Relevant Related
Literature and Hypotheses

Following previous research such as: Branco and Rodrigues (2006);
Platonova et al. (2016);
Galant & Cadez (2017)
CSR has been defined in several ways and over time,
its contents are also evolving. For example, Dahsrud (2008) in Galant
& Cadez (2017)
recognized 37 diverse definitions of CSR. However, we use the widely
acceptable pyramid definitions of Carroll (1999). Carroll (1999, p. 289) identifies four different
areas that make up a CSR as
legal, economic, ethical and philanthropic. The minimum
level of definitions requires the company to behave with business ethics and,
on the other hand, the top level includes proactivity suggesting that companies
must adopt sustainability initiatives. The
available accounting literature argues that there is a link between CSR and FP.
This link can be negative or positive or neutral relationship. More recently, Tijani et
al. (2017), using the United Bank of Africa (UBA) a sample of Nigerian banks examined the impact of
voluntary CSR disclosure on financial performance in the Nigerian banking
industry, covering 22 years (199-2014). The study showed an insignificant evidence of linkage between CSR activities and FP. To
support the negative viewpoint, we highlight some studies, Bae, Kang and Wang (2011),
using ”100 Best Companies to Work For” as a sample of US companies, covering
the period of five years from 2003 to 2007, to examined the relationship
between Corporates’ Financial Performance (CFP) and CSR. The outcome provided
empirical evidence that CSR is negative and statistically related with CFP in
US sample over the scope of analysis.

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A number of the
empirical studies support the viewpoint of a positive association between FP
and CSR. According to the proponents argues that this association is theorized
by the stakeholder theory (Freeman,
1984; Surroca et
al., 2010; Soana, 2011; Choi et al., 2010; Arshad et al., 2012; Wu and Shen, 2013; Rodriguez-Fernandez, 2016; Han
et el., 2016; Kvasi?, Cerovi? and Drazenovi?, 2016; Al-Smadi, 2016;
Platonova et al., 2016). This theory support the idea that the companies
that adopt socially responsible practices are building their reputation in the
society, increasing their profitability and attracting more investors to invest
in the company and consequently reducing the operational costs. In contrast,
the companies that do not invest in CSR policies their operational costs could
be higher and hence decrease their FP.

Shedding light on some researchers in the literature
that associates positively with CSR and FP such as Choi et al. (2010), using a sample of 1222 Korean companies extracted from the KEJI
Index over 2002 to 2008. Examined
whether firms use CSR
activity as a strategy to
achieve better profitability, using two types of statistical analysis
(”Stakeholder-weighted CSR Index” and “Equal-weighted CSR Index”). They
provide a positive relationship between CSR and FP using the first index. Arshad et al. (2012), used
17 Malaysian Islamic Bank data, during the period from 2008 to 2010. Based on
content analysis of annual reports, investigated the relationship between CSR
and FP. The results provided, expected hypotheses, showing a significant and
positive linkage between CSR disclosed index and the respective FP. Rodriguez-Fernandez
(2016), using a sample of 107 firm-year observations, listed on the Madrid Stock
Exchange, over 2009 showed, in both directions, a positive and significant
bidirectional relationship between CSR and FP. Moreover, he proved, as
predicted, that CSR behavior transforms into higher FP and a higher degree of
profitability transform into CSR policies. The research of Wu and Shen (2013), a
cross-countries study, using the database from Bank and Ethical Investment
Research Service databank covering a sample of 162 banks in 22 different
countries, examined the effect of CSR on FP over seven years (2003 to 2009).
The outcome indicates that CSR is positive related to FP. Hence, the bank
managers have used CSR as a key to improving FP. While in another article, the research
of Platonova et al. (2016), reached
the same conclusion, using a sample of 222 firm-year observations for Gulf Cooperation Council (GCC)
Islamic cross-country, for the period 2000 to 2014, applying
two different models to examine the hypotheses. It was concluded that there is
a positive significant relationship between CSR disclosure and the FP,
suggesting that the existent CSR policies conceded by the banks might have a
long-term impact on their profitability. However, the result showed the
insignificant relationship between FP and the composite measure of the CSR
disclosure index such as “employees”, “community”, “zakah” and “debtors”.
Additionally, the findings provide a significant and positive relationship
between the “mission & vision” and future FP.

Based on available literature, researchers have predominantly
focused on the positive relationship between CSR and FP so we   hypothesis
as follow:

Ø 
H1: There is
a positive relationship between Corporate Social Responsibility
reporting and Financial Performance in the Mozambican
Banking sector. (Model 1);

Ø  H1a:
a higher degree of CSR practices influence greater firms’ profitability of the Mozambican Banking sector
(Model 1).

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