Reputation, Corporate Social Responsibility, and Financial Performance of Banks


  • Christopher de Koning Maastricht University



Corporate social responsibility


This paper investigates the effects of reputation and corporate social responsibility (CSR) on the financial performance of a global sample of banks. Firstly, reputation and CSR are found to be complements rather than substitutes. Reputation is found to increase return on equity, return on invested capital, and return on assets. CSR is found to be positively related to the above, as well as net interest income. Its relationship with the share price remains unclear. These relations are more pronounced for less reputable and less socially responsible banks, indicating a curvilinear relationship. It is further argued that investing in CSR poses a better opportunity for extracting economic value than reputation. The findings suggest that profits are earned on CSR and reputation, and thereby provide continued incentives for banks to maintain their status.


Bauer, R., Koedijk, K., & Otten, R. (2005). International evidence on ethical mutual fund performance and investment style. Journal of Banking & Finance, 29(7), 1751-1767.

Beatty, R. P., & Ritter, J. R. (1986). Investment banking, reputation, and the underpricing of initial public offerings. Journal of financial economics, 15(1-2), 213-232.

Beatty, R. P., & Welch, I. (1996). Issuer expenses and legal liability in initial public offerings. The Journal of Law and Economics, 39(2), 545-602.

Booth, J. R., & Smith, R. L. (1986). Capital raising, underwriting and the certification hypothesis. Journal of Financial Economics, 15(1), 261-281.

Brigham, E. F., & Daves, P. R. (2007). Intermediate Financial Management: Thomson–South Western.

Bushman, R. M., & Wittenberg-Moerman, R. (2012). The role of bank reputation in “certifying” future performance implications of borrowers’ accounting numbers. Journal of Accounting Research, 50(4), 883-930.

Carter, R., & Manaster, S. (1990). Initial public offerings and underwriter reputation. The Journal of Finance, 45(4), 1045-1067.

Chatterji, A. K., Levine, D. I., & Toffel, M. W. (2007). Do corporate social responsibility ratings predict corporate social performance?. Division of Research, Harvard Business School.

Chemmanur, T. J., & Fulghieri, P. (1994). Investment bank reputation, information production, and financial intermediation. The Journal of Finance, 49(1), 57-79.

Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1-23.

Chih, H. L., Chih, H. H., & Chen, T. Y. (2010). On the determinants of corporate social responsibility: International evidence on the financial industry. Journal of Business Ethics, 93(1), 115-135.

Cornett, M. M., Erhemjamts, O., & Tehranian, H. (2014). Corporate social responsibility and its impact on financial performance: Investigation of U.S. commercial banks. Unpublished manuscript.

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.

Dennis, S. A., & Mullineaux, D. J. (2000). Syndicated loans. Journal of financial intermediation, 9(4), 404-426.

Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The accounting review, 86(1), 59-100.

Dimson, E., Karakaş, O., & Li, X. (2015). Active ownership. Review of Financial Studies, 28(12), 3225-3268.

Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic Review, 74(4), 650-659.

El Ghoul, S., Guedhami, O., Kwok, C. C., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital?. Journal of Banking & Finance, 35(9), 2388-2406.

Fang, L. H. (2005). Investment bank reputation and the price and quality of underwriting services. The Journal of Finance, 60(6), 2729-2761.

Fombrun, C. J., Gardberg, N. A., & Barnett, M. L. (2000). Opportunity platforms and safety nets: Corporate citizenship and reputational risk. Business and society review, 105(1), 85-106.

Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of nation-level institutions. Journal of International Business Studies, 43(9), 834-864.

Johnson, S. A. (1997). The effect of bank reputation on the value of bank loan agreements. Journal of Accounting, Auditing & Finance, 12(1), 83-100.

Kim, Y., Li, H., & Li, S. (2014). Corporate social responsibility and stock price crash risk. Journal of Banking & Finance, 43, 1-13.

Kim, K. H., Kim, M., & Qian, C. (2015). Effects of Corporate Social Responsibility on Corporate Financial Performance: A Competitive-Action Perspective. Journal of Management, 1-22.

King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The quarterly journal of economics, 717-737.

Klein, B., & Leffler, K. B. (1981). The role of market forces in assuring contractual performance. Journal of political Economy, 89(4), 615-641.

Koh, P. S., Qian, C., & Wang, H. (2014). Firm litigation risk and the insurance value of corporate social performance. Strategic Management Journal, 35(10), 1464-1482.

Livingston, M., & Miller, R. E. (2000). Investment bank reputation and the underwriting of nonconvertible debt. Financial Management, 21-34.

Logue, D. E., & Rogalski, R. J. (1979). Does it pay to shop for your bond underwriter. Harvard Business Review, 57(4), 111-117.

Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative science quarterly, 48(2), 268-305.

Martin, J., Petty, W., & Wallace, J. (2009). Shareholder value maximization—Is there a role for corporate social responsibility?. Journal of Applied Corporate Finance, 21(2), 110-118.

McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of management review, 26(1), 117-127.

Megginson, W. L., & Weiss, K. A. (1991). Venture capitalist certification in initial public offerings. The Journal of Finance, 46(3), 879-903.

Peloza, J. (2006). Using corporate social responsibility as insurance for financial performance. California Management Review, 48(2), 52-72.

Puri, M. (1999). Commercial banks as underwriters: implications for the going public process. Journal of Financial Economics, 54(2), 133-163.

Ross, D. G. (2010). The “dominant bank effect:” How high lender reputation affects the information content and terms of bank loans. Review of Financial Studies, hhp117.

Schadler, F. P., & Manuel, T. L. (1994). Underwriter choice and announcement effects for seasoned equity offerings. Journal of Financial and Strategic Decisions, 7(2), 53-65.

Shapiro, C. (1983). Premiums for high quality products as returns to reputations. The quarterly journal of economics, 98(4), 659-679.

Titman, S., & Trueman, B. (1986). Information quality and the valuation of new issues. Journal of Accounting and Economics, 8(2), 159-172.

Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic management journal, 303-319.

Wakeman, L. M. (1981). The real function of bond rating agencies. Chase Financial Quarterly, 1(1), 18-26.

Wu, M. W., & Shen, C. H. (2013). Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37(9), 3529-3547.


Additional Files