Corporate social responsibility An exploratory study of the quality and extent of social disclosures by Lebanese commercial banks Elie Menassa Faculty of Business and Management, University of Balamand, Tripoli, Lebanon and Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana, USA Abstract Purpose – The purpose of this paper is to attempt to identify the type and quality of social information disclosed by Lebanese commercial banks and to report on the extent of these disclosures and their relationship with size, financial performance, and other chosen variables. Design/methodology/approach – Deductive in nature, this paper uses content analysis of annual report social disclosures of 24 Lebanese commercial banks to test six hypotheses related to the nature of social disclosures and their association with selected variables. Findings – The findings provide evidence of the widespread use of this phenomenon by these banks as a means to communicate with their stakeholders. Moreover, results reveal that these banks attribute a greater importance to human resource and product and customers disclosures, whereas the availability and extent of environmental disclosure is still weak. In addition, a strong association is found between these disclosures and size and financial performance variables, whereas the relationship with the bank age is found to be a weak one. Finally, findings suggest no difference in social disclosure behavior between listed banks and banks with an overseas presence, and non-listed banks and those operating only in Lebanon. Research limitations/implications – Further longitudinal and causal analyzes would shed more light on the importance and determinants of this phenomenon in small and developing economies. One obstacle to overcome in this endeavor is the non-availability of social and environmental databases similar to the ones used by researchers in developed countries. On the research front, this paper adds to the relatively small number of studies addressing issues related to corporate social disclosure practices by banks. Practical implications – At the practical level, the paper attempts to inform corporate social responsibility (CSR) policies and practices of Lebanese banks which would result in more socially and ethically oriented banking activities in Lebanon. Originality/value – Studies of CSR have generally been conducted in relatively large economies with active financial and stock markets. This paper tests and applies relevant accounting theories to a developing small economy and shows that even small family-owned banks with high public visibility can exhibit strong social and ethical awareness. Keywords Corporate social responsibility, Disclosure, Commercial banks, Developing countries, Lebanon Paper type Research paper The current issue and full text archive of this journal is available at www.emeraldinsight.com/0967-5426.htm The author would like to thank Sima Nabti, Lina Farah, and James Chahine for their invaluable help in collecting and analyzing the annual reports. JAAR 11,1 4 Journal of Applied Accounting Research Vol. 11 No. 1, 2010 pp. 4-23 q Emerald Group Publishing Limited 0967-5426 DOI 10.1108/09675421011050009
Transcript
Corporate social responsibilityAn exploratory study of the quality and extent
of social disclosures by Lebanesecommercial banks
Elie MenassaFaculty of Business and Management, University of Balamand,
Tripoli, Lebanon andMendoza College of Business, University of Notre Dame,
Notre Dame, Indiana, USA
Abstract
Purpose – The purpose of this paper is to attempt to identify the type and quality of socialinformation disclosed by Lebanese commercial banks and to report on the extent of these disclosuresand their relationship with size, financial performance, and other chosen variables.
Design/methodology/approach – Deductive in nature, this paper uses content analysis of annualreport social disclosures of 24 Lebanese commercial banks to test six hypotheses related to the natureof social disclosures and their association with selected variables.
Findings – The findings provide evidence of the widespread use of this phenomenon by these banks asa means to communicate with their stakeholders. Moreover, results reveal that these banks attribute agreater importance to human resource and product and customers disclosures, whereas the availabilityand extent of environmental disclosure is still weak. In addition, a strong association is found betweenthese disclosures and size and financial performance variables, whereas the relationship with the bankage is found to be a weak one. Finally, findings suggest no difference in social disclosure behaviorbetween listed banks and banks with an overseas presence, and non-listed banks and those operatingonly in Lebanon.
Research limitations/implications – Further longitudinal and causal analyzes would shed morelight on the importance and determinants of this phenomenon in small and developing economies. Oneobstacle to overcome in this endeavor is the non-availability of social and environmental databasessimilar to the ones used by researchers in developed countries. On the research front, this paper addsto the relatively small number of studies addressing issues related to corporate social disclosurepractices by banks.
Practical implications – At the practical level, the paper attempts to inform corporate socialresponsibility (CSR) policies and practices of Lebanese banks which would result in more socially andethically oriented banking activities in Lebanon.
Originality/value – Studies of CSR have generally been conducted in relatively large economieswith active financial and stock markets. This paper tests and applies relevant accounting theories to adeveloping small economy and shows that even small family-owned banks with high public visibilitycan exhibit strong social and ethical awareness.
Keywords Corporate social responsibility, Disclosure, Commercial banks, Developing countries,Lebanon
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0967-5426.htm
The author would like to thank Sima Nabti, Lina Farah, and James Chahine for their invaluablehelp in collecting and analyzing the annual reports.
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4
Journal of Applied AccountingResearchVol. 11 No. 1, 2010pp. 4-23q Emerald Group Publishing Limited0967-5426DOI 10.1108/09675421011050009
Background and motivationCorporate social disclosure (CSD) is a manifestation of the practice by whichorganizations communicate their social and environmental impacts and responsibilitiesto different stakeholders. This phenomenon proposes that social information could be asimportant as any other financial or non-financial data pertaining to a corporationactivity (Ramanathan, 1976). From this perspective, the corporation “is not merely amaximizer of shareholders’ wealth but an active member of society” (Lynn, 1992, p. 1).This shift in the breadth and nature of companies’ responsibilities (Griffin and Mahon,1997) implied that both social investors and economic investors became interested indisclosures about corporate achievements in the social arena, beyond that of financialnature (Williams, 1999; Crowther and Martinez, 2008). From this angle, thesocial/financial separation appears as a false argument because social behavior canaffect profitability, argued Williams (1999).
Social disclosure is then a tool by which corporations can interact with the broadersociety; it follows that CSD can be considered as a public good that should be offered toall stakeholders to enable them to make informed decisions about their relationshipwith the corporation. This interaction usually takes place through different media, inparticular the corporations’ annual reports which are used as “a means influencingsociety’s perception of their operations, and as a means of legitimizing their ongoingexistence” (Deegan et al., 2000, p. 101).
The different sectors of the business arena have different social responsibilitypriorities, argued Branco and Rodrigues (2008). Although “customer-oriented” sectors,in particular, the financial sector, are seen as having a lower direct environmental impact( Jeucken and Bouma, 1999), they provide goods and services that are consideredindispensable by the general public (Miles, 1987); this is coupled with the presence of awide array of different stakeholder groups which have direct and indirect stakes in thebusiness activities. This is particularly true for the banking industry whose differentstakeholder groups (owners, borrowers, depositors, regulators, managers, etc.) require avariety of social responsibility disclosures (Branco and Rodrigues, 2008). From thisangle, the banking industry is considered as a high public visibility sector whosebusiness activities and policies must be tied to the public interest (Miles, 1987).In addition to the environmental and social impact of banks’ business processes andstrategies regarding recycling activities and energy and natural resources conservation,lending and investment policies have considerable social and environmentalconsequences. Simpson and Kohers (2002) noted that “banks have a legal and socialresponsibility because they lend to firms that pollute and produce unsafe products”(cited in Branco and Rodrigues, 2008, p. 166), and consequently, they must be aware ofthe environmental implications of their lending decisions.
Although the financial sector has taken major steps forward in disclosing corporateresponsibility (KPMG, 2005), only a relatively small number of research studies haveaddressed issues related to CSD practices by banks (Abdul Hamid, 2004; Branco andRodrigues, 2008). Branco and Rodrigues (2008) explored size-related measures asproxies for public visibility of Portuguese banks and proposed a spatial competition (SC)index based on the number of branches as a “variable which has potential to be exploredin further research” (p. 162). They concluded that banks with higher visibility and agreater number of branches attribute higher importance to CSD as part of theirreputation management strategies. El-Bannany (2007) investigated the determinants
Corporate socialresponsibility
5
of the social disclosure level in UK banks over the period 1981-1996 and observed thatmarket structure, investment in information technology and risk factors have asignificant impact on the social disclosure level whereas the listing status and the age ofthe bank are insignificant. Maali et al. (2006) applied an Islamic perspective to develop abenchmark for social reporting by Islamic banks. Their results suggest that social issuesare not of major concern for most Islamic banks due to the fact that most of them operatein less-developed economies. Another study by Abdul Hamid (2004) provided empiricalevidence on the CSD practice by Malaysian banks and finance companies and reportedon the type, quality and determinants of social disclosures. He observed that productsdisclosures are the highest ranked among other social disclosures and that the firm size,listing status and age of business are possible determinants, whereas Douglas et al.(2004) and Abu-Baker and Naser (2000) reported a higher rank for human resource forIrish and Jordanian banks, respectively.
Similar to other studies, the primary objective of this study is to identify the type andquality of social information disclosed by the Lebanese commercial banks and to reporton the extent of these disclosures and their relationship with size, financial performance,and other selected variables such as age and listing status. Nevertheless, this papermoves beyond the traditional body of literature in this arena in many respects:
. Studies of this nature have generally been conducted in relatively large economies(compared to the Lebanese case) with active financial and stock markets.Currently, only a few Lebanese banks are listed in the Beirut Stock Exchange. Thedemand for funds is therefore being met by internal injection of capital whichwarrants an investigation of the impact of the listing status on the CSD practices ofthese banks, taking into account that prior studies related external financingopportunities to CSD (Saudagaran, 2000; Abdul Hamid, 2004; El-Bannany, 2007).
. Of the Lebanese private sector, 98 percent consists of small and mediumenterprises. These institutions are expected to have limited capacities to invest incorporate social responsibility (CSR). This paper investigates the merits of thisstatement in the Lebanese banking sector and argues that small firms mightexhibit stronger ethical and social awareness.
. This study investigates the possible association between CSD and overseaspresence of Lebanese commercial banks (original hypothesis) and builds on thefindings of Branco and Rodrigues (2008) to make another attempt to assess theappropriateness of using the SC index as a measure of public visibility.
The Lebanese economy is based on services and the Lebanese banking sector is themost active of these services. Despite the recent global financial crisis which affectedthe banking sector worldwide, the Lebanese banking industry is still attracting fundsfrom all over the world. This has recently led to the flow of US$9 billion dollars toLebanese banks, which in turn has created a potential for increased efficiency in CSR(The Associated Press, 2008). Consequently, a study of this nature is warranted.
This paper is structured as follows: the second section provides a brief review of theliterature and a discussion of the different theoretical foundations related to CSD; italso presents the theoretical framework adopted by this study. The third section setsout the hypotheses to be tested, whereas section four presents the research strategyand data-collection techniques and highlights the characteristics of the sample used
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by this research study. This followed by an analysis of the findings and differentimplications. The last section presents some concluding remarks.
Theoretical frameworksCSR has received increased attention during the last three decades. The interest in thisphenomenon has lately been intensified as a result of recent corporate failures andfinancial crises. This increasing trend in CSD practice has led to the generation ofmultiple research studies using various rationales and different epistemological andtheoretical approaches. Gray et al. (1995a, pp. 49-50) and Gray et al. (2001, pp. 327-31)provided perhaps the most complete review of the findings of these studies which canbe summarized in the following statement: CSR appears to be an activity related tocompany size and country of origin but not to profitability in the same period, althoughthere is some evidence to suggest that it might also be related to lagged profits andindustry type (see Gray et al., 1995a, for a detailed review).
Many different theoretical perspectives are used to shed light on CSD. Gray et al.(1995a) proposed three broad groups of theories: decision-usefulness studies whichoverlap with economic theories studies (i.e. agency theory and positive accountingtheory (PAT)), and social and political theories.
The agency theory, part of the PAT proposed by Watts and Zimmerman (1978) whichseeks to explain and predict actual accounting practices, considers voluntarydisclosures as a means for the reduction of current and future agency costs (Ness andMirza, 1991; Benston, 1982; Harvey, 1984). Ness and Mirza (1991) noted that this theorydictates that managers will disclose social information when the costs from disclosureare less than their associated benefits. Nevertheless, the positive accounting argumentand consequently, the agency argument, have been dismissed by many researchers(Gray et al., 1995a; Chambers, 1993) on the ground “of the underlying assumptions of thetheoretical framework” (Milne, 2001, p. 1). From this perspective, Milne (2001) criticallyreviewed the arguments presented in Watts and Zimmerman’s (1978, 1986, 1990) PATpapers and several other subsequent studies based on this theory (Belkaoui and Karpik,1989; Panchapakesan and McKinnon, 1992; Lemon and Cahan, 1997). Similar to Grayet al. (1995a), he concluded that positive accounting-based social disclosures literaturefails to “provide distinct arguments for self-interested managers wealth maximizing.”In reaching this conclusion, Milne (2001) noted that none of these studies employ the fullargument provided by Watts and Zimmerman (the bonus plan; the debt/equity; and thesize hypotheses) as they relate to discretionary management behavior. The same destinyis shared by the decision-usefulness approach which provided inconsistent andinconclusive results according to Dierkes and Antal (1985) and Gray et al. (1995a).
From a different theoretical perspective, stakeholders and legitimacy theoristsapproached CSD from a social and political perspective. For them, managers areconcerned with the continuity of their businesses (Gray et al., 1995a; Roberts, 1992) andtherefore, they seek society’s approval of their social strategies and activities. From thisperspective, CSD is seen as a medium for negotiating the relationship between theorganization and its stakeholders (Roberts, 1992). In other terms, the concept of socialcontract is central to legitimacy theory and corporations use it to explain the ongoingrelationship between them and the society and as a means of legitimizing their existence(Deegan et al., 2000; Shocker and Sethi, 1974). From the same viewpoint, Adhikariet al. (2005, p. 126) observed that “stakeholders theory defines the constituency
Corporate socialresponsibility
7
of a corporation as a person or group that can affect or is affected by the achievement ofthe organization’s objectives”. This is why this theory intends to broaden themanagement vision of its roles and responsibilities beyond profit maximization tocomprise interests and claims of non-stockholding groups. The same is echoed by thelegitimacy theorists. In fact, both the legitimacy theory defined as “a generalizedperception or assumption that the actions of an entity are desirable, proper, orappropriate within some socially constructed system of norms, values, beliefs anddefinitions” (Suchman, 1995, p. 574), and the stakeholders theory, are seen as “twooverlapping perspectives on the issue which are set within a framework of assumptionsabout political economy” argued Gray et al. (1995a, p. 82). The legitimacy theory positsthat businesses maintain their legitimacy, status, and reputation through corporatesocial disclosures (Gray et al., 2001; Abbott and Monsen, 1979; Roberts, 1992).
While there is no one theory that can fully explain the CSD phenomenon (Choi,1999), the legitimacy theory appears empirically the most robust. This is demonstratedby a very wide literature which engages this particular theoretical perspective despitesome inconsistencies in the results. Hence, this study is grounded in legitimacy theory.
HypothesesAs stated previously, this study attempts to investigate CSD practices by Lebanesecommercial banks and to examine the potential relationship between a number of bankcharacteristics – in particular, size, financial performance, listing status, and overseaspresence – and the extent of social disclosure. For this purpose, a number ofhypotheses are examined:
Bank sizeAlthough not systematic, CSR appears to be an activity related to company size andprofile (Gray et al., 2001). Even though research studies related to apparent relationshipsbetween CSR and size tend to be somewhat inconclusive, they produce more consistentresults than studies relating CSR to other factors such as profit and industry type. In fact,earlier research by Singh and Ahuja (1983), Davey (1982) and Ng (1985, cited in AbdulHamid, 2004) found no relationship between size and CSD. By contrast, Belkaoui andKarpik (1989), Admas et al. (1998) and Choi (1999) observed a relationship between thesevariables. Later studies corroborated this association; from this perspective, using across-sectional and longitudinal analyses of an eight-year run of data pertaining to theannual reports of the top 100 UK companies (Times 1000), Gray et al. (2001) observedthat CSD is related to corporate characteristics of size, profit and industry affiliation.Similarly, Abdul Hamid (2004) and Branco and Rodrigues (2008) tested similarhypotheses and confirmed this relationship:
H1. CSD of Lebanese commercial banks is positively related to the size of the bank(proxied by total assets, number of employees, total number of branches, andthe index of SC).
In making an attempt to re-test the SC index originally proposed by Mendes andRebelo (2003) and suggested by Branco and Rodrigues (2008) as a variable providing amore refined measure of public visibility, this study collected data related to bankbranches in the five Lebanese districts (called Mohafaza’). Information was gatheredfrom different resources, in particular, the banks’ annual reports, banks’ web pages
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and the lists of the Association of Banks in Lebanon (ABL) and the Lebanese centralbanks. No inconsistency was found. The index was then computed as follows:
SCi ¼k
X niknk
£nikni
� �
where:
ni ¼ total number of branches of bank i in a given year.
nk ¼ the number of branches in district k in a given year.
nik ¼ the number of branches of bank i in district k in the same year.
For more details about the usefulness of this measure, please refer to Branco andRodrigues (2008, pp. 168-9).
Bank financial performanceResults of research papers investigating the relationship between CSD and financialperformance proxied by profits, return on equity (ROE) and return on assets, remaininconsistent and inconclusive. Nevertheless, studies make a distinction between short-and long-term corporate profitability. From this angle, Freedman and Jaggi (1988),Belkaoui and Karpik (1989) and Abdul Hamid (2004) observed that CSD does notappear to be associated with profitability in the same period (short term), althoughsome papers proposed a relationship with lagged profits (Roberts, 1992). Conversely,Patten (1991) and Hackston and Milne (1996) provided evidence of a positiverelationship between short-term profitability measurements and CSD and did notobserve any association between CSD and long-term profitability ratios:
H2. CSD of Lebanese commercial banks is positively related to the financialperformance of the bank (proxied by “short-term” net profit and ROE).
Bank ageThe inclusion of this variable is based on the premise that corporations strive to maintaingood reputation developed throughout their years of existence. This is in direct relationwith the legitimacy theory “which predicts that the age of a corporation is related to itsreputation in the society and its history of involvement in CSD activities” (Abdul Hamid,2004, p. 121). Again, the few studies testing age as a potential determinant of CSD behaviorare in their turn inconclusive. While Choi (1999) and Abdul Hamid (2004) observed asignificant relationship, El-Bannany (2007) investigated the determinants of the socialdisclosure level in UK banks over the period 1981-1996 and noted an insignificant impactof age as a variable on the social disclosure level. In this paper, the age of the bank iscomputed from the date of establishment until the end of 2006:
H3. CSD of Lebanese commercial banks is positively related to the age of the bank(date of establishment to the end of 2006).
Bank international exposureSimilarly to bank size, the inclusion of this variable is based on the argument related topublic visibility (legitimacy theory). Adhikari et al. (2005) noted that corporationswilling to expand globally should understand the expectations of the society in which
Corporate socialresponsibility
9
they are operating. This paper argues that the bank international exposure increasesits visibility in both local and foreign markets:
H4. CSD of Lebanese commercial banks is positively related to the level ofinternational exposure of the bank (proxied by the number of foreigncountries where the bank has offices/branches).
H5. Lebanese commercial banks with overseas presence disclose more socialinformation than those with no overseas presence.
Bank ownershipCorporation ownership proxied by the listing status is usually associated with thecompany’s demand for external funds. This access to external financing requires a goodrelationship between the corporation and its stakeholders. Teoh and Thong (1984) andAbdul Hamid (2004) provided evidence of the significance of the listing status for thequality and level of CDS in the Malaysian market. By contrast, El-Bannany (2007) foundno significant relationship in the UK.
The listing status appears also to be related to the country cultural context wherefirms operating in countries with a stakeholder orientation are expected to provide ahigher level and quality of corporate social disclosure in their annual reports than firmsin countries with a shareholder orientation (Adhikari et al., 2005). Looking at thesestatements from a Lebanese perspective, one can notice that 98 percent of the Lebaneseprivate sector consists of small and medium enterprises; as mentioned previously inthis paper, these institutions are expected to have limited capacities to invest in CSR.This paper investigates the merits of this statement in the Lebanese banking sectorand argues that small firms might exhibit stronger ethical and social awareness, hence:
H6. Listed Lebanese commercial banks provide more CSD than non-listed banks(ownership type proxied by the listing status).
Research design and strategiesThis paragraph outlines the research strategy used by this paper and describes theprocesses and measures used to enhance validity and reliability.
MethodologyContent analysis is perhaps one of the most used lines of attack in CSD studies (Grayet al., 1995a, 2001; Hackston and Milne, 1996; Deegan et al., 2000; Holland and Foo,2003; Abdul Hamid, 2004; Branco and Rodrigues, 2008). According to Abbott andMonsen (1979) and Weber (1988), this process involves codifying the text into variouscategories depending on the chosen criteria. This is done through a planned processwhich entails the selection of the content/document to be analyzed, the determinationof the selection criteria and measurement unit, and the codification of the text as well asthe implementation of appropriate measures to enhance validity and reliability.
While a wide range of media may be used to analyze CSD (internet, ad, booklets andflyers, annual reports, etc.) annual reports possess a high level of credibility not associatedwith other forms of advertising (Guthrie and Parker, 1989; Tilt and Symes, 1999; Neu et al.,1998) and are considered “central documents” that address the organization’s affairs as awhole (Gray et al., 2001). This paper, consistent with prior research (Gray et al., 1995a;
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Deegan et al., 2000; El-Bannany, 2007; Branco and Rodrigues, 2008), uses the annualreports of Lebanese commercial banks to measure social disclosures.
With respect to the selection criteria, this study made use of a slightly amended setof codes which was provided by Branco and Rodrigues (2008) (following an e-mailcommunication, a detailed set of codes and rules was thankfully provided by theauthors). This resulted in adopting the following four main categories of disclosures:
(1) environmental disclosure (quality of environmental policy; environmentalmanagement systems; lending and investment policies; conservation of naturalresources, energy and recycling activities; and sustainability);
(2) human resource disclosure (employee morale; training and development;employee profile; employee share purchase schemes; employee health and safety;employee relations; employee remuneration; employee assistance benefit; equalopportunity practices; and job creation);
(3) product and consumer disclosure (product quality; customer relations; servicesfor disabled and aged customers); and
(4) community involvement (support for public health; charity donations andactivities; NGO support; sponsorships; support of cultural events; support ofeducation; and support of sport events).
Regarding the unit of measurement, the simplest measure consists of a count of thenumber of instances that a particular social indicator is disclosed in the annual reports;however, this form of content analysis “does not allow measurement of the extent ofinformation disclosure” (Branco and Rodrigues, 2008, p. 170). The extent of disclosurecan indicate the significance and weight of each information item disclosed(Krippendorff, 1980; Gray et al., 1995b; Zeghal and Ahmed, 1990). In examining theextent of social disclosure, previous studies used word count (Deegan and Gordon, 1996),sentence count (Hackston and Milne, 1996), pages and fraction of page count (Gray et al.,1995b, 2001). Nevertheless, the most appropriate measures of the extent of CSD are stillwidely debated. For Gray et al. (1995b, p. 84), page count tends to be the preferred unit as“this reflects the amount of total space given to a topic and, by inference, the importanceof that topic”. By contrast, Milne and Adler (1999, p. 237) suggested that “usingsentences for both coding and measurement seems appropriate [. . .] to provide complete,reliable and meaningful data for further analysis.” Unerman (2000, p. 667) consideredthat “characters, word, sentence or paragraph counts ignore differences in typeface sizewhich can be captured by measuring volume as the proportion of a page taken up byeach disclosure,” while according to El-Bannany (2007), the word itself might not give afull meaning but the sentence can give a full and clearer connotation of the CSD.Therefore, in addition to counting the instances of disclosure, and although word,sentence, and line counts were computed in this research study, this paper employs thesentence count as the main unit of analysis to locate and analyze the type and quantityof social disclosure provided in the annual reports of Lebanese commercial banks.
To enhance validity and reliability, a tested set of coding rules developed by Brancoand Rodrigues (2008) to study the proxies for the public visibility of Portuguese banks,was employed. As declared by Branco and Rodrigues (2008), this developed tool isbased on several empirical studies by Archel (2003), Deegan et al. (2002), Hackston andMilne (1996) and others. Moreover, a sufficient period of training was provided to three
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11
independent coders on how to collect and code data from annual reports. Coders werethen provided with a developed set of the coding rules. Thus, three independent codersreviewed the entire annual reports of sample banks and analyzed them separately. Theinitial code book (social disclosure index) was then slightly amended to conform to theLebanese context. Coders then proceeded with the coding process (separately) usingthe codes checklist (index). Word, line, and sentence count took place at the same time.Any discrepancy found was reconciled and resolved.
The sampleAt the time of this study, the ABL had a total of 63 banks listed in its directory. Themajority (54) were commercial banks of which ten were foreign international banks.Nine other were investment banks (with 14 branches). One of the banks (Al-Madina)had already declared bankruptcy and another one (BNPI) was in the process ofchanging name and ownership (to operate under the name of Emirates Lebanon Bank,so we were not able to determine whether it should be considered as a Lebanese or as aforeign bank). Since this paper is concerned with the CSD of Lebanese commercialbanks only, the population of interest was therefore limited to 33 commercial banksonly. The final sample consisted of 24 Lebanese commercial banks as shown in Table I.
Table I shows that the sample is indeed representative of the population of interest.Unfortunately, by the end of 2008, a few banks had not published their 2007 annualreports; thus, the latest available reports (2006) were used in this case.
Following Gray et al. (2001), Table II shows the detailed descriptive statistics of thesample. A number of findings emerge from the analysis of this table. First, the statisticsoutline some variability in the figures provided by the different banks (standarddeviation). The gaps between the minimum and the maximum values of some variables, inparticular those related to size and profitability, are quite large and thus net profits, totalassets and shareholders’ funds are particularly positively skewed and the Kurtosiscoefficients of these variables is greater than three which denotes that these variables arenot normally distributed. In fact, a small number of banks are very large compared to themajority of banks in the sample. Since this paper is not looking at the determinants of CSDby the use of a linear regression (where linearity and normal distribution are requirementsof the intended statistical analysis), as well as some variables (net profits and SC index)have negative or zero minimum values, a loge transformation of these variables was notdeemed necessary. In all cases, this is compensated later by the use of non-parametricanalyses, in particular, Spearman’s Rho and Mann-Whitney, to test the hypotheses.
AnalysisThe following paragraphs present the analysis of the data. First, descriptive statisticalanalysis is provided followed by a test of the hypotheses listed previously.
Description Total sector (2006) Sample %
Number of branches 926 (including foreign branches) 839 91Number of employees 18,945 (including employees of foreign branches) 16,313 86Net profit (US$) 757,490,000 699,206,000 92Total assets (US$) 87,836,498,000 80,277,458,000 91Shareholders’ funds (US$) 7,669,391,000 7,026,220,000 92
Table I.Description of the sample
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12
Var
iab
leM
ean
Med
ian
SD
Min
Max
Sk
ew.
Ku
rt.
Ag
e45
.25
46.0
017
.84
1386
0.01
80.
527
Bra
nch
es34
.96
29.0
029
.69
211
41.
124
0.77
6S
Cin
dex
0.00
208
0.00
150
0.00
1586
0.00
00.
007
1.56
52.
886
Cou
ntr
ies
2.42
1.50
2.87
010
1.34
21.
344
Em
plo
yee
s67
9.71
455.
5068
4.68
8226
911.
606
2.33
6N
etp
rofi
ts29
,133
,583
.33
7,70
7,00
0.00
4.85
6£
107
22,
375,
000
180,
688,
000
2.41
35.
427
Tot
alas
sets
3.34
£10
91.
90£
109
4.00
6£
109
144,
382,
000
1,42
19,7
84,0
001.
816
2.95
6S
har
e.fu
nd
s2.
93£
108
88,6
47,5
004.
217£
108
16,6
67,0
001,
698,
646,
000
2.30
45.
396
Notes:
SD
isth
est
and
ard
dev
iati
on;S
kew
.an
dK
urt
.den
ote
the
coef
fici
ents
ofsk
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and
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rtos
is,r
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ecti
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y;b
ran
ches
den
ote
the
tota
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ber
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ches
(in
clu
din
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ran
ches
over
seas
);S
Cin
dex
den
otes
spat
ial
com
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itio
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dex
;co
un
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sst
and
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um
ber
ofco
un
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sw
her
eth
eb
ank
isp
rese
nt
(ex
clu
din
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on);
emp
loy
ees
den
ote
the
nu
mb
erof
emp
loy
ees;
Sh
are.
fun
ds
den
otes
tota
lsh
areh
old
ers’
fun
ds
Table II.Characteristics
of the sample
Corporate socialresponsibility
13
Descriptive analysisAn analysis of Table III Panel A reveals that only 17 percent of the sample disclosed allfour social categories considered by this paper.
Panels B and C report the availability and the extent of social disclosures by Lebanesecommercial banks. Assuming that the amount of CSD is an indication of the importance ofthe related indicator, the results indicate that these banks attribute greater importance tohuman resource and product and customers disclosures. Unsurprisingly, environmentaldisclosure presents the lowest score which may be due to the perception that banking andfinance activity has little impact on the environment (Simpson and Kohers, 2002; Brancoand Rodrigues, 2008) if compared with other industrial sectors.
A closer look at Table IV confirms the findings in Table III. In fact, all 24 banksdisclosed details related to human resource with “Employees Profile” scoring the highestavailability and extent of disclosure. This is followed closely by “Product and Customer”disclosure (20 banks) with “Quality of Product” on top. The information under thisindicator was mainly related to product innovation and value. Only a few banksdisclosed “Environmental” (four banks – disclosure related to reforestation and somesimilar issues) and “Community” involvement (seven banks).
Table V provides a general view of the location of social disclosures in the annualreports. It shows that the chairman’s letter and the beginning of the annual reports arepreferred locations for these disclosures (Appendix 2 provides a broader view of thelocation of disclosure categories and sub-categories).
Testing the hypothesesFor reasons of clarity and structure, the following tables present the results of thecorrelations (non-parametric two-tailed Spearman’s Rho) between the extent of socialdisclosure (sentence count) and three categories of variables: size, profitability, andother variables.
Panel A – number of categories disclosed by banksNumber of categories Number of Banks %4 4 173 9 382 8 331 3 120 – –Total 24 100Panel B – CSD (grand total)Measurement unit Grand total countSentences 2,062Lines 4,038Words 33,388Panel C – availability (mean scores instances) and extent of CSD
Table III.Descriptive statistics ofdisclosures (frequenciesand mean scores)
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Table VI provides strong support for the H1 (relationship between CSD of Lebanesecommercial banks and the size of the bank). This relationship varies according to the type ofsocial disclosure. Not surprisingly, and conforming to the results of the descriptive statisticsin the previous paragraph (Tables III and IV), environmental disclosures show nosignificant association with size variables. It is also noteworthy that the relationshipbetween human resource and community on one hand and the total number of branches andthe SC index on the other, was slightly significant (at the 10 percent level, two-tailed). In brief,consistent with the findings of Abdul Hamid (2004) and Branco and Rodrigues (2008), theresults indicate that larger banks disclose more social information than the smaller ones.
Availability CSD extent (mean scores)No. of banks Percentage Sentences Lines Words
Location of social disclosure Number of banks disclosing one or more themes
Chairman’s letter 24Beginning of the annual report 20Middle of the annual report 7At the end of the annual report 1As a separate report 1
Table V.Location of social
disclosures in the annualreports
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Banks with higher visibility attribute greater importance to social disclosures “as part oftheir reputation management strategies when compared with banks with lower visibility”(Branco and Rodrigues, 2008, p. 175). Nevertheless, total number of branches and SC indexexhibit significant but less-powerful positive association with the quantity of socialdisclosure. This might be partly due to the fact that both of these two variables includeoverseas branches while not all Lebanese commercial banks have branches outsideLebanon. There are also indications that the SC index, suggested by Branco and Rodrigues(2008), is a promising representation of size variables (Table VII).
With respect to financial performance measures, one should distinguish between netprofits as an absolute and size proxy measure (Branco and Rodrigues, 2008) and ROE as aprofitability measure (Abdul Hamid, 2004; Roman et al., 1999). Overall, both approachesshow a strong association between the bank financial performance and CSD. While resultspertaining to net profit could be attributed to the size effect, the association between ROEand CSD appears to be a strong one, in particular for human resource and product andcustomer sub-categories. Again, environmental and community involvement show no andmarginal relationship with ROE, respectively. In summary, results pertaining to net profitare consistent the findings of Branco and Rodrigues (2008) who related higher net profitsto higher public visibility which exposes banks to more intense social scrutiny. This leadsto more pressure on banks to legitimize their existence and activities and to evadeundesirable attention drawn by high profits through more CSD. Similarly, the results forprofitability proxied by ROE are consistent with prior research studies of the associationbetween short-term profitability measurements and social disclosures (Patten, 1991;Hackston and Milne, 1996; Roman et al., 1999) but not with the findings of Freedman andJaggi (1988), Belkaoui and Karpik (1989) and Abdul Hamid (2004). We believe that this
Notes: Significant at the *10, * *5, and * * *1 percent levels, respectively, (two-tailed)
Table VII.Correlations (Spearman’sRho) between CSD andFinancial performancemeasures
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strong positive relationship is attributed to the particular characteristics of the Lebanesebanking sector where the large majority of commercial banks are still not listed andpossess a narrow shareholders base which in its turn intensifies the effect of profits in thecalculation of ROE.
Consistent with Abdul Hamid (2004), Table VIII shows that the relationship betweenCSD and the bank age appears to be weak. Significant association is only noticeable betweencommunity and product and customers, and CSD. In fact, older banks have moreinvolvement with the society and more experience when it comes to product innovation andcustomer service, and thus have a deeper understanding of the importanceof communicating their social impact and responsibilities to their different stakeholders.By contrast, the number of foreign countries with Lebanese banks presence shows a strongpositive relationship with CSD (at the 5 percent level, two-tailed). Interestingly but notsurprisingly, only the “Product and Customer” category displays an association with CSDsince Lebanese banks employ only a fewer number of employees overseas and have onlymarginal impact on the environment in these countries as well as an insignificantinvolvement with foreign communities.
The hypotheses, which states that listed banks and banks with overseas presenceprovide more CSD than non-listed banks and banks with no overseas presence wereexamined by the Mann-Whitney non-parametric test of differences between samples(Table IX). An analysis of the mean scores of sentence count of the different groupingvariables (Table X) reveals that the extent (quantity) of social disclosure is greater for listedbanks and banks with overseas presence. However, U-test results suggest that there are nosignificant differences related to social disclosure between listed and non-listed banks.A similar picture emerges for banks with and without overseas presence. In both cases, theonly exception relates to “Product and Customers”. Thus, overall, H5 and H6 are rejected.
Notes: Significant at the *10, * *5, and * * *1 percent levels, respectively, (two-tailed)
Table VIII.Correlations (Spearman’s
Rho) between CSD andother selected variables
Listed versus non-listed banksOverseas presence versus
no overseas presenceMeasurement unit: sentence count Z-scores Z-scores
All categories 2 1.434 2 1.640Environmental 20.940 20.967Human resources 21.434 21.432Product and customers 22.109 * 22.126 *
Community 20.785 21.467
Note: Significant at the *5 percent levelTable IX.
Mann-Whitney test
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DiscussionResearch related to social disclosures have been increasing in both volume and typeover the last three decades, and perhaps one of the most challenging areas in this fieldthrough the years has been the attempts to relate size, profitability and other industrycharacteristics to the phenomenon of CSD. For this purpose, different theoreticalapproaches were employed, notably decision-usefulness inquires which overlap witheconomic theories (including agency theory and PAT), and social and political studies,most particularly, the legitimacy theory.
This paper, grounded in legitimacy theory, attempted to report on the quality andtype of social disclosure of Lebanese commercial banks, as well as on the relationshipbetween this phenomenon and selected variables related to size, financial performanceand age. Moreover, additional hypotheses related to the listing status and overseaspresence were tested.
An interesting number of findings emerge. First, although the Lebanese commercialbanks are considered relatively small on the European and American scale, the resultsprovide strong evidence of the widespread use of this phenomenon by these banks as ameans to communicate with their stakeholders, which suggests that even smallfamily-owned banks with high public visibility can exhibit strong social and ethicalawareness. Nevertheless, the findings reveal that these banks attribute a greater importanceto human resource and product and customers disclosures, whereas the availability andextent of environmental disclosure is still weak. As discussed previously, this might beattributed to the perception that banking activities has little or no environmental impact.
Second, and consistent with prior research, a strong association was found betweenCSD and size variables. It is noteworthy that the SC index suggested by Branco andRodrigues (2008) was found to be a promising proxy for size-related measures thatshould be tested further by longitudinal studies and as a possible determinant of CSDin causal inquiries.
Third, both net profits as an absolute and size-proxy measure and ROE as aprofitability measure showed a strong positive association with CSD and wereconsistent with the findings of some prior research studies, whereas the relationshipbetween CSD and the bank age was found to be a weak one.
This study tested two more original hypotheses related to the extent of CSD by listedversus non-listed banks, and by banks with overseas presence versus banks with nooverseas presence. Mann-Whitney non-parametric tests revealed statisticallyinsignificant differences between the grouping variables with the exception of thecategory related to product and customers, and thus, the related hypotheses wererejected. It is noteworthy that results related to the listing status might have beenaffected by the situation of the stagnant Lebanese stock market which has not yet regainits leading position in Lebanon and the Middle-East due to ongoing political and security
Listed Non-listed Overseas presence No overseas presence
Table X.Mean scores sentencecount for listed/non-listedand overseas/no overseaspresence
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unrest in Lebanon and the region. From this angle, the bank’s demand for funds has beengenerally met through internal financing procedures, particularly through directinjection of capital by existing shareholders (usually members of the same family).
More research is needed to confirm these exploratory initial results. Furtherlongitudinal and causal analyses would shed more light on the importance anddeterminants of this phenomenon in small and developing economies. One obstacle toovercome in this endeavor is the non-availability of social and environmental databasessimilar to the ones used by researchers in developed countries (i.e. CSEAR in the UK).Indeed, the ABL, the Lebanese Central Bank, as well as other private and publicagencies, can play a major role in making this possible, which would result in moresocially and ethically oriented banking activities in Lebanon.
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Corresponding authorElie Menassa can be contacted at: [email protected]
Appendix 1. Sample banks
(1) Fransabank SAL.
(2) Banque Libano-Francaise SAL.
(3) B.L.C. Bank SAL.
(4) Near East Commercial Bank SAL.
(5) BLOM Bank SAL.
(6) Societe Generale De Banque Au Liban SAL.
(7) Bankmed SAL.
(8) BBAC SAL.
(9) Banque Pharaon and Chiha SAL.
(10) Byblos Bank SAL.
(11) Lebanese Canadian Bank SAL.
(12) Banque De L’Industrie Et Du Travail SAL.
(13) IBL Bank SAL.
(14) Credit Libanais SAL.
(15) Bank Audi SAL – Audi Saradar Group.
(16) Bank of Kuwait and the Arab World SAL.
(17) North Africa Commercial Bank SAL.
(18) Societe Nouvelle de la Banque De Syrie Et Du Liban SAL.
(19) Bank of Beirut SAL.
(20) Jammal Trust Bank SAL.
(21) Banque BEMO SAL.
(22) Lebanon and Gulf Bank SAL.
(23) First National Bank SAL.
(24) MEAB SAL.
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