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The Effect of Corporate Governance


Elements on Corporate Social
Responsibility (CSR) Reporting:
Empirical Evidence from Private
Commercial Banks of Bangladesh
ARTICLE in INTERNATIONAL JOURNAL OF LAW AND MANAGEMENT AUGUST 2011
DOI: 10.1108/17542431011029406

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IJLMA
52,2

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The effect of corporate


governance elements on
corporate social responsibility
(CSR) reporting
Empirical evidence from private commercial
banks of Bangladesh
Md. Habib-Uz-Zaman Khan
Faculty of Business and Economics, Department of Business Administration,
East West University, Dhaka, Bangladesh
Abstract
Purpose The purpose of this paper is to investigate the corporate social responsibility (CSR)
reporting information of Bangladeshi listed commercial banks and explores the potential effects of
corporate governance (CG) elements on CSR disclosures.
Design/methodology/approach The annual reports of all private commercial banks (PCB) for
the year 2007-2008 are examined to analyse the banks CSR reporting practice using content analysis.
It also considers three elements of CG such as non-executive directors, existence of foreign
nationalities and women representation in the board. The multiple regressions were used to measure
the impact of CG elements on banks CSR reporting initiatives.
Findings The results of the study demonstrate that though voluntary, overall CSR reporting by
Bangladeshi PCB are rather moderate, however, the varieties of CSR items are really impressive. The
results also displayed no significant relationship between the women representation in the board and
CSR reporting. Conversely, non-executive directors and existence of foreign nationalities have been
found the significant impact on the CSR reporting.
Research limitations/implications The main limitations of the paper are that it considers PCB
from only one country and uses annual reports disclosures from a single year. The results of the
study can be used by researchers to analyse the benefits of including the non-executive directors and
foreign nationals on different types of CSR initiatives and standard setters to set the suitable CSR
policy guidelines with a view to reinforce such initiatives.
Originality/value This unique paper divulges the CSR related disclosure with possible impact of
CG in the specific context of a transitional economys banks such as Bangladesh. The paper
contributes to the CSR literature as it presents empirical evidence of the influences of CG structure on
the practices of CSR activities in developing countries banking sector setting.
Keywords Financial reporting, Corporate governance, Commercial banks, Bangladesh,
Corporate social responsibility, Disclosure
Paper type Research paper

International Journal of Law and


Management
Vol. 52 No. 2, 2010
pp. 82-109
# Emerald Group Publishing Limited
1754-243X
DOI 10.1108/17542431011029406

Introduction
To undertake social responsibilities and to report such activities at a regular interval
have been recognised an essential device for organizations towards ensuring the longterm continued existence. Corporate social responsibility (CSR) reporting has been
receiving a considerable attention to researchers and practitioners for more than two
decades (for a detailed review on the development of CSR reporting, see Mathews,
1997). Price Water House Coopers international survey in early 2002 found that nearly
70 per cent of the global chief executives believed that addressing CSR was vital to
their companies profitability (Simms, 2002). A review of related literature suggests

that CSR reporting issues have become a necessary facet of businesses to substantiate
companies commitment to the society. A number of earlier researches analysing CSR
information have directed towards many fundamental issues. For example, research
endeavours attempted on investigating the types of information, extent of social
disclosures firms report (see Andrew et al., 1989; Guthrie and Parker, 1990; Harte and
Owen, 1991; Adams et al., 1995; Deegan and Gordon, 1996; Newson and Deegan, 2002
for a review) establishing any connection between companies CSR initiatives and
attributes of economic performance or factors such as size, industry membership, risk,
market reaction, external influences, firm reputation, country of origin or proximity to
individual consumers (e.g. Roberts, 1992; Herremans et al., 1993; Tilt, 1994; Newson
and Deegan, 2002) have been increasing across time. Moreover, other research efforts
(e.g. Guthrie and Parker, 1989; Patten, 1992; Roberts, 1992; Donaldson and Preston,
1995; Deegan and Gordon, 1996; Deegan and Rankin, 1997; Adams et al., 1998; Neu
et al., 1998; Deegan, 2000) evidenced the motivations of corporate managers to CSR
activities. Nevertheless, most of the earlier international researches were dealt with
company-specific attributes and proxies. Few studies considered attributes of
corporate governance (CG) that might tend to positive CSR activities. International
CSR research is further being limited in that the majority of studies focus on nonfinancial sector in developed nations. Very few studies (e.g. Barako and Alistair, 2008)
focused on banking sector of developing countries and no such study was carried out
in the specific context of commercial banks in Bangladesh.
The objectives of this paper are twofold. First, to investigate CSR reporting
information of private commercial banks (PCB) of Bangladesh with a view to observe
the levels and varieties of CSR information on annual reports. Second, to examine the
variability of CSR reporting information for CG elements. The country Bangladesh and
the PCB are interesting and ideal to study for a number of motivational reasons. First,
because not many research studies on CSR reporting issues in banking institutions
(Hossain et al., 1994; Khalid, 2005; Leung and Horwitz, 2004) are evidenced in both
developed and developing countries setting due to the existence of strict regulatory
requirements, this study will fill up research dearthness by addressing the CSR
reporting practice in the specific context of a developing countrys banking sector.
Second, investigating CSR reporting practices in annual reports of Bangladeshi
banking sector over a given time period and making out governance construction as
potential explanatory factors tends to create an understandable contribution to the
literature. The findings of the study might be inclined to construct few inferences for
other developing countries where the respective standard setters take particular
attention in designing CSR-led business strategies for banks. Third, empirical research
studies investigating environmental information within CSR reporting domain have
gained little attention to the financial institutions viewing that this sector has an
insignificant straight environmental shock. However, many research studies (see e.g.
Simpson and Kohers, 2002; Jeucken and Bouma, 1999; Coulson and Monks, 1999)
addressed both internal and external issues for evaluating likely environmental impact
for banks. By concentrating on banking industry, this study takes the opportunities to
see banks extended focus on social and environmental responsibility and reporting
practices. Fourthly, Khan et al. (2009) in a recent research revealed that PCB in
Bangladesh initiated a number of excellent programs on CSR issues. Finally, civil
societies in Bangladesh motivate CSR issues for all sectors in the recent years by
spawning greater societal demands and expectations of business responsibility in the

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form of organising different seminars, press release or with other initiatives (Rahaman
and Jabed, 2003).
The remainder of this paper is structured as follows. The next section documents
the CG and CSR reporting environment in banking sector of Bangladesh followed by
a short review of the literature on organisational legitimacy theory (LT) to validate CSR
activities and reporting practice for the firms. A short review of CSR reporting with CG
has afterward addressed. The paper then out lines the development of hypotheses.
Next, the details of the research method used in the study are discussed. In the final
section, it reviews the finding of the study together with the implications, limitations
and the further scope of study.
CSR reporting and CG in Bangladesh: an overview
While CSR reporting has traditionally been observed as the developed countries event
(Belal, 2000), in recent years it has also been received significant interest in both CSR
and CG writing in developing countries context. In Bangladesh, five enterprises
namely the Securities and Exchange Commission (SEC), Bangladesh Bank (BB), the
Institute of Chartered Accountants of Bangladesh (ICAB), the Bangladesh Enterprise
Institute (BEI), the Institute of Cost and Management Accountants of Bangladesh
(ICMAB) are the pioneer bodies working for ensuring CG regulations (Ahmed, 2006). A
range of activities in relation to governance are executed by these institutions
including publication of code of CG for Bangladesh, different reports, organization of
seminars, issuance of notification, enforce various regulations and standards, such as
the Bangladesh Accounting Standards (BAS) and Bangladesh Auditing Standards
(BSA), the Companies Act 1994, the SEC rules and others stock exchange listing
requirements (Mir and Rahaman, 2005). Earlier, accounting reports were mainly
drafted and audited along the lines of regulations set out in two sets of regulations: the
Companies Act 1913 and the stock exchange listing requirements which was later
being changed in 1993. Being advised and funded by the donor agencies, the SEC was
established as an autonomous body in order to strengthen the capital market.
Subsequently, the Companies Act 1913 was replaced by a new Act in 1994. The listed
companies must comply with the listing requirements of SEC to operate in the stock
exchanges in addition to the requirements of the Companies Act 1994. Imam (2006)
mentioned that the SEC has promulgated different orders and notifications time to time
to ensure good CG practice in the listed public limited companies. SEC strives to
stimulate the listed companies to comply the CG guidelines so that suppliers of funds
can ensure a fair return on their investment. Researchers (e.g. Amin and Tareq, 2006;
Jensen and Meckling, 1976; Chaudhury, 2004) illustrated that banking companies entail
unique CG attention because they differ greatly from other types of firms in terms of a
broader extent of claimants on the banks assets and funds. Numerous studies (e.g.
Ahmed, 2006; Shliefer and Vishny, 1997; Imam, 2006) explained that the general
approach to CG argues in support of the shareholders rights only. This is because
managers or executives may not always work in the best interest of the shareholders.
However, from banks perspectives, the shareholders actually provide a very
insignificant part of the banks assets and funds. Rather, majority of its investments are
financed by the depositors funds. As a result, the risks of losing depositors savings
demand stern priority in protection of depositors. This necessitates the broader view of
CG that advocates the interest and benefits of the suppliers of funds for a firm must
be maintained in a consistent manner. Similarly, researchers (Afroze and Jahan,
2005; Bhuiyan and Biswas, 2007; Arun and Turner, 2003) supported the need for the

broader approach to CG and the inevitability of government intervention for


banking institutions of Bangladesh to bring the behaviour of bank management under
control.
In Bangladesh economy, banking institutions play the fundamental role and
dominant financier for the industrial and commercial activities. Since independence in
1971 until 1982, when the ownership reform measures started in the financial sector,
the government had carried out the regulation and ownership of all financial
institutions. During the reform period, two out of six National Commercials Banks
(NCBs) were denationalised and PCB were allowed to operate in the country. In 2006,
out of the 49 banks operating in Bangladesh, ten belong to the public sector, 30 are local
PCB and ten are foreign-owned banks (Bangladesh Bank, 2007). As with the line of
global practice, the central bank of Bangladesh, BB, has been entrusted with the
responsibility of playing custodian role of banking sectors in Bangladesh. BB regulates
banking companies in accordance with Banking Companies Act, 1991, and its further
amendments. At the same time, banking organisations listed in the capital market
abide by the rules of the SEC for trading the stock exchanges and thus to operate, they
fulfill the listing requirements in addition to the requirements of the Banking
Companies Act, 1991. For companies, adoption of the SECs guidelines is voluntary for
few items in addition to other mandatory disclosure requirements. Corporate financial
reporting in Bangladesh is mandatory[1] and focused on the traditional accounting
based profit margin or percentage based result to the fund provider rather than
companys contribution to the society, to the people and to the country as a whole.
Uddin et al. (1999) narrated that reporting corporate social responsibilities are
emphasised in the developed and developing countries but reporting of CSR activities
are not found enormous. The major problem concerns selecting events to be reported.
Chowdhury and Chowdhury (1996) noted that although many international standards
were available to help firms implementing CSR, there are no disclosure requirements
for social reporting under the different Acts and rules in Bangladesh. On the other
hand, reporting CSR information by Bangladeshi banking sectors is documented at a
lesser extent although there are no mandatory legislative requirements. A study
conducted by Khan et al. (2009) on selected banking companies revealed some notable
initiatives taken by different banking firms in Bangladesh such as establishment of
foundation for CSR practices although overall reporting practices are rather
insufficient. However, this may be due to lack of structured reporting guidelines.
Recently, BB encourages commercial banks to take part CSR activities enthusiastically,
which might pave the banking sectors way to become more structured on the ideas of
CSR issues. BB also advised banking and other financial institutions to move towards
implementation of CSR programme. Reporting of the CSR initiatives can begin in a
modest way as supplements to usual annual financial reports, eventually to develop
into full blown comprehensive reports in the Global Reporting Initiative (GRI) format
(The Financial Express, 2008, p. 4). The report also described that CSR activity of firms
would be perceived as an additional indicator of management efficiency. Moreover, the
Government of Bangladesh has approved the long-awaited proposal for tax exemption
facility for firms at the rate of 10 per cent on a part of the corporate income to be spent
for CSR activities. In this regard, news published in daily news paper (The Daily Star,
2008, p. 6) stated that the exemption facility is aimed at encouraging private companies
to be involved more in CSR practices. In relation to the tax exemption plan, economic,
environmental and social development activities have been brought within CSR
purview.

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Theatrical framework: LT and banks CSR activities


LT has been considered as widely accepted theory to clarify social reporting practices
of a firm (Milne and Patten, 2002; Adams et al., 1998; Deegan and Gordon, 1996;
Guthrie and Parker, 1989; Moerman and Van Der Laan, 2005; ODonovan, 2002;
ODwyer, 2002; Patten, 1992; Wilmhurst and Frost, 2000; Murthy and Abeysekera,
2008). LT accentuates that corporate management will react to community
expectations and human resource management (Deegan, et al., 2002; Patten, 1992;
Campbell, 2000; Deegan et al., 2002). Although the banking and other financial
institutions do not construct detrimental products nor do they exercise processes
unsafe to the society, seeking organisational legitimacy is deemed imperative in
demonstrating social worthiness (Oliver, 1991) social conscience and enlightened selfinterest (ODwyer, 2002) above all, exhibiting that organisations are in harmony with
community concerns (Clarke and Gibson, 1999). As a result, Bangladeshi people might
expect the banking sectors to report information on their constructive social activities
such as managing the domestic social problems that are rampant in the country. In
view of that, banking sectors management may legitimise their existence by reporting
on banks positive actions to restrain poverty, eradicate illiteracy and unemployment,
contribution to educational sector and to the community as a whole. Lindblom (1993)
described that organisational legitimacy is a concept that can be used to gain insight
into the motivation a firm has for providing CSR information voluntarily. Guthrie and
Parker (1989) narrated that legitimacy is one of the factors that motivate the
management to adopt and report social practices. Grounded in LT, Branco and
Rodrigues (2008) mentioned a positive association between public visibility and
CSR reporting information. As a matter of fact, LT is in particular helpful as a
rationalization of any type of disclosure when there are good reasons for assuming that
the type of disclosure being analyzed is attempting to address a particular legitimacy
gap and that the disclosure program is intended to close that gap. For example,
companies change their CSR reporting practices after particular incidents such as an
environmental disaster (an oil spill or gas explosion) that puts the companies in the
spotlight (see, for example, Patten, 1992; Deegan et al., 2000; Walden and Schwartz,
1997). On the other hand, a variety of research (e.g. Deegan et al., 2000; Deegan, 2002;
Barako and Alistair, 2008) addressed that legitimacy can be vulnerable even when
companies activities are in agreement with societys expectations. This may be for the
reason that the company has failed to correspond that its activities are in congruent
with social values. Buhr (1998) opined that companies can attempt to achieve
legitimacy by appearing to do the right things or not be involved in doing the wrong
things when this appearance may have little in common with a companys actual
performance. According to Branco and Rodrigues (2008), LT suggested CSR reporting
as an important way of communicating with stakeholders. They added that LT
convinces stakeholders that the company fulfills their expectations (even when actual
corporate behaviour remains at variance with some of these expectations).
In banking context, depositors and borrowers are the major stakeholders of
banks which represent extremely large and diverse stakeholder groups. As a result,
in addition to shareholders and managers, depositors and regulators have a straight
stake in bank performance. These stakeholders enjoy all three of Mitchell et al. (1997)
stakeholder attributes: power, legitimacy and urgency (Yamak and Suer, 2005;
Griffiths, 2007). Griffiths (2007) argues that borrowers have a legitimate claim on banks
by entering in lending agreements, acquire power and urgency through their cause
being adopted by other stakeholders such as regulators and consumer organisations.

These considerations guide researcher to sense that banking is both a high-street


presence and a high public visibility sector. The escalating customer consciousness all
over the world and in some other developing nations together with Bangladesh have
been seen as a powerful driver of corporate performance, which tends to promote
different sectors positively towards the countrys corporate social activities (Patten,
1992; Sharma and Talwar, 2005; Belal and Owen, 2007; Khan et al., 2009). There has
been an increasing trend of CSR activities by banks in both developed and developing
countries. This may be basically due to the sectors vital role in economic development
and sustainability or perhaps the realising the legitimacy. A CSR research by Douglas
et al. (2004) on Irish banks stated that Irish banks are well behind the leading European
banks with regard to the quality and quantity of social disclosures. Tsang (1998) in his
CSR reporting study on banking, food & beverage and hotel industries in Singapore
revealed the few CSR disclosures. Halabi et al. (2006) analysed CSR information in
annual reports of top Australian banks. They found that four banking companies are
in Australias top ten implement GRI and all banks make disclosures in relation to the
environment, labour practices and human rights. In his study on the banking sector in
Greece, Nikolaou (2007) suggested that this sort of information is disclosed through an
ad hoc environmental accounting method. The recent study conducted by Branco and
Rodrigues (2008) on the banks in Kenya revealed that Kenyans banks involve CSR
activities although the level of CSR reporting was low. Another recent study by Branco
and Rodrigues (2008) on Portuguese banks found that community relations disclosure
is an important part of the social reporting disclosures items. For the purposes of the
current study, the essential aspect is that legitimacy calls for a reputation that must be
maintained by the banks, which necessitates a bank to think and convey to the
appropriate users groups that their actions are harmonious with their values.
Demonstration of positive social image towards the general public by involving
activities leading to social welfare is more on the point of gaining higher public
acceptance by the banks. Given that CSR reporting is attempted to underline how the
company relates to society in the course of its different social activities, it should be
maintained in an accelerating manner which might carry an opening to generate more
incentives (financial as well as non-financial) for such involvement. Research studies
documented that companies with high public profiles are more eager to present a
positive social image through community involvement activities than those of less well
known to justify that such activities are taken for greater public interest and to validate
their continuation to society. From the perspective of CG, Macey and OHara (2001)
argue that a broader view of CG should be adopted for banking institutions. They
opined that CG mechanisms for banks should encapsulate depositors as well as share
holders due to the existence of peculiar contractual form of banking. Therefore banks
are believed to put superior significance to community involvement and CSR reporting
as part of their CSR practices.
CSR disclosure and CG
Nowadays consciousness for CG has not only been increased but the concept has
greatly been widened. For example, it has started to envelop some areas customarily
perceived as being part of CSR. Following after accounting and ethical scandals in
firms such as Enron, WorldCom, Ahold and Parmalat, firms tended to attempts
strengthening CG mechanisms regarding boards and its compositions, managers and
auditors, control and risk, as well as the ethical aspects related to remuneration,
managerial and employee behaviour including whistleblower and complaint

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provisions for the organisations. In view of the fact that bank and other financial
institutions generally experience higher stresses to be transparent and disclose
information about major strategic decisions to stakeholders it has demanded increased
requirements for other types of information above and beyond economic information.
In a preface to a report by the Global Corporate Governance Forum, Claessens states
that in its broadest sense, CG is concerned with holding the balance between economic
and social goals and between individual and communal goals (Claessens, 2003, p. 7).
Maier (2005) suggested a broader definition of CG scope Corporate governance defines
a set of relationships between a companys management, its board, its shareholders
and its stakeholders. It is the process by which directors and auditors manage
their responsibilities towards shareholders and wider company stakeholders. For
shareholders it can provide increased confidence of an equitable return on their
investment. For company stakeholders it can provide an assurance that the company
manages its impact on society and the environment in a responsible manner ( p. 5).
While the message mentioned by Maier is very coherent, one could expect such an
approach from representatives of the fair investment community. Given that
stakeholder interests are accounted for, it has been suggested that firms are to be bear
in mind their degree of dependence on a stakeholder for resources (McLaren, 2004). The
literature revealed that CG has a considerable impact on CSR issues within the
organizations such as employee conditions (Deakin and Whittaker, 2007) and ethical
aspects related to remuneration, managerial and employee behaviour (Ryan, 2005;
Wieland, 2005). Research studies (Dahya et al., 1996; Carter et al., 2003; Branco and
Rodrigues, 2008) also documented the likely impact of CG elements on firms CSR
disclosure initiatives the detailed of which are addressed in the next section.
Review of literature and hypotheses development
CG is concerned with holding the balance between economic and social goals and
between individual and communal goals. The governance framework therefore
encourages the equal and efficient use of resources to require accountability for the
stewardship of those resources with an aim of aligning as nearly as possible the
interests of individuals, corporations and society. Dahya et al. (1996) defined CGs as
the manner in which companies are controlled and in which those responsible for the
direction of companies are accountable to the stakeholders of these companies ( p. 74).
In the wake of accounting, leadership and governance scandals at large companies, CG
has succeeded to attract a great deal of interest. This is because it focuses not only the
long term relationship, which has to deal with checks and balances, incentives for
managers and communications between management and investors but also the
transactional relationship, which involves dealing with disclosure and authority.
Tricker (1984) illustrated that the CSR reporting endeavour can be viewed as a strategy
heading towards closing a perceived legitimacy gap between management and
shareholders (especially foreign shareholders) via non-executive directors. Nonexecutive directors are seen as the check and balance mechanism, not only in ensuring
that companies act in the best interests of owners, but also other stakeholders; advising
on the public presentation of the companys activities and performance; and providing
additional windows on the world. Furthermore, Zahra and Stanton (1988) pointed out
that they are likely to respond to concerns about honour and obligations and would
generally be more interested in satisfying the social responsibilities of the firm because
this might improve their social prestige and honour. Fama and Jensen (1983) explained

that non-executive directors are regarded as a dependable method equipped of


disseminating agency conflicts between managers and owners.
In view of the ideas derived from the above-mentioned discussion, the standing at
this point is that non-executive directors have an essential role to play on banking
companies to take on CSR activities with a view to ensure similarity between
organisational actions and societal values or firms legitimacy. Therefore, boards
represented by non-executive directors are believed to have more pressure on CSR
reporting as they are thought of symbolising the benefits of other stakeholders. Thus
the first hypothesis of this study is:
H1.

The provision of higher proportion of non-executive directors on the board,


the greater is degree of CSR reporting information for banks.

It has been evidenced in the CG literature that board diversity has turned into a
significant element of CG arrangement in recent years. Branco and Rodrigues (2008)
mentioned the theme of board diversity correctly match into the structure of
stakeholder theory. Prior research indicated that board diversity is associated with
stronger orientation towards corporate social reporting and higher intensity of social
performance (for review, see Ibrahim and Angelidis, 1994; Sicilian, 1996). Carter et al.
(2003) argue supporting board diversity that [it] increases board independence for the
reason that with a unlike gender, ethnicity, or cultural background might ask questions
that would not appear from directors with more traditional backgrounds ( p. 37).
Carter et al. (2003) revealed empirical evidence of a significant positive relationship
between board diversity, defined as percentage of women, African American, Asians
and Hispanics on board of directors and firm value. Huse and Solberg (2006) illustrated
that women could involve to boards through forming alliance, preparing and involving
themselves in board matters, taking part of vital decision making. Adams and Ferreira
(2004, p. 3) suggest that boards with a higher proportion of women directors tend to
make the more board meetings possible and special attendance patterns at board
meetings, which make different boards more successful than homogenous boards.
They also argued that women are inherently more stabilising than men. Therefore,
based on the above-mentioned discussion, the second hypothesis of this study is:
H2.

The provision of higher proportion of women directors on the board, the


greater is degree of CSR reporting information for banks.

The ownership structure of the firm may lead to legitimacy gaps. Branco and
Rodrigues (2008) explained the involvement between the proportions of foreign
nationals and reporting might lead to raise the issue of causality. Fields and Keys
(2003) found that heterogeneity of experiences, ideas and innovations that individuals
carry to a company tends to impact on company performance. Erhardt et al. (2003)
argue that ethnic representation on boards raises financial performance of business. At
the same time, Ayuso and Argandona (2007) illustrated that foreign directors are
typically assumed to play a key role in supporting CSR reporting strategies. Haniffa
and Cooke (2005) revealed empirical evidence of positive association between
proportion of Malay directors on the board and the extent of voluntary disclosure by
Malaysian companies. However, a study by Branco and Rodrigues (2008) on Kenyan
banks found no association between the ratio of foreign directors on the board and CSR
reporting initiatives, the result consistent with study. In Bangladeshi banking sector,
board diversity has become an important component of CG structure in the recent
years as foreign representation on boards has now been practised (Haque et al., 2007).

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Thus based on the above discussed literature, this paper assumes that that board
diversity measured as percentage of foreign national, (non-Bangladeshi nationalities),
on the board of directors may have power on banks CSR reporting. Hence, the
following hypothesis is examined:
H3.

The provision of higher proportion of foreign nationals on the board, the


greater is degree of CSR reporting information for banks.

90
Control variables (firm-specific characteristics i.e. size, profitability
and gearing)
The study considers size, profitability and gearing as the control variables. Previous
studies have indicated a positive relationship between the extent of CSR reporting and
company size, profitability and gearing. One rationalisation for the relationship of large
firms with CSR reporting is that large firms assume more activities and have greater
impact on society (Trotman and Bradley, 1981; Andrew et al., 1989). Besides, various
groups in society scrutinise larger companies therefore they would be under greater
pressure to report their social activities to legitimise their business (Cowen et al., 1987).
The relationship between profitability and CSR reporting is also conclusive (see
Mangos and Lewis, 1995; Patten, 1991; Roberts, 1992). A likely clarification for this
association is that management enjoys more autonomy and flexibility to initiate and
report wide-ranging CSR initiatives to shareholders. Haniffa and Cooke (2005) opined
that profitable firms reveal social information to show their role to societys well being
with an aim of validating their existence. Moreover, Gearing has been found to be an
important explanatory variable in the earlier studies (e.g. Belkaoui and Kahl 1978;
Malone et al., 1993; Wallace et al., 1994). Highly geared companies disclose more
information to give surety to the creditors that shareholders and management are less
likely to evade their covenant claims (Myers, 1977; Schipper, 1981) and to meet some of
the needs of lenders (Cooke, 1996). Thus, based on above-mentioned discussion, the
hypotheses are:
H4.

The extent of CSR reporting is greater for: larger firms; highly profitable
firms; and firms having highly gearing ratio.

Research design
The data collected for the purpose of the study involves the examination of annual
reports for the year 2007-2008 of PCB listed on the Dhaka Stock Exchange (DSE). The
banking companies considered in the research include all PCB[2]. The listed banks
were studied owing to their investor orientation and legislative obligations. The annual
reports of selected banks were examined after downloaded from the respective banks
official web sites. The official web addresses of all firms were collected from the
companies profile section maintained by DSE. However, incomplete annual reports of
seven banks were available (only financial information) at the web. A letter was then
sent to head office addressing to the company secretary requesting for a complete
annual reports. Two weeks after sending the mail, a reply was received from the banks
concerned. As a result, annual reports of the entire population of 30 PCBs were
examined in the study. While firms may exercise other medium of communication for
exhibiting CSR reporting such as internet, newspaper, media, this study concentrates
on published annual reports. The selection of annual reports is consistent with other
prior studies (see, for example, Adams et al., 1995, 1998; Gray et al., 1995a, b; Guthrie
and Parker, 1990; Roberts, 1990; Singh and Ahuja, 1983). A further reason for choosing

annual reports is that annual report is the most widespread and accepted document
produced regularly by the companies in Bangladesh. Belal (1999, 2000) and Khan et al.
(2009) illustrated that annual reports are considered as the major means through which
information about the company is communicated. Furthermore, researchers early
examination in this regards exposed that sample banks did not publicise any separate
social reports and their CSR is restricted to the annual reports only. The intention for
deciding on all the PCB was made on the argument that these banks are expected to
reveal more social disclosures than others. Moreover, these banks represent around
60 per cent of the total assets base and deposit of entire the banking sectors in
Bangladesh. As a result, the sample population considered for the study has a
significant illustration of firms representing the banking sectors listed on the DSE.
Measurement of variables
Dependent variable CSR reporting
For the purpose of collecting and codifying the data, content analysis technique, a
method of codifying the text (or content) of a piece of writing into various groups (or
categories) based on chosen criteria (Weber, 1988) was used. Content analysis is an
established method of studying annual reports and has widely been used which is
seemed to be empirically valid in the corporate social, ethical and environmental
reporting fields of accounting research (see Gray et al., 1995a, b, 2002; Guthrie and
Parker, 1990; Holsti, 1969 for a review). An important element of content analysis is the
collection and development of categories into which content units can be classified (Ali
et al., 2008). The categories and items were taken out from earlier research in the area
(e.g. Ernst and Ernst, 1976; Cowen et al., 1987; Guthrie and Parker, 1989, 1990; Gray
et al., 1995a, b) and applicability to the Bangladeshi business environment (Ali et al.,
2008; Khan et al., 2009). For the study, a research instrument encompassing the seven
broad premises of CSR reporting (e.g. contribution to health sector, contribution to
education sector, activities for natural disaster, other donations, and activities for
employees, environmental issues, and product, services, statements) was developed.
Effort was also made to ensure that the checklist guaranteed each of the items was
unambiguous and mutually exclusive of others. The checklist was then validated in a
pilot-study, which was deemed valuable. This is because pilot survey resulted in
improvements of checklist and ensured that items were unique or important to the
context of Bangladesh banking sector were added and those not relevant omitted.
Moreover, it ensured that items peculiar to a particular industry were taken into
account. The final checklist instrument consisted of 60 CSR reporting items. This
study considers frequency and words count as the unit of communication due to its
(Zeghal and Ahmed, 1990; Deegan and Rankin, 1996; Deegan and Gordon, 1996) more
practicability and categorisation ease. Although prior research studies employed
different unit of analysis such as number of pages (Patten, 1992; Deegan and Rankin,
1996) or proportion of pages (Guthrie and Parker, 1990; Gray et al., 1995a, b) in using
content analysis, word counts are seems to be quite relevant in Bangladesh contexts,
since CSR and its reporting endeavours are the new phenomenon. The frequency was
decided by the number of times a particular CSR reporting item was narrated either
qualitatively or quantitatively. The frequency provides the intensity (quantity) of a
given CSR reporting item while the words count indicates the space allocated for a
given CSR reporting item (volume). In order to ensure reliability in coding, the
researcher and a research assistant were involved in the coding process.

Effect of CG
elements on
CSR reporting
91

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52,2

92

CSR reporting index (CSRRI)


Basically, an item in the research instrument was coded 1 if disclosed and 0 if it is
not although no retribution is applied if the item is considered irrelevant. In other
words, the study captured that if a company discloses an item of CSR reporting (e.g.
donation for flood victims information) in the annual reports, it awarded 1 and
otherwise 0. The score of each items were then added to get the ultimate score for the
company. The disclosure model for the CSR reporting thus measures the total
disclosure (TD) score for a company as additive as follows:
CSRRI di60=nj
where, di is the 1, if the item di is disclosed and 0 if the item di is not disclosed, nj is the
maximum number of items for jth firms nj  60.
To get a companys score, the scores for each item is added and the total is divided by
the maximum likely scores, that are multiplied by 100 to gather the percentage scores. In
this study, 60 items represent the maximum possible disclosure score as the numbers of
disclosure items combing all broad themes form a total of 60. Thus, for example, if a
bank reports no item (0) out of 60 items, the dependent variable score will be 0 per cent.
Likewise, if half of the total items are reported, then the score for dependent variable
patronise 50 per cent. The average score is calculated by dividing the number of banks
disclosing a particular item by the total number of items. The number of words in every
sentence relating to each CSR item included in the checklist is tallied in the study using
similar mechanism. However, items relating to graphical presentation in the checklist
were ignored in this respect. The number of words related to each item under the seven
themes was added together to compute the CSR reporting (length).
Independent variables
The construction of independent variables with control variables and their
measurement technique are elaborated in Table I.
Results and discussion
This study considers 60 CSR reporting items; the detailed results of those items are
shown in Table II. The results indicate that although CSR reporting is voluntary in
Bangladesh, the PCBs involvement in CSR activities are not as low as anticipated in
relation to the total list of items and the magnitude of CSR activities performed by
banks are truly stimulating. While the encouragements to take on CSR activities to the
banking sector are the new events in Bangladesh, the finding of the study reveals that

Table I.
Constructs of the
independent variables

Independent variables

Measurement

Composition of non-executive
Directors (COMPNED)
Composition of women
Directors (COMPWD)
Ownership by foreign
Shareholders (FOROWN)
Size (STA)
Profitability (ROE)
Gearing (DTE)

Percentage of non-executive directors to total


Directors on the board
Percentage of women directors to total
Directors on the board
Percentage of non-Bangladeshi directors to total
Directors on the board
Size based on total assets fixed asset current assets
Return on equity net profit after tax/total equity
Debt to equity ratio total long-term debt/total equity

Sl no.

1
2
3
4
5
6
7
8
9
10
11
12
13

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

A: Contribution to Health sector


Medical support for AIDS patients
HIV/AIDS assistance programme
Health assistance to underprivileged and
disable children
Support to acid and dowry victims
Donation to Smile Brighter Program (cleft-lips
and/or palate surgery for boys and girls)
Organising plastic surgery operation
Donation of costly medical equipments in
different medical hospitals
Donation of cash money for setting up cancer
hospital
Donation of cash money for operation theater
for kidney hospital
Donation to rotary club to purchase equipment
to help the disadvantaged children with
hearing impairment
Donation of cash money to women and child
hospitals to bear their operational cost
Donation to different eyes hospital
Financial support for performing
opthtamological operation of all born
blind children
B: Contribution to education sector
Donation to the universities for constructing
research center
Scholarships to the research students of
different universities
Scholarship to meritorious and poor students
Granted fund for blind education and
rehabilitation
Scholarships for physical disable students
Donation of books to different colleges and
universities
Organising different local and international
students competitions
Donation for the students whose are suffered
from different death catching diseases
Internship facility for universities students
with cash allowance
Part time job facilities for the students
C: Activities for natural disaster
Donation for the flood and tornado affected
people
Donation for the landslides victims people
Donation for rehabilitations of homeless
people due to river erosions
Distribution of worm cloths among the
cold-affected people

Number of
banks reported
this item

Percentage
(%)

Frequency
(f)

2
5

6.67
16.67

4
15

25
10

83.33
33.33

45
19

1
4

3.33
13.34

2
7

10

33.33

10

10

33.33

30

23.33

25

16.67

5
12

16.67
40.00

14
30

3.33

3.33

5
7

16.67
23.33

15
23

3
5

10
16.67

10
17

10

33.33

28

23.33

24

23.33

20

10
0

33.33
0

20
0

30
5

100
16.67

150
12

10.00

27

90.00

88
(continued)

Effect of CG
elements on
CSR reporting
93

Table II.
Extent of CSR reporting

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Sl no.
29

94

30
31
32
33
34
35
36
37

38
39
40
41
42
43
44
45
46
47
48
49

50
51
52
53
54

55
56
Table II.

Donation to Prime Minister relief fund for


flood victims people
D: Other donations
Establishment of health care center for rural
people for free medical services
Donation to the families victim of road
accidents
Donation to hospitals for purchasing
equipments for reducing sufferings of poor
Thalassemia patients
Donation for improvement of Street
childrens condition
Financial support to the natural affected
victims of neighbouring countries
Sponsoring to different national and
international games and events
Donation to different sports organisations
Assistance to different Trusts who works
for destitute people of the society
E: Activities for employees
Vaccinations programme of employees
Employees trainings cost
Number of employees
Career development
Employee benefits
Compensation plan for employees
Facilities to employees children
Number of employees trained
Amount of budget allocation on employees
training
Employees categories by function
Cost of employees safety measures
Information about support for day-care,
maternity and paternity leave
F: Environmental issues
Awards for environmental Protection
Planting of trees to make the country green
Support for public/private actions designed
to protect the environment (e.g. CNG station
establishment)
Past and current operating costs of
environmental friendly equipment and facilities
Promoting environmental awareness to the
community through promotional tools
G: Product/services/statements
Explanation of major kinds of product/services
Improvement of product/service quality

Number of
banks reported
this item

Percentage
(%)

Frequency
(f)

27

90.00

105

10.00

23

3.33

16.67

14

3.33

3.33

10
10

33.33
33.33

24
27

23.33

20

5
25
30
24
30
15
5
25

16.67
83.33
100
80
100
50
16.67
83.33

17
88
40
40
45
30
14
70

15
3
5

50.00
10.00
16.67

30
7
16

2
3

6.67
10.00

7
9

3
0

10.00
0

7
0

6.67

27
27

90.00
90.00

125
115
(continued)

Sl no.
57
58
59
60

Improvement of customer service


Receipt of awards (local or international) for
CSR activities
Value added statement
Providing information for conducting safety
research on the companys products
Total

Number of
banks reported
this item

Percentage
(%)

24

80.00

5
30

16.67
100

Frequency
(f)

20
110

Effect of CG
elements on
CSR reporting
95

34.06

Table II.

at least few firms carry on the CSR activities at a greater extent contributing in the
different sectors. All the firms (100 per cent) reported CSR information on such items as
employee benefits, number of employees employed, donation for the flood and tornado
affected people and reporting value added statement. In view of that, it turns into
perceptible that PCBs of Bangladesh stand beside the flood affected people in
accordance with their financial ability (to view other forms of banks assistance
towards the flood victims, see Sl no. 28 and 29) for fulfilling their commitment to the
society. Likewise, one bank has (Sl no. 34) reported to provide financial support to the
natural affected victims of neighbouring country (tsunami affected people in Srilanka).
This is, indeed a very exciting reported event and the continuance of such sort of
endeavour would clearly bring image both at the local and international level for the
bank and for the country taken together. Although few CSR items (see Table III) are not
reported by any banks, the banks CSR involvement towards different sector such as
education, health and others are very inspiring. As it is seen from the Table II, 25 banks
(83.33 per cent) took part in health assistance to underprivileged and disabled children,
more than one-third banks make the contribution to the eye hospitals and ten banks
were (33.33 per cent) involved to donate the costly medical equipments in different
medical hospitals and contributed cash money for setting up cancer hospitals. Towards
the banks contribution to the education sector, the findings of the study reveal that,
surveyed banks (23.33 per cent) gave scholarships to the meritorious students, ten
banks (33.33 per cent) gifted books to different colleges and universities libraries and
same number of banks reported to offer internship facilities for universities students
with cash allowance. Banks propensity towards creating a first-rated research
environment in the country and the new researcher is also visible. Five banks (16.67 per
cent) reported that they gave scholarships to the research students and one bank (3.33
per cent) disclosed their contribution to a university for setting up research centre.
Although this phenomenon seems rather isolated in compare to total surveyed banks,
the in-depth investigation in this regards discloses that reported bank contributed the

Past and current expenditure for pollution control equipment and facilities.
Information about support for day-care, maternity and paternity leave
Providing information for conducting safety research on the companys products
Discussion of accidental statistics

Table III.
CSR reporting items
not disclosed by any
sample banks

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52,2

96

massive amount of funds. However, one interesting item that deserves particular
attention that, not a single bank offers part time job facilities for the students (SL #24).
This may be owing to the corporate culture or banks rigid thought intended for hiring
more qualified personnel. The finding is parallel to the study conducted by Rashid
(2005) who revealed corporate cultures of Bangladeshi organisations bring less
opening for the colleges or universities students to make a good bridge of their
theoretical and practical learning due to the restricted access while studying in tertiary
levels. Consistent with the earlier research investigations in Bangladesh context (e.g.
Imam, 2000; Belal, 2001; Khan et al., 2009; Ali et al., 2008), this study has unveiled again
the extended reporting tendency of Bangladeshi firms in relation to human resources
items (see Sl nos 38-49). Nevertheless, it seems that banks commitment towards the
environment issues are fairly unsatisfactory (see Sl nos 50-54). This is the areas where
Bangladeshi banks need to prioritise substantially as part of their future CSR initiative.
Moreover, almost all banks place more emphasis (Sl nos 55-59) on reporting product
related information, banks approach for improving the products and customer
services and in particular, reporting additional financial statement such as value added
statement. Overall reporting score of 34.06 per cent evidences that banks CSR
reporting in the annual report are not as low as expected.
Category wise reporting volume and ranking of banks based on the total CSR
reporting items
Table IV shows the results of the descriptive analysis of CSR reporting in each broad
category of reporting items to measure the banks more keenness of reporting items. It
also shows the extent of disclosure as measured by the word count to total words for
all disclosures in the sample population and the means and standard deviations of
disclosure based on the number of words disclosed under each category. The overall
ranking of surveyed PCBs is depicted in Table V. The banks were ranked on the basis
of CSR reporting scores for each of the companies, which enables to present insights
about which banks report more social and environmental information in the annual

Categories (a)

Table IV.
CSR reporting based
on each category of
CSRR index

Health sector
Education sector
Contributions for
natural disaster
Other donations
Environmental issues
Activities for
employees
Product/services/
statements

Percentage of
reported words
No of words (As a % of all Mean
[(d)/30] Std. dev.
disclosed
reported
(f)
(g)
words) (e)
(amount) (d)

Reporting
banks (at least
two items) (b)

% (c)

15
10

50
33.33

1,050
763

5.53
4.00

35.00
25.86

45.5
62.67

25
4

83.33
13.33
13.33

5,406
475
305

27.71
2.43
1.60

180.2
15.83
10.16

76.5
32.67
34.00

26

86.66

5,536

28.38

184.53

86.00

5,970

31.60

199.00

84.89

30

Total
Note: Total surveyed banks 30

100

19,505

100

Sl

Name of the banking organizations

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

Dutch-Bangla Bank Ltd


Pubali Bank Ltd
Uttara Bank Ltd
National Bank Ltd
The City Bank Ltd
United Commercial Bank Ltd
Arab Bangladesh Bank Ltd
IFIC Bank Ltd
Islamic Bank Bangladesh Ltd
Oriental Bank Ltd
Eastern Bank Ltd
NCC Bank Ltd
Prime Bank Ltd
South East Bank Ltd
Dhaka Bank Ltd
Al-Arafah Islami Bank Ltd
Social Investment Bank Ltd
Jamuna Bank Ltd
Mercantile Bank Ltd
Standard Bank Ltd
Brac Bank Ltd
EXIM Bank
Bangladesh Commerce Bank Ltd
Mutual Trust Bank Ltd
First Security Bank Ltd
The Premier Bank Ltd
Bank Asia Ltd
The Trust Bank Ltd
Shah Jalal Bank Ltd
One Bank Ltd

Number of item disclosed

Ranking

56
16
18
18
24
30
29
29
35
15
34
28
28
42
40
16
33
28
17
27
30
28
24
32
28
30
36
31
29
25

93.33
26.67
30.00
30.00
40.00
50.00
48.33
48.33
58.33
25.00
56.67
46.67
46.67
70.00
67.67
26.67
55.00
46.67
28.83
45.00
50.00
46.67
40.00
53.33
46.67
50.00
60.00
51.66
48.33
41.67

1
18
16
16
15
10
11
11
5
19
6
12
12
2
3
18
7
12
17
13
10
12
15
8
12
10
4
9
11
14

reports than others. Consistent with the earlier findings, Table IV shows that surveyed
banks reported fewer words in relation to environmental and educational issues than
employees related product and service and statement information. A total of 19,030
words of CSR reporting were provided in the annual reports for the 30 surveyed
banks examined, representing an average of 634 words per annual report. Table IV,
documents all banks relative position in terms of CSR reporting items. In this respect,
Dutch Bangla Bank (DBL) Ltd has been received top position by disclosing 56 items
(93.33 per cent) out of 60 items. The in-depth investigation of this banks CSR activity
showed that as a responsible corporate body, this bank has been playing a pioneering
role in implementing various social and philanthropic programs to help disadvantaged
people of the country since its inception level. Carrying out diverse social and
philanthropic activities in such areas as education, healthcare, human resources
development, conservation of nature, creation of social awareness, rehabilitation of
distressed people and other programs to redress human sufferings not only enlighten
banks image to the society but also brings many local and international awards (DBL
has won Asian CSR Award-2005 and 2006 and many national awards for their
outstanding program on CSR). Indeed, those awards distinguish banks excellent
loyalty to the education and health sector, greater attentiveness and interests to
environmental issues and other social activities. However, with regards to ranking, this

Effect of CG
elements on
CSR reporting
97

Table V.
Ranking of the banks
based on the reporting
of CSR items

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98

is followed by South East Bank Ltd, Dhaka Bank Ltd, Bank Asia Ltd, Islami bank
Bangladesh Ltd and so on. Oriental Bank Ltd, Pubali Bank Ltd, Mercantile Bank Ltd
obtained the lowest rank due to the least CSR reporting items. Table III documents
items which are not reported by any surveyed banks. One essential thing that emerges
following researchers careful assessment is that not any bank prepared CSR reports or
mentioned anything whether they might have the plan to report under the GRI
guidelines in future even if few banks employ more than ten pages for such reporting.
Consequently, no matter what CSR projects, the level and varieties of reporting is
addressed for substantiating organisational caring to society, consistent with other
developing countries practices the bottom line is still financial reporting in banking
sectors of Bangladesh. That is to say, financial reports that top management and
investors be desperate to look at. Whilst CSR practices is not entirely new for the banks
of Bangladesh (which is also evidenced in earlier research in the context of
Bangladesh), less improvement has been seen to report CSR into a level equal to global
practice. Because no structured pattern of highlighting banks CSR programme were
observed in the content of reporting, management future thought and their
commitment to address increased social demands were unreflected in current annual
reports. Given that stakeholders impose greater concern (in particular, regulatory
agency and civil society) it is now perceived as high time that top management of
banks can head out implementing more structured social reporting following global
reporting guidelines in line with developed countries practices. Management opinions
and increased plan in such areas, however, have to be constructive and forwardlooking that can be explored in future research study.
Multivariate analysis result
In this study, regression analysis was used to test the relationship between the
various independent variables and the measures of overall CSR reporting. However,
the underlying assumptions in the regression model were tested for multicollinearity
based on the correlation matrix as well as the variance inflation factor (VIF).
CSRRI  0  1 COMPNED  2 COMPWD  3 FOROWN
 4 STA  5 ROE  6 DTE et
where CSRRI is the corporate social responsibility reporting index, COMPNED is
the percentage of independent directors to total Directors on the board, COMPWD is
the percentage of women directors to total Directors on the board, FOROWN is the
percentage of non-Bangladeshi directors to total Directors on the board, STA is the size
on the basis of total assets, ROE is the profitability on the basis of Return on equity,
DTE is the gearing on the basis of Debt to equity ratio, et is the disturbance term,
1 . . . 6 is the Beta coefficient.
Descriptive statistics and the correlation matrix
Table VI provides descriptive statistics of the continuous independent variables. It is
noticeable that the Board composition that is measured by the proportion of nonexecutive directors to total number of directors indicates not many banks have the
majority of non-executive directors on the board with a mean of 32 per cent which
clearly indicated that financial institution are mostly dominated by executive directors.
The mean value of women representation is only 10 per cent with a highest percentage

Variables
COMPNED
COMPWD
FOROWN
STA (Tk. million)
ROE
DTE

Mean

Std. Dev.

Min.

Max.

32.45
10.45
20.75
508,000
35.50
31.57

16.24
19.08
27.50
107,080
11.45
25.55

0.00
0.00
0.00
69,380
22.21
2.70

72.34
30.25
50.50
8,566,520
80.79
79.65

Notes: COMPNED Percentage of independent directors to total Directors on the board;


COMPWD Percentage of women directors to total Directors on the board;
FOROWN Percentage of non-Bangladeshi directors to total Directors on the board; STA size
on the basis of total assets; ROE profitability on the basis of Return on equity and
DTE gearing on the basis of Debt to equity ratio

Effect of CG
elements on
CSR reporting
99
Table VI.
Descriptive statistics
for the independent
variables

of women representation on bank boards is over 30 per cent. Compared to the other
developed and developing counties practices (Thomas, 2001; Burgess and Tharenou,
2002), women representation on board seems rather healthier. The ratio of foreign
directors on bank boards is approximately 21 per cent although some banks board
encompasses half of the foreign nationals.
Table VII presents the correlation matrix for the dependent and continuous
independent variables. As can be seen from Table VII, CSR reporting is positively
associated with correlation coefficient of 0.550 ( p < 0.001) proportion of non-executive
directors on the board, similar to the studys hypothesis. Results also show no
significant correlation between disclosure of corporate social information and
representation of women on the board. Specifically, the correlation coefficient of 0.09
( p > 0.001) fails to exhibit any confirmation of a univariate association between CSR
reporting and womens presence on the board. However, representation of foreign
national on board is positively related to banks CSR reporting practices.
Result of multiple regressions
Table VIII shows the results of multiple regressions. As can be seen from that table, the
regression model explained 42.53 per cent (F 8.233; p 0.000) of the CSR reporting
variance for the explanatory variables. The regression model indicates a significant
( p < 0.05) relationship between the board composition variable (COMPNED) with the
extent of CSR reporting of surveyed banks. In other words, the more the number of
independent members on the Bangladeshi PCBs board, the higher the level of social
Variables
CSRRI
COMPNED
COMPWD
FOROWN
STA
ROE
DTE

CSRRI

COMPND

COMPWD

FOROWN

ROE

DTE

1
0.550**
0.096
0.258**
0.201*
0.193*
0.051

1
0.095
0.765**
0.050
0.040
0.153

1
0.074
0.067
0.057
0.044

1
1
0.168
0.143

1
0.132

Notes: *Correlation is significant at the 0.05 level (two-tailed) ( p < 0.05); **correlation is
significant at the 0.01 level (two-tailed) ( p < 0.01); n 30

Table VII.
Pearson correlations

IJLMA
52,2

Variables

100

Intercept
COMPNED
COMPWD
FOROWN
STA
ROE
DTE
R2 (%)
Adjusted R2 (%)
F statistics

Table VIII.
Multiple regression
results using index
(CSRRI) as the
dependent variable

Predicted sign

Coefficient value (b)

t-value

p-value

VIF

0.420
0.392
0.297
0.184
0.145
0.42

1.480
4.291
5.344
3.891
2.923
2.443
0.079

0.154
0.021*
0.433
0.001**
0.001**
0.002**
0.112

2.33
1.99
1.56
2.10
1.45
2.34

47.35
42.53
8.233 and p 0.000

Notes: * and ** significant at 5 and 1 per cent levels, respectively

information reported in the annual report. This finding supports the studys H1. This
result is consistent with the findings of prior disclosure research (Haniffa and Cooke,
2002; Chen and Jaggi, 2000) and empirically verifies the influence of non-executive
directors on CSR reporting practices. Moreover, the finding corroborates the recent
banking sector reforms emphasising on the role of non-executive directors on company
boards in Bangladesh (Haque et al., 2007). However, the result does not support H2 as
the composition of women directors in the board (COMPWD) is not statistically
significant ( p > 0.05). Specifically, women representation on board is not significantly
related with the extent of CSR reporting reported by the banks. This result is rather
inconsistent with earlier studies that evidenced the presence of women directors have
stronger direction towards the CSR reporting (Ibrahim and Angelidis, 1994; Sicilian,
1996). One possible explanation of these dissimilar results would be that, women
empowerment in the executive level in Bangladesh is the new phenomenon and might
have the restricted role to play due to the small numbers occupying the executive
positions. Therefore their role in relation to CSR issues would either be limited or
unattended in most cases. The last CG variable, ownership by foreign shareholders
(FOROWN) was found to be statistically significant at the 1 per cent level. The
proportion of foreign national on the board of banks is significantly related with the
level of voluntary CSR reporting, accordingly provides evidence for accepting H3.
This finding is parallel with prior research by Haniffa and Cooke (2002). The model also
reveals that two control variables such as size and profitability is statistically significant
with the level of CSR reporting but gearing is not found significant. Large companies
make more CSR reporting because of accountability and visibility as delineated in LT
(Cormier and Gordon, 2001). Thus the studys last hypothesis is partially supported. The
significance of profitability was in line with Roberts (1992) but inconsistent with Cowen
et al. (1987) and Patten (1991). This specifies that Bangladeshi banks use annual reports
as an opportunity to convey their image and legitimise their activities.
Tests of non-linearity and heteroskedasticity of the data through an analysis of
residuals indicated no major problem for regression analysis. Norusis (1995, p. 447)
described that residuals are what are left over after the model is fit and they are also
the difference between the observed value of the dependent variable and the value
predicted by the regression line. Further, the visual examination of correlation matrix
of the explanatory variables is thought of an essential way to perceive collinearity

problem. Correlation coefficient is considered problematic if it exceeded 0.8 (Farrar and


Glauber 1967; Studenmund 1992). A more precise and indicative method broadly used
is the VIF for each of the independent variable (Kennedy, 1992). According to Neter and
Kutner (1989) co-linearity is considered a problem if the VIF exceeds ten. Thus, based
on correlation matrix and VIF found in the study (see Tables VII and VIII) it is unlikely
that multicollinearity is to influence the regression results, since the highest VIF of 2.34
is far less than the threshold of ten.
Concluding remarks, limitations and further scope of the study
This study investigates the level of CSR reporting in the annual reports of listed PCB
in Bangladesh for the period 2007-08 using content analysis. It also aims to reveal the
impact of CG elements on the level of CSR information reported by banks. The results
demonstrate that although voluntary, Bangladeshi PCBs CSR reporting is rather
moderate; however, the varieties of CSR reporting are really impressive. Among all
categories of CSR items, subsequent to products and service related items reporting,
most banks disclosed more on the contribution for natural disaster (every banks
donated for the flood and tornado affected people, almost every banks (above 80
per cent) distributed worm cloths among the cold-affected people and gave donation to
Prime minister relief fund for flood victims people). This is beyond doubt the indicators
of congenial society devoted activities performed by PCBs and the persistence of such
kinds is essential as the country Bangladesh undergo natural disaster in a frequent
manner. The research demonstrates that Bangladeshi banks extend their CSR
activities towards different sector such as education, health and others sector. Their
CSR efforts on these sectors represent the greater testimony of banks legitimacy
(existence) in the society. The finding also evidenced that surveyed banks made the
evocative contribution to the educational sector by means of giving scholarships to the
meritorious students or gifting books to the colleges and universities libraries. In
relation to banks overall ranking, while the Dutch Bangla bank Ltd has been obtained
as the most CSR disclosure items bank (they disclosed more than 90 per cent of total
items), Oriental Banks Ltd has been considered least disclosed bank with regards to
CSR reporting items (see Table IV in the analysis part of the study). To accomplish
studys second aim, regression analysis has been used to explain variability in the
dependent variable with three elements of CG served as the independent variables in
addition to two bank-specific items considered as control variables. The result
demonstrates that two CG elements such as non-executive directors and existence of
foreign nationalities have the significant impact to explain the CSR reporting in
Bangladesh, but it provides no significant relationship between the women
representation in the board and CSR reporting. With regards to control variables, size
and profitability is found statistically significant with the level of banks CSR reporting
but the variable gearing is statistically insignificant. In other words, women presence
on board in PCBs of Bangladesh and gearing ratio do not have any impact on the CSR
reporting endeavour by banks.
In connection with the results known above, this study makes a number of possible
implications to the CSR literature. First, this study has opened an insight into CSR
reporting practice of developing countrys banking sector and thus expanding on
previous literature that has focused mainly on developed countries. It has opened up
further research avenues to compare and contrast these results with the banking
sectors of other developing or developed countries. Second, it has broadened previous

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CSR research to the banking industry, which has not generally considered from sample
companies because of the more rigorous regulatory rule. Third, from the studys
finding, it is well documented that tendency of CSR items reporting in an isolated
manner (lacking the adoption of any guidelines or implementing international practice)
alone is not sufficient to attain overall superior level of disclosure unless, banks have
the preparation to put GRI guidelines into practice or other forms of social reporting in
future. Fourth, findings documented that a number of banks in Bangladesh have
contributed to different sectors of the country in particular education, health and
others. The tendency of banks for CSR reporting are in many areas, but perhaps should
reflect on the findings from Table V on what they reported nothing and should
concentrates more on these issues. Fifth, it underlines the importance of non-executive
directors and existence of foreign nationalities to improve banks communication on
CSR information. And lastly, as an endeavour of revealing the CSR reporting intensity
prevailing in different banks practices in Bangladesh and hypothesising the impact of
CG elements on CSR, the findings will be a good beginning for further references or
widening future study in the subject matter.
Despite this study has explored some practical implications, it has a limited scope.
These limitations however, could stir for future research. First, this analysis of the
annual reports study is based on the population sample of Bangladeshi PCBs in the
year 2007-08. Thus, the results of the study must be interpreted only with PCBs and
should not be generalised to other commercial, foreign and non-banking business
sectors. Furthermore, firms listed in Chittagong Stock Exchange or some unlisted
firms in Bangladesh such as Unilever Bangladesh, citi NA Bangladesh might report
CSR items, which have been omitted from the study. Another directions of future
research which emerge to be worthy of exploration is to find out the motives and
opinions of management towards reporting CSR information. Second, the study
considers only one period but the findings of the study might change over time.
Therefore, a longitudinal study in different time settings may offer further glitter on the
issue to know the changes of CSR reporting across time on annual reports. This point
calls for particular attention since the researcher earlier attempt (see Khan et al., 2009)
based on annual reports of 2004-05 on selected Bangladeshi banks revealed a small
amount of reporting items. Thirdly, the study was limited only to the investigation of
companies annual reports. The banks studied might have other means to report CSR
items such as press news, brochures and newsletters etc. Finally, the findings of the
study must be interpreted within the small sample size. Thus further research attempt
taking all commercial banks listed in DSE together with foreign banks would get better
the generalisation of the findings.
In spite of the above limitations, this study is the primary to investigate CSR
reporting practices couple with the impact of governance practices in the specific
context of banking sectors in developing country such as Bangladesh. Although its
results should be considered as the introductory insight in this stand, it would set off a
number of researchers perceptively to enlarge their research exertion to a further
assessment of this area. These days are not far-flung when PCBs of Bangladesh will
prepare social reporting and incorporating CSR activities in the strategic decision by
capitalising the positive encouragements and incentives from the regulatory bodies.
However, it is well convincing that steady research on CSR reporting is required with a
view to certifying that academics and practitioners understanding on this topic is in
harmony with what is reported in the real world.

Notes
1. See the Companies Act, 1994 that replaced the Companies Act, 1913 (for all companies
except public enterprise), the Bank Companies Act, 1991 (for banking institutions), the
Insurance Act, 1938 (for insurance companies), the Income Tax Ordinance, 1984 (for all
companies and public enterprise), the Securities and Exchange Rules, 1987 (only for
public limited companies).
2. Specialised banks and national commercial banks are omitted from the study because
the aim of this research was to be familiar with CSR practicing of private commercial
banks. Although a total sample of 30 companies seems too few it does symbolise the
entire population assisting the ease with which to draw conclusions about the data.
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Further reading
Ahmad, S. and Khanal, D.R. (2007), Services trade in developing Asia: a case study of the
banking and insurance sector in Bangladesh, Working Paper Series No. 38, Asia-Pacific
Research and Training Network on Trade, Bangkok, July.
Ahmed, K. and Nicholls, D. (1994), The impact of non-financial company characteristics on
mandatory disclosure compliance in developing countries: the case of Bangladesh, The
International Journal of Accounting, Vol. 29, pp. 62-77.
Belal, A.R. (1997), Green reporting practices in Bangladesh, The Bangladesh Accountant, Vol. 25
No. 2, pp. 107-15.
Cadbury, A. (2002), Corporate Governance and Chairmanship: A Personal View, Oxford
University Press, Oxford.
Eng, L.L. and Mak, Y.T. (2003), Corporate governance and voluntary disclosure, Journal of
Accounting and Public Policy, Vol. 22, pp. 325-45.
Hossain, M., Islam, K. and Andrew, J. (2006), Corporate social and environmental disclosure in
developing countries: evidence from Bangladesh, Proceedings of the Asian Pacific
Conference on International Accounting Issues, Maui, HI, October.
Hossain, M.A. (1999), Disclosure of information in corporate annual reports of listed nonfinancial companies in developing countries: a comparative study of India, Pakistan and
Bangladesh, unpublished PhD thesis, School of Accounting and Finance, The Victoria
University of Manchester, Manchester.
Milne, M.J., and Adler, R.W. (1999), Exploring the reliability of social and environmental
disclosures content analysis, Accounting, Auditing & Accountability Journal, Vol. 12 No. 3,
pp. 237-56.
Neter, J., Wasserman, W. and Kutner, M. (1983), Applied Linear Regression Models, Richard D.
Irwin, Homewood, IL.
Corresponding author
Md. Habib-Uz-Zaman Khan can be contacted at: sumkadu@yahoo.com

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