The Impact of Corporate Social Responsibility (CSR) on the Financial Performance of Asset Management Companies in Pakistan

Abstract

The focus of this paper is to examine how Corporate Social Responsibility (CSR) influences the financial performance of publicly listed banks and financial institutions in Pakistan. This study selected a balanced panel of ten banks and financial institutions from the Pakistan Stock Exchange (PSX) for the period 2010 to 2024 (inclusive) that provided a minimum of 150 firm-year observations. I calculated Return on Assets (ROA) and Return on Equity (ROE) to evaluate the financial performance of the firms. CSR was measured by the natural logs of CSR expenditure. Firm size, capital adequacy, liquidity, the loans-to-total-assets ratio and GDP growth rate are included as control variables. Descriptive statistics, Pearson correlation analysis and panel regression (fixed-effects and random-effects, with a Hausman specification test) were used to examine the hypothesised relationships. The results show that CSR has a positive and statistically significant relationship with both ROA and ROE, indicating that institutions with higher CSR spending tend to record better accounting-based profitability. Capital adequacy is also positively and significantly related to both performance measures, while liquidity and GDP growth carry a significant negative relationship with performance over the study period. Firm size is positively related to ROE but not significantly related to ROA, and the loans-to-total-assets ratio is not a significant explanatory variable in either model. The Hausman test favours the random-effects specification for the ROA model and the fixed-effects specification for the ROE model. The findings support the stakeholder and social-impact view that socially responsible conduct is value-enhancing rather than value-destroying for financial institutions, and they provide a basis for recommending that finance managers treat CSR spending as a performance-relevant strategic allocation rather than a discretionary cost.