CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE: EVIDENCE FROM INDONESIAN BANKING SECTOR

Abstract

Corporate social responsibility (CSR) has the potential to make positive contributions to the development of society and businesses. Organizations are beginning to see the benefits from setting up strategic CSR agendas. The increasing attention to CSR is based on its capability to influence firm’s long term performance, especially financial performance. There are more Indonesian companies participating in caring communities, and contributing to the community with specific actions to publicize their CSR related activities. Previous empirical studies have indicated an unclear relationship between CSR and financial performance. Most of studies focuses on manufacturing sector, whereas many industry have indirect relevancy with CSR, example banking sector. This study uses quantitative methods with positivism approach. Research objects were 15 banking companies listed at Indonesia Stock Exchange based on population criteria with observation period 2008-2011. This study uses secondary data derived from annual reports and financial statements. Data analysis uses Path Analysis. Research results show CSR affects on all financial performance measurement namely Return on Assets (ROA) and Return on Equity (ROE). These results reinforce the accumulating body of empirical support for the positive impact of CSR on financial performance. This research implication is banking companies need to increase quality of CSR, both from implementation dan information disclosure. This quality improvement provides an opportunity for company to increase its profits primarily from financial side. CSR is a long-term investment that can give an advantage if done consistently. CSR can be used to address interest conflicts among stakeholders so firm value will interact positively. Good financial performance also demonstrates good firm value.