The spirit is willing, but the institutions are weak: disclosure of corporate social responsibility and the financial sector in transition.

Abstract

Evidence exploring the relationship between corporate social responsibility (CSR) disclosure and corporate financial performance (CFP) is consistently inconsistent, if not outright contradictory. We assert that much of this confusion is due to a failure to integrate both firm internal performance and the external environment into theoretical and empirical analyses of the effect of CSR disclosure on firm efficiency. This paper attempts to bring these two facets together in an examination of banking sector efficiency in a situation where the entire external environment is in flux, namely transition. Using a database of 319 banks from 21 transition countries, and using dynamic panel and quantile regressions, we provide empirical evidence that banks in transition countries saw benefits in firm performance only when CSR activities were layered on top of a strategy which already was profitable. Indeed, once profitability was achieved, only then did CSR disclosure begin to confer a competitive edge in developing firm resources. However, the external environment continues to exert an influence, and even where banks met profitability goals, predatory institutions can still make engaging in CSR a detriment to competitive advantage.