The Effects of Corporate Social Responsibility Expenditure on the Financial Performance of Financial Institutions: A 2002-2009 Analysis of Agricultural Development Bank, Ghana

Abstract

Corporations are critical actors in the political, economic, social and cultural development of all countries. Besides providing goods and services in order to achieve profitability, they also serve as a source of livelihood for many, pay taxes that enable governments to operate, and have an impact on the physical and social environment. However, the practice of social responsibility poses a challenge to many financial institutions in Ghana including the Agricultural Development Bank (ADB). The socially responsible acts of financial have been assumed to have negative effect on the expenditure and profitability of some financial institutions thereby affecting their profit margins in the short-term. This research therefore focused on determining the extent of the effects of corporate social responsibility (CSR) expenditures on the financial performance of financial institutions. A survey and interviews of some selected department heads at the ADB and reviews of the annual CSR reports revealed that the immediate effect of socially responsible activities on the financial performance of financial institutions tends to be negative. In the long term, such efforts have the potential to accrue positive impacts for financial institutions that engage in socially responsible behaviors as part of their core functions. It is therefore recommended that financial institutions need to undertake socially responsible activities that are part of their core functions so as to overcome the initial shocks that are associated with such programs.

Keywords: Corporate Social Responsibility, Financial Performance, Financial Institutions