CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND FINANCIAL PERFORMANCE IN THE ISLAMIC BANKING SECTOR: A CASE STUDY OF THE GULF COOPERATION COUNCIL REGION

Abstract

Corporate social responsibility (CSR) has become a priority for companies in many countries. As a result, CSR dissemination activities have developed over the past three decades in the financial reporting sector. The number of CSR frameworks and principles has grown in both corporate and academic environments. In Islamic banks operating in the Gulf Cooperation Council (GCC) region, most of the concepts and practices of CSR have been developed based on the frameworks established by developed countries, but remain voluntary mechanisms. The applications of CSR disclosure in Islamic banks in the GCC region are still at an embryonic level. Consequently, this study aims to examine the level of CSR disclosure and to empirically investigate the impact of GCC Islamic banks' CSR disclosure practices on their financial performance. In order to both test the research hypothesis and answer the research questions, the study uses data collected from the annual reports of selected GCC Islamic banks during the period 2008-2018. Thus, this study uses content analysis to analyse data obtained from 23 Islamic banks, as well as a dichotomous process to develop a seven-dimensional CSR index and a CSR checklist covering 66 CSR practices of Islamic banks in the GCC region. Additionally, this study uses an OLS multiple regression with a random effects model to examine the impact of CSR disclosure on financial performance in the sampled Islamic GCC banks. The research findings do not provide an encouraging result in terms of CSR or even social performance of Islamic banks in the GCC region. The growing level of CSR disclosure practices is limited, because the CSR indices for all Islamic banks sampled in this study remain low. Furthermore, the CSR reporting indices indicate low scores for the overall ranking, which is linked to dimensions despite the fact that corporate governance in general and Islamic governance in particular require transparency in their practices. Unfortunately, some of the sampled Islamic banks have directed less effort in disclosing their information and practices. Furthermore, the research results confirm the hypothesis that a positive relationship between the disclosure of CSR and financial performance in Islamic banks is derived from the stakeholder theory. Therefore, it can be summarised that a higher level of disclosure of corporate social responsibility leads to better financial performance of Islamic banks in the GCC region.