Disclosure of Corporate Social Responsibility and Financial Performance

in Islamic Banks

ZAENAL ABIDIN

Faculty of Economic Business,

Perbanas Institute,

Jakarta, 12940,

INDONESIA

Faculty of Economic Business,

INDONESIA

Faculty of Economic Sciences,

INDONESIA

*Corresponding Author

Abstract: - The objective of this research is to evaluate the impact of Corporate Social Responsibility (CSR)

disclosure on financial outcomes (ROA) for the years 2016 to 2018. The moderating variables are company size

and age. The sample used for the study comprised data from Islamic banks in Indonesia between 2016 and 2018.

The analysis method utilized is structural equation modeling (SEM), with CSR as the independent variable and

ROA as the dependent variable. The research also included business size and firm age as moderating factors. The

findings of the study indicate that the company's age and corporate social responsibility have significant impacts on

The Corporate Social Responsibility (CSR) program

is an obligation of a company that is not only

responsible for consumers, shareholders, or

employees but also responsible for the environment.

Company Law No. 40 of 2007 concerning Limited

Liability Companies, it notes that the company is

responsible for natural resources in social and

environmental terms, although this clause focuses

more on companies engaged in natural resources.

Meanwhile, there are no clear and comprehensive

norms for the banking industry because banks have

little operational impact on the natural resource

environment. However, banks must pay attention to

the prevailing laws and regulations when providing

risks. The response of management to global

competition involves quality improvements and risk

management measures, system and process

reorganization, and better transparency. To resolve

dynamic and evolving social risks and to meet the

requirements of globalization, CSR is an excellent

mechanism to overcome this challenge as an

institution of trust.

CSR disclosure is in the form of a report

containing all business activities related to CSR. It is

most used, [1].

The indicators used in social success disclosure

are made up of 91 indicators. These indicators

include economic, environmental, and social

indicators that are included in the guidelines of the

Global Reporting Initiative / GRI G4. The

introduction of CSR in a bank is also carried out

because the bank requires the credibility of the

society that the company focuses not just on

operations but also on the world around which the

particularly dynamic because changes in a country's

economy influence its financial institutions. The

growth of financial institutions in Indonesia, both

conventional and Islamic financial institutions, has

developed very well. Fundamentally, Islamic banks

operate similarly to conventional banks, acting as

mediators between those with surplus cash (through

fundraising operations) and individuals in need (by

financing activities). To ensure that the goods

supplied by traditional banks, both the products of

Islamic economy in which profit-sharing estimates

are based on an agreement between the bank and the

customers who invest their funds.

results in Indonesia is very adequate, but relevant to

Islamic banking the inclusion of moderate firm size

and firm age variables is very limited. The purpose of

this study is to assess the influence of CSR disclosure

on financial outcomes (ROA) from 2016 to 2018.

Corporation size and age are moderating variables.

enterprises with significant capital market power

have superior CSR performance, which indicates that

companies that are successful and have high growth

aspirations have many resources to commit to

charitable initiatives and to affirm their presence for

stakeholders, [3], [4].

and that its disclosure contributed to the bank's

increased economic efficiency. Other studies found

that there was an impact of firm size on profitability

as measured by ROA, [3], [6]. CSR in Malaysian

public companies and found that company size in

terms of ROA and ROE has a significant positive

relationship with company output as one of the

control variables, [7]. Furthermore, in terms of ROA

and ROE, a firm age has been found to have a

substantial negative relationship with the results of

It is identified a substantial association between

the amount of CSR and financial success in Tunisia,

[9]. The findings indicate that Tunisian-registered

banks that are good performers are more accountable

and have an opportunity to market their CSR. While

the relationship between firm size and firm age is

negligible, the larger and older firms have a positive

impact on financial performance (profitability),

which encourages a rise in the adoption of better

CSR practices, [10].

might mitigate the impact of CSR on ROA and

Tobin's Q. In the meanwhile, the size of the

Commissioners' Board and the organization did not

affect the link between CSR, ROA, and Tobin's Q.

Other researchers who did CSR studies on ROA and

Tobin's Q discovered that ROA was impacted by

financial efficiency, [5], [10].

follows.

H1: CSR affects the ROA.

H2: The impact of CSR on ROA can be moderated

by firm size.

H3: The impact of CSR on ROA can be moderated

by firm age.

This investigation utilizes a quantitative research

technique, with secondary data serving as the major

The population used in this research is Islamic

Financial Institutions, where the Islamic Bank that

has been included in the listing is getting more

attention from the public. While the sample selection

in this study was determined using the purposive

sampling technique, namely the sampling technique

based on certain criteria, namely as follows:

- Sharia banks registered with the Financial Services

Authority for the 2016-2018 period.

- Sharia banks publish financial reports or annual

the 2016-2018 period.

The content analysis approach was used in this

study to investigate CSR. By assigning a score to the

annual report of the social disclosure measurement

carried out by observing the presence or absence of

an information item listed in the annual report, the

evaluation of the content analysis process is also

conducted with a nominal score. If the information

item is not in the financial report, it is given a score

of 0, and if the specified information item is in the

This ease of funding will influence the

company's value and be good information for

investors, a large company size that continues to

expand will define potential profit levels (Eko, 2014).

In this research, the size is determined from the

company's average number of assets during the 2016-

2018 sample year.

by descriptive statistical data processing, which is

available data. The maximum value is 12,400,

namely PT. Sharia National Pension Savings Bank in

Panin Dubai Syariah Bank in 2017. The standard

deviation of Return on Assets is 4,681

from CSR, which served as the study's independent

which became the moderating variable in this study,

the number of observations of 36 has a mean value of

16,168. The maximum value is 18,404, namely PT.

Bank Syariah Mandiri in 2018. The minimum value

of 13,403, namely PT. MayBank Syariah Indonesia

in 2018. The standard deviation of the Firm Size

variable is 1.292.

Age which became the second moderating variable in

SmartPLS show that the R-squared value or the

coefficient of determination in this study is 0.23.

According to the results, CSR, the research's

independent variable, may explain around 23% of the

variance in the dependent variable, ROA, with the

remaining 73% presumably being impacted by other

independent factors that were not included in this

study. The following (Figure 2) shows the results of

data processing using the structural equation

Fig. 2: Result Model Analysis

Table 2. Evaluation of Measurement in Research Model

Source: Computations from research data

The Size Effect (f2) test measures changes in the

R-square value that can be used to assess the effect of

exogenous variables on endogenous variables with a

material effect. In the Size Impact test, if it has a

value of 0.02, this means that the predictor variable

has a low influence, if it has a value of 0.15, this

means that the predictor variable has a moderate

the structural model, the Goodness of Fit (GoF) value

is between 0 and 1, the low-level value 0.10, the

medium-level value is 0.25, and the high-level value

0.36 are used, [15]. The measurement of the overall

fit index in the research model using the goodness of

fit test resulted in a value of 0.48, these results

provide a conclusion that the measurement

evaluation in the research model resulted in a high

value. The results of the R-square test, size effect

<0.05, so the CSR variable meets the significance

criterion by using an alpha value of 5%. Research

shows that CSR has a positive impact on the ROA.

The findings of this study are consistent with the

previous research, [3].

company can be better informed by the public that

the company not only focuses on operational

activities but also cares about the world in which the

company is based which will improve public trust in

Table 3. Path Coefficients, Effect, and Significance

on ROA

which suggest that disclosure of CSR influences

financial output with company size as the control

variable, are supported by the findings of the current

study, [3], [7], [8]. It will be challenging for banks

with greater assets to sustain their rise in profitability,

but they may be more flexible in selecting the budget

for money while engaging in CSR activities.

The company's age moderates the effect of CSR

on ROA

age will lessen the impact of CSR on ROA. The

research conducted is supported by the study's

findings which concludes that firm age is capable of

moderating corporate social responsibility towards

ROA, [3], [7], [8].

The Bank's CSR programs have a substantial effect

on profitability as determined by ROA. Banks that

carry out CSR will increase public trust in the

business of the company, which will eventually

increase the business of the bank. The CSR activities

impact on their profitability through CSR.

The study's analysis has several limitations due

to the sample selection, being limited to Islamic

banks in Indonesia, and the limited research period,

which ran from 2016 to 2018. It is recommended that

further researchers use a sample of Islamic finance

companies and use different research variables such

as Net Interest Margin and Non-Performing loan.

References:

[1] Bustami, R., Na, D., Nasruddin, E. and

[3] Maqbool, S. and Zameer, M.N., Corporate social

[4] Suto, M. and Takehara, H., CSR and cost of

[7] Razali, M.W.M., Sin, W.H.S., Lunyai, J.A.,

[9] Chakroun, R., Matoussi, H. and Mbirki, S.,

beverages yang terdaftar di BEI. Dinamika

Akuntansi Keuangan dan Perbankan, 1(2), 2012.

impact of corporate social responsibility (CSR)

knowledge on corporate financial performance:

evidence from the European banking

industry. Journal of Knowledge

Management, 23(1), 2018, pp.110-134.

[14] Akben-Selcuk., E, Does firm age affect

profitability. Evidence from Turkey. International

Journal of Economic Sciences, 5(3), 2016, pp.1-

9.

[15] Ghozali, I. and Latan, H., Partial least squares

Creation of a Scientific Article (Ghostwriting

Policy)

Amabel Nabila : Data Base and statistics

Alvin Eka Staria : Data Base

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

No funding was received for conducting this study.

Conflict of Interest

The authors have no conflicts of interest to declare

that are relevant to the content of this article.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)