclosure model for the CSR reporting thus measures the total
92 disclosure (TD) score for a company as additive as follows:
CSRRI ¼ di60=nj
where, di is the 1, if the item di is disclosed and 0 if the item di is not disclosed, nj is the
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Independent variables
The construction of independent variables with control variables and their
measurement technique are elaborated in Table I.
94 D: Other donations
30 Establishment of health care center for rural
people for free medical services 3 10.00 23
31 Donation to the families victim of road
accidents 1 3.33 5
32 Donation to hospitals for purchasing
equipments for reducing sufferings of poor
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at least few firms carry on the CSR activities at a greater extent contributing in the
different sectors. All the firms (100 per cent) reported CSR information on such items as
employee benefits, number of employees’ employed, donation for the flood and tornado
affected people and reporting value added statement. In view of that, it turns into
perceptible that PCBs of Bangladesh stand beside the flood affected people in
accordance with their financial ability (to view other forms of banks’ assistance
towards the flood victims, see Sl no. 28 and 29) for fulfilling their commitment to the
society. Likewise, one bank has (Sl no. 34) reported to provide financial support to the
natural affected victims of neighbouring country (tsunami affected people in Srilanka).
This is, indeed a very exciting reported event and the continuance of such sort of
endeavour would clearly bring image both at the local and international level for the
bank and for the country taken together. Although few CSR items (see Table III) are not
reported by any banks, the banks CSR involvement towards different sector such as
education, health and others are very inspiring. As it is seen from the Table II, 25 banks
(83.33 per cent) took part in health assistance to underprivileged and disabled children,
more than one-third banks make the contribution to the eye hospitals and ten banks
were (33.33 per cent) involved to donate the costly medical equipments in different
medical hospitals and contributed cash money for setting up cancer hospitals. Towards
the banks contribution to the education sector, the findings of the study reveal that,
surveyed banks (23.33 per cent) gave scholarships to the meritorious students, ten
banks (33.33 per cent) gifted books to different colleges and universities libraries and
same number of banks reported to offer internship facilities for universities students
with cash allowance. Banks propensity towards creating a first-rated research
environment in the country and the new researcher is also visible. Five banks (16.67 per
cent) reported that they gave scholarships to the research students and one bank (3.33
per cent) disclosed their contribution to a university for setting up research centre.
Although this phenomenon seems rather isolated in compare to total surveyed banks,
the in-depth investigation in this regards discloses that reported bank contributed the
Past and current expenditure for pollution control equipment and facilities. Table III.
Information about support for day-care, maternity and paternity leave CSR reporting items
Providing information for conducting safety research on the company’s products not disclosed by any
Discussion of accidental statistics sample banks
IJLMA massive amount of funds. However, one interesting item that deserves particular
52,2 attention that, not a single bank offers part time job facilities for the students (SL #24).
This may be owing to the corporate culture or banks rigid thought intended for hiring
more qualified personnel. The finding is parallel to the study conducted by Rashid
(2005) who revealed corporate cultures of Bangladeshi organisations bring less
opening for the colleges or universities students to make a good bridge of their
96 theoretical and practical learning due to the restricted access while studying in tertiary
levels. Consistent with the earlier research investigations in Bangladesh context (e.g.
Imam, 2000; Belal, 2001; Khan et al., 2009; Ali et al., 2008), this study has unveiled again
the extended reporting tendency of Bangladeshi firms in relation to human resources
items (see Sl nos 38-49). Nevertheless, it seems that banks commitment towards the
environment issues are fairly unsatisfactory (see Sl nos 50-54). This is the areas where
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Bangladeshi banks need to prioritise substantially as part of their future CSR initiative.
Moreover, almost all banks place more emphasis (Sl nos 55-59) on reporting product
related information, banks’ approach for improving the products and customer
services and in particular, reporting additional financial statement such as value added
statement. Overall reporting score of 34.06 per cent evidences that banks CSR
reporting in the annual report are not as low as expected.
Category wise reporting volume and ranking of banks based on the total CSR
reporting items
Table IV shows the results of the descriptive analysis of CSR reporting in each broad
category of reporting items to measure the banks more keenness of reporting items. It
also shows the extent of disclosure as measured by the word count to total words for
all disclosures in the sample population and the means and standard deviations of
disclosure based on the number of words disclosed under each category. The overall
ranking of surveyed PCBs is depicted in Table V. The banks were ranked on the basis
of CSR reporting scores for each of the companies, which enables to present insights
about which banks report more social and environmental information in the annual
Percentage of
reported words
Reporting No of words (As a % of all Mean
banks (at least reported disclosed [(d)/30] Std. dev.
Categories (a) two items) (b) % (c) (amount) (d) words) (e) (f) (g)
reports than others. Consistent with the earlier findings, Table IV shows that surveyed
banks reported fewer words in relation to environmental and educational issues than
employees related product and service and statement information. A total of 19,030
words of CSR reporting were provided in the annual reports for the 30 surveyed
banks examined, representing an average of 634 words per annual report. Table IV,
documents all banks relative position in terms of CSR reporting items. In this respect,
Dutch Bangla Bank (DBL) Ltd has been received top position by disclosing 56 items
(93.33 per cent) out of 60 items. The in-depth investigation of this bank’s CSR activity
showed that as a responsible corporate body, this bank has been playing a pioneering
role in implementing various social and philanthropic programs to help disadvantaged
people of the country since its inception level. Carrying out diverse social and
philanthropic activities in such areas as education, healthcare, human resources
development, conservation of nature, creation of social awareness, rehabilitation of
distressed people and other programs to redress human sufferings not only enlighten
bank’s image to the society but also brings many local and international awards (DBL
has won Asian CSR Award-2005 and 2006 and many national awards for their
outstanding program on CSR). Indeed, those awards distinguish bank’s excellent
loyalty to the education and health sector, greater attentiveness and interests to
environmental issues and other social activities. However, with regards to ranking, this
IJLMA is followed by South East Bank Ltd, Dhaka Bank Ltd, Bank Asia Ltd, Islami bank
52,2 Bangladesh Ltd and so on. Oriental Bank Ltd, Pubali Bank Ltd, Mercantile Bank Ltd
obtained the lowest rank due to the least CSR reporting items. Table III documents
items which are not reported by any surveyed banks. One essential thing that emerges
following researcher’s careful assessment is that not any bank prepared CSR reports or
mentioned anything whether they might have the plan to report under the GRI
guidelines in future even if few banks employ more than ten pages for such reporting.
98 Consequently, no matter what CSR projects, the level and varieties of reporting is
addressed for substantiating organisational caring to society, consistent with other
developing countries practices the bottom line is still financial reporting in banking
sectors of Bangladesh. That is to say, financial reports that top management and
investors be desperate to look at. Whilst CSR practices is not entirely new for the banks
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of women representation on bank boards is over 30 per cent. Compared to the other
developed and developing counties practices (Thomas, 2001; Burgess and Tharenou,
2002), women representation on board seems rather healthier. The ratio of foreign
directors on bank boards is approximately 21 per cent although some banks’ board
encompasses half of the foreign nationals.
Table VII presents the correlation matrix for the dependent and continuous
independent variables. As can be seen from Table VII, CSR reporting is positively
associated with correlation coefficient of 0.550 ( p < 0.001) proportion of non-executive
directors on the board, similar to the study’s hypothesis. Results also show no
significant correlation between disclosure of corporate social information and
representation of women on the board. Specifically, the correlation coefficient of 0.09
( p > 0.001) fails to exhibit any confirmation of a univariate association between CSR
reporting and women’s presence on the board. However, representation of foreign
national on board is positively related to banks CSR reporting practices.
Result of multiple regressions
Table VIII shows the results of multiple regressions. As can be seen from that table, the
regression model explained 42.53 per cent (F ¼ 8.233; p ¼ 0.000) of the CSR reporting
variance for the explanatory variables. The regression model indicates a significant
( p < 0.05) relationship between the board composition variable (COMPNED) with the
extent of CSR reporting of surveyed banks. In other words, the more the number of
independent members on the Bangladeshi PCB’s board, the higher the level of social
CSRRI 1
COMPNED 0.550** 1
COMPWD 0.096 0.095 1
FOROWN 0.258** 0.765** 0.074 1
STA 0.201* 0.050 0.067 1
ROE 0.193* 0.040 0.057 0.168 1
DTE 0.051 0.153 0.044 0.143 0.132 1
Notes: *Correlation is significant at the 0.05 level (two-tailed) ( p < 0.05); **correlation is Table VII.
significant at the 0.01 level (two-tailed) ( p < 0.01); n ¼ 30 Pearson correlations
IJLMA Variables Predicted sign Coefficient value (b) t-value p-value VIF
52,2
Intercept 1.480 0.154
COMPNED þ 0.420 4.291 0.021* 2.33
COMPWD þ 0.392 5.344 0.433 1.99
FOROWN þ 0.297 3.891 0.001** 1.56
STA þ 0.184 2.923 0.001** 2.10
100 ROE þ 0.145 2.443 0.002** 1.45
DTE þ 0.42 0.079 0.112 2.34
Table VIII. R2 (%) 47.35
Multiple regression Adjusted R2 (%) 42.53
results using index F statistics 8.233 and p ¼ 0.000
(CSRRI) as the
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dependent variable Notes: * and ** significant at 5 and 1 per cent levels, respectively
information reported in the annual report. This finding supports the study’s H1. This
result is consistent with the findings of prior disclosure research (Haniffa and Cooke,
2002; Chen and Jaggi, 2000) and empirically verifies the influence of non-executive
directors on CSR reporting practices. Moreover, the finding corroborates the recent
banking sector reforms emphasising on the role of non-executive directors on company
boards in Bangladesh (Haque et al., 2007). However, the result does not support H2 as
the composition of women directors in the board (COMPWD) is not statistically
significant ( p > 0.05). Specifically, women representation on board is not significantly
related with the extent of CSR reporting reported by the banks. This result is rather
inconsistent with earlier studies that evidenced the presence of women directors have
stronger direction towards the CSR reporting (Ibrahim and Angelidis, 1994; Sicilian,
1996). One possible explanation of these dissimilar results would be that, women
empowerment in the executive level in Bangladesh is the new phenomenon and might
have the restricted role to play due to the small numbers occupying the executive
positions. Therefore their role in relation to CSR issues would either be limited or
unattended in most cases. The last CG variable, ownership by foreign shareholders
(FOROWN) was found to be statistically significant at the 1 per cent level. The
proportion of foreign national on the board of banks is significantly related with the
level of voluntary CSR reporting, accordingly provides evidence for accepting H3.
This finding is parallel with prior research by Haniffa and Cooke (2002). The model also
reveals that two control variables such as size and profitability is statistically significant
with the level of CSR reporting but gearing is not found significant. Large companies
make more CSR reporting because of accountability and visibility as delineated in LT
(Cormier and Gordon, 2001). Thus the study’s last hypothesis is partially supported. The
significance of profitability was in line with Roberts (1992) but inconsistent with Cowen
et al. (1987) and Patten (1991). This specifies that Bangladeshi banks use annual reports
as an opportunity to convey their image and legitimise their activities.
Tests of non-linearity and heteroskedasticity of the data through an analysis of
residuals indicated no major problem for regression analysis. Norusis (1995, p. 447)
described that residuals are what are left over after the model is fit and they are also
the difference between the observed value of the dependent variable and the value
predicted by the regression line. Further, the visual examination of correlation matrix
of the explanatory variables is thought of an essential way to perceive collinearity
problem. Correlation coefficient is considered problematic if it exceeded 0.8 (Farrar and Effect of CG
Glauber 1967; Studenmund 1992). A more precise and indicative method broadly used elements on
is the VIF for each of the independent variable (Kennedy, 1992). According to Neter and
Kutner (1989) co-linearity is considered a problem if the VIF exceeds ten. Thus, based CSR reporting
on correlation matrix and VIF found in the study (see Tables VII and VIII) it is unlikely
that multicollinearity is to influence the regression results, since the highest VIF of 2.34
is far less than the threshold of ten.
101
Concluding remarks, limitations and further scope of the study
This study investigates the level of CSR reporting in the annual reports of listed PCB
in Bangladesh for the period 2007-08 using content analysis. It also aims to reveal the
impact of CG elements on the level of CSR information reported by banks. The results
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CSR information. And lastly, as an endeavour of revealing the CSR reporting intensity
prevailing in different banks practices in Bangladesh and hypothesising the impact of
CG elements on CSR, the findings will be a good beginning for further references or
widening future study in the subject matter.
Despite this study has explored some practical implications, it has a limited scope.
These limitations however, could stir for future research. First, this analysis of the
annual reports study is based on the population sample of Bangladeshi PCBs in the
year 2007-08. Thus, the results of the study must be interpreted only with PCBs and
should not be generalised to other commercial, foreign and non-banking business
sectors. Furthermore, firms listed in Chittagong Stock Exchange or some unlisted
firms in Bangladesh such as Unilever Bangladesh, citi NA Bangladesh might report
CSR items, which have been omitted from the study. Another directions of future
research which emerge to be worthy of exploration is to find out the motives and
opinions of management towards reporting CSR information. Second, the study
considers only one period but the findings of the study might change over time.
Therefore, a longitudinal study in different time settings may offer further glitter on the
issue to know the changes of CSR reporting across time on annual reports. This point
calls for particular attention since the researcher earlier attempt (see Khan et al., 2009)
based on annual reports of 2004-05 on selected Bangladeshi banks revealed a small
amount of reporting items. Thirdly, the study was limited only to the investigation of
companies’ annual reports. The banks studied might have other means to report CSR
items such as press news, brochures and newsletters etc. Finally, the findings of the
study must be interpreted within the small sample size. Thus further research attempt
taking all commercial banks listed in DSE together with foreign banks would get better
the generalisation of the findings.
In spite of the above limitations, this study is the primary to investigate CSR
reporting practices couple with the impact of governance practices in the specific
context of banking sectors in developing country such as Bangladesh. Although its
results should be considered as the introductory insight in this stand, it would set off a
number of researchers perceptively to enlarge their research exertion to a further
assessment of this area. These days are not far-flung when PCBs of Bangladesh will
prepare social reporting and incorporating CSR activities in the strategic decision by
capitalising the positive encouragements and incentives from the regulatory bodies.
However, it is well convincing that steady research on CSR reporting is required with a
view to certifying that academics and practitioners understanding on this topic is in
harmony with what is reported in the real world.
Notes Effect of CG
1. See the Companies Act, 1994 that replaced the Companies Act, 1913 (for all companies elements on
except public enterprise), the Bank Companies Act, 1991 (for banking institutions), the
Insurance Act, 1938 (for insurance companies), the Income Tax Ordinance, 1984 (for all CSR reporting
companies and public enterprise), the Securities and Exchange Rules, 1987 (only for
public limited companies).
2. Specialised banks and national commercial banks are omitted from the study because
the aim of this research was to be familiar with CSR practicing of private commercial 103
banks. Although a total sample of 30 companies seems too few it does symbolise the
entire population assisting the ease with which to draw conclusions about the data.
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Corresponding author
Md. Habib-Uz-Zaman Khan can be contacted at: [email protected]
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