Acknowledgement

The study entitled “Corporate Social Responsibility and Profitability of Nepalese

Commercial Banks” has been conducted to satisfy the partial requirement for the
degree of Masters of Business Administration (Finance), Pokhara University.

First of all, I would like to thank my respected supervisor Mr. Balram Chapagain, for
continuous guidance, inspiration during my study. Similarly, I would like to express
my gratitude to Professor Dr. Radhe Shyam Pradhan, Academic Director of Uniglobe
College, for his timely suggestions and support. I would like to express my gratitude
to Dr. Niraj Poudyal, Research Director of Uniglobe College for guidance, inspiration
and supervision during the preparation of this Graduate Research Project.

I would like to thank all the faculty members and staffs of Uniglobe College for the
support they gave during the completion of my Graduate Research Project.

Similarly, I would like to acknowledge all the respondents of commercial banks and
my friends for their support, cooperation, encouragement during the time of preparing
this Graduate Research Project.

Finally, I would like to thank my family for the affection and emotional support
which they gave during the preparation of this Graduate Research Project.

Pragati Dahal

March, 2015.

i
 Certificate of Authorship

I certify that this submission of Corporate Social Responsibility and Profitability

of Nepalese Commercial Banks is my own work. It contains no material previously
published or written by another person or material which to a substantial extent has
been accepted for the award of any other degree of University or other institution of
higher learning, except with due acknowledgements.

……………..

Pragati Dahal

ii
 Table of Contents

Acknowledgement i
Certificate of Authorship ii
Table of Content iii
List of Table v
Executive Summary vi
List of Abbreviations
vvii
CHAPTER I: INTRODUCTION 1
1.1 Background of the study 1
1.2 Statement of the problem 4
1.3 Purpose of the study 8
1.4 Significance of the study 8
1.5 Research hypothesis 9
1.6 Operational definitions and assumptions 9

CHAPTER II:LITERATURE REVIEW &THEORETICAL FRAMEWORK 12

2.1 Review of related literature 12
2.2 Research gap 26
2.3 Conceptual framework 26
2.4 Concluding remarks 28

CHAPTER III: RESEARCH METHODOLOGY 30

3.1 Research plan and design 30
3.2 Description of the sample 31
3.3 Instrumentations 33
3.4 Data collection procedure and time frame 34
3.4.1 Secondary data 34
3.4.2 Primary data 35
3.4.3 Time frame 35
3.5 Reliability and validity 35
3.6 Method of analysis 36
3.5 Model specification 37

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CHAPTER IV: RESULT AND DISCUSSION 39
4.1. Presentation of results 39
4.1.1 Analysis of primary data 39
4.1.1.1 Respondents Profile 40
4.1.1.2 Perceived business benefits of CSR 42
4.1.1.3 CSR practice with respect to Carroll's CSR Pyramid 45
4.1.1.4 Ranking of Carroll’s CSR pyramid elements in the context of
Nepalese Commercial banks 54

4.1.2. Analysis of Secondary Data 56

4.1.2.1 Kendall’s Tau correlations coefficient for CSR and profitability 57
4.1.2.2 Regression Analysis 61

4.2 Concluding remarks 68

CHAPTER V: SUMMARY AND CONCLUSION 70

5.1. Summary 70
5.2 Conclusion 75
5.3 Recommendations 76
References 79
Appendix 87

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 List of Tables

Table 2.1: Review of literatures during 2000s 13

Table 2.2: Review of recent literatures 18
Table 2.3: Review of Nepalese studies 23
Table 3.1.1: Number of commercial banks selected for the study 33
Table 3.1.4: Coefficient of Cronbach Alpha 36
Table 4.1.1: Profile of respondents of Nepalese commercial banks 40
Table 4.2.1: Perceived business benefits of CSR in the context
of Nepalese commercial banks 42
Table 4.2.2: Economic responsibility of Nepalese commercial banks 46
Table 4.2.3: Legal responsibility of Nepalese commercial banks 48
Table 4.2.4: Ethical responsibilities of Nepalese commercial banks 50
Table 4.2.5: Discretionary responsibility of Nepalese commercial banks 52
Table 4.2.6: Mean comparison of the four components of Carroll’s construct 55
Table 4.3.1: Kendall’s correlations coefficient of CSR and ROA of
Nepalese Commercial banks 57
Table 4.3.2: Kendall’s correlations coefficient of CSR and ROE of
Nepalese commercial bank 59
Table 4.3.3: Kendall’s correlations coefficient of CSR and EPS of
Nepalese commercial banks 60
Table 3.4.1: Regression of CSR variables on return on asset 62
Table 3.4.2: Regression of CSR variables on return on equity 64
Table 3.4.3: Regression of CSR variables on earnings per share 66

v
 Executive Summary
CSR is understood to be the way firms integrate social, environmental and economic
concerns into their values, culture, decision making, strategy and operations in a
transparent and accountable manner, and thereby establish better practices within the
firm, create wealth and improve society. Extent literatures suggest that companies
benefits from being able to demonstrate their social responsibility towards different
stakeholders. CSR can be seen as a useful marketing tool for attracting the most
qualified employees. CSR activities focusing on sustainability issues may lower costs
and improve efficiencies as well. Some studied found that the relative weightings
Carroll earlier assigned to each of the four components are appropriate and some
studies counter. One of the main theoretical controversies concerns the relationship
between CSR and profitability. Some studies have shown positive relationship and
other studies have shown negative or no relationship between CSR practices and
profitability. The main objective of the study is to analyse the relationship between
corporate social responsibility and profitability of Nepalese commercial banks. The
quantitative sample of this study includes data from 23 commercial banks for the
current period (2013/14) with 23 observation and qualitative sample of this study
includes 178 respondents which includes managers and employees of 23 commercial
banks.

The study revealed that CSR is considered as a tool for achieving business benefits by
a considerable extent. Managers and employees feels that the most significant
observation on perceived business benefits of CSR is that it helps in enhancing
reputation of business. The respondents agree that economic responsibility, legal
responsibility and ethical responsibility is necessary in banking sector. But they are
unaware of the fact whether discretionary responsibility is necessary for the bank.
Managers and employees of commercial banks give their priority to legal
responsibility followed by economic responsibility, ethical responsibility and
discretionary responsibility. The study revealed a positive relationship between CSR
and profitability measured by ROA, ROE and EPS. The positive relationship between
CSR and profitability suggests that positive social behaviour of Nepalese commercial
banks increases their profitability. However, the relationship is significant only for
profitability measured in terms of ROE.

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 List of Abbreviations

CSR : Corporate Social Responsibility

CSP : Corporate Social Performance

FP : Financial Performance

CFP : Corporate Financial Performance

ROA : Return on Asset

ROE : Return on Equity

EPS : Earnings per Share

CSReco: Economic Responsibility

CSRleg: Legal Responsibility

CSReth: Ethical Responsibility

CSRdis: Discretionary Responsibility

P/E : Price Earnings Ratio

MVA : Market Value Added

MNC : Multinational Corporation

CI : Corporate Image

GRI : Global Reporting Initiatives

SPSS : Statistical Package for the Social Sciences

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 CHAPTER I

INTRODUCTION

1.1 Background of the study

In the late 1960s and early 1970s, the term "corporate social responsibility or CSR"
came into common use. Bowen (1953) one of the early contributors to the CSR makes
an initial definition of the social responsibilities of businessmen. It refers to the
obligations of businessmen to pursue those policies, to make those decisions, or to
follow those lines of action which are desirable in terms of the objectives and values
of society.

Holmes and Watts (2000) states CSR as the continuing commitment by business to
behave ethically and contribute to economic development while improving the quality
of life of the workforce and their families as well as of the local community and
society at large. The concept of CSR basically revolves around the obligation of a
business, generally represented by its managers, towards different segments of
society. It implies that business organizations have some kind of obligation towards
the society in which they function and contribute more than just economic services
(Sharma &Talwar, 2005).

More specifically, it refers to the management’s obligation to set policies, make

decisions and follow course of action beyond the requirements of law (Mosley et al,
1996). It looks at different areas as workplace (employees); marketplace (customers,
suppliers); shareholders; government; community; environment; ethics; and human
rights. Yet, it is not simple to propose a univocal definition of CSR. CSR is an
evolving concept that currently does not have a universally accepted definition.
Generally, CSR is understood to be the way firms integrate social, environmental and

viii
economic concerns into their values, culture, decision making, strategy and operations
in a transparent and accountable manner, and thereby establish better practices within
the firm, create wealth and improve society. CSR is an “essentially contested
concept,” being “appraised” (or considered as valued), “internally complex,” and
having relatively open rules of application (Moon, Crane & Matten, 2005).

Carroll (1979) attempted to bring a more precise definition in view of what constitutes
social responsibility of business by providing four levels of CSR: economic
responsibilities, legal responsibilities, ethical responsibilities and discretionary
responsibilities. “CSR involves the conduct of a business so that it is economically
profitable, law abiding, ethical and socially supportive. To be socially responsible
then means that profitability and obedience to the law are foremost conditions when
discussing the firm’s ethics and the extent to which it supports the society in which it
exists with contributions of money, time and talent”. And the different layers in the
pyramid help managers see the different types of obligations that society expects of
businesses.

The difficulties reflected in the literature in defining CSR are partially caused by the
relative emergence of the phenomena in organizations. Moir (2001) contends that the
definitional complexities are further compounded by a current dichotomy in the
literature, namely, CSR as socially responsive behavior based on ethical
considerations or CSR as managing corporate image and other business achievements.
Another crucial question is to make a distinction between the mandatory CSR and the
voluntary CSR. The legal, ethical and economic responsibility that organization
conducts in a day to day life is a mandatory CSR and discretionary CSR which is
done for the welfare of community keeping profit in mind is considered to be
voluntary CSR.

CSR is applicable to almost all the organization but the banks are keener to these
programs as they have to do extra in order to satisfy their multiplicity of stakeholders.
Nwankwo (1991) points out the advantages of CSR as maximizing profit to
shareholders who are the real owners of the business, maintaining optimal liquidity
for depositors, complying with regulators demand, satisfying the deficit sector
demand for credits, contributing to the development of the economy and satisfying the
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needs of the immediate community in which they operate. Now days, banking sector
is under massive pressure from its shareholders, investors, media as well as its
customers to carry out business in responsible and ethical manner.

Baron (2001), McWilliams and Siegel (2000) and Bagnoli and Watts (2003) assert
that firms engage in “profit-maximizing” CSR. That is, companies are assumed to be
socially responsible because they anticipate a benefit from these actions. Examples of
such benefits might include reputation enhancement, the ability to charge a premium
price for its output, or the use of CSR to recruit and retain high quality workers. These
benefits are presumed to offset the higher costs associated with CSR, since resources
must be allocated to allow the firm to achieve CSR status.

Some studies have proved that there is a positive association between profitability of
firms and CSR expenditures for e.g. Olayinka and Temitope (2011), Amole and
Awolaja (2012) while some studies prove negative relationship e.g. Bessong and
Tapang (2012). Friedman (1970) referred to the social responsibility of business as a
“fundamentally subversive doctrine” and stated that there is one and only one social
responsibility of business to use its resources and engage in activities designed to
increase its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition without deception or fraud. Drucker (1954) states
that business has only one responsibility: economic performance. Economic
responsibility is the first responsibility of a business. Economic performance is the
base without which a business cannot discharge any other responsibilities. But
economic performance is not the only responsibility of a business.

The idea that business enterprises are responsible for attending to the needs of society
is hardly new. Such an expectation is a western tradition with a documented history of
at least 2,000 years (Holmes, 1976). In the context of Nepal, one can go back to the
Licchavi period (400 – 750 A.D.) to find very clear examples of corporate social
responsibility (CSR) in the form of philanthropic contribution such as constructing
‘dharmasala’ or a temple. The belief transcend from the religious belief of the
potential punishment the person will have after his death (in ‘Narka’ – the hell), if he
exploits too much and the reward he will enjoy after his death (in ‘Swarga’ – the
heaven), if he makes some social or religious contribution (Legal, 2006).
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In view of the huge expenditures incurred annually on CSR, it is generally held that
CSR could increase company profits. But few executives and managers are aware of
the study on this important subject. Most executives believe that CSR can improve
profits. They understand that CSR can promote respect for their company in the
marketplace which can result in higher sales, enhance employee loyalty and attract
better personnel to the firm (Balabanis, Phillips, & Lyall, 1998). CSR activities
focusing on sustainability issues may lower costs and improve efficiencies as well. An
added advantage for public companies is that aggressive CSR activities may help
them gain a possible listing in the stock exchange, or other similar listing. This may
enhance the company’s stock price, making executives stock and stock options more
profitable and shareholders happier (Robins, 2011). Therefore the studies dealing with
the role of CSR and profitability are of greater significance.

1.2 Statement of the problem

The literature on CSR has been expanded by many theoretical and empirical
contributions. While going through the literatures, business benefits of CSR are
identified in a varying ways. CSR can be seen as a useful marketing tool for attracting
the most qualified employees (Fombrun & Shanley, 1990). Their study has
demonstrated that CSR is an appropriate tool for marketing prospective employees
and hence enhance corporate image. CSR activities focusing on sustainability issues
may lower costs and improve efficiencies as well. This may enhance the company’s
stock price, making executives stock and stock options more profitable and
shareholders happier (Robins, 2011). Society values, new business opportunities,
reduced regulatory interventions, customer satisfaction, firm’s reputation, and better
stakeholder relationship are acting as different driving forces that are motivating
business firms for the implementation of CSR initiatives (Lewis, 2003), (Lichtentein
et al, 2004), and (Nielsen et al, 2009). Firms engaging in CSR can benefit in ways
beyond a pure bottom‐line outcome. First, due to exhibited fairness, socially
responsive activities appear to be a means to reduce employee turnover. Second, by
meeting justice needs of customers, CSR is likely to increase customer satisfaction.
Lastly, CSR activities provide visible signals from which stakeholders infer various

xi
positive characteristics of firms, thus creating an avenue to increase overall firm
reputation (Galbreath, 2010). Based on these literatures, this studies simply attempts
to find out whether CSR is perceived as business benefits and if so, and then what is
the most prominent factor of business benefits of CSR.

There has been debate regarding the ranking of elements of Carroll’s CSR Pyramid.
Aupperle et al (1985) performed the first empirical test of the four part of CSR model
by surveying 241 Forbes 500-listed CEOs using 171 statements about CSR. The
statistical analysis supported the model in two ways: 1) by confirming that there are
four empirically interrelated, but conceptually independent components of CSR; and
2) by giving tentative support to the relative weightings Carroll earlier assigned to
each of the four components. It is worth noting that in this second conceptualisation,
Carroll’s framework reflects the perceptions of business leaders about the current
relative importance of the four CSR categories, rather than an historical or
dependence perspective. Pinkston and Carroll (1996) brought the perception of top
managers working in England, France, Germany, Japan, Sweden, Switzerland and
USA. The mean values represented in the analysis demonstrated similar facts,
although legal perspective of Sweden and Germany were ranked higher than
economic orientation.

Another study tested Carroll’s CSR Pyramid on a sample of 503 large, black-owned
businesses in the USA, suggesting the importance of culture (Edmondson & Carroll,
1999). The survey found that, while the economic component was rated as most
important, ethical responsibilities were prioritised above legal responsibilities, and the
differential between philanthropic and legal responsibilities was relatively small. A
further study with a cultural dimension compared the views of 165 Hong Kong and
157 US students on CSR and found that Hong Kong students emphasised economic
aspects more strongly than their US counterparts, and gave no difference in weighting
between legal and ethical dimensions of CSR (Burton, Farh, & Hegarty, 2000). This
study does not provide various instruments to test Carroll’s conceptualization of CSR
but it simply attempts to see whether ranking proposed by Carroll is applicable or not.

One of the main theoretical controversies concerns the relationship between CSR and
profitability. With respect to the empirical evidence regarding the relationship
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between CSR and profitability, the factors established in this study can be divided into
three groups-those that show a positive relationship, those that show negative
relationship and those that show no relationship. Return on Asset; Return on Equity
and Earnings per Share are the variables most commonly used in explaining the
profitability of a firm. There is a positive relationship between CSR measured by
Carroll’s CSR Pyramid and financial performance indicators return on assets
(Mumtaz & Pirzada, 2014). Olayinka and Temitope (2011) in their study of CSR and
financial performance in developing economies showed that CSR has a positive and
significant relationship with the financial performance measures when measured by
return on assets. These results reinforced the accumulating body of empirical support
for the positive impact of CSR on financial performance.

There is no any relationship between social responsibility and profitability measured

by return on assets (Aupperle, Carroll & Hatfield 1985). Specifically, varying levels
of social orientation were not found to correlate with performance differences. Study
on the link between CSR and financial performance by Dkhili and Ansi (2012) show
the absence of relationship between CSR with respect to Carroll’s CSR pyramid and
financial performance measured by return on assets. Javed et al (2012) investigated
the nature and strength of relationship between CSR and firm’s profitability using
Carroll’s CSR Pyramid model. The study made it clear that economic and legal
responsibility positively impacted firm’s profitability measured by return on assets
while ethical and discretionary responsibility negatively affected firm’s profitability
measured by return on assets.

Return on Equity has also been one of the variables most commonly used in
explaining the profitability of a firm. There is a positive and significant relationship
between in case of CSR with respect to Carroll’s CSR pyramid and returns on equity
(Dkhili et al, 2012). Mumtaz et al (2014) in their study of impact of CSR on corporate
financial performance did not find the similar observation between CSR measured by
Carroll’s CSR Pyramid and financial performance indicators i.e. return on equity.

The study has made it clear that CSR based on Carroll’s CSR Pyramid has a positive
and significant impact on profitability of a firm when measured by return on assets,
return on equity, earnings per share (Weshah et al, 2012). The controversy exists with

xiii
respect to the findings of the studies on the relationship between CSR and profitability
as measured by return on assets, return on equity and earnings per share. It has
therefore become difficult to support one view or another. So, this study therefore
attempts to find out the actual relationship between CSR and profitability in the
context of Nepalese commercial banks.

There is a low intensity of CSR in Nepal. Both government and employers are
somehow not serious in implementing laws. At the company level, employee’s
awareness of CSR can bring a positive attitude towards the company but the
employees are not much aware about the concept of CSR practices (Adhikari, 2012).

Both manufacturing and banking sector managers of Nepal have positive attitudes
towards CSR. Interestingly, study also revealed that, besides corporate efforts, the
role of government, pressure groups and other stakeholders is also crucial to promote
CSR in our context. Thus, it has become imperative to make necessary efforts by the
all concerned authorities including the government to promote socially responsible
corporate behaviour for creating a more equitable and just society in Nepal
(Chapagain, 2011).

Though there are these findings, no empirical evidences are available using more
recent data in case of Nepal. There is also lack of study, which encompasses the
relevance of relationship between CSR and profit, benefits of CSR and actual level of
CSR practices. This study, therefore, tests the relationship between CSR and profit,
benefits of CSR and actual level of CSR practices in Nepalese context. To sum up,
this study deals with the following issues in the context of Nepal.

i. What are the perceived business benefits of CSR in the context of Nepalese
commercial banks? And what is the most prominent factor of business benefits
of CSR?
ii. What are the levels of CSR practices with respect to four elements i.e.
economic, legal, ethical and discretionary responsibility of Carroll’s CSR
pyramid in the context of Nepalese commercial banks?
iii. Do managers and employees follow the ranking of Carroll’s CSR pyramid in
context of Nepalese commercial banks?

xiv
 iv. Does CSR and profitability have positive, negative or no relationship in the
context of Nepalese commercial banks?
v. What are the views of employees and managers of Nepalese commercial
banks in promoting CSR in Nepal?

1.3 Purpose of the study

The main objective of the study is to analyse the relationship between corporate social
responsibility and profitability of Nepalese commercial banks.
The specific objectives of the study are as follows:

i. To identify the perceived business benefits of CSR in the context of Nepalese

commercial banks.
ii. To analyse the levels of CSR practices with respect to Carroll CSR pyramid in
the context of Nepalese commercial banks.
iii. To examine the relationship between CSR and profitability of Nepalese
commercial banks.
iv. To assess the views of employees and managers of Nepalese commercial
banks in promoting CSR in Nepal.

1.4 Significance of the study

Nepal falls under the category of developing country with lack of infrastructure, low
literacy rate, energy crisis, non-availability of drinking water, corruption and fragile
economy. Through this study one can realise that corporations can increase their
supportive role to realise any of the development aspirations which in turn is
beneficial for their prosperity and profit. Moreover, developing countries offer a
unique business environment that is full of multiple challenges. CSR has the potential
to contribute towards sustainable development of developing countries and solve
complex challenges. At country level, present study helps in developing a corporate
behaviour where profitability is not considered a single working agenda. Business
insiders need to reinvest their earning towards the enhancement of societies. These

xv
contributions can lead to better medical, educational, entrepreneurial and
environmental programs which will add to societal uplift.

1.5Research hypothesis

Based on the objectives, the hypothesis formed for analysing the relationship between
CSR and profitability of Nepalese commercial banks are as follows:

H1: There is a positive and significant relationship between CSR and ROA.

H2: There is a positive and significant relationship between CSR and ROE.

H3: There is a positive and significant relationship between CSR and EPS.

1.6 Operational definitions and assumptions

Dependent Variable: Profitability

Profitability is considered as the dependent variable in this study and is measured by

three proxies: Return on Asset (ROA), Return on Equity ROE) and Earning per Share
(EPS).

i. Return on Asset (ROA)

ROA is also another major ratio that indicates the profitability of a bank. It is a
ratio of income to its total asset. It measures the ability of the bank
management to generate income by utilizing company assets at their disposal.
In other words, it shows how efficiently the resources of the company are used
to generate the income. It further indicates the efficiency of the management
of a company in generating net income from all the resources of the institution
(Khrawish, 2011). Wen (2010) states that the higher ROA shows that the
company is more efficient in using its resources.

xvi
 ii. Return on Earnings (ROE)

ROE is a financial ratio that refers to how much profit a company earned
compared to the total amount of shareholder equity invested or found on the
balance sheet. ROE is what the shareholders look in return for their
investment. A business that has a high return on equity is more likely to be one
that is capable of generating cash internally. Thus, the higher the ROE the
better the company is in terms of profit generation. It is further explained by
Khrawish (2011) that ROE is the ratio of net income after taxes divided by
total equity capital. It represents the rate of return earned on the funds invested
in the bank by its stockholders. ROE reflects how effectively a bank
management is using shareholders funds. Thus, it can it be deduced from the
above statement that the better the ROE the more effective the management in
utilizing the shareholders capital.

iii. Earnings Per Share (EPS)

Earnings per Share are the portion of a company’s profit allocated to each
outstanding share of common stock. Earnings per share serve as an indicator
of company’s profitability. It is calculated as net income minus dividends on
preferred stock divided by average outstanding shares.

Independent Variable: Corporate Social Responsibility

Corporate Social Responsibility is taken as the independent variable in this study.

Fundamentally, the concept of social responsibility in business is vague and difficult
to define and implement, as the arguments of various scholar are contextual. Many
prevailing have justified the Carroll’s comprehensive approach for the understanding
of and acknowledged its broader concept to accommodate all aspects of ethical
business. So, this study has used Carroll’s CSR pyramid as its major components.
There are four dimensions of Carroll’s CSR pyramid.

a) Economic responsibility: It concerns the responsibility of business of

producing goods and services needed by society and selling them making a
xvii
 profit. Companies have shareholders who demand a reasonable return on their
investments, they have employees who want safe and fairly paid jobs and they
have customers who demand good quality products at a fair price. So,the first
responsibility of the business as it is to be a properly functioning economic
unit and stay in business. And this is the base of the pyramid, where all the
other layers rest on.

b) Legal responsibility: The legal responsibility of corporations demands that

businesses abide by the law and play by the rules of the game. If the
companies choose to “bend” or even ignore their legal responsibilities the
price can be very high for the business. Every organization should follow legal
responsibilities and abides by the law of the nation.

c) Ethical Responsibility: The main concept of ethical responsibility as defined

and expressed by Carroll (1991) is that the ethical responsibility consists of
what is generally expected by society over and above economic and legal
expectations. Ethical responsibilities of companies cover its wide range of
responsibilities. Ethical responsibilities are not necessarily imposed by law,
but they are expected from companies by the public and governments. It
generally deals with norms, values, codes which are expected by the society
towards business firms.

d) Discretionary responsibility: As it is in the top of the pyramid, it focuses on

things such as improving the quality of life of employees, local communities
and ultimately society in general keeping profit in mind. Discretionary
responsibility consists of strategic CSR and altruistic CSR.

xviii
 CHAPTER II

LITERATURE REVIEW AND THEORETICAL

FRAMEWORK

This chapter provides theoretical and the conceptual framework of the study and deals
with review of empirical studies associated with CSR and profitability of Nepalese
commercial banks. It is divided into four sections. First section presents in-depth
review of related studies in the context of both developed and developing countries
around the globe. Second section presents a research gap of the reviewed literatures.
Third section presents a conceptual framework of the study. Finally, fourth section
deals with the concluding remarks. The details about these sections are dealt in the
following sub chapters.

2.1 Review of related literature

This section includes review of related literature. The available empirical literature is
surveyed into three categories that are review of literatures during 2000s, review of
recent literatures and review done in context of Nepal associated with CSR and
profitability. The literatures found in terms of popular write-ups, reports,
studies/articles are reviewed. Studies which in fact demonstrate the relationship
between CSR and profitability have been selected for review. In this section, a brief
review of existing studies, pertinent to present study has been presented. The review
of literature has been conducted based on the chronological order and categorize into
four different periods as under:

a) Review of literatures during 2000s

b) Review of recent literatures; and
c) Review of major Nepalese studies

In the subsequent section the major related literature surveys are briefly described
based on three sub headings as; review of literatures during 2000s, review of recent
literatures and review of major Nepalese studies.

xix
 a) Review of literatures during 2000s

There are various studies that were carried out during this period. The different
literatures surveyed during the period are shown in table 2.1.

Table 2.1: Review of literatures during 2000s

This table summarizes the review of literatures during 2000s observed for the purpose of the
study concentrating on the result obtained from various studies.

Study Major Findings

Black (2001) The study found that Carroll’s (1979) four-part
conceptualisation of CSR hierarchy and content of categories
require revision. Specifically, the ethical and discretionary
categories are renamed strategic and philanthropic, and are
inverted.
Simpson and A positive link between Corporate Social Performance (CSP)
Kohers (2002) and Financial Performance (FP).
Dentchev (2005) CSR management is a challenging task for practitioner and
has a strategic relevance for their firm.
Wayne (2007) Research finds that Carroll’s CSR Pyramid is not the best
model for understanding CSR in general, and CSR in Africa
in particular.
Rais and CSP strongly and significantly affected both a firm’s
Goedegebuure competitive position and its financial performance.
(2009)
Pedersen and Managers hold different, and not necessarily convergent,
Neergaard (2009) views of CSR.
Samy, Odemilin The variables CSR and EPS, a very weak (causal) but
and Bampton positive relationship was evident.
(2010)
Dewi and Sudarma, ROA and ROE has positive effect on CSR but MVA has
(2010) negative effect on CSR.
Ali, Rehman and The study found significantly positive relationship between
Ali (2010) corporate social responsibility actions and employee
organizational commitment, corporate social responsibility
and organizational performance and employee organizational
commitment and organizational performance.
Sweta (2010) The Indian CSR activities have been firmly confined to
philanthropic activities.
Shum & Yam The results support Carroll’s four-dimensional CSR
(2010) framework, with the exception of the link pertaining to the
relationship between economic and discretionary/voluntary
responsibility.

Black (2001) in the study of measurement of corporate social responsibility

orientation for Australian business based on Carroll’s (1979) four-part

xx
conceptualisation of CSR found that the hierarchy and content of categories require
revision. Specifically, the ethical and discretionary categories are renamed strategic
and philanthropic, and are inverted. Firms in this study that regarded themselves as
leading edge practitioners of CSR sought win-win outcomes for themselves and for
stakeholders. This peak expression of CSR conformed to the corporate citizenship
model described by Mcintosh et al (1998). As companies manage relationships with
their stakeholders, rather than with broader society (Clarkson, 1995), a strategic focus
for corporate social responsibility seems a natural consequence. This study points the
direction for further work to operationalize. CSR as a scale to measure CSR
orientation in Australia. Such work would make a useful contribution to managerial
effectiveness by developing an easily applied measure that could allow correlations
with other aspects of organisational performance, and allow CSR to be compared over
time or between firms and industries.

Simpson and Kohers (2002) analysed the study on the link between corporate social
and financial performance from the banking industry. The major findings of the study
were that the results from the banking industry were consistent with much of the
previous evidence developed from the analysis of Fortune 500 corporations. Evidence
supporting a positive CSP-FP link in a unique operational setting supported the idea
that a positive CSP-FP link was a universal phenomenon. Numerous theortical
explanations were offered to support a negative, positive and neutral CSP-FP
relationship. The implication of this research, when taken in conjunction with the
pervious expalnation for a positive CSP-FP link. Simultaneously, emperical
investigation of the CSP-FP link in other unique operational contexts apperaed to be a
valuable direction for future research. The emperical analysis solidly supported the
hypothesis that the link between social and financial performance was positive.

Dentchev (2005) carried out a study on integrating CSR in business models. The
result showed that even committed and experienced companies face some challenges
while integrating CSR principles in their business models. These challenges could be
clustered into two groups: the uncertainty of doing the right things and the careful
integration of CSR in business practice. In addition, variety of resources that CSR
strategies require were identified as a symbolic resources (e.g. commitment),
intangible resources (e.g. communication and trainings), tangible resources (e.g.
equipment) and incentives (e.g. financial benefits and audits). Besides, the success of
xxi
business CSR strategy seemed to depend not only on the adequate understanding of
the employees, but also on the willingness of business partners to adopt that sort of
strategy. This implied that managers have to deal with a policy, which is complex and
interdependent.

Wayne (2007) examined the nature of CSR in an African context, using Carroll’s
CSR pyramid as a framework for descriptive analysis. Evidence of how CSR is
practised in an African context has also been used to challenge the accuracy and
relevance of Carroll’s Pyramid. The study found that the relative priorities of CSR in
Africa are likely to be different from the classic, American ordering. The findings
illustrate how CSR actually manifests itself in Africa, rather than presenting an
inspirational view of what CSR in Africa should look like. Study finds that Carroll’s
CSR Pyramid is not be the best model for understanding CSR in general, and CSR in
Africa in particular.

Rais and Goedegebuure (2009) conducted a study on corporate social performance

and financial performance in the manufacturing industry of Indonesia. Results from
findings indicate that CSP strongly and significantly affects both a firm’s competitive
position and its financial performance. The relationship between CSP and financial
performance is not mediated by firm strategy. It is, however, mediated by the firm’s
strategic position in market place. The increasing social influence of media and other
intermediaries in organizational network (such as firm-consumer, firm-investor, and
firm-community relations) is used as strategic lever, thus enhancing CSP
management.

Pedersen and Neergaard (2009) examined how managers in a MNC experience

corporate social responsibility (CSR); the concept, the reasons for dealing with it, and
its integration in everyday practices. Moreover, the study aims to discuss how the
alignment and misalignment of managerial perceptions are likely to affect corporate
social performance. This study finds that managerial perceptions of CSR are
characterised by a great deal of heterogeneity. It shows that, even in an organisation
with a long CSR tradition and formalised CSR policies, standards and procedures,
managers hold different and not necessarily convergent views of CSR.

Samy, Odemilin and Bampton (2010) conducted a study to prove that strategically
investing in corporate social responsibility (CSR) will maximize profits while
xxii
satisfying the demands from multiple stakeholders. The study adopts a quantitative
analysis and exploratory approach. It studies the CSR practices of 20 selected UK
companies. The analysis of CSR policies is based on the global reporting initiative
(GRI) guidelines. The analysis took a further step in examining the trends of earnings
per share (EPS) of the selected companies. The findings revealed that from the 20
selected companies, the regression analysis of the variables CSR and EPS shows a
very weak (causal) but positive relationship was evident (R2=0.147).

Dewi and Sudarma (2010) analysed the CSR effect on market and financial
performance. This study aims to predict causality model effect of CSR on financial
performance. Result from the findings showed that there was a significant direct
effect of CSR on Return on Assets (ROA) and Return on Equity (ROE). In contrast,
there was no significant direct effect of CSR on Market Value Added (MVA). In
addition, there was a significant direct effect between Return on Assets (ROA) and
CSR, Return on Equity (ROE) and CSR and there was no significant direct effect
between Market Value Added (MVA) and CSR. There were three empirical findings
novelties of this study. First, return on assets (ROA) has positive effect on CSR.
Second, ROE has positive effect on CSR and MVA affect has negative effect on CSR.

Ali, Rehman and Ali (2010) examined how corporate social responsibility influences
employee commitment and organizational performance. This study analysed the
multifaceted influence of CSR on employee’s organizational commitment and
organizational performance. The study found significantly positive relationship
between CSR actions and employee organizational commitment, CSR and
organizational performance and employee organizational commitment and
organizational performance.

Sweta (2010) carried out study on the Philanthropy to Corporate Social

Responsibility: An Indian Perspective. The study revealed that Indian CSR activities
have been firmly confined to philanthropic activities. The businessman used to donate
a part of their profit in freedom reforms and reinvested them in setting up new
industries. Even today the CSR activities seems to revolve around mainly in
educational sector and health sector with a little emphasis on, empowering women
sustainable livelihood and infrastructure development.. One major and prominent

xxiii
feature of Indian firms is the absence of stand-alone reporting practices in India.
Although few Indian corporate are now increasingly adopting the GRI framework of
reporting standard the number is limited to eight Indian companies which follow GRI
guidelines.

Shum and Yam (2010) conducted a study on Ethics and Law: Guiding the invisible
hand to correct corporate social responsibility externalities. In the literature, Carroll’s
four-dimensional (economic, legal, ethical and discretionary) CSR framework offers a
theoretical basis for developing an empirically based model to explain why and how
profit-motivated managers take up CSR voluntarily. This study has developed a
structural equation model to identify the key factors and their interactions that
influence economically motivated managers to take on voluntary CSR, and validate
Carroll’s four-dimensional construct. The results support Carroll’s four-dimensional
CSR framework, with the exception of the link pertaining to the relationship between
economic and discretionary/voluntary responsibility. This characterises the economic
reality that financial market-driven economic responsibility does not automatically
translate into social responsibility. Managers who have been practicing an integrated
approach are placing emphasis not only on economic responsibility, but also on legal
and ethical responsibilities. As a consequence, they fulfil higher level of voluntary
social and environmental responsibilities. Nevertheless, the empirical results
demonstrate that corporations can be led to engage in more voluntary CSR activities
to achieve social good when appropriate legal and ethical controls are in place. The
study even finds that managers give most priority to the legal responsibility followed
by economic responsibility, ethical responsibility and discretionary responsibility.

xxiv
 b) Review of recent literatures

There are various studies that were carried out during this period. The recent
literatures surveyed are shown in table 2.2.

Table 2.2: Review of recent literatures

This table summarizes the review of recent literatures observed for the purpose of the study
concentrating on the result obtained from various studies.

Study Major Findings

Yeung (2011) Protecting the rights of customers, internal management of people
and process for the benefit of investors makes them socially
responsible bank.
Akanbi and Four dimensions of corporate social responsibility i.e. economic
Ofoegbu (2012) responsibility, legal responsibility, economic responsibility and
discretionary responsibility used in this study were predictors of
organizational performance
Ahmed, Rashid, and In all cases of absolute comparison between ROA, EPS and P/E
Ali (2012) ratio, it was found that CSR banks outperformed non CSR banks.
However in two tailed t-test, no significant evidence was found to
show that CSR banks outperformed non CSR banks.
Dkhili and Ansi The results show the absence of relationship between CSR and
(2012) financial performance measured by ROA, whereas there is a
positive relationship if the financial performance is measured by
ROE.
Zabin (2013) The results show that Bangladeshi customers ranked the four
dimensions as economic, legal, environmental, and philanthropic
accordingly.
Tai et al (2013) The findings provide more evidences that Carroll’s CSR pyramid
(1991) is appropriate, in studying employee’s perception of
corporate social responsibility.
Tania (2014) Corporate Social Responsibility’s dimensions are perceived as a
mechanism of business benefits.
Mumtaz and There is a positive relationship between CSR measured by Carroll’s
Pirzada (2014) CSR Pyramid and financial performance indicators return on assets.
Okwemba et al The result shows that philanthropic responsibility of a bank has an
(2014) impact on bank performance. The positive significant correlation
coefficient shows that any increase in philanthropic responsibility
will increase the performance of the bank.

Manyasi and The findings of the research was that there is a positive statistically
Masinde (2014) significant linear correlation between practicing employee oriented
activities and business performance of sugar manufacturing firms in
Kenya.
Ofori, Nyuur and Although there is a positive relationship between CSR practices and

xxv
Darko (2014) financial performance, the financial performance of banks in Ghana
does not depend significantly on their CSR practices but rather on
other control variables, such as growth, origin, debt ratio, and size.
Yeung (2011) conducted a study on the role of banks in CSR. The major findings of
this research were that an organization needs to meet customer requirements,
establishing a mind-set of risk management, business ethics and corporate social
responsibility through internal management of people and process for the benefits of
the investors, management and community; protecting the rights of customers with
setting up channels for customers to address complaints through internal management
for stakeholder consideration, accountability and credibility in order to become a
socially responsible bank. All in all, management of a banking organization should
have appropriate policy in place for establishing positive organizational culture and
social responsible mind-set of staff members.

Virvilaite and Daubaraite (2011) carried out study on corporate social responsibility
in forming corporate image. The empirical study reveals that more the respondent is
inclined to attribute importance to CSR; the more he is inclined to believe that society
at large does the same. The most important factor influencing CI is corporate
individuality and its elements, less important is the feedback and the least important
factor is corporate identity and its elements. Different demographic groups do not
differ statistically nor does the relation between respondent’s characteristics and his
belief in importance of CSR exist. Due to this, it is not purposeful to emphasize
different aspects of CSR to different demographic groups. The empirical research
reveals that CSR is not the most important element forming CI. Lithuanians
emphasize the importance of economic and legal social responsibilities; consequently
if a company which seeks attractive CI should communicate that it meets laws and
other legal regulations as well as fulfils economic expectations. A company should
pay some attention towards the implementation of ethical and philanthropic social
responsibilities.

Akanbi and Ofoegbu (2012) carried out a study on the impact of CSR on bank
performance in Nigeria. This study investigated the effect of CSR on organizational
performance in the banking industry. The findings of this study revealed that
economic CSR, legal CSR, ethical CSR and philanthropic CSR were predictors of

xxvi
organizational performance. From the test conducted, there was a significant
difference between economic CSR and organizational performance. Also, economic
CSR and legal CSR were predictors of organizational performance. It was also found
that there was no main and interaction effect of ethical CSR and philanthropic CSR on
organizational performance. Furthermore, there was a positive association or
relationship between ethical CSR and organizational performance. This means that
the ethical behaviours of stakeholders in banking industries are positively related to
organizational performance.

Ahmed, Rashid, and Ali (2012) analysed the link between CSR and financial
performance from the banking sector of Bangladesh. Based on the grades banks were
separated into two categories: CSR banks and non-CSR banks. Afterwards, t-test were
conducted to examine whether there was a difference between these two categories of
banks with respect to their ROA, EPS and P/E ratio data collected from the published
annual reports of the banks. The results of the analysis revealed that the bank’s social
performance was below 75 percentages in all the five categories of CSR indicators,
especially in value and transparency, workplace, governance and community. In all
cases of absolute comparison between ROA, EPS and P/E ratio, it was found that
CSR banks outperformed non CSR banks.

Dkhili and Ansi (2012) revealed the effects of CSR on the financial performance. The
financial performance is measured using two accounting variables: return on asset
(ROA) and return on equity (ROE). The results show the absence of relationship
between CSR and financial performance measured by ROA, whereas there is a
positive relationship if the financial performance is measured by ROE.

Zabin (2013) examined the nature of CSR in Bangladesh context, using modified
Carroll’s (1991) CSR Pyramid which is developed by the author as a framework for
descriptive analysis. The results show that Bangladeshi customers ranked the four
dimensions as economic, legal, environmental, and philanthropic accordingly. This
study also proves the significance of the proposed model which is the modified
version of Carroll‘s (1991) pyramid.

xxvii
Tai et al (2013) conducted a study on applying Carroll’s CSR pyramid in studying
employees’ perceptions of corporate social responsibility. The study evaluates how
employees perceive four types of responsibilities in Carroll’s CSR pyramid (1991),
consisting of economic, legal, ethical and philanthropic responsibilities. Moreover,
the study also identifies whether there are any differences in employees’ perceptions
of CSR in Vietnam from those in other developing countries. Research findings
provide some salient points. First, from identified CSR perceptions, business
organizations need to change the way to disseminate CSR activities towards their
employees. Second, the findings provide more evidences that Carroll’s CSR pyramid
(1991) is appropriate, with firm feasibility, to be employed for further CSR studies.

Tania (2014) carried out study on exploring the underlying dimensions of business
benefits through CSR: A Study on Commercial Banks. This study has been started by
investigating the outcomes associated with the implementation of CSR initiatives and
then exploratory factor analysis has been conducted to explore the underlying
dimensions of the perceived business benefits of CSR. The first factor can be called
benefits from stakeholders has the highest loading relate to seven items namely,
positive media relations, building trust with community, improved relations with
regulators, gaining competitive advantage, element of branding strategy, positive
investor relations, and improved reputation management. The second factor exhibits
largely loadings for five items which are improved customer retention, linked with
customer satisfaction, enhanced growth in market share, improved market positioning
and increasing number of customers can be considered as benefits from marketing
perspective.

Mumtaz and Pirzada (2014) conducted a study on impact of corporate social

responsibility on corporate financial performance. The study finds a strong positive
relationship between CSR measured by Carroll’s CSR Pyramid and financial
performance which is measured by return on assets, return on equity, earnings per
share and return on sales.

Okwemba et al (2014) revealed the effect of CSR on organization performance. The

major findings of the study is philanthropic responsibility of a bank has an impact on
bank performance. The positive significant correlation coefficient shows that any
xxviii
increase in philanthropic responsibility will increase the performance of the bank. The
intervening variables government policy and priority both had significant impact on
organisation performance as there was significant increase in R squared for both
models though government policy had got the highest increase of the two variables.

Manyasi and Masinde (2014) analysed some empirical findings on the effect of CSR
towards employees on the performance of sugar manufacturing firms in Kenya. The
findings of the study was that there is a positive statistically significant linear
correlation between practicing employee oriented activities and business performance
of sugar manufacturing firms in Kenya. On the basis of these findings, it is
recommended that managers, investors of sugar manufacturing firms as well as the
interested parties in sugar firms should proactively participate in employee oriented
activities since it has a positive significance towards the performance of sugar firms.

Ofori, Nyuur and Darko (2014) examined the impact of CSR on financial
performance using empirical evidence from the Ghanaian banking sector. The
findings revealed that banks in Ghana view CSR practices to be a strategic tool; banks
are motivated to practise CSR by legitimate reasons as much as they are motivated by
profitability and sustainability reasons. Also, although there is a positive relationship
between CSR practices and financial performance, the financial performance of banks
in Ghana does not depend significantly on their CSR practices but rather on other
control variables, such as growth, origin, debt ratio, and size.

Nalband and Kelabi (2014) carried out study on redesigning Carroll’s CSR pyramid
model. The study finds that the Carroll’s hierarchy of CSR responsibilities are not
promoted by the proposed model. Further the proposed model is not in agreement
with Carroll’s order of dependence. The empirical evidences show that the order of
CSR obligations are deferring. Contrary to Carroll’s CSR pyramid model, legal
responsibility is viewed as a basic responsibility. In the present context even to start
the business one needs to comply with the law of the country. In many countries CSR
expenditure has to be disclosed in its annual reports, it is mandatory. Second basic
responsibility is the economic responsibility followed by ethical and discretionary
responsibility.

xxix
 c) Review of major Nepalese studies

There are various studies that were carried in the context of Nepal. The different
literatures surveyed in Nepal are shown in table 2.3.

Table 2.3: Review of major Nepalese studies

This table summarizes the review of Nepalese literatures observed for the purpose of the
study concentrating on the result obtained from various studies.

Study Major Findings

Action Aid Nepal A mixed status of CSR in Nepal.
(2003)
Biggs and Five principle sources of socially responsible practices
Messerschmidt (2005) traditional commitment to community development, fair
trade codes of conduct, corporate social responsibility,
industry’s business service organization and the general
policy and legal framework are identified.
Chapagain (2008) Today’s managers of commercial banks in Nepal are
convinced enough with the fact that CSR and profit
maximization are not the conflicting goals of the firm.
Shakya (2009) Bureaucratic organizations are becoming dysfunctional,
disintegrated, unorganized, politically influenced and
unable to fulfil their responsibilities.
Chapagain (2010) CSR performance of the companies is much more
correlated to the moral view on CSR then to the strategic
view on CSR.
Katuwal (2010) CSR is understood as only charitable activities in Nepal.
Business enterprises are not aware about other dimensions
of CSR.
Adhikari (2011) There is a low intensity of CSR practices in Nepal.
Upadhya and Dhungel CSR is not mandatory in Nepal and all the banks that have
(2011) made the disclosure is in the voluntary basis.

A report published by Action Aid Nepal (2003) shows that low number of companies
is involving on CSR. The study found that the inclusion of women, minorities,
disabled and marginalized groups in the workforce are low while less than 20% of
companies have helped to reduce outer social problems. Written contract may not be
given to all of the employees during their tenancy, but most of the companies give
benefits like Dashain allowance, leave provision, maternity leave etc.

Biggs and Messerschmidt (2005) carried out a study on social responsibility in the
growing handmade paper industry in Nepal. This study has examined the recent

xxx
dynamics in the rapidly growing handmade paper industry in Nepal. The paper argues
that the industry is sustainable from social responsibility as well as natural resources
and economic perspectives. Five principle sources of socially responsible practices
are identified: (1) traditional commitment to community development (2) fair trade
codes of conduct (3) corporate social responsibility (4) the industry’s business service
organization (Nepal Handmade Paper Association) and (5) the general policy and
legal framework.

Chapagain (2008) examines the managers’ views on CSR in commercial banks of

Nepal. The study finds that the moral view, which holds that CSR is a moral duty of
companies towards society, is much stronger than the strategic view, which holds that
CSR contributes to the financial success of the company in the long run. Another
crucial finding is that top level management of private sector commercial banks in
particular assumes a win–win relationship between CSR performance and financial
performance of the company. A couple of inferences can be drawn from these
findings. First, managers of commercial banks in Nepal are clearly aware of the
company’s moral duty towards different segments of society. Second, today’s
managers of commercial banks in Nepal are convinced enough with the fact that CSR
and profit maximization are not the conflicting goals of the firm.

Shakya (2009) conducted a study on ethics of Nepalese civil service sector in order to
see the bureaucratic performance and found that they are becoming dysfunctional,
disintegrated, unorganized, politically influenced and unable to fulfil their
responsibilities. It could be argued that if civil sector do not have disciplines enough,
private sector cannot expect appropriate guidelines and motivations henceforth
corporations may take the benefits from bad governance.

Chapagain (2010) carried out study on CSR: Evidence from Nepalese financial
service and manufacturing sectors. This study examines the Nepalese financial service
and manufacturing sector manager’s strategic and moral views on CSR. Besides, it
also seeks to measure the CSR performance of companies and examine the
relationship between management views on CSR and actual CSR performance. The
study finds that the trend on CSR thinking has moved from philanthropy to better
stakeholder relations and competitive/strategic advantage of organizations and even

xxxi
nations. In Nepalese context, however, the moral view on CSR is stronger than
strategic view on CSR. Likewise, the actual CSR efforts are not as greener as the
views are. Responsibility towards government seems to be highest and the
responsibility towards society is the lowest in both the sectors. Analysis also reveals
that overall CSR performance of companies is much more correlated to the moral
view on CSR than to the strategic view on CSR.

Katuwal (2010) found that CSR in Nepal is new concept and even most of the
successful business enterprises understand it as charitable activities. Thus, it is
considered as philanthropy effort in Nepal. In his view, Nepalese business
professionals are not well aware of the broader concept of CSR which have to cover
many aspects of customers, suppliers, employers, shareholders, civil society,
environmentalists, etc.

Adhikari (2011) examined the status of CSR in selected Nepalese companies. This
study aims to examine the status of corporate social responsibility (CSR) in Nepalese
companies. There are many variables by which to CSR initiatives could be measured
but in this study; only labour laws, employee’s awareness and a few HRM dimensions
have been covered. The major finding of this study is that there is a low intensity of
CSR practices in Nepal. Both government and employers are somehow not serious in
implementing labour laws. At the company level, employee’s awareness of CSR can
bring a positive attitude towards the company. But employees are not much aware
about the CSR practices.

Upadhyay and Dhungel (2011) conducted a study on CSR reporting practices in the
banking sector of Nepal. The major findings of the study were that CSR is not
mandatory in Nepal and all the banks that have made disclosure were in voluntary
basis. Among the disclosed information education and training, welfare of
underprivileged groups, art, heritage and culture protection, supporting different
associations, clubs, or other such organizations were the most commonly reported
CSR activities. The disclosure seemed to be public relation driven in the sense that
their presence would enhance company image. The analysis of the study showed that
most of the Nepalese banks especially public sector banks did not mention CSR
explicitly on their websites.
xxxii
2.2 Research gap

Numerous quantitative studies have been carried out to establish, largely in samples
of multiple industries, the relationship between CSR and profitability. Such analysis,
however, have produced conflicting results and any attempt to give a generalised and
coherent conclusion has proved inadequate.

There are very few studies, almost nil related to CSR practices in Nepal. Studies
conducted on corporate social responsibility reporting practices in the banking sector
of Nepal by Upadhya and Dhungel, Corporate Social Responsibility: Evidence from
Nepalese financial service and manufacturing sectors by Bal Ram Chapagain, Status
of corporate social responsibility in selected Nepalese companies by Dev Raj
Adhikari and Guiding tools for Nepalese business corporate social responsibility by
Lotus Opportunity and Action Aid are the only material regarding CSR in Nepal.

This study is just a start. It is expected that this paper will stimulate more studied in
this direction by filling the literature gap in case of examining the relationship
between CSR and profitability of Nepalese commercial banks.

2.3 Conceptual framework

A conceptual framework is an analytical tool with the several variations and the
contexts. It is a theoretical structure of assumptions, principles and rules that holds
together the ideas comprising a broad concept. It is used to make conceptual
distinctions and organize ideas. Strong conceptual framework captures something real
and does this in a way that is easy to remember and apply.

The conceptual framework described below shows the relationship between CSR and
profitability of Nepalese commercial banks. The CSR dimension is assessed with the
help of Carroll’s CSR pyramid. The major elements of CSR are economic
responsibility assumes that corporations will be as profitable as possible, maintain a

xxxiii
strong competitive position, and maintain a high level of operating efficiency. These
are responsibilities that the corporation “must do” and the key stakeholders are
shareholders, creditors, and consumers. Legal responsibility assumes that corporations
are expected to pursue profits within the framework of the law, which establishes
what are considered fair operations. Society expects that all goods and services and
relationships with stakeholders will meet at least minimal legal requirements. Ethical
responsibility includes those activities that are not expected or prohibited by society
as economic or legal responsibilities. Standards, norms, or expectations that reflect
concern for select stakeholder input is fair, just, or in keeping with their moral rights.
Discretionary responsibilities involve being a good corporate citizen and include
active participation in acts or programs to promote human welfare or goodwill
keeping profit in mind.

The elements of CSR of Nepalese commercial banks are examined through the set of
questionnaires. Profitability is measured by three proxies: Return on Asset (ROA),
Return on Equity ROE), Earning per Share (EPS). It is measured by calculating the
respective values of ROA, ROE and EPS from the annual reports of respective banks.

Figure 2.1: Schematic Diagram of Factors Influencing Profitability

This figure shows the theoretical framework of the study. Economic responsibility refers to the need of
the firm to be profitable. Legal responsibility refers to the need of the firm to obey laws. Ethical
responsibility refers to the need of the firm to conduct activities following ethical norms and standards.
Discretionary responsibility refers to the need of the firm to work for community’s welfare keeping
profit in mind. All these CSR variables are expected to determine the Profit.

Independent Variables Dependent Variables

CSR Practices Profitability of banks

Economic Responsibilities
ROA
Legal Responsibilities
ROE
Ethical Responsibilities

Discretionary Responsibilities
EPS

xxxiv
2.4 Concluding remarks

The literature on CSR has been expanded by many theoretical and empirical
contributions. While going through the literatures, business benefits of CSR are
identified in a varying ways. CSP strongly and significantly affects both a firm’s
competitive position and its financial performance (Rais & Goedegebuure, 2009).
There is a positive relationship between CSR actions and employee organizational
commitment, CSR and organizational performance and employee organizational
commitment and organizational performance (Ali, Rehman & Ali, 2010). Corporate
Social Responsibility’s dimensions are perceived as a mechanism of business benefits
(Tania, 2014).

There has been debate regarding the ranking of elements of Carroll’s CSR Pyramid.
Some studies has found Carroll’s Pyramid as the best model for understanding CSR in
general while some studies counters it. Wayne (2007) examined the nature of CSR in
an African context, using Carroll’s CSR pyramid as a framework for descriptive
analysis. Study finds that Carroll’s CSR Pyramid is not be the best model for
understanding CSR in general, and CSR in Africa in particular. Shum and Yam
(2010) conducted a study on Ethics and Law: Guiding the invisible hand to correct
corporate social responsibility externalities. The results support Carroll’s four-
dimensional CSR framework, with the exception of the link pertaining to the
relationship between economic and discretionary/voluntary responsibility.
Nevertheless, the empirical results demonstrate that corporations can be led to engage
in more voluntary CSR activities to achieve social good when appropriate legal and
ethical controls are in place. The study even finds that managers give most priority to
the legal responsibility followed by economic responsibility, ethical responsibility and
discretionary responsibility.

Philanthropic responsibility of a bank has an impact on bank performance. The

positive significant correlation coefficient shows that any increase in philanthropic
responsibility will increase the performance of the bank (Okwemba et al, 2014).

xxxv
Bangladeshi customers ranked the four dimensions as economic, legal, environmental,
and philanthropic accordingly (Zabin, 2013). Carroll’s CSR pyramid (1991) is
appropriate, in studying employee’s perception of corporate social responsibility (Tai
et al, 2013).

One of the main theoretical controversies concerns the relationship between CSR and
profitability. With respect to the empirical evidence regarding the relationship
between CSR and profitability, the factors established are divided into three groups-
those that show a positive relationship, those that show negative relationship and
those that show no relationship. There is a positive relationship between CSR
measured by Carroll’s CSR Pyramid and financial performance indicators return on
assets and return on equity (Mumtaz & Pirzada, 2014). The regression analysis of the
variables CSR and EPS shows a very weak (causal) but positive relationship was
evident (Samy, Odemilin & Bampton, 2010). Study on the link between CSR and
financial performance by Dkhili and Ansi (2012) show the absence of relationship
between CSR with respect to Carroll’s CSR pyramid and financial performance
measured by return on assets and equity.

The controversy exists with respect to the findings of the studies on the relationship
between CSR and profitability as measured by return on assets, return on equity and
earnings per share. It has therefore become difficult to support one view or another.
Though there are these findings, no empirical evidences are available using more
recent data in case of Nepal. There is also lack of study, which encompasses the
relevance of relationship between CSR and profit, benefits of CSR and actual level of
CSR practices.

xxxvi
 CHAPTER III

RESEARCH METHEODOLOGY

Research methodology sets out overall plan associated with a study. It provides a
basic framework on which the study is based. Before presenting the analysis and
interpretation of data, it is necessary that research methodology be described first. In
the absence of methodology, it is likely that the conclusions drawn may be
misunderstood. This chapter therefore explains the methodology employed in this
study. This chapter has been divided into six sections. Section one describes overall
description of research plan and design used in this study, section two deals with the
description of sample, section three describes the instruments, section four describes
data collection procedure and time framework, section five explains the validity and
reliability of the study. Finally, section six presents an analysis plan.

3.1 Research plan and design

Research design is the plan, structure and strategy of investigation conceived so as to

obtain answer to research question. The plan is the overall scheme or program of the
research (Kerlinger, 1986). Research design expresses the structure of the research
problem i.e. framework, organization or configuration of the relationships among
variables of the study and plan of investigation used to obtain empirical evidence on
those relationships (Cooper and Schindler, 2010). This study has employed
descriptive research design to deal with the fact-finding and searching adequate
information associated with CSR and profitability of Nepalese commercial banks. It is
conducted to assess the opinions, behaviour or characteristic of a given population
and to describe the situation and events occurring at present. Moreover, this study
establishes cause and effect relationship between CSR and profitability. Hence, this
study also employs causal comparative research design. Under causal comparative
research design, Kendal’s Tau correlation analysis and regression analysis has been
conducted. Kendal’s Tau Correlation has been adopted to ascertain and understand the
direction, magnitudes and forms of observed relationship between corporate social
responsibility and profitability. Regression analysis of primary and secondary data has

xxxvii
also been conducted in this study. A multiple regression model has been applied to
estimate the relationship between dependent variables (bank’s profitability proxies
such as ROA, ROE and EPS) with independent variable CSR. It also describes
different statistical tests of significance for validation of model such as t-test, F-test.

3.2 Description of the sample

As this study has been based on both secondary and primary data and
population of this study includes those listed commercial banks in Nepal Stock
Exchange (NEPSE) Limited. There are all together 30 A – Class commercial bank in
Nepal (www.nrb.org.np, 2014). For comprehensive and reliable study, the sample size
taken in this study are those banks which are registered in NRB and started to
operate before 31st December 2007. Therefore this study consists of 23 commercial
banks out of 30.

The population of this study includes 23 the Nepalese commercial banks. A total of
30 banks were operated in the country with more than 1100 branch. In selecting the
most reliable and representative samples, 23 commercial banks were undertaken to
examine CSR and profitability of Nepalese commercial banks. The following table
3.1.1 shows the population and sample for quantitative research along with their
respective number of observations.

This research focuses on examining CSR and profitability of Nepalese commercial

banks. CSR is analysed through the distribution of questionnaire. So it falls under
cross sectional method of data analysis. In order to match the nature of cross sectional
method of data analysis of CSR, data for the proxies of profitability i.e. ROA, ROE
and EPS has been taken for the current period (2013/2014) only. If observations are
taken for the recent five years period (2010-2014), then this data will fall under time
series data analysis procedure and our data analysis of CSR through distribution of
questionnaire will fall under cross sectional data analysis process. So, to match the
nature of data, this research has used the sample data of current year (2013/2014). The
overall observations include 23 observations from 23 commercial banks. The
presented sample also covers all types and nature of banks operated in Nepal like
public sector, joint venture and domestic privately owned.

xxxviii
Whole and partially public Banks: These banks are fully owned by the government of
Nepal have large scale of branch networks in both urban and rural centres around the
country and have substantial shares in the total assets of the industry. There are three
public sector banks namely Rastriya Banijya Bank (RBBL), Nepal Bank Limited
(NBL) and Agriculture Development Bank (ADBL).

Joint venture banks: The joint venture banks have been operating on a nation-wide
basis and started to establish since mid-1980s. The names of the JVBs started to
operate before 2005 are Nabil Bank Limited (NAIBL), Standard Charter Bank
Limited (SCBL), Himalayan Bank Limited (HBL), Nepal SBI Bank Limited (NSBI),
Nepal Bangladesh Bank Limited (NBBL), and Everest Bank Limited (EBL). They
have foreign equity participation (along with domestic) and management with good
name with international reputation. They operate under less administrative pressure
from local governments, but most of the joint venture banks are highly concentrated
in urban areas, particularly in Kathmandu valley.

Domestic private banks: Domestic private banks came in operation by late 1990s and
early 2000s. The DPB established before 2005are Nepal Investment Bank Limited
(NIBL), Bank of Kathmandu Limited (BOK), Nepal Credit and Commerce Bank
Limited (NCCBL), Lumbini Bank Limited (LBL), Nepal Industrial and Commercial
Bank Limited (NICB), Machhapuchhre Bank Limited (MBL), Kumari Bank Limited
(KBL), Laxmi Bank Limited (LXBL) and Siddhartha Bank Limited (SBL). They are
managed and owned by private sector. Most of them are relatively small in asset size
as well as their network (www.nrb.org.np, 2013).

For qualitative research the sample of this study consists of the different level of
employees of 23 commercial banks. The levels of employees taken as the respondent
in this study falls under executive/ manager level, officer level and assistant level
only. For the analysis of CSR practices of Nepalese commercial banks, total of 230
questionnaires was distributed to the respondents and 178 were collected. Purposive
sampling is used to make the sample unit representative for the study since it has been
appropriate choice for sampling. Purposive sampling is one of the main types of non-
probability based on who they think would be appropriate for the study. This study
has totally focused Kathmandu valley as its sample place. A set of questionnaire
shown in Appendix related to CSR practices, its benefits was prepared and distributed
xxxix
to the employees of all the commercial banks of Kathmandu valley. The following
table 3.1.1 represents the sample taken for both primary and secondary survey.

Table 3.1.1: Number of commercial banks selected for the study

S. Selected Nepalese
N Commercial Banks Secondary Data Primary Data
Period of No. of
study Observation Respondents
1 Nepal Bank Limited 2013/14 1 20
Whole or
partially 2 Rastriya Banijya Bank 2013/14 1 18
Public Banks Agriculture Development
3 Bank 2013/14 1 18
4 Nabil Bank Limited 2013/14 1 10
5 Nepal Bangladesh Bank 2013/14 1 10
Joint Venture 6 SBI Bank 2013/14 1 10
Banks 7 Himalayan Bank Limited 2013/14 1 10
8 Standard Charter Bank 2013/14 1 9
9 Everest Bank Limited 2013/14 1 8
10 Nepal Investment Bank Ltd 2013/14 1 6
11 Sunrise Bank Limited 2013/14 1 6
12 Prime Bank Limited 2013/14 1 5
13 Siddhartha Bank Limited 2013/14 1 5
14 Laxmi Bank Limited 2013/14 1 5
15 Megha Bank Limited 2013/14 1 5
Domestic 16 Janata Bank Limited 2013/14 1 5
Private 17 Bank of Kathmandu 2013/14 1 4
Banks
18 NIC Asia 2013/14 1 4
19 Kumari Bank Limited 2013/14 1 4
20 Nepal Merchant Bank 2013/14 1 4
Machhapuchhre Bank
21 Limited 2013/14 1 4
22 Century Bank Limited 2013/14 1 4
23 Global IME Bank 2013/14 1 4

Total 23 178

3.3 Instrumentation

A set of self-administered questionnaire along with likert scale questions testing the
agree and disagreeableness of the respondents regarding the business benefits of CSR,
CSR practices based on Carroll’s CSR pyramid were prepared and distributed to all
the respondents. This study is based on the primary as well as secondary data. For the

xl
purpose of primary data collection, a set of pre-specified questions have been mainly
utilized as the instrument. The questions are identified from the previous studies and
have been modified in some cases as tailor or best suit in the context of Nepal. The
questions were designed to get the views, suggestion and perception related
information from the respondents.

Data were collected using well formulated questionnaires. The questionnaires were
self-adjusted, validated and pre-tested. During the survey, discussions with the
respondents and information obtained through discussions and interviews along with
questionnaire as instruments in the Appendix. The respondents represent employees
of 23 commercial banks of Nepal.

For the secondary source of data, the relevant data were gathered from the annual
reports of Nepalese commercial banks. Therefore, for tracking the information related
to profitability using proxies such as ROA, ROE and EPS were calculate using their
respective formulas with the help of the annual reports of respective banks for the
current year (2013/14). Such data were collected from annual reports of each bank
from their respective website.

3.4 Data collection procedure and time frame

This study has utilized both primary and secondary sources of data. The secondary
source of data has been employed to understand CSR and profitability of Nepalese
commercial banks. The primary source of data has been used to examine the opinion
of respondents with respect to CSR activities of Nepalese commercial banks.

3.4.1 Secondary data

The necessary secondary data and information has been collected from the annual
reports of the respective bank, Nepal Rastra Bank quarterly bulletin, Nepal Rastra
Bank supervision report and Nepal Stock Exchange (NEPSE) and the financial
statement of respective banks. The data cover current year of operations of 23
commercial banks of Nepal.

xli
3.4.2 Primary data

This study has also been based on primary source of data. The questionnaire survey
has been conducted to know the opinions of employees regarding CSR activities of
Nepalese commercial banks. A set of questionnaire was prepared and distributed to
the employees of Nepalese commercial banks. The questionnaire reflects each bank’s
CSR activities as the survey has included the questionnaire regarding business
benefits of CSR, CSR practices of Nepalese commercial banks with respect to
Carroll’s four components i.e. economic, legal, ethical and discretionary
responsibility and each suggestion of employees regarding promoting CSR in Nepal.
The set of 230 questionnaire were distributed to all the respondents and total of 178
respondents replied to those questionnaire. The questionnaire used in the survey is
presented in the Appendix.

3.4.3 Time frame

The research was prepared within the time period of four months. All together it took
3 weeks to visit various places to fill up the questionnaires and collect them back from
the respondents. Until the primary data were collected side by side, the secondary data
related to profitability of Nepalese commercial banks were extracted from the annual
reports of 23 commercial banks.

3.5 Reliability and validity

Reliability is synonymous with the consistency of a test, survey, observation, or other

measuring device hence we cannot go further without measuring the reliability of
primary data. For the purpose of reliability test through Cronbach's Alpha, only likert
scale type questions are considered. Reliability is concerned with estimates of the
degree to which a measurement is free of random or unstable error (Cooper &
Schindler, 2010). Cronbach’s alpha is the common measure of internal consistency
(“reliability”). The reliability of the data used within the questionnaires regarding
CSR activities of Nepalese commercial banks was evaluated using Cronbach’s alpha.

xlii
 As a general rule, a coefficient greater than 0.7 is considered acceptable and a good
indicator of reliability (Nunnally, 1978). After the collection of data through
questionnaires, the reliability and validity of overall data was tested. The result was
reliable and valid with Cronbach’s alpha i.e.0.806 as shown in the following table
3.1.4. This implies that the responses consistency is good.

Table 3.1.4: Coefficient of Cronbach Alpha

Cronbach's Alpha N of Items

0.806 38

Source: Field Survey, 2014

Therefore, the reliability and validity results in table 3.1.4 show that the instrument was
both reliable and valid since the variable coefficient is 0.806.

3.4 Method of analysis

The main purpose of analysis in this study is to explore the relationship between
profitability and CSR of Nepalese commercial bank. The data analysis has been carried
out on the main responses derived from questionnaire survey. The methods of data
analysis consist four sections. First includes primary data analysis which includes
summary of descriptive statistics associated with general information of the respondents
like gender, age, academic qualification along with the percentage frequency distribution
of the general information of the respondents.

Second section analyse the descriptive statistics such as mean and weighted average
mean values of four dimensions CSR i.e. economic, legal, ethical and discretionary have
been used to describe the characteristics of sample during the period. Second section has
presented the methods used for primary data analysis. It includes percentage frequency
distribution, cross tabulation, mean scores of responses to Likert scale items and ranking
items.

Third section deals with Kendal’s Tau correlation coefficient analysis which investigates
the association between corporate social responsibility and profitability of Nepalese

xliii
commercial banks.

The final part of data analysis describes regression analysis of primary and secondary
data. A multiple regression model has been applied to estimate the relationship between
dependent variables (bank’s profitability proxies such as ROA, ROE and EPS) with
independent variable CSR. It also describes different statistical tests of significance for
validation of model such as t-test, F-test. The collected data has been processed with the
help of SPSS Statistical package.

3.5 Model specification

The three different measures of profitability of Nepalese commercial banks measured in

terms of Return on Asset (ROA), Return on Equity (ROE) and Earnings per Share (EPS)
are used in this study to find the relationship between profitability and Corporate Social
Responsibility (CSR) of Nepalese commercial banks. Therefore, every panel of data
model contains different proxy of profitability of Nepalese commercial banks.

Model 1:
ROA=a 0+ a 1 CSR eCOi+a 2 CSR legi+ a 3 CSR et hi+ a 4 CSR disi+ ei
Where,
ROA= Return on Asset of a firm.
CSR eCO= Economic responsibility of a firm.
CSR leg= Legal responsibility of a firm.
CSR et h= Ethical responsibility of a firm.
CSR dis= Discretionary responsibility of a firm.
eit= Error term.

Model 2:
ROE=a 0+ a 1 CSR eCOi + a 2 CSR legi + a 3 CSR et hi + a 4 CSR disi + ei
Where,
ROE= Return on Equity for the firm.
CSR eCO= Economic responsibility of a firm.
CSRleg= Legal responsibility of a firm.

xliv
CSR et h= Ethical responsibility of a firm.
CSR dis = Discretionary responsibility of a firm.
ei= Error term.

Model 3:
EPS=a 0+ a 1 CSR eCOi + a 2 CSR legi + a 3 CSR et hi + a 4 CSR disi + ei
Where,
EPS= Earnings per Share for firm.
CSR eCO= Economic responsibility of a firm.
CSR leg= Legal responsibility of a firm.
CSR et h= Ethical responsibility of a firm.
CSR dis= Discretionary responsibility of a firm.
ei= Error term

CHAPTER IV

RESULT AND DISCUSSION

xlv
4.1. Presentation of results

Chapter four provides systematic presentation and analysis of primary data to deal
with CSR activities of Nepalese commercial banks. Secondary data has been used to
find out the Return on Asset (ROA), Return on Equity (ROE) and Earnings per Share
(EPS) of the respective banks. Systematic presentation and analysis of both primary
and secondary data is done to analyse the relationship between CSR and profitability
of Nepalese commercial banks measured by ROA, ROE and EPS. This chapter is
divided into three sections. First section covers the analysis of primary data and
presents the results based on questionnaire. Second section deals with the presentation
and analysis of both primary and secondary data to analyse the relationship between
CSR and profitability of Nepalese commercial banks measured by ROA, ROE and
EPS. It is done with the help of Kendal’s Tau correlation coefficient analysis and
regression analysis. Finally, the third section discusses on the concluding remarks
associated with findings from primary and secondary data analysis.

4.1.1 Analysis of primary data

This section is concerned with the analysis of primary data and presents the results of
the survey on CSR practices in Nepal. This section attempts to analyse the primary
data where general profile of the respondents, views of respondents on perceived
business benefits of CSR, actual corporate social practices of Nepalese commercial
banks, views of managers and employees in promoting CSR in Nepal are identified.
The method used in this section is descriptive research design which deals with likert
scale questions. The percentage, frequency, mean value, weighted average mean value
has been calculated to do the proper analysis of the data.

4.1.1.1 Respondent profile

In this study, the respondents include managers and employees of 23 selected

commercial banks of Kathmandu valley. Total of 230 questionnaires were distributed
to the employee of the bank including executive/manager level, officer level, assistant

xlvi
level however only 178 questionnaire was collected. The general information of the
respondents like their gender, age, academic qualification and employment category is
presented in the table 4.1.1

Table 4.1.1: Profile of respondents of Nepalese commercial banks

This table reveals the profile of 178 employees of commercial banks associated with
questionnaire. The respondent’s character includes gender, age group, academic
qualification and employment category. Total number of frequency under each categories and
percentage are included.

Respondents Character Frequency Percentage

Gender
Male 104 58.4
Female 74 41.6
Total 178 100
Age
20-25 2 1.1
26-30 46 25.8
31-35 68 38.2
36-40 19 10.7
41-45 10 5.6
46-50 16 9
51-55 14 7.9
55- 60 3 1.7
Total 178 100
Academic Qualification
Bachelor's Degree 21 11.8
Master's Degree 144 80.9
Above Master’s Degree 11 6.2
Professional or other Degree 4 1.1
Total 178 100
Employment category
Executive/Manager Level 68 38.2
Officer Level 88 49.4
Assistant Level 22 12.4
Total 178 100
Source: Field survey, 2014

Table 4.1.1 shows the respondent’s profile information regarding the gender, age,
academic qualification and employment category. The demographic characteristics in
this study include the individual respondent personal detail including the gender, age,
academic qualification and employment category. Demographic characteristics play a
vital role in understanding the employee perception and their reliability in the

xlvii
organization. Thus the individual respondent perception about the corporate social
responsibility of the bank can be known through questionnaire. These employees were
taken as the study sample as they have good knowledge, experience and they meet the
purpose of the study. Moreover, these level employees know how far their bank has
been involving in corporate level responsibility. Out of the total respondent’s, 58.4
percent is male and 41.6 percent is female. Similarly age group of the respondents are
divided into 8 categories. 1.1 percent of the respondent’s fall under the age group of
20-25, 25.8 percent of the respondent’s fall under the age group of 26-30, 38.2 percent
of the respondent’s fall under the age group of 31-35, 10.7 percent of the respondent’s
fall under the age group of 36-40, 5.6 percent of the respondent’s fall under the age
group of 41-45, 9 percent of the respondent’s fall under the age group of 46-50, 7.9
percent of the respondent’s fall under the age group of 51-55 and 1.7 percent of the
respondent’s fall under the age group of 56-50. Thus, most of the employees fall
under the age group of 31-35.

On the basis of the academic qualification, employees are categorized as those who
completed bachelor, masters, above master’s degree and professional or other degree.
11.8 percent of the respondent’s completed bachelor degree, 80.9 percent of the
respondents have completed master’s degree, 6.2 percent of the employees have
qualification of above masters and only 1.1 percent of the employee has professional
degree. On the basis of employment category, 38.2 percent of the respondent’s falls
under executive/ manager level, 49.4 percent of the respondent’s falls under officer
level and 12.4 percent of the respondent’s falls under assistant level employee.

4.1.1.2 Perceived business benefits of CSR

This section provides the information regarding the perceived business benefits of
CSR in the context of Nepalese commercial banks. The respondent’s opinion on
perceived business benefits of CSR is presented in the table 4.2.1.

Table 4.2.1: Perceived business benefits of CSR in the context of Nepalese

commercial banks
This table shows the percentage, frequency, mean of the employee perception regarding
business benefits of corporate social responsibility of commercial banks. The statement based
is measured in five likert scale 1 as not at all 2 to a little extent, 3 as to some extent, 4 as to a
considerable extent and 5 as to a great extent.

xlviii
 Not To a To To a To a N Mea
at Little Some Considerable great n
Statement All Extent Extent Extent Extent
17
19 11 55 56 37
Attraction of talented people F 8 3.46
on the job. 10
10.7 6.2 30.9 31.5 20.8
% 0
17
9 31 59 53 26
F 8 3.31
Motivation of employees 10
5.1 17.4 33.1 29.8 14.6
% 0
17
Retention of staff making 15 28 44 73 18
F 8 3.29
them more satisfied in their
respective job 10
8.4 15.7 24.7 41 10.1
% 0
17
11 12 36 78 41
F 8 3.71
Attraction of new customers 10
6.2 6.7 20.2 43.8 23
% 0
17
10 9 52 63 44
Repeat purchase and loyalty F 8 3.69
of existing customers 10
5.6 5.1 29.2 35.4 24.7
% 0
17
14 9 33 81 41
F 8 3.71
Customer satisfaction 10
7.9 5.1 18.5 45.5 23
% 0
17
5 13 49 58 53
Building trust with F 8 3.79
community 10
2.8 7.3 27.5 32.6 29.8
% 0
17
7 20 62 55 34
Elements of branding F 8 3.5
strategy 10
3.9 11.2 34.8 30.9 19.1
% 0
17
5 9 26 76 62
F 8 4.02
Reputation of business 10
2.8 5.1 14.6 42.7 34.8
% 0
17
8 9 37 95 29
F 8 3.72
Better stakeholder relations 10
4.5 5.1 20.8 53.4 16.3
% 0
17
5 23 17 69 64
Long term competitiveness F 8 3.92
of business 10
2.8 12.9 9.6 38.8 36
% 0
17
13 15 39 84 27
Enhanced growth in market F 8 3.54
share 10
7.3 8.4 21.9 47.2 15.2
% 0
17
7 20 25 84 42
Improved market F 8 3.75
positioning 10
3.9 11.2 14 47.2 23.6
% 0
Weighted Average Mean 3.64
xlix
Source: Field survey, 2014

Table 4.2.1 shows the perceived business benefits of CSR. Among the respondents,
31.5 percent think that CSR help in attraction of talented people on the job to a
considerable extent. Similarly, 30.9 percent of the respondents think that CSR helps in
attraction of talented people on the job to some extent. 20.8 percent consider that CSR
helps in attraction of talented people on the job to a great extent, 10.7 percent think
that CSR doesn’t helps in attraction of talented people on the job and 6.2 percent of
the respondents feel that CSR helps in attraction of talented people on the job to some
extent.

Among the respondents, 33.1 percent feel that CSR helps in motivation of employees
to some extent, 33.9 percent to some extent, 29.8 percent to a considerable extent,
17.4 percent to a little extent, 14.6 percent to a great extent and 5.1 percent of the
respondents think CSR doesn’t help in motivation of employees.

The study revealed that 41 percent of the respondent feel CSR helps in retention of
staff making them more satisfied in their respective job to a considerable extent, 24.7
percent to some extent, 15.7 percent to a little extent, 10.1 percent to a great extent
and 8.4 percent of the respondents feel that CSR doesn’t help in retention of staff
making them more satisfied in their respective job.

From the survey, it is found that 43.8 percent of the respondents feel that CSR helps
in attraction of new customers to a considerable extent, 23 percent to a great extent,
20.2 percent to some extent, 6.7 percent to some extent and 6.2 percent of the
respondents feel that CSR doesn’t help in attraction of new customers.

Among the respondents, 35.4 percent feel that CSR helps in repeat purchase and
loyalty of existing customers to a considerable extent, 29.2 percent to a little extent,
24.7 percent to a great extent, 5.6 percent feel that CSR doesn’t help in repeat
purchase and loyalty of existing customer and 5.1 percent of the respondents feel that
CSR helps in repeat purchase and loyalty of existing customers to a little extent.

l
The study revealed that 45.5 percent of the respondents feel that CSR helps in
customer satisfaction to a considerable extent, 23 percent to a great extent, 18.5
percent to some extent, 7.9 percent doesn’t feel CSR helps in customer satisfaction
and 5.1 percent think that CSR helps in customer satisfaction to a little extent.

The study found that 32.6 percent of the respondents feel that CSR helps in building
trust with community to a considerable extent, 29.8 percent to a great extent, 27.5
percent to some extent, 7.3 percent to a little extent and 2.8 percent doesn’t feel that
CSR helps in building trust with community.

Among the respondents, 34.8 percent of the respondents think that CSR is an element
of branding strategy to some extent, 30.9 percent to a considerable extent, 19.1
percent to a great extent, 11.2 percent to a little extent and 3.9 percent feel that CSR is
not an element of branding strategy. 42.7 percent of the respondents feel that CSR
helps in enhancement of reputation of business to a considerable extent, 34.8 percent
to a great extent, 14.6 percent to some extent, 5.1 percent to a little extent and 2.8
percent feel CSR doesn’t help in enhancement of reputation of business.

From the study, it is found that 53.4 percent of the respondents feel CSR helps in
making better stakeholder relations to a considerable extent, 20.8 percent to a little
extent, 16.3 percent to a great extent, 5.1 percent to a little extent and 4.5 percent of
the respondents feel that CSR doesn’t help in making better stakeholders relation.

The study revealed that 38.8 percent of the respondents feel CSR helps in enhancing
long term competitiveness of business to a considerable extent, 36 percent to a great
extent, 12.9 percent to a little extent, 9.6 percent to some extent and 2.8 percent of the
respondents feel that CSR doesn’t help in enhancing long term competitiveness of
business.

Among the respondents, 47.2 percent of the respondents feel that CSR helps in
growth in market share to a considerable extent, 21.9 percent to some extent, 15.2
percent to a great extent, 8.4 percent to a little extent and 7.4 percent of the
respondents feel that CSR doesn’t help in growth in market share of business.

li
The study revealed that 47.2 percent of the respondents feel CSR helps in market
positioning to a considerable extent, 23.6 percent to a great extent, 14 percent to some
extent, 11.2 percent to a little extent and 3.9 percent of the respondents feel that CSR
doesn’t help in market positioning.

Mean value of the statement of perceived business benefits of CSR ranges from 3.29
to 4.02. Among them, the most significant observations on perceived business
benefits of CSR is ‘CSR helps in enhancing reputation of business’. Weighted
average mean value for perceived business benefits of CSR is 3.64 which indicate that
commercial banks of Nepal perceive CSR as a business benefits to a considerable
extent.

4.1.1.3. CSR practices with respect to Carroll’s CSR Pyramid

According to Carroll, there are two types of social responsibility. One is mandatory
social responsibility and another is voluntary social responsibility. Every organization
needs to follow mandatory responsibility. Economic responsibility, legal
responsibility and ethical responsibility falls under mandatory responsibility.
Discretionary responsibility falls under voluntary responsibility. Carrols CSR
Pyramid consists of:

1. Economic responsibility: To earn as much profit as possible.

2. Legal responsibility: To follow rules and regulations.
3. Ethical responsibility: To conduct activities with ethics.
4. Discretionary responsibility: To work for community’s welfare keeping profit
in mind.

The respondents were asked questions regarding their view on responsibility

prescribed by Carroll. The respondent’s opinion regarding the economic responsibility
with respect to Carroll’s pyramid is presented in table 4.2.2. Frequencies, percentage,
mean, weighted mean values have been calculated to do the overall analysis.

lii
 Table 4.2.2: Economic responsibility of Nepalese commercial banks
This table shows the percentage, frequency, mean of the employee perception regarding
economic responsibilities of commercial banks. The statement based is based on the economic
responsibilities indicators and is measured in five likert scale 1 as strongly disagree (SD), 2
as disagree, 3 as don’t know, 4 as agree and 5 as strongly agree (SA). The aggregate
percentage of strongly agree and agree is calculated in order to assess the degree of total
percentage on the agree and the aggregate percentage of strongly disagree and disagree is
calculated in order to assess the degree of total percentage on the disagree.

Statement Strongl Disagre Don’t Agree Strongly N Mea

y e Know Agree n
Disagre
e

Our bank thinks that F 9 8 11 124 26 178

it is important to be
committed to being % 5.1 4.5 6.2 69.7 14.6 100 3.93
as profitable as A
possible. % 9.6 6.2 84.3 100

F 12 10 35 101 20 178
Our bank pursues
those opportunities % 6.7 5.6 19.7 56.7 11.2 100 3.70
which will enhance A
earnings per share. % 12.3 19.7 67.9 100
F 8 7 10 106 47 178
Our bank finds it is
important to % 4.5 3.9 5.6 59.6 26.4 100 3.99
maintain a strong A
competitive position. % 8.1 5.6 86 100
According to our F 8 8 73 69 20 178
bank, it is important
to maintain high % 4.5 4.5 41 38.8 11.2 100 3.59
level of operating A
efficiency. % 9 41 50 100
Our bank finds it is F 6 26 12 71 63 178
important that a
successful firm be % 2.3 1.1 5.6 18.6 72.5 100 3.9
defined as one that is
consistently A
profitable. % 18 6.7 75.3 100
Weighted Average Mean 3.85
Source: Field Survey, 2014

Table 4.2.2 shows the opinion of managers and employees regarding the economic
responsibility in the context of Nepalese commercial banks. Among 178 respondents
of commercial banks, 84.3 percent of the employees agree with the statement that it is

liii
important for their banks to be committed to being as profitable as possible, 6.2
percent of the respondents are neutral with this statement and 9.6 percent of the
respondents disagree with this statement. 67.9 percent of the respondents of
commercial banks agree with the statement that their bank pursue those opportunities
which will enhance earnings per share, 19.7 percent of the respondents are neutral
with this statement and 12.3 percent of the respondents show their disagreement with
this statement.

Among the respondents, 86 percent of the respondents agree with this statement ‘it is
important to maintain strong competitive position’, 8.1 percent of the respondents
disagree with this statement and 5.6 percent of the respondents are neutral about this
statement. 50 percent of the respondents show their agreement regarding the statement
‘it is important to maintain a high level of operating efficiency’, 41 percent of the
respondents are neutral and 9 percent of the respondents show their disagreement with
this statement.

Among the respondents, 75.3 percent of the respondents agree with this statement that
it is important that a successful firm be defined as one that is consistently profitable,
18 percent of the respondents disagree with this statement and 6.7 percent of the
respondents are neutral.

Mean value of the statement of economic responsibility in Table 4.2.2 varied from
3.59 to 3.99. Among them, the most significant observations on economic
responsibility is ‘It is important to maintain a strong competitive position.’ The least
significant observation on economic responsibility is ‘It is important to maintain high
level of operating efficiency.’ Weighted average mean value for economic
responsibility is 3.85 which reveal that respondents agree that economic responsibility
is necessary in banking sector.

The respondent’s opinion regarding the legal responsibility with respect to Carroll’s
pyramid is presented in table 4.2.3. Frequencies, percentage, mean, weighted mean
values have been calculated to do the overall analysis.

liv
 Table 4.2.3: Legal responsibility of Nepalese commercial banks
This table shows the percentage, frequency, mean of the employee perception regarding legal
responsibilities of commercial banks. The statement based is based on the legal
responsibilities indicators and is measured in five likert scale 1 as strongly disagree (SD), 2
as disagree, 3 as don’t know, 4 as agree and 5 as strongly agree (SA).The aggregate
percentage of strongly agree and agree is calculated in order to assess the degree of total
percentage on the agree and the aggregate percentage of strongly disagree and disagree is
calculated in order to assess the degree of total percentage on the disagree.

Statement Strongl Disagre Don’t Agree Strongly N Mea

y e Know Agree n
Disagre
e

F 6 4 4 18 146 178

% 3.4 2.2 2.2 10.2 82 100 4.65

Our bank abides by A
the law of the nation. % 5.6 2.2 92.2 100

Our bank obeys the F 5 5 5 22 141 178

directives and
regulations set out % 2.8 2.8 2.8 12.4 79.2 100 4.62
by the regulators A
honestly. % 5.6 2.8 91.6 100
Our bank tries its F 11 7 7 32 121 178
best to meet the
expectations of the % 6.2 3.9 3.9 18 68 100 4.38
government and A
regulatory bodies. % 10.1 3.9 86 100

F 2 8 6 16 146 178
Our bank pays taxes
and other % 1.1 4.5 3.4 9 82 100 4.66
government dues A
honestly. % 5.6 3.4 91 100
Our bank discloses
relevant information F 4 2 10 33 129 178
to different
stakeholders as % 2.3 1.1 5.6 18.6 72.5 100 4.58
indicated by the
prevailing law of the A
nation. % 3.3 5.6 91.1 100
Weighted Average Mean 4.58
Source: Field survey, 2014

Table 4.2.3 reveals the opinion of managers and employees regarding the legal
responsibility in the context Nepalese commercial banks. Among 178 respondents of

lv
commercial banks, 92.2 percent of the employees agree with the statement that their
bank abides by the law of the nation, 5.6 percent of the respondents disagree with this
statement and 2.2 percent of the respondents are neutral about this statement. 91.6
percent of the respondents agree with the statement that their bank obeys the
directives and regulations set out by the regulators honestly, 5.6 percent of the
respondents disagree with this statement and 2.8 percent of the respondents are
neutral with this statement.

It is found from the questionnaire survey that 86 percent of the respondents agree with
this statement that their bank tries its best to meet the expectations of the government
and regulatory bodies, 10.1 percent of the respondents disagree with this statement
and 3.9 percent of the respondents are neutral about this statement. 91 percent of the
respondents agree with the statement that their bank pays taxes and other government
dues honestly, 5.6 percent of the respondents disagree with this statement and 3.4
percent of the respondents are neutral about this statement.

Among the respondents, 91.1 percent of the respondents agree with the statement that
bank should discloses relevant information to different stakeholders as indicated by
the prevailing law of the nation, 5.6 percent of the respondents are neutral and
remaining 3.3 percent of the respondents disagree with this statement.

Mean value of the statement of legal responsibility in Table 4.2.3 varied from 4.38 to
4.66. Among them, the most significant observations on legal responsibility is ‘Our
bank pays taxes and other government dues honestly.’ The least significant
observation on legal responsibility is that ‘Our bank tries its best to meet the
expectations of the government and regulatory bodies’. Weighted average mean value
for legal responsibility is 4.58 which reveal that respondents strongly agree that banks
should follow the legal responsibility.

The respondent’s opinion regarding the ethical responsibilities with respect to

Carroll’s pyramid is presented in table 4.2.4. Frequencies, percentage, mean, weighted
mean values have been calculated to do the overall analysis.

lvi
 Table 4.2.4: Ethical responsibilities of Nepalese commercial banks
This table shows the percentage, frequency, mean of the employee perception regarding
ethical responsibilities of commercial banks. The statement based is based on the ethical
responsibilities indicators and is measured in five likert scale 1 as strongly disagree (SD), 2
as disagree, 3 as don’t know, 4 as agree and 5 as strongly agree (SA).The aggregate
percentage of strongly agree and agree is calculated in order to assess the degree of total
percentage on the agree and the aggregate percentage of strongly disagree and disagree is
calculated in order to assess the degree of total percentage on the disagree.

Statements Strongly Disagree Don’t Agree Strongl N Mea

Disagree Know y Agree n
Our bank
performs in a F 5 7 11 132 23 178
manner consistent
% 2.8 3.9 6.2 74.4 12.9 100 3.9
with expectations
of societal and A
ethical norms. % 6.7 6.2 87.3 100

Our bank avoids F 4 2 21 139 12 178

compromising
societal norms % 2.2 1.1 11.9 78.1 6.7 100 3.86
and ethics in order A
to achieve goals. % 3.3 11.9 84.8 100
Our bank is F 12 9 65 83 9 178
committed to do
the right things % 6.7 5.1 36.5 46.6 5.1 100 3.38
even when no one A
is looking. % 11.8 36.5 51.7 100
Our bank
recognizes and F 3 4 15 135 21 178
respect new or % 1.7 2.2 8.5 75.8 11.8 100 3.94
evolving moral
norms adopted by A
society. % 3.9 8.5 87.6 100
Our bank F 4 2 9 125 38 178
performs activities
which are morally % 2.2 1.1 5.2 70.2 21.3 100 4.07
and ethically A
right. % 3.3 5.2 91.5 100
Weighted Average Mean 3.83
Source: Field survey, 2014

Table 4.2.4 shows the opinion of managers and employees regarding the ethical
responsibility of Nepalese commercial banks. Among the 178 respondents of
commercial banks, 87.3 percent of the employees agree with the statement that their

lvii
bank performs in a manner consistent with expectations of societal and ethical norms,
6.7 percent of the respondents disagree with this statement and 6.2 percent of the
respondents are neutral about this statement. 84.8 percent of the respondents of
commercial banks agree with the statement that their bank avoids compromising
societal norms and ethics in order to achieve goals, 11.9 percent of the respondents are
neutral about this statement and 3.3 percent of the respondents show their
disagreement regarding this statement.

Among the respondents, 51.7 percent of the respondents agree with the statement that
their bank is committed to do the right things even when no one is looking, 36.5
percent of the respondents are neutral with this statement and 11.8 percent of the
respondents disagree with this statement. 87.6 percent of the respondents agree with
the statement that their bank recognizes and respect new or evolving moral norms
adopted by society, 8.5 percent of the respondents are neutral with this statement and
3.9 percent of the respondents disagree with this statement. In case of the statement
whether their respective bank performs activities which are morally and ethically
right, 91.5 percent of the respondents agree, 5.2 percent of the respondents are neutral
about this statement and 3.2 percent of the respondents disagree with this statement.

Mean value of the statement of legal responsibility in Table 4.2.4 varied from 3.38 to
4.07. Among them, the most significant observations on ethical responsibility is ‘It is
important for bank performs activities which are morally and ethically right.’ The
least significant observation on ethical responsibility is ‘It is important for bank to be
committed to do the right things even when no one is looking’. Weighted average
mean value for ethical responsibility is 3.83 which reveal that respondents agree that
banks should follow the ethical responsibility. The respondent’s opinion regarding the
discretionary responsibilities with respect to Carroll’s pyramid is presented in the
table 4.2.5. Frequencies, percentage, mean, weighted mean values have been
calculated to do the overall analysis.

Table 4.2.5: Discretionary responsibility of Nepalese commercial banks

This table shows the percentage, frequency, mean of the employee perception regarding discretionary
responsibilities of commercial banks. The statement based is based on the discretionary responsibilities
indicators and is measured in five likert scale 1 as strongly disagree (SD), 2 as disagree, 3 as don’t
know, 4 as agree and 5 as strongly agree (SA).The aggregate percentage of strongly agree and agree is

lviii
calculated in order to assess the degree of total percentage on the agree and the aggregate
percentage of strongly disagree and disagree is calculated in order to assess the degree of total
percentage on the disagree.

Statements Strongly Disagree Don’t Agree Strongly N Mea

Disagree Know Agree n
Our bank involves in
those activities that F 14 9 20 114 21 178
are advantageous to % 7.9 5.1 11.2 64 11.8 100
the community, as
3.67
well as provides A
profit to the bank. % 13 11.2 75.8 100
Our bank’s managers F 13 27 27 111 0 178
and employees
participate in % 7.2 15.2 15.2 62.4 0 100
voluntary and 3.33
charitable activities
within their local A
communities. % 22.4 15.2 62.4 100
F 11 23 60 76 8 178
Our bank’s
employees volunteers % 6.2 12.9 33.7 42.7 4.5 100
on community issues A 3.26
on behalf of the firm. % 19.1 33.7 47.2 100
Our bank shows F 8 15 51 90 14 178
involvement in
community health, % 4.5 8.4 28.7 50.6 7.9 100 3.49
education & other A
projects. % 12.9 28.7 58.5 100
Our bank provides F 13 16 104 42 3 178
assistance to private
and public % 7.3 9 58.4 23.6 1.7 100 3.03
educational A
institutions. % 16.3 58.4 25.3 100
Our bank possesses F 24 45 70 29 10 178
recruitment &
selection policies that % 13.5 25.3 39.3 16.3 5.6 100
favour the local A 2.75
communities. % 38.8 39.3 21.9 100
Our bank involves in F 6 29 61 77 5 178
protection and
promotion of arts, % 3.4 16.3 34.3 43.2 2.8 100
sports and socio- A 3.26
cultural values. % 19.7 34.3 46 100
F 9 11 36 119 3 178
Our bank involves in % 5.1 6.2 20.2 66.8 1.7 100
protection of A 3.54
environment. % 11.3 20.1 68.6 100
Our bank maintains a F 5 12 52 109 0 178
policy of increasing
% 2.8 6.7 29.3 61.2 0 100 3.49
charitable& voluntary
efforts over time. % 9.5 29.3 61.2 100
Our bank assists F 4 12 74 86 2 178 3.39

lix
 voluntarily those % 2.2 6.7 41.7 48.3 1.1 100
projects which
enhance a
community’s quality A
of life. % 8.9 41.7 49.4 100
Weighted Average Mean 3.32
Source: Field survey, 2014

Table 4.2.5 reveals the opinion of managers and employees regarding the
discretionary responsibility in the context of Nepalese commercial banks. Among 178
respondents of commercial banks, 75.8 percent of the employees agree with the
statement that their bank involves in those activities that are advantageous to the
community, as well as provides profit to the bank, 13 percent shows their
disagreement regarding this statement and 11.2 percent of the respondents are neutral
about this statement. 62.4 percent of the respondents of commercial banks agree with
the statement that their bank’s managers and employees participate in voluntary and
charitable activities within their local communities, 22.4 percent of the respondents
shows their disagreement and 15.2 percent of the respondents are neutral regarding
this statement.

Among the respondents, 47.2 percent of the respondents agree with the statement that
their bank’s employee’s volunteers on community issues on behalf of the firm, 33.7
percent of the respondents are neutral and 19.1 percent of the respondents disagree
with this statement. 58.5 percent of the respondents agree with the statement that their
bank shows involvement in community health, education and other projects, 28.7
percent of the respondents are neutral with this statement and 12.9 percent of the
respondents disagree with this statement.

From the questionnaire survey, it is found that 58.4 percent of the respondents are
neutral regarding the statement that their bank provides assistance to private and
public educational institutions, 25.3 percent agree and 16.3 percent of the respondents
disagree with this statement. In case of the statement whether their respective bank
possesses recruitment and selection policies that favour the local communities, 39.3
percent of the respondents are neutral. 38.8 percent disagree and 29.9 percent agree
with this statement.

lx
Among the respondents, 46 percent of the respondents agree with the statement that
their bank involves in protection and promotion of arts, sports and socio-cultural
values, 34.3 percent are neutral and 19.7 percent shows their disagreement. In case of
the statement that their bank involves in protection of environment, 68.6 percent of
the respondents agree, 20.1 percent of the respondents are neutral and 11.3 percent of
the respondents show their disagreement regarding this statement.

Among the respondents, 61.2 percent of the respondents show their agreement with
the statement that their bank maintains a policy of increasing charitable and voluntary
efforts over time, 29.3 percent are neutral and 9.5 percent of the respondents show
their disagreement with this statement. In case of statement that their bank assists
voluntarily those projects which enhance a community’s quality of life, 49.4 percent
of the respondents shows their agreement, 41.7 percent are neutral and 8.9 percent
disagree with this statement.

Mean value of the statement of discretionary responsibility in Table 4.2.5 varied from
2.75 to 3.67. Among them, the most significant observations on discretionary
responsibility is ‘Our bank involves in those activities that are advantageous to the
community, as well as provides profit to the bank’. The least significant observation
on discretionary responsibility is ‘Our bank possesses recruitment and selection
policies that favour the local communities’. Weighted average mean value for
discretionary responsibility is 3.32 which reveal that respondents don’t know whether
their respective bank is carrying out their discretionary responsibility.

4.1.1.4 Ranking of Carroll’s CSR pyramid elements in the context of Nepalese

commercial banks

Carroll has given first ranking to economic responsibility followed by legal

responsibility, ethical responsibility and discretionary responsibility. The ranking
given by the managers and employees of Nepalese commercial banks for each
responsibility of Carroll’s pyramid is presented in Table 4.2.6.

lxi
 Table 4.2.6: Mean comparison of the four components of Carroll’s construct
This table shows the comparison of weighted average mean of the four components of Carroll’s CSR
Pyramid. The statement based is based on the Carroll’s CSR pyramid and is measured by calculating
weighted average mean of each of the components of Carroll’s CSR pyramid. The component of
Carroll’s pyramid having highest weighted mean score is ranked first which means employees of
commercial bank give this component their most preference.

Carroll’s Pyramid components Weighted Mean Score Rank

Economic 3.85 2
Legal 4.58 1
Ethical 3.83 3
Discretionary 3.32 4
Source: Field Survey, 2014

Table 4.4.6 shows the comparison of four of the components of Carroll’s CSR
pyramid. Carroll’s CSR pyramid consists of four components i.e. economic
responsibility, legal responsibility, ethical responsibility and discretionary
responsibility. One of the objectives of this study was to find out the levels of CSR
practices with respect to Carroll CSR pyramid in the context of Nepalese commercial
banks. Total weighted average mean of each of the four variables has been calculated.
From the calculated mean, rank 1 is given to the variable having highest weighted
average mean score. So, in case of Nepalese commercial bank, highest mean score is
seen for legal responsibility followed by economic responsibility, ethical
responsibility and finally discretionary responsibility.

Managers and employees of commercial banks give their priority to legal

responsibility followed by economic responsibility, ethical responsibility and
discretionary responsibility.

1. Legal Responsibility: The legal responsibility of corporations demands that

businesses abide by the law and play by the rules of the game. As commercial
banks are regulated by the government, managers and employees of

lxii
 commercial bank thinks that the most important responsibility of bank is to
follow the legal obligation and abide by the law of the nation.

2. Economic responsibility: It concerns the responsibility of business of

producing goods and services needed by society and selling them making a
profit. Companies have shareholders who demand a reasonable return on their
investments, they have employees who want safe and fairly paid jobs, and they
have customers who demand good quality products at a fair price. Manager
and employees of commercial bank feels that earning as much profit as
possible is must because main objective of bank is to be profitable as possible.
So, they have given second ranking to the economic responsibility.

3. Ethical Responsibility: The main concept of ethical responsibility as defined

and expressed by Carroll is that the ethical responsibility consists of what is
generally expected by society over and above economic and legal
expectations. Ethical responsibilities of companies cover its wide range of
responsibilities. Ethical responsibilities are not necessarily imposed by law,
but they are expected from companies by the public and government. Manager
and employees of commercial bank feels that ethics is necessary for business
but ethics come as third responsibility in the ranking.

4. Discretionary responsibility: As it is in the top of the pyramid, it focuses on

things such as improving the quality of life of employees, local communities
and ultimately society in general. Manager and employees of commercial bank
feels that discretionary responsibility falls in fourth rank.

4.1.2. Analysis of Secondary Data

Secondary source of data has been calculated in order to find out the profitability from
the annual reports of the 23 commercial banks. The relationship between CSR and
profitability has been identified with the help of both questionnaire and annual reports
of the respective banks. This study is also based on descriptive and causal
comparative research design. Under causal comparative research design, correlation
analysis has been carried out to ascertain and understand the direction, magnitudes
and forms of observed relationship between CSR and profitability. Regression

lxiii
analysis has also been conducted in this study to estimate the relationship between
dependent variables (bank’s profitability proxies such as ROA, ROE and EPS) with
independent variable CSR .It also describes different statistical tests of significance
for validation of model such as t-test, F-test.

4.1.2.1 Kendall’s Tau-b correlations coefficient for CSR and profitability of

Nepalese commercial banks

Kendall’s Tau correlation is used to analyse the relationship between corporate social
responsibility and profitability of Nepalese commercial banks. The Kendall’s rank
coefficient is often used as a test statistic in a statistical hypothesis test to establish
whether two variables may be regarded as statistically dependent. The value of Tau-b
range from -1(100% negative association, or perfect inversion) to +1 (100% positive
association, or perfect agreement). A value of zero indicates the absence of
association. Kendall’s rank correlation coefficient, commonly referred to as Kendall’s
tau (τ) coefficient, is a statistic used to measure the association between two measured
quantities. A tau test is a non- parametric test for statistical dependence based on the
tau coefficient. Kendall’s correlations coefficients of CSR and ROA of Nepalese
commercial bank have been computed and the results are presented in the Table 4.3.1.

Table 4.3.1: Kendall’s correlations coefficient of CSR and ROA of Nepalese

Commercial banks

This table reveals the Kendall’s correlation coefficient between CSR and ROA of commercial
banks. CSR consists of economic responsibility represented by CSReco, legal responsibility
represented byCSR leg, ethical responsibility represented by CSReth and discretionary
responsibility represented by CSRdis.

ROA CSR eCO CSR leg CSR et h CSR dis

ROA Correlation Coefficient 1
P-value
Correlation Coefficient 0.146* 1
CSR eCO P-value 0.002 0
CSR leg Correlation Coefficient 0.032 0.119* 1
P-value 0.572 0.038
Correlation Coefficient 0.109** 0.162** 0.205** 1
CSR et h P-value 0.04 0.005 0 0
Correlation Coefficient 0.004 0.141* 0.074 0.109 1
CSR dis P-value 0.24 0.011 0.196 0.056 0
Source: SPSS results based on responses on survey questionnaire

lxiv
Notes:

1. *sign indicates that correlation is significant at 1 percent level.

2. ** indicate that correlation is significant at 5 percent significant level.

Table 4.3.1 reveals the correlation coefficient among the dependent and independent
variables. The highest correlation coefficient can be observed 0.205 between CSR leg
and CSR eth at 5 percent level of significance. The highest positive correlation
between dependent and independent variable is 0.146 between CSR eco and Return
on Asset (ROA). It means increase in economic responsibility will lead to an
increment of ROA of commercial banks. The correlation is significant at 1 percent
level of significance. When commercial bank will increase their economic
responsibility which is to earn as much profit as possible, then ROA will naturally
increase.

Legal responsibility represented by CSR leg has positive correlation with ROA
indicating that increase in legal responsibility will increase the ROA of Nepalese
commercial banks. However, the correlation is insignificant at 1 percent and 5 percent
level of significance. There is a positive correlation between ethical responsibility and
ROA of Nepalese commercial banks. It means increase in ethical responsibility with
the help of CSR activities will lead to an increment of ROA of Nepalese commercial
banks. The correlation is significant at 5 percent level of significance. There is a
positive correlation between discretionary responsibility and ROA indicating that
increase in discretionary responsibility will increase the ROA of Nepalese commercial
banks. However the correlation is not significant at 1 percent and 5 percent level of
significance. Kendall’s correlations coefficient of CSR and ROE of Nepalese
commercial bank has been computed and the results are presented in Table 4.3.2.

lxv
 Table 4.3.2: Kendall’s correlations coefficient of CSR and ROE of Nepalese
commercial bank
This table reveals the Kendall’s correlation coefficient between CSR and ROE of commercial banks.
CSR consists of economic responsibility represented by CSReco, legal responsibility represented by
CSR leg, ethical responsibility represented by CSReth and discretionary responsibility represented by
CSRdis.

ROE CSR eCO CSR leg CSR et h CSR dis

Correlation Coefficient 1
ROE P-value
Correlation Coefficient 0.083* 1
CSR eCO P-value 0.017
Correlation Coefficient 0.058** 0.119** 1
CSR leg P-value 0.022 0.038
Correlation Coefficient 0.207** 0.162* 0.205* 1
CSR et h P-value 0.032 0.005 0
Correlation Coefficient 0.019** 0.141** 0.074 0.109 1
CSR dis P-value 0.031 0.011 0.196 0.056
Source: SPSS results based on responses on survey questionnaire
Notes:

1. *sign indicates that correlation is significant at 1 percent level.

2. ** indicate that correlation is significant at 5 percent significant level.

Table 4.3.2 reveals the correlation coefficient among the dependent and independent
variables. The highest correlation coefficient can be observed between dependent and
independent variable. The highest correlation 0.207 is observed between CSReth and
ROE at 5 percent level of significance. The highest positive correlation between both
dependent variables 0.205 is between CSReth and CSR leg at 1 percent level of
significance. Economic responsibility represented by CSReco has positive correlation
with ROE. It means increase in economic responsibility will increase ROE of
commercial banks. The correlation is significant at 1 percent level of significance.
Legal responsibility represented by CSRleg has positive correlation with ROE
indicating that higher the legal responsibility, higher would be ROE. The correlation
is significant at 5 percent level of significance. There is a positive correlation between
ethical responsibility which is represented by CSReth and ROE of Nepalese
commercial banks. It means increase in ethical responsibility will lead to an increment
of ROE of Nepalese commercial banks. The correlation is significant at 5 percent

lxvi
level of significance. There is a positive correlation between discretionary
responsibility which is represented by CSRdis and ROE of Nepalese commercial
banks. When commercial banks will increase their discretionary responsibility,
contributing to community’s welfare keeping profit in mind, return on asset will
increase. The correlation is significant at 5 percent level of significance. Kendall’s
correlations coefficient of CSR and EPS of Nepalese commercial bank has been
computed and the results are presented in Table 4.3.3.

Table 4.3.3: Kendall’s correlations coefficient of CSR and EPS of Nepalese

commercial banks
This table reveals the Kendall’s correlation coefficient between CSR and ROE of commercial banks.
CSR consists of economic responsibility represented by CSR eCO , legal responsibility represented by
CSR leg, ethical responsibility represented by CSR et h and discretionary responsibility represented by
CSR dis.

EPS CSReco CSRleg CSReth CSRdis

Correlation Coefficient 1
EPS P-value
Correlation Coefficient 0.139* 1
CSReco P-value 0.001
0.042*
0.119* 1
Correlation Coefficient *
CSRleg P-value 0.045 0.038
0.246*
0.162** 0.205** 1
Correlation Coefficient *
CSReth P-value 0.018 0.005 0
Correlation Coefficient 0.021 0.141* 0.074 0.109 1
CSRdis P-value 0.11 0.011 0.196 0.056
Source: SPSS results based on responses on survey questionnaire

Notes:

1. *sign indicates that correlation is significant at 1 percent level.

2. ** indicate that correlation is significant at 5 percent significant level.

Table 4.3.3 reveals the correlation coefficient among the dependent and independent
variables. The highest correlation coefficient can be observed between observed
between dependent and independent variable. The highest correlation 0.246 is
observed between ethical responsibility represented by CSReth and Earnings per
share (EPS) at 5 percent level of significance. The highest correlation between both

lxvii
dependent variables 0.205 is observed between legal responsibility represented by
CSRleg and ethical responsibility represented by CSReth at 5 percent level of
significance.

Economic responsibility represented by CSReco has positive correlation with EPS. It

means increase in economic responsibility will increase EPS of commercial banks.
When commercial bank will increase their economic responsibility which is to earn as
profit, EPS will increase. The correlation is significant at 1 percent level of
significance.

There is a positive correlation between legal responsibility which is represented by

CSRleg and EPS. Increase in legal responsibility will lead to an increment in EPS of
Nepalese commercial banks. The correlation is significant at 5 percent level of
significance. There is a positive correlation between ethical responsibility which is
represented by CSReth and EPS of Nepalese commercial banks. It means increase in
ethical responsibility with the help of CSR activities will lead to an increment of EPS
of Nepalese commercial banks. The correlation is significant at 5 percent level of
significance.

There is a positive correlation between discretionary responsibility which is

represented by CSRdis and EPS of Nepalese commercial banks Increase in
discretionary responsibility will lead to an increment in EPS of Nepalese commercial
banks. However, the correlation is insignificant at 1 percent and 5 percent level of
significance.

4.1.2.2 Regression analysis

The regression of CSR variables on profitability has been analysed by defining

profitability in terms of return on asset, return on equity and earnings per share. The
regression of CSR variables on return on asset produced the result as indicated in
table 3.4.1. Similarly, the regression of CSR variables on return on equity produced
the result as indicated in table 3.4.2. And the regression of corporate social
responsibility variables on earnings per share produced the result as indicated in table
3.4.3.

lxviii
 Table 3.4.1: Regression of CSR variables on return on asset

The results are based on pooled cross-sectional data of 23 commercial banks with 178 observations for
the period 2013/14 by using linear regression model. The model is ROA=α+a1CSReco+a2 CSRleg
+a3CSReth+a4 CSRdis +ei

Where ROA=Return on Assets, CSReco = economic responsibility of a firm, CSRleg = legal responsibility
of a firm, CSReth = ethical responsibility of a firm and CSRdis = discretionary responsibility of a firm.

Regression Coefficient of A R-
Model Intercept CSReco CSRleg CSReth CSRdis bar² SEE F
1.06 0.14
1 0.18 0.95 24.2
(3.84*) (2.05*)

1.57 0.01
2 0.06 0.51 4.2
(4.00*) (0.12)
0.61 0.26
3 0.102 0.91 19.81
(1.55) (2.54**)
1.71 0.02
4 0.08 0.51 5.8
(4.21*) (0.22)
1.11 0.15 0.012
5 0.12 0.52 18.09
(2.45**) (2.04*) (0.137)
0.73 0.032 0.27
6 0.23 0.55 35.03
(1.44) (0.373) (2.56**)
0.86 0.27 0.08
7 0.28 0.51 26.54
(1.65*) (2.63**) (0.72)
0.24
0.43 0.12 0.04
8 ( 2.28** 0.32 0.5 21.18
(0.81*) (1.68*) (0.53)
)
0.94 0.02 0.28 0.08
9 0.22 0.53 32.35
(1.59) (0.3) (2.64**) (0.68)

0.58 0.13 0.24 0.12

10 0.34 0.5 35.61
(1.10*) (1.80*) (2.36**) (1.03)

Source: SPSS results based on responses on survey questionnaire

Notes:

(1) Figures in parantheses are t-values.

(2) * denotes that the results are significant at 1% level of significance
(3) ** denotes that the results are significant at 5% level of significance.
(4) ROA as dependent variable.

Table 3.4.1 presents regression result of CSR variables like economic responsibility
represented by CSReco, legal responsibility represented by CSRleg, ethical

lxix
responsibility represented by CSReth and discretionary responsibility represented by
CSRdis on return on assets (ROA). The regression of CSR variables on return on
asset shows that beta coefficient for economic responsibility represented by CSReco
are positive in all the equations as indicated in Table 3.4.1. The beta coefficient is
significant at 1 percent level of significance. The result hence indicates that higher the
economic responsibility of banks, higher would be the return on assets.

The regression of CSR variables on return on asset shows that beta coefficient for
legal responsibility represented by CSRleg are positive in all the equations as
indicated in Table 3.4.1. However, coefficients are not significant for legal
responsibility.

The regression of CSR variables on return on asset shows that beta coefficient for
ethical responsibility represented by CSReth are positive in all the equations as
indicated in Table 3.4.1. The beta coefficient is significant at 5 percent level of
significance. The result hence indicates that higher the ethical responsibility of banks,
higher would be the return on assets.

The regression of CSR variables on return on asset shows that beta coefficient for
discretionary responsibility represented by CSRdis is positive in all the equations as
indicated in Table 3.4.1. However, coefficients are not significant for discretionary
responsibility.

From the table, it can be concluded that the relationship between CSR measured by
Carroll’s CSR Pyramid has positive and significant relationship with return on assets
in case of economic and ethical responsibility. However, there is positive but
insignificant relationship between return on assets in case of legal responsibility and
discretionary responsibility. So, from the study, it can be concluded that there is
positive but insignificant relationship between CSR and return on assets. Therefore,
first alternative hypothesis which states that there is a positive and significant
relationship between CSR and return on assets is rejected.

lxx
 Table 3.4.2: Regression of CSR variables on return on equity

The results are based on pooled cross-sectional data of 23 commercial banks with 178 observations for
the period 2013/14 by using linear regression model. The model is ROE=α+a1CSReco+a2 CSRleg
+a3CSReth+a4 CSRdis +ei

Where ROE=Return on Equity, CSReco = economic responsibility of a firm, CSRleg = legal responsibility
of a firm, CSReth = ethical responsibility of a firm and CSRdis = discretionary responsibility of a firm.

Regression Coefficient of
Model Intercept CSReco CSRleg CSReth CSRdis A R-bar² SEE F
49.2 6.8
1 0.26 13.19 12.95
(6.85*) (3.59*)
29.83 1.36
2 0.07 13.65 0.35
(2.84*) (0.59**)
7.43 4.21
3 0.12 13.58 2.31
(0.69*) (1.52**)
32.48 2.67
4 0.11 13.64 0.68
(3.00*) (0.82**)
50.76 6.76 0.37
5 0.13 13.23 6.45
(4.32*) (3.54*) (0.16**)
33 7.4 1.27 6.38
6 0.81 13.06 26.2
(2.37*) (3.90*) (0.57**) (2.32**)
23.69 1.8 5.21 3.47
7 0.54 13.58 1.41
(1.49) (0.80**) (1.82**) (1.05**)
32.26 7.39 6.31 1.5
8 0.22 13.07 36.16
(2.31**) (3.82*) (2.30**) (0.47**)
36.06 7.31 1.19 6.55
9 0.27 13.1 24.67
(2.30**) (3.76*) (0.53**) (2.35**)
Source: SPSS results based on responses on survey questionnaire

Notes:

(1) Figures in parantheses are t-values.

(2) * denotes that the results are significant at 1% level of significance
(3) ** denotes that the results are significant at 5% level of significance.
(4) ROE as dependent variable.

Table 3.4.2 presents regression result of CSR variables like economic responsibility
represented by CSReco, legal responsibility represented by CSRleg, ethical
responsibility represented by CSReth and discretionary responsibility represented by
CSRdis on return on equity (ROE). The regression of CSR variables on return on
equity shows that beta coefficient for economic responsibility represented by CSReco

lxxi
is positive in all the equations as indicated in Table 3.4.2. The coefficients are
significant for economic responsibility. The results hence indicate that higher the
economic responsibility of banks, higher would be return on equity.

The regression of CSR variables on return on equity shows that beta coefficient for
legal responsibility represented by CSRleg are positive in all the equations as
indicated in Table 3.4.2. The coefficients are significant for legal responsibility. The
results hence indicate that higher the legal responsibility of banks, higher would be
return on equity.

The regression of CSR variables on return on equity shows that beta coefficient for
ethical responsibility represented by CSReth are positive in all the equations as
indicated in Table 3.4.2. The coefficients are significant for ethical responsibility. The
results hence indicate that higher the ethical responsibility of banks, higher would be
return on equity.

The regression of CSR variables on return on equity shows that beta coefficient for
discretionary responsibility represented by CSRdis is positive in all the equations as
indicated in Table 3.4.2. The coefficients are significant for discretionary
responsibility. The results hence indicate that higher the discretionary responsibility
of banks, higher would be return on equity.

From the table, it can be concluded that the relationship between CSR measured by
Carroll’s CSR Pyramid has positive and significant relationship with return on equity
in case of economic, legal, ethical and discretionary responsibility. So, from the study,
it can be concluded that there is positive and significant relationship between CSR
and return on equity. Therefore, second alternative hypothesis which states that there
is a positive and significant relationship between CSR and return on equity is
accepted.

lxxii
 Table 3.4.3: Regression of CSR variables on earnings per share

The results are based on pooled cross-sectional data of 23 commercial banks with 178 observations for
the period 2013/14 by using linear regression model. The model is EPS =α+a1CSReco+a2 CSRleg
+a3CSReth+a4 CSRdis +ei

Where EPS=Earnings per Share, CSReco = economic responsibility of a firm, CSRleg = legal
responsibility of a firm, CSReth = ethical responsibility of a firm and CSRdis = discretionary
responsibility of a firm.

Regression Coefficient of
Model Intercept CSReco CSRleg CSReth CSRdis A R-bar² SEE F
11.79 6.19
1 0.18 10.11 15.12
(1.15*) (2.29*)
1.38
41.46
2 (0.435** 0.05 19.08 2.9
(2.83*)
)
13.05 12.57
3 0.13 16.52 19.19
(0.89) (3.32**)
41.21 1.8
4 0.06 19.09 3.12
(2.72*) (0.40)
21.51 6.45 2.32
5 0.21 8.84 13.32
(1.28) (2.37*) (0.73**)
-0.23 3.48 13.39
6 0.19 18.51 14.46
(0.01) (1.1**) (3.47**)
0.23 13.33 4.74
7 0.23 18.52 14.32
(0.01) (3.46*) (1.05)
12.24
12.49 5.12 4.05
8 ( 3.16** 0.28 18.37 25.36
(0.63*) (1.90*) (1.29**)
)
10.34 3.19 14.01 4.3
9 0.15 19.51 18.25
(0.47) (1.01**) (3.58**) (0.95)

11.16 5.48 12.22 6.37

10 0.07 18.36 5.48
(0.57*) (2.01*) (3.17**) (1.41)

0.63 5.73 3.72 12.96

11 0.10 21.33 36.49
(0.029*) (2.10*) (1.18**) (3.32**)
Source: SPSS results based on responses on survey questionnaire

Notes:

(1) Figures in parantheses are t-values.

(2) * denotes that the results are significant at 1% level of significance.
(3) ** denotes that the results are significant at 5% level of significance.
(4) EPS as dependent variable.

Table 3.4.3 presents regression result of CSR variables like economic responsibility
represented by CSReco, legal responsibility represented by CSRleg, ethical
lxxiii
responsibility represented by CSReth and discretionary responsibility represented by
CSRdis on earnings per share (EPS). The regression of CSR variables on earnings per
share shows that beta coefficient for economic responsibility represented by CSReco
are positive and significant in all the equations as indicated in Table 3.4.2. The
coefficients are significant for economic responsibility. The results hence indicate that
higher is the economic responsibility of banks, higher would be the earnings per
share.

The regression of CSR variables on earnings per share shows that beta coefficient for
legal responsibility represented by CSRleg are positive in all the equations as
indicated in Table 3.4.3. The coefficients are significant for legal responsibility. The
results hence indicate that higher is the legal responsibility of banks, higher would be
the earnings per share.

The regression of CSR variables on earnings per share shows that beta coefficient for
ethical responsibility represented by CSReth are positive in all the equations as
indicated in Table 3.4.3. The coefficients are significant for ethical responsibility. The
results hence indicate that higher is the ethical responsibility of banks, higher would
be the earnings per share.

The regression of CSR variables on earnings per share shows that beta coefficient for
discretionary responsibility represented by CSRdis is positive in all the equations as
indicated in Table 3.4.3. However, coefficients for are not significant for discretionary
responsibility.

From the table, it can be concluded that the relationship between CSR measured by
Carroll’s CSR Pyramid has positive and significant relationship with earnings per
share in case of economic, legal and ethical responsibility. However, there is positive
but insignificant relationship between earnings per share and discretionary
responsibility. So, from the study, it can be concluded that there is positive but
insignificant relationship between CSR and earnings per share. Therefore, third
alternative hypothesis which states that there is a positive and significant relationship
between CSR and earnings per share is rejected.

4.2 Concluding remarks

lxxiv
This study has mainly focused on understanding of CSR in Nepalese context, business
benefits of CSR, actual practice of CSR, actual relationship between CSR and
profitability of Nepalese commercial banks. This study has used CSR components
based on Carroll’s CSR pyramid. The major components of CSR are economic
responsibility represented by CSReco, legal responsibility represented by CSRleg,
ethical responsibility represented by CSReth and discretionary responsibility
represented by CSRdis. Return on Asset (ROA), Return on Equity (ROE) and
Earnings per Share (EPS) are taken as proxies for profitability.

The study concludes that managers and employees perceive CSR as a business
benefits by a considerable extent. According to the study, respondents agree with each
statement of economic responsibility and feels that it is important for banks to be
profitable. While analysing the components of CSR, study concludes that managers
and employees shows their strong agreement with each statement of legal
responsibility and feels that it is necessary for banks to follow the prevailing law of
the nation. The study concludes that managers and employees agrees with each
statement of ethical responsibility and feels that it is necessary for commercial banks
to follow the ethics and moral values. The study revealed that managers and
employees don’t know whether commercial banks are fulfilling their discretionary
responsibility or not and working for communities welfare keeping profit in mind.

While analysing the CSR practices of Nepalese commercial banks with respect to
Carroll’s CSR pyramid, it was found that managers and employees of Nepalese
commercial banks are able to differentiate the CSR dimension proposed by Carroll.
Employees of commercial bank didn’t rank the CSR according to the original concept
of Carroll. Managers and employees of commercial bank give highest ranking to legal
responsibility followed by economic responsibility, ethical responsibility and
discretionary responsibility.

Regarding the relationship between CSR and profitability, the undertaken study has
tried to provide the perennial answer of one basic question of this debate: whether
there is any relationship between CSR and profitability and if so then what is the
nature of this relationship. From the study it was found that there is a positive but
insignificant relationship between CSR and return on asset which is similar to the
study conducted by Aupperle et al, (1985). He conducted a study on CSR based on

lxxv
Carroll’s Pyramid has found negative relationship between CSR and ROA. Study by
Dkhili and Ansi (2012) show the absence of relationship between CSR and financial
performance measured by return on assets.

Similarly, this study finds positive and significant relationship between CSR based on
and returns on equity which is similar to the study conducted by Dkhili and Ansi
(2012) which shows positive relationship if the financial performance is measured by
return on equity. This study finds positive and significant relationship with CSR and
earnings per share which is similar to the study conducted by Mumtaz and Pirzada
(2014) which revealed a positive relationship between CSR measured by Carroll’s
CSR Pyramid and financial performance indicators earnings per share, return on sale,
return on equity and return on assets.

lxxvi
 CHAPTER V

SUMMARY AND CONCLUSION

5.1. Summary

Despite the growing interest in corporate social responsibility around the world,
studies in CSR in Nepalese context are very limited. Studies to date in the Nepalese
context are mostly focused either on the attitudes and views on CSR or on the status
of CSR. In Nepal, however there is a lack of systematic studies in many important
aspect of CSR such as the operational meaning and the understanding of CSR in
Nepalese context, business benefits of CSR, actual practice of CSR, actual
relationship between CSR and profitability of Nepalese commercial banks, views of
managers and other employees for promoting CSR in Nepal.

This study basically aimed at analysing the relationship between corporate social
responsibility and profitability of Nepalese commercial banks. The objectives of the
study were (i) to identify the perceived business benefits of corporate social
responsibility of Nepalese commercial banks. (ii) To analyse the CSR practices of
Nepalese commercial banks with respect to Carroll’s CSR Pyramid. (iii) To examine
the relationship between CSR and profitability of Nepalese commercial banks.(iv) To
identify if there is any suggestions/ views for managers and employees for promoting
corporate social responsibility in Nepal.

This study has utilized both primary and secondary sources of data. The secondary
source of data has been employed to understand CSR and profitability of Nepalese
commercial banks. The primary source of data has been used to examine the opinion
of respondents with respect to CSR activities of Nepalese commercial banks. For the
purpose of primary data collection, a set of pre-specified questions have been mainly
utilized as the instrument. The questions are identified from the previous studies and
have been modified in some cases as tailor or best suit in the context of Nepal. The
questions were designed to get the behavioural, views, suggestion and perception
related information from the respondents. Data were collected using well formulated
questionnaires. The questionnaires were self-adjusted, validated and pre-tested. The

lxxvii
 respondents represent employees of 23 commercial banks of Nepal. Primary data
were collected through a total of 230 self-administered questionnaires which were
distributed to 230 respondents and total of 178 questionnaires were collected. For the
secondary source of data, the relevant data were gathered from the annual reports of
Nepalese commercial banks. Therefore, for tracking the information related to
profitability using proxies such as ROA, ROE and EPS were calculate using their
respective formulas with the help of the annual reports of respective banks for the
current year (2013/14). Such data were collected from annual reports of each bank
from their respective website.

This study has explored the relationship between profitability and CSR of Nepalese
commercial bank. The methods of data analysis consist four sections. First includes
primary data analysis which includes summary of descriptive statistics associated with
general information of the respondents like gender, age, academic qualification. This
section includes percentage, frequency distribution of the general information of the
respondents. Second section has analysed the descriptive statistics such as mean
values of four dimensions CSR i.e. economic, legal, ethical and discretionary. It has
been used to describe the characteristics of sample during the period. Second section
present the methods used for primary data analysis. It includes percentage frequency
distribution, cross tabulation, mean values of responses to Likert scale items and
ranking items. Third section deals with the Kendal’s Tau correlation coefficient of
both dependent and independent variable. Fourth section describes regression analysis
of primary and secondary data. A step wise regression model has been applied to
estimate the relationship between dependent variables (bank’s profitability proxies
such as ROA, ROE and EPS) with independent variables i.e. CSR. The collected data
has been processed with the use of SPSS Statistical package. Therefore, different
statistical tests of significance for validation of model such as t-test, F-test and R-
square test were also used. Based on the analysis of data, the major findings of the
study are summarized as follows:

Major findings

1. Weighted average mean score for perceived business for CSR is 3.64 which
revealed that managers and employees perceive CSR as a business benefits by
a considerable extent.
lxxviii
2. From the study, it is found that the weighted average mean score for economic
responsibility is 3.85 which revealed managers and employees feel that it is
important for banks to be profitable. Weighted average mean score for legal
responsibility is 4.52 which revealed that managers and employees of
commercial banks find it necessary to follow the prevailing law of the nation.
3. From the analysis, weighted average mean score for ethical responsibility is
found to be 3.83 which indicates that managers and employees feels that it is
necessary for commercial banks to follow the ethics and moral values.
Weighted average mean of all the statements asked in case of discretionary
responsibility is 3.32 which revealed that managers and employees don’t know
whether their respective banks are fulfilling their discretionary responsibility.
4. While analysing the CSR practices of Nepalese commercial banks with respect
to Carroll’s CSR pyramid, it is found that managers and employees of
Nepalese commercial banks are able to differentiate the CSR dimension
proposed by Carroll. Employees of commercial bank didn’t rank the CSR
according to the original concept of Carroll. Managers and employees of
commercial bank give highest ranking to legal responsibility followed by
economic responsibility, ethical responsibility and discretionary responsibility.
5. The study revealed that the correlation between economic responsibilities
represented by CSReco has a positive relationship with ROA indicating that
increase in economic responsibility will lead to an increment of ROA of
commercial banks at 1 percent level of significance.
6. The study found a positive correlation between legal responsibility and ROA
indicating that higher the legal responsibility, higher would be ROA. However
the correlation is not significant at 1 percent and 5 percent level of
significance.
7. From the study, it is identified that there is a positive correlation between
ethical responsibility and ROA indicating that higher the ethical responsibility,
higher would be ROA. The correlation is significant at 5 percent level of
significance.
8. The study revealed that there is a positive correlation between discretionary
responsibility and ROA indicating that higher the legal responsibility, higher
would be ROA. However the correlation is not significant at 1 percent and 5
percent level of significance.
lxxix
9. From the study it is found that economic responsibility represented by CSReco
has a positive correlation with ROE indicating that higher the economic
responsibility, higher would be ROE. The correlation is significant at 1
percent level of significance.
10. There is a positive correlation between legal responsibility which is
represented by CSRleg and ROE indicating that higher the legal responsibility,
higher would be ROE. The correlation is significant at 5 percent level of
significance.
11. The study found a positive correlation between ethical responsibility which is
represented by CSReth and ROE indicating that higher the ethical
responsibility, higher would be ROE. The correlation is significant at 5
percent level of significance.
12. There is a positive correlation between discretionary responsibility which is
represented by CSRdis and ROE indicating that higher the discretionary
responsibility, higher would be ROE. The correlation is significant at 5
percent level of significance.
13. Economic responsibility represented by CSReco has a positive correlation
with EPS indicating that higher the economic responsibility, higher would be
EPS of commercial banks. The correlation is significant at 1 percent level of
significance.
14. The study found a positive correlation between legal responsibility which is
represented by CSRleg and EPS indicating that higher the legal responsibility,
higher would be EPS of commercial banks. The correlation is significant at 5
percent level of significance.
15. There is a positive correlation between ethical responsibility which is
represented by CSReth and EPS of Nepalese commercial banks indicating that
higher the ethical responsibility, higher would be EPS of Nepalese commercial
banks. The correlation is significant at 5 percent level of significance.
16. There is a positive correlation between discretionary responsibility which is
represented by CSRdis and EPS of Nepalese commercial banks indicating that
higher the discretionary responsibility, higher would be EPS of Nepalese
commercial banks. However, the correlation is not significant at 1 percent and
5 percent level of significance.

lxxx
17. The regression of corporate social responsibility variables on return on asset,
return on equity and earnings per share shows that beta coefficient for
economic responsibility represented by CSReco is positive. The result
indicates that increase in economic responsibility by focusing on earning profit
will lead to an increment in return on asset, return on equity and earnings per
share. The beta coefficient is significant at 1 percent level of significance.
18. The regression of corporate social responsibility variables on return on asset
shows that beta coefficient is positive indicating that increase in legal
responsibility will increase return on assets of commercial banks. However,
the beta coefficient is insignificant. Return on equity and earnings per share
shows that beta coefficient for legal responsibility represented by CSRleg is
positive indicating that increase in legal responsibility will increase return on
equity and earnings per share of commercial banks. The beta coefficient is
significant at 5 percent level of significance.
19. The regression of corporate social responsibility variables on return on asset,
return on equity and earnings per share shows that beta coefficient for ethical
responsibility represented by CSReth is positive. The result indicates that
higher the ethical responsibility of commercial banks, higher would be return
on assets, return on equity and earnings per share. The beta coefficient is
significant at 5 percent level of significance.
20. The regression of corporate social responsibility variables on return on assets,
return on equity and earnings per share shows that beta coefficient for
discretionary responsibility represented by CSRdis is positive. Hence, the
result indicates that higher the discretionary responsibility, higher would be
return on equity. The beta coefficients for return on equity are significant at 5
percent level of significance. However, the coefficients for return on assets
and earnings per share are not significant.
21. From the analysis, it is found that there is a positive but insignificant
relationship between CSR and Return on Assets. Therefore, first alternative
hypothesis which state there is a positive and significant relationship between
CSR and ROA is rejected.
22. From the analysis, it is found that there is a positive and significant
relationship between CSR and Return on Equity. Therefore, second alternative

lxxxi
 hypothesis which state there is a positive and significant relationship between
CSR and ROE is accepted.
23. It is found from the study that there is a positive but insignificant relationship
between CSR and Earnings per Share. Therefore, third alternative hypothesis
which state there is a positive and significant relationship between CSR and
EPS is rejected.

The role of government and other stakeholders is very vital in promoting CSR
in Nepal. Few suggestions were asked from employees and managers
regarding the activities which could be done to promote CSR in Nepal and the
findings from the survey are presented below.
24. Few of the respondents stated that developing a separate CSR policy by the
government will help to promote CSR.
25. Some of the respondents said that certain benefits and incentives like
exemption of tax should be given to those banks who involves in CSR
activities will help to promote CSR in Nepal.
26. Few said that certain percentage of budget should be allocated for CSR and
that allocated budget should be spent on activities that are beneficial to the
society as well as banks. Such activity will definitely help to promote CSR in
Nepal.
27. Some of the respondents stated that discouraging corruption will also help to
promote CSR in Nepal.
28. Some of the respondents feel involvement of CSR concepts in school and
universities curriculum will also help to promote CSR in Nepal.

5.2 Conclusion

The study concludes that CSR is a perceived as a business benefits by a

considerable extent. Employees of commercial bank didn’t rank the CSR
according to the original concept of Carroll. Managers and employees of
commercial bank give highest ranking to legal responsibility followed by
economic responsibility, ethical responsibility and discretionary responsibility.
From the study, it was found that there is a positive relationship between CSR and

lxxxii
 Profitability as measured by ROA, ROE and EPS. However the result is
significant only for ROE.

5.3 Recommendations

1. The study observed that managers and employees perceive CSR as a business
benefits by a considerable extent. Hence, banks should use CSR as a major
tool for achieving business benefits.
2. The study revealed that managers and employees show their agreement
regarding the necessity of economic responsibility. Hence bank should focus
on its economic responsibility which is to earn profit.
3. The study found that managers and employees of commercial banks show
their strong agreement with the need to follow legal responsibility. Hence
banks should give priority to legal responsibility and follow the prevailing law
of the nation.
4. From the study, it is found that the managers and employees show their
agreement regarding the necessity of banks to fulfil their ethical responsibility.
Hence it is necessary for commercial banks to follow the ethics and moral
values.
5. The study indicated that managers and employees of commercial banks don’t
know whether commercial banks are fulfilling their discretionary
responsibility and working for communities’ welfare keeping profit in mind.
Hence it is necessary for banks to focus more on the discretionary
responsibility.
6. From the study it is clear that employees of commercial bank didn’t rank the
CSR according to the original concept of Carroll. Managers and employees of
commercial bank give highest ranking to legal responsibility followed by
economic responsibility, ethical responsibility and discretionary responsibility.
Hence they should continue giving priority to the ranking given by them to the
four dimension of CSR proposed by Carroll.
7. The study observed positive relationship between return on asset, return on
equity, earnings per share and economic responsibility. Hence banks willing to

lxxxiii
 increase its profitability should focus more on their economic responsibility
which is to earn profit.
8. The study revealed positive relationship between return on asset, return on
equity, earnings per share and legal responsibility represented by CSRleg.
Hence banks should continue to follow its legal responsibility.
9. The study observed positive relationship between return on asset, return on
equity, earnings per share and ethical responsibility represented by CSReth.
Hence banks willing to increase its profitability should focus more on their
ethical responsibility which is to conduct activities focusing moral values,
norms.
10. The study indicated positive relationship between return on asset, return on
equity, earnings per share and discretionary responsibility represented by
CSRdis. Hence banks should increase its discretionary responsibility with a
view to increase profitability.
11. The study identified that developing a separate CSR policy by the government
will help to promote CSR in Nepal. Hence, this study feels the need of
developing a separate CSR policy to promote CSR in Nepal.
12. The study observed that providing certain benefits and incentives like
exemption of tax should be given to those banks who involves in CSR
activities in order to promote CSR in Nepal. So it is recommended to give
incentives to those banks who heavily involve themselves in CSR activities.
13. The study identified that certain percentage of budget should be allocated for
CSR and the allocated budget should be spent on activities that are beneficial
to the society as well as banks. Hence government and other pressure groups
should allocate certain percentage of budget for CSR activities which will help
to promote CSR in Nepal.
14. The study observed that that discouraging corruption will also help to promote
CSR in Nepal. So in order to promote CSR activities in Nepal, corruption
should be minimised.
15. The study revealed that involvement of CSR concepts in school and
universities curriculum will also help to promote CSR in Nepal. So it is
recommended to include CSR in school and university curriculum which will
help to promote CSR in Nepal.

lxxxiv
Scope for future research

i. The proxies used for profitability in this study are return on asset (ROA),
return on equity (ROE) and earnings per share (EPS). However, there are
other proxies of profitability like net interest margin (NIM). So, it is
recommended to use other proxies of profitability apart from return on
asset, return on equity and earnings per share for future academic purpose.
ii. This study has taken 23 commercial banks out of 30 as a sample. Results
obtained from this study might not be the representative of all the
commercial banks operated in Kathmandu valley. Hence, it is suggested to
academicians to include all the commercial banks in their study.
iii. This study has taken only Nepalese commercial banks as their sample.
Academicians are suggested to take other form of financial sectors such as
development banks, financial companies in their sample.

lxxxv
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Websites

http://www.nepalbank.com.np/

http://www.rbb.com.np/

http://www.adbl.gov.np/

http://www.nabilbank.com/

http://www.nbbl.com.np/

http://www.himalayanbank.com/

http://www.everestbankltd.com/

http://www.nepalsbi.com.np/

http://www.sc.com/np/

http://www.primebank.com.np/

http://www.sunrisebank.com.np/

http://www.nibl.com.np/

http://www.kumaribank.com/

http://www.bok.com.np/

http://www.laxmibank.com/

http://www.machbank.com/

http://www.nmb.com.np/

http://www.siddharthabank.com/

http://www.centurybank.com/

http://www.megabanknepal.com/

http://www.jantabank.com.np

http://www.globalimebank.com/

http://www.nicasia.com.np/

http://www.nrb.org.np/

xciii
Appendix

Corporate Social Responsibility and Profitability of Nepalese

Commercial Banks

Dear respondents,

I am undertaking a research on “Corporate Social Responsibility and Profitability of

Nepalese Commercial Banks” as the requirements of the MBA degree through
Uniglobe College, Kathmandu, Nepal.

Your participation by providing few minutes of your busy schedule to answer the
questions appearing in the enclosed questionnaire will be highly appreciable. Your
ideas and information will be of great importance for my research. I do assure you
that your information will be kept confidential. So, please do not hesitate to respond
according to what you think appropriate.

Thank you for your cooperation.

Pragati Dahal
MBA (Finance)
Uniglobe College, Kathmandu, Nepal
Phone: 9813919113, 01-5523167
Email: pragatidahal09@gmail.com

xciv
 Section 1: General information of the respondent

Please mention your gender. (Make the tick ( ) mark)

Male
1.1 Female
Other’s

Please mention your age category. (Make the tick ( ) mark)

20-25
26-30
1.2 31-35
36-40
Above 40

Please mention your academic qualification. (Make the tick ( ) mark)

Bachelor’s degree
Master’s degree
1.3 Above Master’s degree
Professional or others degree
( Please Specify)

Please mention the employment category in which you belong to. (Make
the tick ( ) mark)

Executive/Manager level
1.4 Officer level
Assistant level

1. Please mention your

5 designation in the organization

1. Please mention the name of the

6 bank you are employed in.

xcv
 Section 2: Perceived business benefits of corporate social
responsibility

Please indicate( ) to show the degree to which you agree or disagree on the
following statements.

Q. Statement Not at To a To To a To a
No.
all little some considerabl great
extent extent e extent extent
2.1 Attraction of talented
people on the job.
2.2 Motivation of
employees.
2.3 Retention of staff
making them more
satisfied in their
respective job.
2.4 Attraction of new
customers.
2.5 Repeat purchase and
loyalty of existing
customers.
2.6 Customer satisfaction.

2.7 Building trust with

community.
2.8 Elements of branding
strategy.
2.9 Reputation of business.

2.10 Better stakeholder

relations.
2.11 Long term
competitiveness of
business.
2.12 Enhanced growth in
market share.
2.13 Improved market
positioning.

xcvi
 Section 3: CSR practices with respect to Carroll’s corporate social
responsibility pyramid

Economic responsibilities

Please indicate( ) to show the degree to which you agree or disagree on the
following statements.
Q,
No.
Statement Strongly Disagre Don’t Agre Strongl
Disagre e Know e y Agree
e
3.1 Our bank thinks that it is
important to be committed
to being as profitable as
possible.
3.2 Our bank pursues those
opportunities which will
enhance earnings per share.
3.3 Our bank finds it is
important to maintain a
strong competitive position
3.4 According to our bank, it is
important to maintain a high
level of operating efficiency.
3.5 Our bank finds it is
important that a successful
firm be defined as one that is
consistently profitable.

Legal responsibilities

Please indicate( ) to show the degree to which you agree or disagree on the
following statements.
Q. No Statement Strongly Disagree Don’t Agree Strongl
Disagree Know y Agree
3.9 Our bank abides by the
law of the nation.

3.1 Our bank obeys the

0 directives and regulations
set out by the regulators
honestly.

xcvii
3.1 Our bank tries its best to
1 meet the expectations of
the government and
regulatory bodies
3.1 Our bank pays taxes and
2 other government dues
honestly.
3.1 Our bank discloses
3 relevant information to
different stakeholders as
indicated by the prevailing
law of the nation.

Ethical responsibilities

Please indicate( ) to show the degree to which you agree or disagree on the
following statements.
Q. No Statement Strongly Disagree Don’t Agree Strongly
Disagree Know Agree
3.14 Our bank performs in a
manner consistent with
expectations of societal
and ethical norms.
3.15 Our bank avoids
compromising societal
norms and ethics in order
to achieve goals.
3.16 Our bank is committed to
do the right things even
when no one is looking.
3.17 Our bank recognizes and
respect new or evolving
moral norms adopted by
society.
3.18 Our bank performs
activities which are
morally and ethically
right.

Discretionary responsibilities

xcviii
Please indicate( ) to show the degree to which you agree or disagree on the
following statements.
Q. No Statement Strongly Disagre Don’t Agre Strongl
Disagre e Know e y Agree
e
3.1 Our bank involves in those
9 activities that are
advantageous to the
community, as well as
provides profit to the bank.

3.2 Our bank’s managers and

0 employees participate in
voluntary and charitable
activities within their local
communities.

3.2 Our bank’s employees

1 volunteers on community
issues on behalf of the firm.
3.2 Our bank shows
2 involvement in community
health, education & other
projects.
3.2 Our bank provides
3 assistance to private and
public educational
institutions.

3.2 Our bank possesses

4 recruitment & selection
policies that favour the local
communities.
3.2 Our bank involves in
5 protection and promotion of
arts, sports and socio-
cultural values.
3.2 Our bank involves in
6 protection of environment.
3.2 Our bank maintains a policy
7 of increasing charitable and
voluntary efforts over time.
3.2 Our bank assists voluntarily
8 those projects which
enhance a community’s
quality of life.

xcix

Section 4: Suggestion for promoting corporate social responsibility

in Nepal.
 4.1 What are your suggestions, if any, to government, business entities, pressure
groups, media and other stakeholders in promoting corporate social
responsibilities in Nepal? Please specify.

1. …………………………………………………………………………………..

………..…………………………………………………………………………

2. …………………………………………………………………………………..

………...………………………………………………………………………..

3. …………………………………………………………………………………..

………..…………………………………………………………………………

THANK YOU FOR PROVIDING YOUR PRECIOUS TIME TO FILL THIS

QUESTIONNAIRE!!!

Data of ROA, ROE and EPS of 23 selected Commercial Banks for the year 2013/14.

Name of Commercial Bank ROA ROE EPS

c
Nepal Bank Limited 1.55 31.97 33.25
Rastriya Banijya Bank 1.36 57.67 20.18
Agriculture Development Bank 1.23 12.61 35.1
Nabil Bank Limited 2.89 30.36 83
Nepal Bangladesh Bank 2.4 18.06 36.94
Nepal SBI Bank 1.51 20.35 34.83
Himalayan Bank Limited 1.5 18.85 38.05
Standard Charter Bank 2.51 26.27 65.47
Everest Bank Limited 2.39 28.4 86.04
Nepal Investment Bank Limited 2.25 24.47 40.7
Sunrise Bank Limited 1.03 11.18 15.56
Prime Bank Limited 1.46 15.3 20.97
Siddhartha Bank Limited 1.74 23.54 38.63
Laxmi Bank Limited 1.19 9.43 12.02
Megha Bank Limited 1.48 11.14 13.11
Janata Bank Limited 0.4 3.85 4.13
Bank of Kathmandu 1.43 14.38 26.76
NIC Asia 1.71 17.06 35.97
Kumari Bank Limited 1.1 11.52 18.69
Nepal Merchant Bank 1.36 15.26 20.5
Machhapuchhre Bank Limited 1.11 14.05 18.34
Century Bank Limited 1.55 18.09 23.7
Global IME Bank 1.62 16.06 19.57

ci