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UNIVERSITY OF GHANA 
 
 
 
 
THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON FINANCIAL 
PERFORMANCE: THE CASE OF LISTED BANKS ON THE GHANA STOCK 
EXCHANGE 
 
BY 
 
CEPHAS ADJEI-MENSAH 
(10701522) 
 
 
 
A LONG ESSAY SUBMITTED TO THE UNIVERSITY OF GHANA, LEGON, IN 
PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF 
WEEKEND MASTERS DEGREE IN BUSINESS ADMINISTRATION (FINANCE 
OPTION)  
 
 
 JULY, 2020 
 
 
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DECLARATION 
I hereby declare that this thesis, except for the cited references and data source, is the result of 
my original research and that no part of it has been presented for another degree in the university 
or elsewhere. 
 
 
 
 
 
……………………………………… …..                                  …………………………….......... 
CEPHAS ADJEI-MENSAH                                                                           (DATE)                          
                (10701522) 
 
 
 
 
 
 
 
 
 
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CERTIFICATION 
I hereby certify that this work was supervised in accordance with procedures laid down by the 
University. 
 
 
 
 
 
 
...............................................................                            ……………………………….  
CHARLES ANDOH (PhD)                                                           (DATE) 
(SUPERVISOR)    
 
 
 
 
 
 
 
 
 
 
                            
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DEDICATION 
 
Firstly, I dedicate this research work to the Almighty God, the giver of wisdom and 
direction, for the strength to have come thus far, without whom I would not have seen the 
fulfilment of this research work. 
This study is wholeheartedly dedicated to my beloved parents, who have been my source 
of inspiration throughout the days, weeks, months, and years that have gone by. Their continual 
moral, spiritual, emotional, and financial support kept me going. 
 To my siblings and colleagues whom I sought for advice and guidance and were able to 
provide it, I‟m also grateful in one way or the other and I say thank you. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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ACKNOWLEDGEMENT 
I am grateful to the Almighty God for His unfailing mercies and love that He continues to 
bestow on me. 
To my long essay project supervisor Dr Charles Andoh, I appreciate your contributions towards 
the accomplishment of this work. In that, you allocated a precious fraction of your time and other 
resources, even at busy moments, to make this work a reality. 
Moreover, I am grateful to everyone who assisted in myriad ways during this work. I must 
express my profound gratitude to all those who provided me with unfailing support and 
continued encouragement, especially throughout this crucial period of my research and thesis 
work compilation. 
This accomplishment would not have been possible without their prayer and support. 
 
 
 
 
 
 
 
 
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TABLE OF CONTENTS 
DECLARATION............................................................................................................................ i 
CERTIFICATION ........................................................................................................................ ii 
DEDICATION.............................................................................................................................. iii 
ACKNOWLEDGEMENT ........................................................................................................... iv 
TABLE OF CONTENTS ............................................................................................................. v 
LIST OF TABLES ..................................................................................................................... viii 
ABSTRACT .................................................................................................................................. ix 
CHAPTER ONE ........................................................................................................................... 1 
INTRODUCTION......................................................................................................................... 1 
1.1 Background of the Research ................................................................................................. 1 
1.2 Problem Statement ................................................................................................................ 3 
1.3 Research Objectives .............................................................................................................. 4 
1.4 Research Questions............................................................................................................ 4 
1.5 Significance of the Study ................................................................................................... 5 
1.6 Scope and Limitation of the Research ............................................................................... 5 
1.7 Organisation of Research ................................................................................................... 6 
CHAPTER TWO .......................................................................................................................... 7 
LITERATURE REVIEW ............................................................................................................ 7 
2.1 Introduction ........................................................................................................................... 7 
2.2 Theoretical Framework ......................................................................................................... 7 
2.2.1 Stakeholder Theory ......................................................................................................... 7 
2.2.2 Carrol‟s Hierarchical Model ........................................................................................... 8 
2.3 History of CSR .................................................................................................................... 10 
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2.4 Features of CSR .................................................................................................................. 12 
2.4.1 Socially Responsible Investments (SRI) ...................................................................... 12 
2.4.2 Business Ethics ............................................................................................................. 12 
2.4.3 Environmental Concerns .............................................................................................. 13 
2.4.4 Sustainable Development ` ........................................................................................... 13 
2.4.5 Corporate Governance .................................................................................................. 13 
2.5 Dimensions of CSR ............................................................................................................. 14 
2.5.1 CSR towards Customers ............................................................................................... 14 
2.5.2 CSR towards Government ............................................................................................ 14 
2.5.3 CSR towards Employees .............................................................................................. 15 
2.5.4 CSR towards Society and Environment ....................................................................... 15 
2.6 Motivations and Drivers of Responsible Business .............................................................. 15 
2.7 CSR Reporting Approaches ................................................................................................ 18 
2.8 Benefits of Reporting CSR Activities ................................................................................. 20 
2.9 Corporate Social Responsibility and Profitability ............................................................... 21 
CHAPTER THREE .................................................................................................................... 22 
RESEARCH METHODOLOGY .............................................................................................. 22 
3.1 Introduction ......................................................................................................................... 22 
3.2 Research Design .................................................................................................................. 22 
3.3 Population............................................................................................................................ 23 
3.4 Sample and Sampling Technique ........................................................................................ 23 
3.5 Data Collection and Analysis .............................................................................................. 23 
3.6 Model Specification ............................................................................................................ 24 
3.7 Variable Selection and Justification (Dependent Variable) ................................................ 26 
3.7.1 Return on Asset (RoA) ................................................................................................. 26 
3.7.2 Return on Equity (RoE) ................................................................................................ 27 
3.8 Variable Selection (Independent Variable) ......................................................................... 28 
3.8.1 Corporate Social Responsibility (CSR) ........................................................................ 28 
3.8.2 Bank Size ...................................................................................................................... 28 
3.8.3 Capital Adequacy ......................................................................................................... 29 
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3.8.4 Inflation ........................................................................................................................ 30 
CHAPTER FOUR ....................................................................................................................... 32 
DATA PRESENTATION AND ANALYSIS ............................................................................ 32 
4.1 Introduction ......................................................................................................................... 32 
4.2 Descriptive Statistics ........................................................................................................... 32 
4.3 Correlation Matrix ............................................................................................................... 33 
4.4 Regression Results from Ordinary Least Squares ............................................................... 35 
4.5. Discussion of Findings ....................................................................................................... 37 
CHAPTER FIVE ........................................................................................................................ 41 
SUMMARY, CONCLUSION AND RECOMMENDATIONS .............................................. 41 
5.1. Introduction ........................................................................................................................ 41 
5.2. Summary ............................................................................................................................ 41 
5.3 Conclusion ........................................................................................................................... 42 
5.4 Recommendations ............................................................................................................... 43 
5.5 Future Research ................................................................................................................... 44 
REFERENCES ............................................................................................................................ 45 
APPENDIX .................................................................................................................................. 60 
 
 
 
 
 
 
 
 
 
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LIST OF TABLES 
Table 3.1 Summary of Variables .................................................................................................. 31 
Table 4.1 Descriptive Statistics………………………………………………………………..…33 
Table 4.2 Correlation Matrix...………………………………………………………………..…35 
Table 4.3 Regression Results: Return on Assets.……………………………………………..…36 
Table 4.4 Regression Results: Return on Equity.……………………………………………..…36 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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ABSTRACT 
This study looked at the impact of Corporate Social Responsibility (CSR) on the performance of 
listed banks on the Ghana Stock Exchange. Secondary data was obtained from the financial 
statement of eight (8) banks over the past eleven years (2007 to 2017) to answer the research 
questions. Data were analyzed quantitatively with Return on Asset (RoA) and Return on Equity 
(RoE) as a measure of performance which was also the dependent variable and expenditure on 
CSR as an independent variable. 
Corporate Social Responsibility was insignificant but positively related to Return on Asset 
(RoA) where the same variable was negative and significantly related to Return on Equity (RoE). 
The study recommends that banks should be cautious in undertaking CSR. After all, it could be 
cautious in undertaking CSR because it could negatively affect their Return on Asset and Return 
on Equity. Also, it is recommended that most CSR projects should be weighted by the banks if 
possible and a cost-benefit is done even before deciding whether to go on with the project or not. 
Keywords: Banks, Capital Adequacy, Corporate Social Responsibility, Financial 
Performance, Socially Responsible Investment.  
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CHAPTER ONE 
INTRODUCTION 
1.1 Background of the Research 
The primary requirement of a business and its management depended largely on how efficiently 
it manages its finances (Alexander and Rogene, 1978). There is another aspect of businesses that 
affect business finance or profit and this is known as Corporate Social Responsibility (CSR) 
(Kumar, 2015). The majority of people have come to know the importance of CSR. Businesses 
need to be socially responsible to their society because investors, employees, customers, etc. are 
becoming conscious of their environment and they are going for green activities (Kumar, 2015). 
CSR has rapidly grown over the decade. After every year, companies issue reports on their CSR 
activities. Marin and Ruiz (2007) found out that those organizations that are seen to be 
environmentally friendly get customers to patronize their products and services. Every company 
must be responsible and perform its social duties to its society as individuals will do for their 
families (Arshad, Anees, and Ullah, 2015). Responsible companies have an asset of programs 
and policies that governs their responsibility to society in which they are connected with their 
operations and how they make their decisions. Companies‟ goodwill can increase due to CSR 
activities undertaken by these companies (Arshad, Anees, and Ullah, 2015).  
CSR activities are seen as a tool for economic development and improving the standard of living 
in society (Holme and Watts, 2007). Scott (2007) said that CSR is about organizing and 
understanding the link between trading operations and ones‟ finances, community, and situation 
within which companies find themselves. Bradshaw (1981) explained that the goal of every 
organization is to ensure that the company‟s responsibility is to provide the lowest cost to its 
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customers. This is possible by effectively and efficiently using resources. Carrol (1979) defined 
CSR as an economic, legal, and ethical unrestricted expectation of society at its point of 
operation. Davis (1993) explained CSR as “it is the responsibility of firms to respond to societies 
ethically to fulfil the economic need of people and legal requirements of government.”  
Angelidis and Ibrahim (1993) explained that the actions of companies should satisfy the society 
in which it operates. Enderle and Tavis (1998) came up with policies and procedures relating to 
CSR. They define the better way to operate a business through the law. However, the people 
living in these societies should not be affected by illegal businesses. Doane (2005) described that 
companies engage in CSR activities to clean the environment. The company must keep in mind 
its stakeholders and control the environment. 
th
In the 19  century, the Institute of Economic Cooperation was strengthened to encourage CSR 
activities. They started having a different budget for CSR activities. Protection agencies and 
programs were organized through conferences such as the United Nations Environment Program 
to protect the natural environment. CSR was adopted for the improvement of countries (Arshad, 
Anees, and Ullah, 2015). 
Carrol (1991) indicated four types of CSR and these are philanthropic, economic, legal, and 
ethical. These elements are in a pyramidal form. Many companies have viewed CSR in a 
Resource-Based View (RBV) of firms (Siegel and Wright, 2006). CSR activities of companies 
can be reported in any firm (Lee, 2012). In Ghana, the concept of CSR has focused more on the 
external environment more than the internal environment from where employees work. 
The relationship between CSR and performance has been very debatable over some time now. 
There has been an opposite view from findings that have been conducted by researchers. Some 
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research has found out that, there exists a positive relationship between CSR and profitability but 
some also found out that there is no relationship that exists between CSR and profitability. 
Various research has been done to assess the impact of CSR on performance both in the short run 
and long run. 
Wright and Ferris (1997) found a negative relationship between CSR and firm performance in 
their study in the short run; Posnikoff (1997) found a positive relationship; Teoh (1999) found no 
relationship between CSR and firm performance in the short run. Also, in the long run, Aupperle 
et al. (1985) did a study that resulted in showing that there exists no relationship between CSR 
and firm performance while Waddock and Graves (1997) found a positive relationship between 
them. 
 
1.2 Problem Statement 
The relevance of CSR among organizations has compelled most researchers to have a deeper 
study into CSR to know what it entails. Some studies focused on the relationship between CSR 
and financial performance (Ofori, S-Darko, and Nyuur, 2014). Also, Moon (2007) examined the 
impact of CSR on sustainable development. Other studies also focused on the factors that 
influence CSR activities (Nyuur et al. 2014). Klein and Dawer (2004) focused on the link 
between CSR and corporate banking whilst Mushtag (2013) focused on the effect of CSR on 
employee retention. Most studies on CSR also focused on a particular study in an economy. 
Results obtained from several studies (Amponsah, 2015, Ansong and Wanasika, 2017) only 
depicted positive and negative effects on the financial performance of companies and not the 
entire banks in Ghana. For instance, the study by Amponsah (2015) revealed that CSR had a 
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positive effect on the financial performance of companies listed on Ghana Club 100. Similarly, 
Ocran (2011) revealed that CSR had a positive effect on the profitability of Nestle Ghana 
Limited. Korathotage (2012) conducted a study on the effect of Corporate Social Responsibility 
on the financial performance of companies in Kenya concerning the dimensions of CSR 
Responsibility on the financial performance of firms. Manrique and Marti-Ballester (2017) 
examined the impact of different dimensions of CSR on the financial performance on firms in 
developed and developing countries. Thus, there are limited studies conducted on the effect of 
CRS on financial performance among banks. Therefore, this current study will examine the 
impact of CSR on the financial performance of banks in Ghana. 
 
1.3 Research Objectives 
The general aim of this research is to examine the impact of CSR on the financial performance of 
banks in Ghana. 
i. To examine the impact of CSR on bank financial performance. 
ii. To examine the moderating effect of banks and CSR on financial performance. 
iii. To investigate the impact of other banks and macroeconomic variables on bank financial 
performance. 
 
1.4 Research Questions 
This research seeks to answer the following questions: 
i. What is the impact of CSR on bank financial performance? 
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ii. What is the moderating effect of banks and CSR on financial performance? 
iii. What is the impact of other banks and macroeconomic variables on financial 
performance? 
 
1.5 Significance of the Study 
Academicians, policymakers, the public, and most especially banks will find this very useful. 
The results of this research will help policymakers and banks understand the link that exists 
between CSR and financial performance. It will also help financial institutions to revise and 
improve on their CSR activities based on the effect CSR has on their performance. It will serve 
as a reference guide to future researchers to further improve this area of research. 
 
1.6 Scope and Limitation of the Research 
There are a lot of financial institutions in Ghana, but this research only focuses on banks. This 
research is restricted in scope because of the limitation in the availability of resources and 
practically undertaking research. This research was limited by the size thus whether the sample 
size is sufficient to generalize the findings and draw valid conclusions. This research was limited 
in collecting data from a secondary source because not all information was available in 
conducting the research. 
 
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1.7 Organisation of Research 
The research will have five chapters. The first chapter will focus on the background of the 
research, the problem statement, the research objectives, and research questions, research 
hypothesis, the significance of the research, scope, and limitation of the research, and finally, the 
organization of the research. 
Chapter Two will be on the literature review thus the theoretical, conceptual, and empirical 
review. Chapter Three will focus on how data will be collected and used. The methodology that 
will be used will be discussed in Chapter Three will consist of the research paradigm, design, 
population, approach, sample size, study area, and the data source. 
Chapter Four will discuss the findings of the study and chapter Five will be a summary of the 
findings, conclusion, and recommendations. 
 
 
 
 
 
 
 
 
 
 
 
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CHAPTER TWO 
LITERATURE REVIEW 
2.1 Introduction 
In this chapter, existing literature conducted by other researchers about the topic in question will 
be reviewed. The theoretical framework on CSR thus, the theories which include stakeholder 
theory, Carrol‟s hierarchical theory model on CSR will be reviewed and empirical works will be 
done on the study. 
 
2.2 Theoretical Framework 
2.2.1 Stakeholder Theory 
The core responsibility of every organization is to improve upon its stakeholders‟ wealth. 
Therefore, any action that seeks to undermine the wealth of a stakeholder is not supposed to be 
entertained. The stakeholder theory opposes this view (Freeman, 2001). The stakeholder theory 
suggests that every organization should not focus solely on how to maximize the wealth of its 
shareholders but also other stakeholders in society. This theory admonishes firms to focus on 
both social and financial performance. This means that every organization is supposed to respect 
everyone who is affected by the actions of an organization. 
Stakeholders are individuals or a group that can affect or be affected by the firm‟s activities and 
this could be within or outside the firm (Freeman, 1984). External parties include competitors, 
customers, and regulators while internal parties could be employees (Milter and Lewis, 1991). 
This concept of stakeholder theory by Freeman (1984) suggests that organizations must perform 
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extra duties to stakeholders. Also, according to Clarkson (1995), stakeholders can be categorized 
into two, thus primary stakeholders and secondary stakeholders. Primary stakeholders are those 
whose presence and participation are needed for the survival of a firm while secondary 
stakeholders are those who are not essentially needed for the survival of a firm. These secondary 
stakeholders entail media, trade, other interest groups, and associations while the primary 
stakeholders are employees, customers, investors, and suppliers. All these stakeholders can put 
pressure on an organization.  
The influence of a stakeholder could be assessed in an organization by taking into consideration 
the power, legitimacy, and urgency of an issue (Alge et al. 1997). The ability of a stakeholder to 
exert his will on others is termed as power while legitimacy is seen as the socially accepted norm 
or principles which indicate whose concerns are required (Schaefer, 2002). Urgency emphasizes 
on time-sensitive nature of stakeholder interactions. 
According to Freeman (2001), the stakeholder management theory indicated that every 
organization is expected to recognize the expectations of society. Also, Branco & Rodrigues 
(2006), suggested that every company should have a CSR that will enable them to consider the 
interest of all parties. Notwithstanding how beneficial stakeholder theory has been, there has 
been some critique on this theory. There has been a problem with identifying a stakeholder, thus, 
who is a stakeholder to an organization and who is not (Freeman, 2004). 
 
2.2.2 Carrol’s Hierarchical Model 
Many models have been developed to be a legitimate framework for implementing corporate 
social responsibility. According to Olokode (2008), CSR is seen as a way companies achieve 
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balance or integrating environmental, economic, and social imperatives while the expectations of 
shareholders and stakeholders are addressed. Carrol came up with four hierarchical component 
model on CSR that started with an economic component at the bottom, followed by legal ethical, 
and philanthropic component at the top of the hierarchy (Carrol, 1991). The economic 
responsibility of the organization is to produce goods and services needed by society to gain 
profit. This responsibility also entails the creation of jobs and how employees are paid (Jamali, 
2008). Businesses are seen as the economic unit of society. Therefore, if a firm fulfils its 
economic responsibility, it means it is fulfilling its core responsibility (Carrol, 1979). Studies 
have shown that firms see economic responsibility as the most important element, but other 
studies have opposed it. A study by Maignan (2001) found that US consumers consider 
economic responsibility as the most important while German consumers see it as the least. Every 
business is expected to comply with rules and regulations binding the society in which the 
business operates (Carrol, 1991). 
Legal responsibility refers to the obligations imposed on a firm by the laws binding the society in 
which a firm operates (Carrol and Shabana, 2010). Although economic and legal responsibility 
breed or require some ethical norms like fairness and justice, ethical responsibility deals with 
practices that are not enshrined in a constitution not binding by law, it is prohibited or expected 
by the society in which a firm operates (Carrol and Shabana, 2010). A major advantage of legal 
responsibility is that it overrides the limitations associated with the firms and creates ethics that 
firms can abide (Jamali, 2008). 
According to Crane et al. (2008), Carrol‟s CSR is realistic and pragmatic, taking into 
consideration the altruistic characteristic of firms without abdicating the duties of businesses to 
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meet the firms‟ economic responsibility. This framework is most seen to be applicable in the 
western world, the application of this model in Africa has been questioned (Visser, 2006). 
These demands end up becoming a core mandate of a company. Carrol‟s model indicates that the 
motive of every organization is presently not only centred on profit-making but also to act in a 
just manner that will help in serving the interest of all stakeholders and also obey rules and 
regulations that govern the organizations.  
 
2.3 History of CSR 
Corporate Social Responsibility was introduced in the ‟50s, and it was the responsibility of 
businessmen, not organizations. The literature reviewed on CSR showed that it started far back 
fifty years ago (Carrol, 1999) but the quest to go deeper in it was in the 1990s (Lee, 2008). CSR 
cannot be seen as a new initiative because many organizations have been embarking on activities 
that show that they are economically, ethically, and discretionally responsible before CSR came 
into existence (Matten et al. 2003). Bowen (1953) in his literature defined CSR as a willingness 
to ensure that measures that will be beneficial to society are put in place and also providing 
insurance policies by businessmen. 
Early works conducted Bowen made Carrol (1999) in his study suggest that Bowen should be 
regarded as the one who brought CSR. Further studies have been conducted ten years after 
Bowen‟s work to support or add up to the Bowen findings. One of the most influential persons 
also in this area is Keith Daxis. In his study, he pointed out that the financial activities of CSR 
need to be provided, and also, in the long run, financial benefits have to be provided to a firm. In 
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a study that he conducted with Blomstorm indicated that a firm is seen to be socially accountable 
when it takes into consideration the needs of those who the firms‟ activities can affect them. 
McGuire (1963) proposed that CSR activities should move beyond financial legal activities 
while Fredrick (1960) also proposed that the needs of the public must be met by CSR activities. 
Wallon in 1967 published a book that elaborated on the “Attributes of CSR” and also suggested 
that the focus of CSR should be on voluntarism. According to Archie Carrol (1970), CSR 
involves economic, legal, ethical, and voluntary responsibility. Jones (1980) and Drucker (1984) 
immensely contributed to CSR and their studies were centred on the function of the business to 
society and provided an alternative view on CSR. Jones (1980) posited it is difficult to agree on 
the constituent of socially responsible activities. Drucker (1984) said it is in a business 
opportunity that a business is supposed to perform CSR. Outcomes, processes, and principles 
were models The organpropounded by Wood (1991). Most people think that the economic 
responsibility of CSR focuses on the business as well as discretionary, legal, and ethical 
responsibilities. But this was rebated in Carrol (1999) and pointed out that economic 
responsibility is also part of the responsibilities of a business to society and also said one of the 
economic responsibilities of a business is providing employment. 
In 2010, Carroll contributed to this earlier study on CSR. He regarded the 2000s as a period of 
global corporate citizenship (Carroll, 2010). This era brought about business ethics and 
sustainable development (Carroll and Shabana, 2010). Despite all these developments on CSR, 
many new definitions and theories have emerged. Notable among them is the World Business 
Council for Sustainable Development (WBCSD). They defined CSR as attaining success in trade 
by taking into consideration ethical principles and, also appreciate people and communities. 
According to McWilliams and Siegel (2001), CSR seeks to satisfy the interest of people rather 
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than firms‟ interest and this is required by law. According to Baughn et al. (2007), CSR seeks to 
improve upon social welfare and stakeholder relations. This explains how employees as 
stakeholders can impact CSR policies. In the first place, employees as a stakeholder group can 
evaluate and react to CSR programs (Rupp et al. 2006). Also, they can act as agents of social 
change by ensuring that companies adopt CSR activities (Aguitera et al. 2007). 
 
2.4 Features of CSR 
CSR cuddles a lot of principles such as business ethics, corporate governance, environmental 
concerns, and sustainable development.  
2.4.1 Socially Responsible Investments (SRI)  
Socially Responsible Investments address issues that are vital to a group. This was initially 
developed for religious groups, but it is currently used by responsible companies. A survey 
shows that consumers are not concerned only about the safety of a product but they are 
concerned about whether the product was produced in a socially responsible manner. For 
example, European consumers take into consideration the respect of human rights, the reduction 
of greenhouse gases, and protecting the atmosphere.  
2.4.2 Business Ethics 
Firms that aspire to be ethically responsible do evaluate the implications of their actions right 
from product development through to manufacturing and distribution. A business that sees ethics 
to be its core value will always go beyond its moral practices by taking into consideration 
suppliers and competitors. Ethical standards in business normally focus on the regulations that 
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bind the sector in which the business finds itself. According to Chryssides and Kaler (1993), 
ethics in business is taught at undergraduate and postgraduate levels.  
2.4.3 Environmental Concerns 
According to Jones et al. (2005), issues about the environment is a top priority for companies in 
the UK. Firms are expected to report on the energy they consume, water consumption, the 
chemicals they use as well as where they obtain their goods from. Also, manufacturing firms are 
expected to ensure cleansing up and also try to resist world environmental issues that can be 
caused by them. Also, they are supposed to purchase pollution permits to be restricted in terms of 
pollution. Firms in the UK are expected to comply with all laws relating to water pollution, air, 
and soil. 
2.4.4 Sustainable Development ` 
 Some groups of people see social responsibility as a subset of sustainable development while 
others see it as activities embarked by organizations to impact the welfare of society. According 
to the UK government‟s sustainable development it ensures that every social development meets 
the wishes of those it is meant for, protecting the environment, maintaining stable economic 
growth, and ensuring that there is a prudent use of natural resources (Performance and 
Innovation Unit, 2001). 
2.4.5 Corporate Governance 
Corporate governance helps in ensuring accountability in an organization by taking into 
consideration the fiscal and social goals of an organization as well as the needs of the 
community. There must be a division of responsibilities in an institution to ensure that there are 
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equal power and authority in such a way that no one gets an unfair advantage over the other 
(Committee on the financial points of corporate governance, 1995).  
2.5 Dimensions of CSR  
2.5.1 CSR towards Customers 
The success of every organization depends on customers since they are primary stakeholders. 
Employees normally receive feedback from customers. Also, they receive some responses from 
customers on their views on products. According to Riketta (2005), there is a strong relationship 
between job identification and job performance in the event of linking CSR towards customers‟ 
commitment. According to the Social Identity Theory, if employees obtain good feedback from 
customers about practices, employees should interpret this at a personal level. 
2.5.2 CSR towards Government 
CSR towards government is when a firm decides to abide by the rules and regulations under the 
law and also intends to fulfil policies set by the government. Few studies have been done, as to 
whether the performance of employees on CSR towards government enhances job performance 
or not. Shen and Zhu (2010) found a positive relationship between the perception of employees 
and the extent to which their organizations legally comply with rules and regulations. This study 
was conducted among Chinese employees. However, Turker (2009) found no relationship 
between the perception of employees on CSR towards government and organizational 
commitment. This shows that employees in China prefer CSR activities that correspond to the 
legal requirement. This could be a result of the recent malpractices that have occurred in China 
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due to bribery and corruption, environmental pollution, and the basic right of employees (Lin, 
2010). 
2.5.3 CSR towards Employees 
According to Turker (2009), CSR towards employees could be seen in situations like flexible job 
assignments, career development, and remuneration. By taking into consideration the care 
rendered to the employees is likely to bring about a good reputation to the organization. This can 
also bring about risk in making decisions (Cormier and Magnan, 2007), although most findings 
show that the perceptions of employees on CSR have a very good effect on job performance. 
2.5.4 CSR towards Society and Environment 
Provision of CSR activities to ensure that the environment is protected, encouraging sustainable 
growth and enhancing the socio-economic conditions of the people within a society (Turker, 
2009). Concerning social identity theory, firms that normally forgo their profit for the benefit of 
society have a higher reputation. In such a situation, employees are willing to work with an 
organization of such a fort and the organization becomes much known and gains organizational 
identification. The organizational identity will motivate employees to work and even take risky 
decisions which in the long run will enhance productivity. Rupp et al. (2013) found out that there 
is a strong correlation between the perceptions of employees towards society. 
 
2.6 Motivations and Drivers of Responsible Business 
Carroll‟s concept of the four dimensions of CSR was revisited by Wood in 1991. This led to the 
extension of the dimensions with matters regarding what motivates the various behaviours by the 
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companies in such responsibilities, leading to the responsiveness level, the output of the 
performance of the companies, or businesses in that regard. Wood (1991) in his study 
categorized responsibility as a wider perspective than what Carroll did. This section of the 
chapter will be based on the determining factors to the motivation of the businesses towards their 
responsiveness to the responsibilities. In doing so, Wood (1991) highlights three main principles 
that explain the motivating factors of the companies towards the responsibilities. These 
principles are the institutional, organizational, and individual levels. At the institutional level, 
motivations are identified to have come about as a result of the credibility and the legitimacy of 
society.  
The organizational level motivation also referred to as the responsibility of the public, speaks of 
the implementation of approaches that are responsive to adapt to the stakeholders of the 
company. At the level of the individual, the motivation is identified to have come about as a 
result of the individual taking on an approach to be responsible based on how motivated he is in 
person, as well as on what his interests are as a person in place of pressures from society 
(Gilbert, 2008; Jamali & Mirshak, 2006). Assessments of the environment, the management of 
stakeholders, as well as the issues of management are the procedures of responsible behaviour 
identified by Wood (1991). Also, the outcome of performance as Wood indicates, include how 
impactful society is by the responsiveness of the businesses in their behaviour, the social 
programmes used in the implementation of responsible activities, as well as the policies made by 
the companies to aid the control by the management of issues of society in this regard and also 
the interest of stakeholders (Jamali and Mirshak, 2006). 
Maignan and Ralston (2002) have also made a categorization of the incentives influencing the 
responsibility of businesses. They have come up with three motivational factors that could 
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influence businesses to be responsible. These factors are performance, stakeholder, and value-
driven, much similar to Wood‟s (1991) motivations. The performance-driven factor has to do 
with the fiscal tasks of the company, a device to advance the company‟s position in terms of 
competition with other businesses as well as the performance of the company financially. 
According to Maigan and Ralston (2002), the stakeholder-driven factor encompasses the 
responses made to the pressure of a stakeholder or more groups who are stakeholders to the 
business on the need to do something regarding the company‟s responsibility. The value-driven 
factor towards the motivation of a business is said to arise from what the company has as its 
corporate culture or the values with which the company goes about its operations.  
In making additions to the above-described factors, Visser (2008) contends that to find the 
determinants of responsible business in less advanced countries, unlike the advanced world, there 
is the need for an examination of the drivers of business responsibility in the former. Visser 
(2008) highlights ten (10) fundamental drivers relevant to the responsiveness of businesses as 
practised in such countries. The drivers as identified have been classified under local or internal 
drivers and these are the pressures that emanate from individuals or groups from the country 
under study, and secondly the external drivers; they refer to pressure from the international 
community (Visser, 2008). The inner or local driver is grounded on the impression that in lots of 
countries, a business termed responsibly is intensely related to social and cultural conducts as 
well as indigenous business principles. Amaeshi et al. (2006) made a deduction on this factor by 
undertaking an empirical study in that regard in Nigeria.  
The inner driver political reorganization denotes the impression that responsible businesses will 
be difficult to be alienated from socio-political circumstances in a region or state. Further, the 
socio-economic priorities or environment within which businesses function time and again 
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openly outline practices of responsible businesses. The gaps in governance are a commonly 
stated driver of practices of responsible business, which is a way to seal gaps created by 
administrations that were feeble and corrupt. Lastly, the response to crisis talks about the 
economic, social, environmental, and health-related crisis in a state that activates responsible 
behaviours (Visser, 2011). Accessing the external driver market talks about the perception that 
responsible businesses are being viewed to be enablers for business ventures to gain access to 
markets that are in other parts of the world. Worldwide regulation has some form of connection 
to the access of the driver market and is grounded on programs, guiding principle, and values 
that drive responsible behaviours. The responsibility of businesses is in most instances driven by 
socially responsible investments, with funds having necessities on social, environmental, as well 
as ethical matters involved. The engagement of stakeholders has to do with the stress diverse 
stakeholder groups placed on the tasks of the business of an organization. Supply chain integrity 
which is defined as the impression about responsible firm practices of mostly Small and 
Medium-Sized Enterprises (SMEs) are activated by necessities imposed by bigger firms or 
conglomerates in their supply chain (Visser, 2011). 
 
2.7 CSR Reporting Approaches 
There are various ways by which CSR activities can be reported. Notable among them is the 
website, social reports, thematic reports, codes of conduct, stakeholder consultations, prizes, 
cause-related marketing, television, press, and product packaging (Birth et al. 2008). Gray et al. 
(1996) indicates that it is the basic means by which firms communicate their social, economic, 
and environmental performance to their stakeholders in the social report. According to Hinson et 
al. (2010), some companies communicate their CSR activities through electronic media such as 
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the internet and television. Gao (2011) points out that firms normally report CSR activities 
through annual reports. This is premised on the background that an annual report forms part of 
the major and acceptable means by which firms communicate their activities. Also, Adams et al. 
(1998) found out that firms in countries like the UK, France, and Germany communicate their 
CSR activities through annual reports. 
Despite these views, Thorne et al. (2014) indicated that the two major means of reporting CSR 
activities are the production of stand-alone reports or production of the information reported 
which is normally within the annual report of a company. Dilling (2010) referred to the first one 
as an environmental report while the second one is referred to as embedded CSR reports. 
Regardless of all these terminologies given to these reporting means, Thorne et al. (2014) 
suggested that they all meet the three standards. These standards are: issues about the 
environment and society, the distinction of CSR reports from the annual year report of firms, and 
content that is not binding by prescribed reporting basics. Normally annual reports are used to 
communicate CSR activities because they save costs and serve as the major means by which 
firms communicate their activities (Kent & Chan, 2003). 
Also, the channels that were used in reporting CSR activities have changed from hardcopies to 
the use of technology (Rikhardson & Bang, 2002). According to Lee et al. (2012), 80% per cent 
of Fortune firms publish their CSR activities on websites. Chatterjee & Zaman (2008) revealed 
that information of firms about environmental activities is normally found on a company‟s 
website as compared to their annual reports. 
Some researchers indicate that the reporting style of CSR activities was mandatory at the 
inception stage but currently, it is voluntary (Geoffery, 2007; Holland and Foo, 2003). There has 
been a debate as to whether the report of CSR activities should be mandatory or voluntary (Jain 
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et al. 2015).  Those who support the voluntary report of CSR activities argue that there has been 
an increase in the report of CSR activities in a decade after it became voluntary while those for 
mandatory indicate firms will only disclose such information to bridge the legitimacy gap 
(Cowan and Gadenne, 2005). 
 
2.8 Benefits of Reporting CSR Activities  
According to Idowu and Towler (2008), there are several benefits associated with the reporting 
of CSR activities. Reporting of CSR is seen as a tool that firms normally use to manage their 
stakeholders to legitimize their operations (Gao, 2011). Research by Laine (2009), Herdberg and 
Malmborg (2003) shows that reporting CSR activities could be used to close the legitimacy gap. 
Also, reporting CSR activities serves as a means by which firms communicate their activities to 
their stakeholders (Golob and Bartlett, 2007). They do this to satisfy the demands of stakeholders 
and also influence the sentiments of powerful stakeholders (Bela and Owen, 2007). A study by 
Idowu and Pappasolomou (2007) in the UK shows that firms satisfy the needs of their 
stakeholders when they report their CSR activities. This is because the stakeholders normally 
demand it. 
Also, disclosing CSR activities protects a firm in the event of socially irresponsible conduct 
(Brammer and Pavelin 2004), ensures the survival of a business (Campbell et al. 2006), and also 
helps in managing risk (KPMG, 2008).  
 
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2.9 Corporate Social Responsibility and Profitability 
Several studies have been made on the relationship between the financial performance of firms 
and their CSR activities for the past fifty years. Notable among these studies include the 
following; (Simpson and Kohers, 2002; Waddock and Graves, 1997; McWilliams and Siegel, 
2000; Griffin and Mahon, 1997). These studies have resulted in diverse views across industries‟ 
as some say there is a positive relationship, others argue that there is a negative relationship, 
while another school of thought indicates that there is no relationship between the financial 
performance of firms and their CSR activities. 
CSR activities enhance the reputation of a firm which in effect can have a positive impact on 
sales although expenditure normally increases when CSR activities are intensified. This means 
that when a firm increases expenditure by undertaking CSR activities, the CSR activities will 
enhance the reputation of the firm and in the long run, the financial performance of the firm will 
improve. 
Also, other studies show that there is a negative relationship between CSR activities and the 
financial performance of firms (Friedman, 1970).  The cost associated with CSR activities will 
result in no gain in economic interest. In the event of high expenditure, some workers could be 
laid off thereby creating unemployment. 
Moreover, other studies have found out that there is no relationship between the financial 
performance of firms and their CSR activities (Abbot and Monsen, 1979; Teoh et al. 1999; 
Alexander and Buchholz, 1978). 
 
 
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CHAPTER THREE 
RESEARCH METHODOLOGY 
3.1 Introduction 
This chapter explains the approaches the researcher used in finding answers to the research 
questions. This section of the research entails the research design, the population study, and the 
sample size, instruments for data collection, data analysis sampling technique and explanation of 
variables. 
 
3.2 Research Design 
According to Taylor et al. (2002), research design focuses on how data is collected and analyzed. 
It is the process of how the research is carried out. In this research, both qualitative and 
quantitative procedures will be used. The qualitative data collection procedure is of non-
numerical data while the quantitative data is of numerical data. The quantitative data helps the 
researcher in making a critical analysis of data that can be used to approve or disapprove the 
hypothesis. The quantitative approach to data analysis requires a statistical analysis which makes 
it complex.  
For this study, variables about CSR and bank performance was assessed through the use of 
correlation. 
 
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3.3 Population 
The research focuses on the banking industry in Ghana more specifically banks that are listed on 
the Ghana Stock Exchange (GSE). The choice of the population is suitable as it helps address 
some of the gaps in research conducted by other researchers. The population is suitable given the 
limited time for the research to be conducted. The banking industry is chosen as the population 
because in the literature most CSR research areas use other sectors as the case study and that 
much work has not been done using banks as a case. This study was helpful and important to use 
banks as the case study because of the role banks play in economic development. 
 
3.4 Sample and Sampling Technique 
“By sampling, the basic aim of the researcher is to observe and study the small connection of 
unit from a much larger unit or population in such a way that the researcher can observe and 
study the smaller number and give a feasible conclusion about the larger group” (Creswell, 
2013). Convenient sampling was used because it allows the researcher to select the years with 
data that are accurate and convincing. The study sample used all banks listed on the GSE. These 
banks must be in operation during the period under study which is 2007 to 2017. 
 
3.5 Data Collection and Analysis 
Research data was collected from the financial reports of the banks involved in the study. The 
data collected was arranged in excel with Return on Asset (RoA) and Return on Equity (RoE) as 
a measure of performance, which was also the dependent variable and expenditure on CSR as an 
independent variable (variable of interest) and some other control variables such as size of bank, 
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capital adequacy ratio will also be added to the variables. The data from the financial report will 
be quantitative and the period is from 2007 to 2017. The quantitative data will be analyzed using 
STATA and the analysis will show the descriptive summary of the variables, correlation, and 
regression which will help establish the link between CSR expenditure or cost and performance 
of the bank. 
 
3.6 Model Specification 
The purpose of this research was to ascertain whether expenditure towards corporate social 
responsibilities could impact on the financial performance of banks. The panel data technique is 
employed in this research to establish the relationship. The panel data technique has been proven 
to be better over the years, more convincing and also ensures accuracy when it comes to the 
outcome/findings of the research as compared to the cross-sectional and time-series approaches 
which are largely attributable to the technique‟s ability to combine the advantages of the time-
series and the cross-sectional approach and also able to reduce the challenges of the cross-
sectional and time-series approaches. Stock and Watson (2001) who argued in support of the 
panel data technique, stated that it serves as an aid of control for the variables which have been 
omitted and also takes care of the banks‟ specific variables which permit long and short-run 
effects to take place. The usage of the panel data technique, therefore, reduces the weaknesses 
that are inherent in either the cross-sectional or time-series approaches when they are used 
individually. Some advantages make the panel date methodology suitable for this study. The 
methodology assumes the heterogeneous nature of different companies like widely dissimilar 
elements, more degree of freedom, and variability in data. Therefore, the general form of the 
model was concluded as; 
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        ∑           
   
where      the dependent variable which is performance 
      Global constant  
       Another independent variable   
    = Time fixed effect 
    = Error term  
                 = Represents the variables which vary across time and entity 
 
                                            
The study makes use of a similar model proposed by Velnampy (2013) as seen below; 
                                                            
                                       
                                                            
                                         
                                                               
                                         
                                                                  
                                        
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        = are the parameters to be estimated 
  = intercept for each bank 
    = Time fixed effect 
    = Error term  
Return on Asset and Return on Equity is the explained variable and is being represented by RoA 
and RoE and it is measured by net profit/total assets; CSR represents corporate social 
responsibility and it is measured by the log of donations, BKS signifies the size of the bank plus 
it is calculated by the log of total assets, CAP represents capital adequacy and is measured as 
equity/total assets, INF represents inflation and is measured by the annual consumer price 
inflation and money supply to GDP. 
 
3.7 Variable Selection and Justification (Dependent Variable) 
3.7.1 Return on Asset (RoA) 
Return on Assets is an accounting measurement that indicates how profitable an entity has been 
compared to its overall assets. It thus offers a plan on how efficiently bank administrators have 
been able to deploy their resources to generate earnings. It is calculated by dividing an entity‟s 
net earnings at the end of a trading period by its overall assets. The method for Return on Assets 
is Net Income/Net overall Assets. This variable has been selected and relied on the accessibility 
of data on its component. Also, since the research inquires to ascertain the impact of 
diversification on banks‟ profits, this variable was deemed more appropriate largely because it is 
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a more convincing measurement of profitability. This study will employ RoA as a measurement 
for profitability. Besides, RoA is used because a measurement such as Return on Equity ignores 
the threats that come along employing upper leverage and also because financial leverage is most 
of the time brought about by regulation which therefore makes Return on Assets a better and 
convincing assessment of the profitability of banks (Athanasoglou, 2008). 
 
3.7.2 Return on Equity (RoE) 
Return on Equity is estimated as earnings before interest and taxes divided by shareholders‟ 
funds. This is an alternative measure to return on assets. It shows the earnings each equity unit 
brings in as earnings. According to Velnampy (2013), return on equity is a performance proxy 
for manufacturing firms since it estimates the earnings made available by deploying equity to 
production, distribution and sales. Several firm-specific, corporate governance and 
macroeconomic variables affect the return on equity of manufacturing firms in Ghana. It is 
expected that a larger board size makes better decisions with regards to the operations of the firm 
and hence makes more earnings with the shareholders‟ equity than otherwise. Also, high 
inflation in the economy poses threats to the return on equity as the general prices level increases 
and the cost of production becomes exorbitant causing the company to either reduce production 
or charge higher prices thereby losing return on equity. A firm-specific variable such as firm size 
also affects the return on equity as a larger firm sized manufacturing firm can either bring in a 
higher return on equity or lesser. Given the above, each variable identified may affect the return 
on equity as a performance proxy. 
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3.8 Variable Selection (Independent Variable) 
3.8.1 Corporate Social Responsibility (CSR) 
Corporate social responsibility (which in this study is measured by the expenditure on CSR 
activities is the variable of interest in this study. The measurement of CSR has been a difficult 
task mainly because of the challenge of definition experienced by many academicians in 
measuring CSR (Mellahi et al. 2016; Frynas and Stephens, 2015). For instance, the study by 
Mellahi et al. (2016) shows 36 different matrices being employed in the assessment of CSR 
which ranged from philanthropic activities to ethics as well as safety issues and also to more 
composite measures evaluated by external rating agencies like KLD Research & Analytics, Inc. 
Taking into account the above assertion, it is obvious that CSR as a concept means different 
things to different classes of people as well as at different times (Campbell, 2007; Frynas and 
Stephens,2015). This study, therefore, views CSR as an umbrella that consists of a variety of 
concepts as well as practices that have inhibited the concept from having a comprehensive 
measure (Frynas and Stephens, 2015). CSR for this study will consider the total financial 
expenditure on corporate social responsibility in assessing its impact on the financial 
performance of the oil firm. The study expects either a negative or positive relationship between 
CSR and financial performance. 
 
3.8.2 Bank Size 
It can be noted that many related elements influence banks‟ profits and most times they are 
linked to the size of the bank (Dermiguc-Kunt & Huizinga, 1999). Banks differ in so many 
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respects when it comes to their operations and this might be viewed with costs, services, and 
offered products as well as risk diversification based on their sizes. It is important to state that as 
far as the theory of economies of scale is concerned, there lives a good connection involving the 
size of the bank and returns. The large banking institutions most often come with resources that 
are better when it comes to their quantity and quality. Banks that have more resources are better 
placed when it comes to the financing of investment projects to generate higher income as well 
as obtaining modern technology for working which minimizes operating costs (Rozzani and 
Rahman, 2013). Also, as reported by Short (1979), large banks often tend to have access to 
funding which comes at a lesser cost. This variable is therefore selected since the ability of the 
bank to also undertake diversification will largely depend on the availability of resources or its 
asset base. Bank size is integrated into the failure to manage any systematic differences in 
profitability across classes (Stiroh and Rumble, 2006; Estes, 2014). The study anticipates a good 
connection involved in the profitability and size of the bank. 
 
3.8.3 Capital Adequacy 
In the regression model, CA stands for Capital Adequacy and can be explained as the adequacy 
of the total of shares to take care of any upsets that banks can be faced with as well as it is 
calculated as the proportion of shares to overall assets. Kosmidou (2008) posited that the 
increase in share assets proportion, the decrease in the requirement for banks to seek outside 
financial support, hence, it is potential for increasing banks' profitability level. More so, well-
capitalized banks have the financial muscles to go into other non-traditional activities and they 
also face the lesser threat of going insolvent which eventually minimizes its funding costs. This 
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study thus expects that the ratio of capital adequacy of the banks will have an impact on their 
level of profitability hence its inclusion in the model. The research work anticipates either 
negative or positive correlation among capital adequacy cum profitability. 
 
3.8.4 Inflation 
Inflation is a macroeconomic variable that represents the percentage change in aggregate price 
levels over some time and has the propensity to affect the costs or revenue of the banks. 
According to Perry (1992), the inflationary impact on bank's profitability is largely relied on if 
the inflation is expected or unexpected. The variable INF in the model is thus employed as the 
proxy for the percentage change in price levels over some time. Also, Staikouras et al. (2003) 
established that inflation as a variable could have a direct or indirect impact on banks‟ 
profitability. As stated earlier, once inflation is expected, interest rates are modifying 
appropriately to result in higher revenue as against lower costs which has a good effect on banks 
profitability and inside a situation which inflation is not anticipated it leads to higher costs as 
against lower revenue which eventually has an inverse relationship on the profitability of banks. 
The research work, therefore, employs the variable due to its ability to affect the bank's returns 
and positive or negative connection is anticipated among returns and inflation. 
 
 
 
 
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Table 3.1 Summary of Variables 
Classification Description Expectations 
Dependent Variable:    
Return on Asset Net Profit/Total Assets N/A 
Return on Equity Net Profit/Total Equity N/A 
Independent Variables    
Corporate Social Log of Donation -/+ 
Responsibility 
 
(CSR) 
Control Variables   
Bank Size (BKS) Log of Total Assets + 
Efficiency (EFF) The ratio of costs of operations divided by - 
the total revenue 
Capital Adequacy (CAP) Equity/Total Assets +/- 
Inflation (INF) Annual Consumer Price Inflation +/- 
Money supply to GDP Annual GDP Growth Rate +/- 
(M2GDP) 
 
 
 
 
 
 
 
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CHAPTER FOUR 
DATA PRESENTATION AND ANALYSIS 
4.1 Introduction 
This chapter provides an analysis of the findings of the study on the effect of corporate 
governance on financial performance: a comparative study between listed and non-listed banks. 
The discussion in the chapter encompasses the summary of all the variables that were used in the 
study as well as the correlation matrix and the regression results. 
 
4.2 Descriptive Statistics 
This section provides a statistical summary of both dependent and independent variables of the 
various banks listed on the Ghana Stock Exchange and shows the features of the variables in the 
model. The major descriptive measures are the mean, standard deviation, the minimum value, 
and maximum value of the variables over the period under review. The table below gives the 
descriptive and statistical summary of each variable used to measure the impact of corporate 
social responsibility on the financial performance of banks listed on the Ghana Stock Exchange 
(GSE) from 2007 to 2017. 
The variable RoA being the dependent variable and representing the financial performance 
measurement of banks has a mean of 0.0383 with the observed sample for this study. It also has a 
standard deviation of 0.0280 and a minimum and maximum value of -0.0872 and 0.0918 
respectively. Also, the return on equity is an alternative measure of financial performance in this 
study. The variable recorded an average of 0.2971 and a standard error of 0.7093 with its 
minimum and maximum figures being 0.0004 and 4.4335 respectively. For the independent 
variable, corporate social responsibility recorded an average of 5.5548 with a standard deviation 
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of 0.6069 and the minimum and maximum value to be 4.0834 and 6.7350 respectively. Banks 
size has a mean of 6.0025 with a standard deviation of 0.5002 and the Min and Max value to be 
4.4188 and 6.9045 respectively. Capital adequacy is another variable under consideration, which 
has a mean of 0.1576 and a standard deviation of 0.0991. The Min and Max value for capital 
adequacy variables are 0.0478 and 0.8418 respectively. The average value for efficiency is 
0.2436 and the standard deviation of 0.2959 with a Min and Max value of -0.7355 and 1.1566 
respectively. Another variable, inflation has a mean value of 0.1367 and a standard deviation of 
0.0347 and a Min and Max value of 0.0873 and 0.1925. The last variable to be considered is the 
money supply to GDP, which has a mean of 0.2961 and a standard error of 0.0311 with a Min 
and Max values of 0.2326 and 0.3420 respectively. 
Table 4.1 Descriptive Statistics 
Variable Obs Mean Std. Dev. Min Max 
roa 86 0.0383 0.0280 -0.0872 0.0918 
roe 87 0.2971 0.7093 0.0004 4.4335 
csr 66 5.5548 0.6069 4.0834 6.7350 
bks 90 6.0025 0.5002 4.4188 6.9045 
cap 88 0.1576 0.0991 0.0478 0.8418 
eff 87 0.2436 0.2959 -0.7355 1.1566 
inf 90 0.1367 0.0347 0.0873 0.1925 
m2gdp 90 0.2961 0.0311 0.2326 0.3420 
Source: Authors computation 2020: RoA means Return on Assets, RoE represents Return on 
Equity, bks means bank size, cap stands for capital adequacy, eff represents efficiency, m2gdpg 
represents money supply to GDP and inf represents inflation. 
 
4.3 Correlation Matrix  
The correlation coefficient shows the index of both the magnitude and direction of the 
relationship that exists between any two sets of variables without implying causality. The 
absolute values of the coefficient indexes represent the magnitude of the relationship between the 
variables while the sign (positive or negative) represents the direction of the relationship between 
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the variables. The concept of multicollinearity is tested using the correlation matrix to identify 
the independent variables that are highly correlated with each other.  This study employs the 
Pearson Correlation to identify the correlation and multicollinearity. 
The Pearson Correlation is useful in explaining the relation between performance (return on 
assets or equity) and corporate social responsibility. It also tests and identifies multicollinearity 
that may exist between any of the corporate governance explanatory variables that were included 
in the study. 
Berry and Feldman (1985) maintained a stand that the threshold for considering multicollinearity 
should not exceed 0.8. This means that if the correlation between any two variables exceeds 0.8 
then there exists multicollinearity. Besides, Smith et al. (2009) suggested that if any variable has 
a Variance Inflation Factor (VIF) greater than ten (10), it should be excluded from the empirical 
model. If any pair of variables has a VIF of less than ten (10) but multi-collinear, the variable 
with the highest VIF must be dropped. Given this fact, the research VIF for this research has no 
value higher than 10 and thus satisfy to the first condition as suggested by Smith (2009) and thus 
all the variables must be included in the empirical model. All the variables satisfy the second 
condition because all the variance inflation factors are less than 10 and do not exceed the 
threshold for the multicollinearity of 0.8. Therefore, the entire variable must be considered for 
this research. From table 4.2 below, even though money supply to GDP and bank size were 
highly correlated with a value of 0.7207, it is not multicollinear because the correlation 
coefficient is not greater than 0.8 per Berry and Feldman (1985) which is our benchmark for this 
study. 
 
 
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Table 4.2 Correlation Matrix 
  roa roe csr bks cap eff inf m2gdp 
roa 1 
roe 0.265 1        
csr 0.2606 -0.0851 1       
bks 0.4721 0.1318 0.6701 1      
cap 0.1232 -0.1966 -0.1819 -0.1883 1     
eff 0.3981 -0.2619 -0.0892 0.0546 0.3898 1    
inf -0.0514 -0.0673 0.0964 0.2533 -0.1762 -0.0133 1   
m2gdp 0.1775 -0.1767 0.3864 0.7207 0.1629 0.2227 0.2435 1  
Source: Authors computation 2020: RoA means Return on Assets, RoE represents Return on 
Equity, bks means bank size, cap stands for capital adequacy, eff represents efficiency, m2gdpg 
represents money supply to GDP and inf represents inflation. 
 
4.4 Regression Results from Ordinary Least Squares 
The Ordinary Least Square (OLS) estimation strategy was used for the study. The OLS reduces 
the sum of squares of the variations across the explained variables to provide for the parameters 
of the function of the independent variables. This is observed as the distances of the sum of 
squares, which are parallel to the dependent variable axis resting in the middle of each point in 
the regression, geometrically. Assumptions that make the OLS appropriate for this study include, 
the data is normally distributed and this is reported in the appendix, table 2 and normal 
distribution graphs for the individual variables are also presented in the appendix showing that 
the variables are normally distributed. There is no problem of multicollinearity base on the 
correlation result. 
 
 
 
 
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Table 4.3 Regression Results: Return on Assets 
[95% 
RoA Coef. Std. Err. t P>t Conf. Interval] 
csr 0.0045 0.0049 -0.9300 0.3570 -0.0144 0.0053 
bks 0.0627 0.0106 5.9200 0.0000*** 0.0415 0.0839 
cap 0.1327 0.0613 2.1700 0.0350** 0.0099 0.2556 
eff 0.0299 0.0080 3.7200 0.0000*** 0.0138 0.0460 
inf 0.0709 0.0648 -1.0900 0.2790 -0.2009 0.0590 
m2gdp 0.5948 0.1394 -4.2700 0.0000*** -0.8741 -0.3155 
cons 0.1492 0.0366 -4.0800 0.0000 -0.2224 -0.0759 
Number of obs 62 
F(6, 55) 10.93      
Prob > F 0.000      
R-squared 0.544      
Adj R-squared 0.494      
Root MSE 0.017                
Source: Authors computation 2020: Significance level: 1% (***), 5% (**), 10% (*); RoA means 
Return on Assets, RoE represents Return on Equity, bks means bank size, cap stands for capital 
adequacy, eff represents efficiency, m2gdpg represents money supply to GDP and inf represents 
inflation. 
 
Table 4.4 Regression Results: Return on Equity 
[95% 
RoE Coef. Std. Err. t P>t Conf. Interval] 
csr -0.6568 0.2072 -3.1700 0.0020*** -1.0718 -0.2417 
bks 1.9029 0.4440 4.2900 0.0000*** 1.0135 2.7923 
cap 1.1786 2.5784 0.4600 0.6490 -3.9866 6.3437 
eff -0.7179 0.3386 -2.1200 0.0380** -1.3962 -0.0396 
inf -2.4991 2.7390 -0.9100 0.3650 -7.9860 2.9878 
m2gdp 18.7537 5.8089 -3.2300 0.0020*** 30.3903 -7.1170 
cons -1.5750 1.5431 -1.0200 0.3120 -4.6662 1.5162 
Number of obs 63 
F(6,    56) 4.52      
Prob > F 0.0008      
R-squared 0.3262      
Adj R-squared 0.2540      
Root MSE 0.7093                
Source: Authors computation 2020: Significance level: 1% (***), 5% (**), 10% (*); RoA means 
Return on Assets, RoE represents Return on Equity, bks means bank size, cap stands for capital 
adequacy, eff represents efficiency, m2gdpg represents money supply to GDP and inf represents 
inflation. 
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4.5. Discussion of Findings 
From table 4.3 and 4.4 reveals that corporate social responsibility has positive but insignificantly 
related to return on asset. This may imply that acknowledgement of the CSR agenda does not 
necessarily increase company value and promote business growth. Although, some scholars have 
reported a positive nexus between CSR and performance and have explained that, for example, a 
firm perceived as high in social responsibility may face relatively few labour problems, and 
customers may be favourably disposed to its products. Socially responsible activities may also 
improve a firm's standing with governments, investors, and a community which may bring some 
economic benefit to the firms as argued by Pan, Sha, Zhang, and Ke (2014) and Simpson and 
Kohers (2002).  
On the other hand, corporate social responsibility is found to be negative and significantly 
related to return on equity at a significant level of 1%. RoE describes management's ability to 
manage shareholders‟ funds to make a profit (Dewi, 2014). CSR having a negative relationship 
with performance (RoE) implies that an increase in CSR expenditure would cause a decrease in 
RoE because the funds spent on undertaking CRS projects are part of the earnings generated by 
the banks which could have probably been distributed to the shareholders or would increase 
shareholder value. That suggests that certain actions (classified as socially responsible) if tend to 
be negatively correlated with the financial performance of firms, then managers might be advised 
to be cautious in this area. Also, some studies that suggested a negative relationship between 
social responsibility and financial performance have argued that high responsibility results in 
additional costs that put a firm at an economic disadvantage compared to other less socially 
responsible firms. These added costs may result from actions like making extensive charitable 
contributions and promoting community development plans. Also, concern for social 
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responsibility may limit a firm's strategic alternative plans. For example, a firm may forgo 
certain product lines, which would have generated additional revenue to undertake a project 
which may not bring direct benefits to the firm. This result conforms to that of Bashir, Garba, 
and Abdulrazaq (2020); Hussein (2018); Khaled (2018); Julius (2016) whose findings also 
resulted in CSR having a negative relationship with RoE. 
Bank size is positively related to both return on assets and return on capital and significantly related 
to return on equity at 1% significant level. The findings made in this regard suggest that large banks 
enjoy economies of scale in the sense that there is ability in cutting down costs related to production 
leading to growth in profit made. It could also be said that bank size has linkages with 
diversification which may impact bank risks and returns. An increase in diversification by sizeable 
banks has the possibility of helping reduce the bank‟s exposure to risk which will in turn, improve 
profitability. This finding conforms to the findings of Adam (2014) who concluded that there is a 
significant and positive relationship between bank size and performance. 
It can be seen that capital adequacy ratio is positively related to both RoA and RoE and it is 
significantly related to RoA at 5% significant level but insignificantly related to RoE. Capital 
adequacy ratio is measured as the Ratio of Equity to total assets. This represents the relative 
position of the firm‟s equity to its total asset. Generally, a bank with a higher capital adequacy 
ratio has a better cushion against risk. Higher ratio means the banks‟ asset composition is largely 
financed by its owners and this will reduce the amount of money paid to either depositors or 
firms‟ creditors thereby increasing the firm's net return which therefore boosts the firm's return 
on assets and equity. An increase in the ratio, therefore, helps banks to increase the relative 
returns that are attributable to the firm in general as the liability of the firm reduces given an 
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increase in the ratio. This finding is in support of the findings by Bateni, Vakilifard, and Asghari 
(2014). 
Efficiency is positively related to RoA at a significant level of 1% and if the management of the 
banks effectively and efficiently utilizes their resources, it would lead to a positive impact on 
their performance (RoA). The findings of the research correspond with Kosmidou et al. (2006); 
Sufian and Habibullah (2009); Dietrich and Wanzenried (2011) also found a positive nexus 
between efficiency and profitability (RoA). CSR is negatively related to RoE at a significant 
level of 5%. This implies that anytime the efficiency ratio increases, it harms the bank's 
profitability and also, mismanagement of total expenses affects the bank's performance (RoE). 
This finding is concerning Alexiou and Sofoklis (2009) who also found a negative and 
significant effect on RoA and established that management efficiency is a prerequisite for 
enhancing Greek's banking system profitability; Ali et al. (2011) also found a negative 
relationship between efficiency and return on equity. 
Inflation which is one of the macroeconomic variables was found to be insignificantly related to 
the performance variables. However, the findings report positive and negative associations for 
both RoA and RoE respectively.  
The money supply to GDP was found to be significantly related to the performance variables. 
However, the findings report a positive association for both RoA and RoE respectively. This may 
be because anytime the money supply is increased, customers of these banks can save more 
causing the banks to get more deposits to give out as loans and also, invest in other investments 
leading to an increase in bank's profit. This finding corresponds to the findings of Al-Qudah and 
Jaradat (2013); Iriani and Yuliadi (2015); Ariff and Rosly (2011); Ali, Maamor, Yaacob, Gill 
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(2018) all found a significant positive relationship between money supply (M2) and financial 
performance. 
Also, in the appendix, Tables 3 and 4, there was an interaction between the size of bank and 
expenditure on corporate social responsibility to examine the impact of the interacted variable on 
performance. The result from table 3 in the appendix revealed that the interacted variable has a 
positive but insignificant relationship with return on assets whereas the same interacted variable 
was found to be negative and statistically significant with return on equity. More interestingly, 
the corporate social responsibility variable in those models as presented in Tables 3 and 4 in the 
appendix were all not significantly related to performance. Also, in Tables 5 and 6 in the 
appendix, the corporate social responsibility variable was squared to examine how this 
influences performance. The results revealed a negative nexus between CSR and performance, 
but this was only significant in the case of return on equity. 
 
 
 
 
 
 
 
 
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CHAPTER FIVE 
SUMMARY, CONCLUSION AND RECOMMENDATIONS 
 
 5.1. Introduction 
This chapter of the study gives the summary of the research, makes a conclusion based on the 
findings, and finally recommend some directions or suggestion for the benefit of the future and 
policy implementations. 
 
5.2. Summary 
The research was focused on the impact of corporate social responsibility on the financial 
performance of listed banks on the Ghana Stock Exchange. Variables considered include 
corporate social responsibility (using expenditure on donations as proxy), bank size, capital 
adequacy, efficiency, inflation, and money supply to GDP. The performance variables are 
returned on assets and return on equity. The study used annual frequency data that spanned from 
2007 to 2017 using a panel regression model with Ordinary Least Square estimation technique. 
Bank-level data were collected from their annual reports while macroeconomic data were 
collected from the Ghana Statistical Service. 
The CSR variable which was the variable of interest in this study was found to be positively 
related to RoA but not significant whereas this same variable was negative and significantly 
related to RoE. The negative nexus between CSR and RoE suggests that high responsibility 
results in additional costs that put a firm at an economic disadvantage compared to other less 
socially responsible firms. Bank size, capital adequacy, efficiency, inflation and money supply to 
GDP are all positively related to return on asset. Except for inflation which was not significant 
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all the other variables were significantly related. This suggests that banks with large asset size 
enjoy some level of the economics of scale because they can cut down production cost. Also, 
with the capital adequacy ratio, a bank with a higher capital adequacy ratio has a better cushion 
against risk. Then again, the positive nexus between efficiency and RoA has got to do with the 
efficient and effective utilization of bank resources by management which is expected to 
improve performance.  
However, the size of the bank, capital adequacy, and money supply to GDP were found to be 
positively related to return on equity except for capital adequacy which was not significant all 
the others were significantly related. Efficiency and inflation were negatively related to return on 
equity, with efficiency being significant and inflation insignificant. 
 
5.3 Conclusion 
The conclusion subsection of this chapter gives meaning to the finding of the research identified 
at the end of the research. From the finding of this research, it can be concluded that anytime 
corporate social responsibility expenses increased among listed banks, it decreases RoE because 
all the funds are invested in CSR activities rather than it being invested in other projects to 
increase shareholder's equity. Large bank size could increase banks return on asset and return on 
equity because large banks enjoy economies of scale in the sense that there is the ability in 
cutting down costs related to production leading to growth in profit made and also, an increase in 
diversification by sizeable banks has the possibility of helping reduce the bank‟s exposure to risk 
which will, in turn, improve profitability. Also, capital adequacy has a positive association with 
RoA and RoE. This may be because a bank with a higher capital adequacy ratio has a better 
cushion against risk. Higher ratio means the banks‟ asset composition is largely financed by its 
owners and this will reduce the amount of money paid to either depositors or firms‟ creditors 
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thereby increasing the firms‟ net return which therefore boosts the firm's return on assets and 
equity. Efficiency, on the other hand, was positively related to RoA and negatively related to 
RoE. Inflation was positively related to RoA whereas this same variable was negatively related 
to RoE. The money supply to gross domestic products also had a positive nexus with RoA and 
RoE. This is a result of customers increasing savings as money supply increasing and banks get 
more deposits to give out as loans and also, invest in other investments leading to an increase in 
bank's profit. 
 
5.4 Recommendations 
The results indicate the need for banks listed on the Ghana Stock Exchange to be keen on some 
variables as they could influence financial performance either positively or negatively. Per the 
outcome of this study, it is recommended that banks should be cautious in undertaking activities 
that are deemed to be socially responsible yet the cost the activities bring to the bank may be 
more than expected. Also, it is recommended that banks should be cautious when undertaking 
CSR projects. If possible, the banks can weigh and do cost-benefit analysis even before deciding 
on whether to go on with the project or not. Also, since the negative effect was on RoE, the study 
advised that banks should discuss with their shareholders before going ahead with any CSR 
project so that the consequences that may come as a result of undertaking the project could be 
witnessed by all. 
 
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5.5 Future Research 
Similar studies in the future can consider other corporate social responsibility variables to 
understand the impact of these variables on the performance of banks in the context of this 
research. Further research should also be conducted in other sectors and countries to know how 
different corporate social responsibility affects those sectors' financial performance. More 
variables of corporate social responsibility should be considered to understand how they also 
affect the financial performance of banks. A different approach, the qualitative analysis should 
be used for this same research to understand how different corporate social responsibility will 
affect the financial performance of financial institutions in the banking sector. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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APPENDIX 
 
Table 1: Variance Inflation Factor 
Variable         VIF 1/VIF   
bks 3.91 0.2561 
m2gdp 2.74 0.3655 
csr 1.93 0.5176 
cap 1.5 0.6652 
eff 1.24 0.8066 
inf 1.13 0.8858 
Mean VIF 2.07   
 
 
Table 2: Normality Test 
Variable Obs W V z Prob>z 
roa 87 0.9367 4.656 3.386 0.0004 
csr 67 0.97923 1.234 0.455 0.3244 
bks 91 0.95156 3.697 2.886 0.0020 
cap 91 0.52552 36.219 7.922 0.0000 
eff 88 0.91381 6.4 4.089 0.0000 
inf 91 0.92748 5.535 3.776 0.0001 
m2gdp 91 0.966 2.595 2.105 0.0177 
 
 
 
 
 
 
 
 
 
 
 
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Figures depicting the variables are normally distributed 
Kernel density estimate
-.1 -.05 0 .05 .1
ROA
kernel = epanechnikov, bandwidth = 0.0094
 
 
Kernel density estimate
4 5 6 7
CSR
kernel = epanechnikov, bandwidth = 0.2354
 
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Density Density
.2 .4 .6 .8 10 15
0 0 5
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Kernel density estimate
4 5 6 7
BKS
kernel = epanechnikov, bandwidth = 0.1784
 
 
 
Kernel density estimate
0 .2 .4 .6 .8
CAP
kernel = epanechnikov, bandwidth = 0.0119
 
62 
 
Density Density
10 15 .2 .4 .6 .8
0 5 0
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Kernel density estimate
-1 -.5 0 .5 1 1.5
EFF
kernel = epanechnikov, bandwidth = 0.0954
 
 
Table 3: Regression Result 
RoA Coef. Std. Err. t P>t [95% Conf. Interval] 
csr -0.0373 0.0504 -0.7400 0.4620 -0.1383 0.0637 
csrbks 0.0052 0.0082 0.6300 0.5300 -0.0112 0.0215 
bks 0.0315 0.0457 0.6900 0.4940 -0.0601 0.1230 
cap 0.0629 0.0514 1.2200 0.2260 -0.0401 0.1660 
eff 0.0321 0.0085 3.7700 0.0000 0.0151 0.0492 
inf -0.0796 0.0675 -1.1800 0.2430 -0.2149 0.0557 
m2gdp -0.4617 0.1398 -3.3000 0.0020 -0.7419 -0.1815 
cons 0.0233 0.2672 0.0900 0.9310 -0.5121 0.5588 
Number of obs 63 
F(  7,    55) 7.91      
Prob > F       0      
R-squared      0.5018      
Adj R-squared  0.4384      
Root MSE       0.0176                
 
 
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Density
.5 1.5
0 1
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Table 4: Regression Result 
[95% 
RoE Coef. Std. Err. t P>t Conf. Interval] 
csr 3.1620 1.9209 1.6500 0.1050 -0.6861 7.0100 
csrbks -0.6439 0.3113 -2.0700 0.0430 -1.2676 -0.0203 
bks 5.7352 1.7403 3.3000 0.0020 2.2489 9.2215 
cap 2.6387 1.9641 1.3400 0.1850 -1.2958 6.5733 
eff -0.8287 0.3224 -2.5700 0.0130 -1.4745 -0.1828 
inf -2.0195 2.5808 -0.7800 0.4370 -7.1895 3.1505 
m2gdp 22.2449 5.3155 -4.1800 0.0000 -32.8932 11.5966 
cons 23.2233 10.1858 -2.2800 0.0260 -43.6279 -2.8187 
Number of obs  64 
F( 7,    56)  5.78      
Prob > F       0      
R-squared      0.4195      
Adj R-squared  0.3470      
Root MSE       0.6724                
 
 
 
Table 5: Regression Result 
[95% 
RoA Coef. Std. Err. t P>t Conf. Interval] 
csrsq -0.0005 0.0005 -0.9400 0.3510 -0.0015 0.0005 
bks 0.0585 0.0126 4.6500 0.0000 0.0333 0.0837 
cap 0.0584 0.0509 1.1500 0.2560 -0.0436 0.1604 
eff 0.0325 0.0085 3.8400 0.0000 0.0155 0.0494 
inf -0.0786 0.0672 -1.1700 0.2470 -0.2133 0.0561 
m2gdp -0.4689 0.1394 -3.3600 0.0010 -0.7483 -0.1896 
cons -0.1561 0.0456 -3.4200 0.0010 -0.2475 -0.0647 
Number of obs 63 
F( 6, 56) 9.21      
Prob > F 0      
R-squared 0.4968      
Adj R-squared 0.4428      
Root MSE 0.0175                
 
 
 
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Table 6: Regression Result 
[95% 
RoE Coef. Std. Err. t P>t Conf. Interval] 
csrsq -0.0757 0.0194 -3.9100 0.0000 -0.1144 -0.0369 
bks 2.3599 0.4874 4.8400 0.0000 1.3840 3.3359 
cap 3.1091 1.9747 1.5700 0.1210 -0.8452 7.0633 
eff -0.8508 0.3253 -2.6200 0.0110 -1.5023 -0.1993 
inf -2.1146 2.6085 -0.8100 0.4210 -7.3380 3.1087 
m2gdp 22.1096 5.3824 -4.1100 0.0000 -32.8877 11.3316 
cons -4.6861 1.7701 -2.6500 0.0100 -8.2307 -1.1415 
Number of obs 64 
F(  6, 57) 6.23      
Prob > F 0      
R-squared 0.3962      
Adj R-squared 0.3326      
Root MSE 0.6798                
 
65