Does Board Structure Matter in CSR Spending of Commercial Banks? Empirical Evidence from an Emerging Economy

Abstract

This chapter examines the impact of board elements on CSR spending by private commercial banks in an emerging economy, considering Bangladesh as a case. In doing so, we collected necessary data from the annual reports of 30 commercial banks listed on the Dhaka Stock Exchange, covering the period 2007–2020. In addition, we reviewed the patterns of CSR spending by commercial banks to understand the CSR universe in Bangladesh. We adopted the OLS model with two-way clustering to measure the effects of board elements on CSR spending. Our results confirm that factors, such as independent directors and board size, have a significant and positive relationship with CSR expenditures, while board gender deters the same. Also, board meetings do not have any significant connection with CSR spending. For control variables, factors, such as firm size and leverage, tend to promote the CSR spending of commercial banks, while profitability has no such relationship. As for the sectoral distribution of CSR funds, we found that although the absolute amount of CSR expenditures by banks has increased substantially over the years, they are primarily limited to health, education, natural disasters, and humanitarian activities. These findings are expected to have significant policy implications.

1. Introduction

Since the seminal study of Sheldon in 1923, the term “corporate social responsibility” (CSR) has received phenomenal interest from different scholars as a behavioral financial tool to align business interests with society’s interests [1]. CSR can be viewed as an ecosystem that aims to enhance the welfare of a society by conducting ethical business practices. According to World Business Council for Sustainable Development (WBCSD), “CSR is the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” [2]. CSR is neither a charity nor a one-stop process. It is dynamic, welfare-oriented, and largely context-specific. It is enunciated under the ambit of formal and informal institutions to fulfill social obligations and ensure legitimacy in doing business. As countries worldwide tend to differ regarding economic status, regulatory forbearance, and social sanctions, so does the paradigm of CSR. Thus, CSR remains an iconic area for research to accumulate knowledge.

For empirical works, scholars tend to identify ceteris paribus CSR’s determinants and impacts from different perspectives, such as governance, management strategies, industrial nature, and regulatory and financial developments [3, 4, 5]. CSR activities in developing economies also vary from developed economies. While firms in developed economies tend to allocate a significant portion of CSR budgets to gender equality, work culture, ethical business practices, and reputation, developing economies are likely to view CSR as a philanthropic activity and rarely consider such social components of CSR in the policy [6]. Scholars also tend to offer confounding empirical results concerning the economic benefit of CSR activities across countries. For example, some studies reveal a positive and significant association between CSR disclosure and firm performance [7, 8, 9], whereas others accentuate the negative relationship between them [10, 11]. In addition, some studies highlight the positive link between CSR and governance elements, whereas others do not confirm it [12, 13, 14]. More importantly, Nobel laureate Paul Samuelson strongly advocates CSR activities as a testament to noneconomic success [15]. By contrast, another Nobel laureate Friedman raises a strong voice against using corporations’ money for general social interest [16]. Thus, the importance of CSR on firm values and factors promoting CSR activities remains a highly debatable issue in academic literature.

Given the above, we study CSR activities by banks in an emerging economy, such as Bangladesh, and examine whether the board elements influence the CSR activities of the banking industry to add knowledge. We consider the banking industry because this sector plays a critical role in supplying finance and promoting economic growth in developing economies, such as Bangladesh. Moreover, the banking sector deserves special attention in CSR study because the long-term success of a bank depends on both transactional and relational capital that CSR activities can increase. Also, banks can influence other businesses to practice socially responsible behaviors by incorporating CSR tools in their lending models [17].

We consider Bangladesh as a case to study CSR activities for two reasons. First, Bangladesh has been one of the leading economies in South Asia in terms of GDP growth rates in the last decade (6% plus on average). While economic development is evident in Bangladesh, the country is subject to global warming. For example, despite producing only 0.56% of the global emissions, Bangladesh is considered one of the most environmentally vulnerable countries globally [18]. It is said that by 1950, nearly 18 million people will be displaced in Bangladesh because of the increase in sea level alone [19]. Furthermore, the climate change caused by global warming will create detrimental effects on health, energy, productivity, water supply, agriculture, forestry, and the ecosystem of the country. Recognizing such severe consequences of global warming, the government of Bangladesh considered CSR as an economic policy tool in 2008 to ensure corporate accountability on the one hand and build a sound ecosystem on the other. However, empirical research on CSR activities in Bangladesh is found to be scant thus far and mostly confined to CSR disclosures in the annual reports [5, 20, 21, 22, 23, 24, 25]. Therefore, updated knowledge of CSR activities in Bangladesh is crucial to policy reforms. We fill this void.

Second, Bangladesh does not have a vivid capital market that can supply necessary funds to the entrepreneurial firms, implying that the lion’s share of the funds is intermediated through commercial banks. Thus, commercial banks expect to play an essential role in increasing the qualitative development of Bangladesh beyond increasing the financial depth as they can deploy creditors’ rights in monitoring the firm. In this pretext, the central bank of Bangladesh (Bangladesh Bank) issued the first guideline on CSR for the banks and nonbank financial institutions in 2008 to make them part of the ecosystem by giving tax rebates on CSR spending. Of late (January 10, 2022), Bangladesh Bank issued another circular on CSR, highlighting more spending on healthcare and environmental issues to ensure the use of the funds for sustainable development. In the meantime, some studies were undertaken to understand the CSR activities of the banking system of Bangladesh, but they were mainly limited to CSR disclosures and financial performance [5, 20, 21, 22, 23, 24, 25]. Thus, little has been known so far on the governance and CSR nexus in the banking industry of Bangladesh.

Given the above, we seek to answer whether the board structure mater in CSR spending of the commercial banks in Bangladesh. As a supreme authority, the corporate board is responsible for and oversees management and governance activities, is entrusted with protecting shareholders’ interests, and ratifies actions supportive of the economic and social values of the firm. The stakeholder theory suggests that the extent to which a firm can enhance stakeholders’ welfare depends on the demographic and cognitive profiles of the board member [26, 27]. This, in turn, directs a firm to allocate resources to facilitate social welfare. That being said, the board composition is likely to deter or promote the CSR activities of a corporation. This is particularly true in countries, such as Bangladesh, where the banking system primarily caters to the country’s financial needs. However, to our knowledge, few studies have checked the board structure and CSR nexus in the context of Bangladesh. Therefore, we empirically address this issue by hand-collecting data from the annual reports of 30 private commercial banks listed on the Dhaka Stock Exchange (DSE) in Bangladesh to update knowledge. Simultaneously, we review the CSR guidelines of the Bangladesh bank and unfold patterns of CSR spending to contribute to the policy-making.

We find that board elements, such as independent directors and board size have a significant and positive relationship with CSR expenditures, suggesting that banks with larger boards and boards with more independent directors tend to spend more money on CSR activities. This finding supports the stakeholder theory and aligns with the findings of previous studies [13, 26, 28]. By contrast, we reveal that female directors tend to deter CSR spending by banks, indicating that they are either free riders or not interested in the CSR activities of the banks. Regarding control variables, we reveal that factors, such as firm size and leverage, positively influence the CSR spending of commercial banks, while firms’ profitably has no such connection. As regards the pattern of CSR spending by banks, we find that although the absolute amount of CSR spending by banks has increased substantially over the years, they are limited to certain sectors, such as health, education, humanitarian, and disaster sectors, with a heterogeneous trend.

The rest of the chapter is organized as follows: Section 2 provides an overview of CSR guidelines for the banking system of Bangladesh, while Section 3 discusses the sector-wise distribution of CSR spending by Banks. Section 4 reviews previous literature and formulates hypotheses. Section 5 discusses research methods. Section 6 provides regression results, and Section 7 concludes the chapter with some policy remarks.

2. Overview of CSR guidelines by Bangladesh Bank

As a controller of financial institutions, Bangladesh Bank issues CSR guidelines for all scheduled banks and nonbank financial institutions to ensure corporate accountability, ethical practice, and social justice. On June 01, 2008, Bangladesh Bank, for the first time, issued a circular on CSR reporting for all scheduled banks and nonbank financial institutions (NBFIS) to provide equitable and meaningful solutions to social and environmental issues. In this circular, Bangladesh bank asked commercial banks to include CSR at the corporate level (board of directors of the bank), select CSR action programs, fix performance targets in consultation with the internal and external stakeholders, and disclose CSR activities ad-hoc basis. The circular outlined four sections of CSR that include: (a) introduction, (b) source materials helpful in drawing up CSR programs and sustainability reports, (c) initiating CSR programs in banks and financial institutions, and (d) monitoring of CSR performance. Also, the circular was attached with “Annexure-A,” where 14 related references were given to report CSR performance. Then on June 02, 2009, Bangladesh Bank issued another circular with reference to the previous circular to help massive Cyclone Ayla affected people in Bangladesh. Then, on July 15, 2010, Bangladesh Bank enclosed a format for monitoring the CSR adoption and performance for banks and asked them to submit a statement on CSR activities following the prescribed format on a half-yearly basis within 30 days of each half-year period. These guidelines are viewed as a milestone for CSR activities for the banks in Bangladesh. It outlined some critical issues, such as financial inclusion, social projects, community investment, and the number of beneficiaries for CSR reporting, and made the CSR report mandatory for banks. After this circular, Bangladesh Bank issued another circular on December 20, 2010, asking banks to establish a separate CSR desk in banks for proper communication. Then, on February 10, 2011, Bangladesh Bank provided policy guidelines for practicing green banking. Following this circular, banks were required to report initiatives under the green banking program to Bangladesh Bank quarterly. Also, banks were asked to disclose green banking activities in their annual reports and update their websites as well. In the following circular on December 01, 2011, Bangladesh Bank focused on gender equality in the workplace and provided a format to report gender equality-related performance. The green banking initiative and gender equality in the workplace is a breakthrough in promoting CSR activities in Bangladesh.

Another significant regulatory development related to CSR activities took place in April 2013 when Bangladesh Bank established a Green Banking and CSR Department (GBCSRD) to ensure proper monitoring of the CSR activities by banks. On April 11, 2013, the GBCSRD issued a circular to submit reports on school banking on a half-yearly, green banking quarterly, and other CSR activities, such as gender equality and educational support activities quarterly. On December 22, 2014, the GBCSRD issued another circular titled “Indicative guidelines for CSR expenditure allocation and end-use oversight” to cover administrative setup, budgetary allocation process, expected range/coverage of allocations, and end-use monitoring of CSR expenditures in CSR reporting. In the expected range/coverage section, banks were asked to allocate at least 30% of total spending to the education sector, 20% to preventive and curative health care supports, and a significant amount of funds for meeting any urgency, such as environmental disasters. One of the remarkable progresses in this circular was that banks were responsible for monitoring the proper utilization of CSR funds and keeping all end-use monitoring records available for inspection by internal and external auditors and supervision officials from Bangladesh Bank.

Afterward, on June 10, 2015, the GBCSRD issued a new format for CSR reporting under the “statement on corporate social responsibility initiatives.” This format outlined three critical areas for CSR reporting: Corporate governance, policy issues, and CSR expenditures. The corporate governance section emphasized reporting the initiatives for institutionalizing the corporate governance framework to add value to the stakeholders, such as shareholders, customers, partners, and employees. Policy issues covered the transmission of information approved by the board regarding CSR, and the CSR expenditure section highlighted the areas of CSR spending, including (1) social projects, (2) community investment, and (3) priority sectors. Then, on June 23, 2015, GBCSRD advised banks to include “virtuousness and anticorruption publicity expense” as CSR activity and report it in the “others” section as per the previously enclosed format. Finally, on January 10, 2022, GBCSRD issued a new guideline for CSR spending focusing more on healthcare and environmental issues to uphold the country’s sustainable growth. As per this circular, banks and NBFIs were advised to allocate a minimum of 30% of total CSR expenditure for health care, another 30% for education, and a minimum of 20% for tackling the adverse impact of global warming and climate change and urban migration.

As a whole, it is observed that since the year 2008, Bangladesh Bank has taken substantial measures to enhance the CSR activities of the commercial banks. In the initial phase, CSR was recognized as a philanthropic activity for banks to report ad hoc. However, after a couple of years, CSR was included in the lending model of the banks, and it became a policy instrument for sustainable growth. Also, Bangladesh bank institutionalized CSR activities by setting up a new CSR department (GBCSRD) and widening CSR activities in areas, such as health, education, sanitary, gender equality, environmental disasters, and green banking. Simultaneously, Bangladesh Bank made CSR reporting mandatory for commercial banks and made them responsible for monitoring the end-use of CSR expenditures while keeping all those records for internal and external audits. In addition, Bangladesh Bank decided to publish the CSR activities of banks on a half-yearly basis to ensure transparency and accountability. All these initiatives indeed enhanced the CSR activities of the commercial banks, as illustrated in Section 3 of this chapter.

3. Patterns of direct CSR expenditures by banks

Table 1 presents the sector-wise distribution of direct CSR expenditures by banks over the period 2007–2020. Table 1 reveals that CSR spending by banks scaled up from Bangladesh Taka (BDT) 226.40 million in 2007 to BDT 5273.6 million in 2015, and then BDT 9675.5 million in 2020. Among different sectors, health, humanitarian and disaster sectors received primary importance in the initial phase of the CSR evolution in Bangladesh (2007–2010). However, at this phase, banks allocated maximum CSR funds to meet other purposes, such as buying books, scholarships for students, and boat races, as there was a lack of proper guidelines for reporting CSR spending. The education sector received considerable attention in receiving CSR in 2011, although the humanitarian and disaster relief sector dominated the CSR expenditures in the last couple of years. The education sector received BDT14.30 million (6.32%) in 2007, which increased to BDT 612.48 million (28%) in 2011, then nearly BDT3800 million (38%) in 2018. However, in 2020, the education sector captured 10.8% of the CSR spending by banks because the COVID-19 hurt the education sector severely. By contrast, the humanitarian and disaster relief sector captured 42% of the CSR expenditures in 2020 from 8.51% in 2011. The health sector appeared to be the third most crucial sector in capturing CSR expenditures in recent times, receiving 18.1% of CSR expenditures in 2020. The environment sector has been given priority since 2010. However, it bagged nearly 3.07% of the total allocated amount over the period (2010–2020), implying that bank officials were less concerned about the adverse effects of global warming. Notably, the two new sectors, infrastructure improvement and income-generating activities, were included in 2015 as a part of CSR spending, leaving sports as a minor priority sector. In addition, the arts and cultural sector received 9.23% in 2020, while the same was 4.16% in 2016 and 14.12% in 2010.

Sectors	Year
	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Education (%)	14.30; (6.32)	30.50; (7.43)	94.80; (17.1)	400.79; (17.2)	612.48; (28.0)	983.69; (32.3)	1295.2; (28.9)	1508.0; (29.5)	1583.6; (30.0)	1488.6; (30.0)	2028.3; (27.3)	3800.3; (42.0)	1766.3; (27.3)	1043.2; (10.8)
Health (%)	68.60; (30.3)	112.10; (27.3)	245.50; (44.3)	689.07; (29.6)	520.42; (23.8)	435.43; (14.3)	481.68; (10.8)	1383.7; (27.1)	1111.4; (21.1)	381.80; (7.69)	587.01; (7.89)	516.80; (5.71)	733.30; (11.3)	1748.0; (18.1)
Humanitarian and disaster relief (%)	127.70; (56.4)	58.60; (14.3)	125.10; (22.6)	460.40; (19.8)	188.03; (8.59)	788.37; (25.9)	1385.8; (31.0)	949.47; (18.6)	1446.2; (27.4)	1883.1; (37.9)	3293.3; (44.3)	3308.4; (36.6)	2427.9; (37.5)	4061.3; (42.0)
Sports (%)	2.70; (1.19)	49.80; (12.1)	1.20; (0.20)	265.23; (11.4)	359.07; (16.4)	183.85; (6.03)	384.02; (8.59)	207.37; (4.06)	—	—	—	—	—	—
Arts and culture (%)	—	0.80; (0.19)	0.30; (0.05)	328.91; (14.1)	171.52; (7.84)	213.31; (7.01)	124.75; (2.79)	407.11; (7.97)	414.00; (7.85)	206.50; (4.16)	358.90; (4.82)	450.00; (4.97)	280.00; (4.32)	893.00; (9.23)
Environment (%)	—	—	—	59.78; (2.57)	138.07; (6.31)	140.23; (4.60)	106.59; (2.38)	164.55; (3.22)	150.40; (2.85)	144.11; (2.90)	84.30; (1.13)	27.90; (0.31)	330.70; (5.10)	239.10; (2.47)
Infrastructure improvement (%)	—	—	—	—	—	—	—	—	40.30; (0.76)	15.10; (0.30)	13.60; (0.18)	15.50; (0.17)	13.70; (0.21)	88.80; (0.92)
Income generating activities (%)	—	—	—	—	—	—	—	—	79.20; (1.52)	261.50; (5.26)	3.60; (0.05)	9.50; (0.11)	1.20; (0.02)	0.50; (0.01)
Others (%)	13.10; (5.79)	158.90; (38.7)	86.90; (15.7)	125.58; (5.39)	198.73; (9.08)	301.81; (9.91)	693.41; (15.5)	485.24; (9.50)	448.50; (8.50)	616.80; (12.4)	1070.9; (14.4)	917.9; (10.2)	925.60; (14.3)	1601.6; (16.6)
Total in Mil. BDT; (%)	226.40; (100)	410.70; (100)	553.80; (100)	2329.8; (100)	2188.3; (100)	3046.7; (100)	4471.5; (100)	5105.5; (100)	5273.6; (100)	4967.5; (100)	7439.9; (100)	9046.3; (100)	6478.7; (100)	9675.5; (100)

Table 1.

Sectoral distribution of direct CSR expenditure by banks (2007–2020).

^*

Note: CSR reports of the Bangladesh Bank, different issues (2007–2020).

On the whole, we find that Bangladesh has a much narrower understanding of CSR activities because the allocated amount to CSR activities is still meager, although it has increased over the years with some exceptions. Also, CSR spending by banks on different sectors tends to follow a zigzag trend and is mainly limited to health, education, and contribution to natural disasters and humanitarian activities. These are partly due to regulators’ frequent changes in CSR policies and reporting formats. It is worth noting that until the year 2014, Bangladesh Bank compiled the CSR expenditure by banks under seven different sectors, including (1) education, (2) heath, (3) humanitarian and disaster relief, (4) sports, (5) arts and culture (6) environment, and (7) others. However, in 2015, Bangladesh Bank included two other sectors, such as infrastructure improvement and income-generating activities, and made some changes to the items in the previously prescribed sectors for reporting CSR activities. For example, the sports and arts and culture sectors were advised to register under the cultural welfare sector. In addition, Bangladesh Bank guided banks to allocate CSR funds to impoverished areas, such as virtuousness and anticorruption publicity, and advised banks to report them in the others section. The changes in CSR policies resulted in banks’ uneven allocation of CSR budgets to different sectors. Apart from this, some sectors, such as education, health, environment, and disaster relief, have been the priority sectors for the CSR spending by banks in Bangladesh.

4. Theories, empirics, and hypotheses

Unlike developed economies, developing countries often face some structural problems, such as poverty, deadly diseases, corruption, water and air pollution, and natural hazards, besides the well-known institutional and market lagging issues, such as regulatory forbearance, weak governance, and absence of market players for corporate control [29, 30]. In such markets, both the stakeholder theory and legitimacy theory can be put into place to discuss the board structure and CSR nexus. The stakeholder theory presumes that board members’ personal and social background is critical to building a long-term sustainable relationship with the stakeholders [31]. In other words, stakeholder theory emphasizes ethical behavior, mutual interest, sustainability, and long-term relationship, which influence corporates to engage in CSR activities [32]. This implies that firms with a more diverse board tend to be more socially accountable than firms with relatively a weak board structure.

Likewise, legitimacy theory focuses on cultivating a long-term relationship with society to show the reasons for doing business in society and legitimate business activities by societal and regulatory forces. Legitimacy is a process to increase the trust of the external people. It includes stakeholder theory at the center point and focuses on the business’s long-term success at the gravity level by building reputational capital. Such practice motivates firms to undertake more CSR activities to legitimate their existence for a social cause beyond economic profits [33]. For that matter, it is the responsibility of the board to undertake activities that would enhance the financial performance of the business on the one hand and legitimize business operations on the other hand by gaining social trust. Therefore, both the stakeholder theory and legitimacy theory emphasize nurturing relationships with the stakeholders, although the former focuses more on building relationships with the powerful stakeholders while the latter discusses the importance of society as a whole to ensure long-term success [34]. Thus, we anchor on the stakeholder and legitimacy theories to explain the link between board structure and CSR spending by banks in Bangladesh.

The surrogates of board structure are board size, board independence, gender diversity on the board, and the number of board meetings. Board size is critical to promoting and monitoring CSR activities among these board elements because larger boards tend to have more voices on corporate CSR activities, such as investment in health, education, and the environment [5, 13]. However, extant literature provides mixed results on the relationship between board size and CSR performance. For example, some studies revealed a positive relationship between board size and CSR performance [28, 35, 36], while some noted an insignificant relationship between them [37, 38]. This difference in empirical results is attributed to the country-specific factors, such as corruption, business cultures, and enforcement status, of laws and regulations, suggesting more studies to accumulate knowledge.

Likewise, independent directors are instrumental in checking the social obligations of a firm because they are nonexecutive directors without having any pecuniary relationship with the firm. Also, independent directors want to protect their reputation by serving as a watchdog on the board and directing management to choose value-enhancing activities. Thus, independent directors have the power to refrain managers from building their empires through better monitoring [39]. However, similar to board size, extant studies show confounding results between board independence and CSR performance. Some studies highlighted a significant positive association between board independence and CSR performance [11, 12, 13]. On the other hand, some scholars noted a negative relationship [35, 40], while others did not find any significant connection between them. This mixed results in the relationship between board independence and CSR spending lie in the fact that independent directors may not function accurately in developing countries due to pressures from owner directors and fear of losing their job [41].

Another vital board element is the board gender diversity. Scholars argue that female representation on the board facilitates more discussion on CSR issues because women are likely to have more sensitive to ethical behavior, corporate philanthropy, and environmental pollution [42, 43]. Also, women directors tend to raise diverse issues related to women empowerment, thereby promoting gender equality in the workplace. Furthermore, women can address the concerns of various stakeholders more effectively, thereby increasing customers’ loyalty and leading to financial profits. However, akin to board size and board independence, empirical works unearth inconclusive results between board gender diversity and CSR performance. Some scholars revealed a significant positive connection between female directors on board and CSR performance [44, 45, 46]. Conversely, some documented a significant negative link between them [12, 47], while others found no meaningful connection [37, 48].

Finally, board meetings can impact the CSR activities of the firm because frequent board meetings create enough room for evaluating CSR activities and help to take corrective measures to improve CSR performance. However, empirical studies concerning the link between CSR and the frequency of board meetings are scant. Most scholars found no significant association between them [35]. We argue that in developing economies, such as Bangladesh, which has improper checks and balancing systems, frequent board meetings can help monitor the guile behavior of the management, resulting in the higher allocation of funds to CSR activities and more disclosure of nonfinancial information about the social and environmental practices by firms.

The above discussion clarifies that the connection between board structure and CSR spending is not univocal. The empirical results are confounding and often driven by a country’s economic structure, cultural understanding, institutional developments, and national commitments. Nevertheless, as Bangladesh has shown remarkable progress in allocating funds to CSR activities over the last couple of years, we surmise that board elements will be positively associated with CSR spending by banks. Accordingly, we develop the following hypothesis to examine the nexus of board structure and CSR performance.

H1: There is a positive relationship between board elements, such as board size, board independence, board gender, board meetings, and CSR spending by banks.

5. Research design

5.1 Samples

Our sample consists of all the commercial banks, 30 in this case, listed on Dhaka Stock Exchange (DSE). We hand-collected necessary information on CSR spending by banks through the CSR reports published by Bangladesh Bank covering the period 2007–2020. Simultaneously, we checked the annual reports of sampled banks to check for any inconsistencies in CSR disclosures. For firm-specific data, we studied the annual reports of selected banks and obtained the required information.

5.2 Board structure and control variables

We used four board elements: Board size, board independence, board gender, and frequency of board meetings as our main variables of interest. Board size was measured by the total number of directors on the board. Board independence represented the number of independent directors relative to the board size. Board gender was indexed by the percentage of female members on the board. Finally, the frequency of board meetings was measured by the number of meetings held annually. Also, we adopted some control variables, such as firm size, leverage, profitability, and firm age, following previous literature to get robust estimates [26, 49, 50]. We proxy for firm size with the total assets (TA), leverage with the liability to asset ratio (LEV), profitability with the return on assets ratio (ROA), and firm age with the number of years from the year of listing to the reporting period in our study. Besides, we controlled both year and firm effects in the OLS model. Table 2 presents the definition and acronyms of all the variables used in the study.

Variable	Acronym	Predicted sign	Measure
Board size	BDSIZE	+	Number of total directors on the board. We use the natural logarithm of the number of directors
Board independence	BDIND	+	Number of independent directors relative to the total number of directors on the board
Board gender	BDGEND	+	Number of female directors relative to the total number of directors on the board
Board meeting	BDMEET	+	Number of total board meetings in a year. We take the natural logarithm of the number of board meetings
Firm size	TA	+	Firm size is measured by the total assets of the company. We use the natural logarithm of the total assets
Profitability	ROA	+	Profitability is measured by the return on assets (ROA) which is the ratio of net profit after tax to total assets
Leverage	LEV	+	Leverage is measured as the ratio of total liabilities to total assets
Age	AGE	+/−	Age is the number of years from the listing year. We take the natural logarithm of the number of years

Table 2.

Definition of variables.

5.3 Regression model

We used the following regression model to examine the relationship between board structure and CSR spending by banks.

$$\begin{array}{l}{\text{CSREXP}}_{it}={\beta }_0+{\beta }_1{\text{BDSIZE}}_{it}+{\beta }_2{\text{BDIND}}_{it}+{\beta }_3{\text{BDGEND}}_{it}+{\beta }_4{\text{BDMEET}}_{it}\\ +{\beta }_{5}T{A}_{it}+{\beta }_{6}RO{A}_{it}+{\beta }_{7}LE{V}_{it}+{\beta }_{8}AG{E}_{it}+{\epsilon }_{it}\end{array}$$

where CSREXP is the corporate social responsibility (CSR) expenditure, BDSIZE is the size of the board, BDIND is the board independence, BDGEND is the board gender, BDMEET is the number of total board meetings, TA is the total assets, ROA is the return on assets, Lev is the gearing based on debt-to-equity ratio. ε_it is the disturbance term, and β1… β8 are the coefficients of the variables.

6. Empirical results

6.1 Descriptive statistics

Table 3 portrays descriptive statistics of the variables. As shown in Table 3, the mean value of CSR expenditure is BDT 96.397 million with a minimum of zero and a maximum of BDT1813.6 million, indicating a significant difference between banks regarding CSR spending. As for board elements, not many banks have the majority of independent directors on the board (13.77% on an average) and board gender as well (10.50% on an average). The mean value of board size is 13.98, with a maximum of 28 directors and a minimum of five directors, indicating a large gap in board size between banks. Likewise, the average number of board meetings is 19.929, ranging between 4 and 62, indicating sharp differences between banks holding board meetings. Concerning the control variables, the banks’ mean return on assets (ROA) is 1.3%, with a minimum of −13.51%. Similarly, the mean value of total assets (TA) is BDT 268,174 million, with a minimum of BDT 11,240 million. The average leverage of the bank (LEV) is 92.90% because the banking sector is highly leveraged by operation. The average age of the banks varies between 0 and 37 years. As a whole, the descriptive statistics of the variables used in the study show larger fluctuations in terms of average performance and standard deviations.

Variables	Mean	Std. dev.	Min.	Max.
CSREXP (in million BDT)	96.397	188.245	0	1813.6
BDSIZE	13.98	4.038	5	28
BDIND	0.137	0.105	0	0.429
BDGEND	0.105	0.109	0	0.444
BDMEET	19.929	8.492	4	62
TA (in million BDT)	268,174	251,307	11,240	1,417,622
ROA	0.013	0.015	−0.1351	0.100
LEV	0.929	0.133	0.010	1.766
AGE (in years)	16.53	9.677	0	37
Number of observation	420	420	420	420

Table 3.

Descriptive statistics.

6.2 Correlation matrix

Table 4 presents the correlation coefficient matrix in the variables under study. As shown in Table 4, CSR spending (CSREXP) is positively associated with the size of the firm (TA), with a correlation coefficient of 0.705 (p < 0.001) at a 1% significant level. Also, there is a positive relationship between CSR spending and leverage of the firm (LEV), with a correlation coefficient of 0.245 (p < 0.001) at a 1% significance level. Similar evidence is found between the age of the bank (AGE) and CSR spending, with a correlation coefficient of 0.172 (p < 0.001) at a 1% significant level. However, the correlation between CSR spending and return on assets (ROA) is insignificant. As regards board structure, CSR spending has a positive relationship with the board size (BDSIZE), board meetings (BDMEET), and board independence (BDIND) at the 1% significance level. However, there is no significant association between CSR spending and board gender (BDGEND), indicating that female members on the board do not influence CSR spending by banks. Finally, we did not see any multicollinearity problem in the factors to run the regression.

Variable	CSREXP	TA	LEV	ROA	AGE	BDSIZE	BDMEET	BDIND	BDGEND
CSREXP	1
TA	0.705***	1
LEV	0.245***	−0.405***	1
ROA	0.016	−0.045	−0.217***	1
AGE	0.172***	0.467***	0.024	−0.092	1
BDSIZE	0.301***	0.250***	−0.321***	0.180***	0.052	1
BDMEET	0.228***	0.328***	−0.325***	0.009	0.317***	0.252***	1
BDIND	0.478***	0.552***	0.002	−0.113**	0.141**	−0.242***	−0.001	1
BDGEND	−0.039	−0.007	0.093*	−0.036	−0.251***	−0.173**	−0.073	0.148***	1

Table 4.

Correlation matrix.

^*

Level of significance at 10%.

^**

Level of significance at 5%.

^***

Level of significance at 1%.

6.3 Regression results

Table 5 provides regression outputs. As shown in Table 5, board structure elements, such as board size (BDSIZE) and board independence (BDIND), are positively and significantly associated with CSR expenditure by banks at the 1% significance level. This result strongly supports our hypothesis. However, we find that female representation on the board is negatively associated with CSR spending by banks at the 5% significance level. This result refutes our predefined hypothesis. Also, we do not find any significant relationship between the number of board meetings and CSR spending by banks. This is contrary to the proposed hypothesis that outlines frequent board meetings tend to promote CSR spending by banks. Concerning control variables, we find that bank size (TA) promotes CSR spending by banks at the 1% significance level. Precisely, a 1% increase in banks’ total assets can enhance nearly 162% of CSR spending. Also, Table 5 reveals that leverage has a significant and positive connection with CSR spending. This is expected because the banking industry primarily lends funds by taking public deposits. By contrast, we find that age of the bank negates CSR spending by banks. Also, no significant relationship runs between banks’ profitability (ROA) and CSR spending, although the coefficient of the ROA has been highly positive. We leave these two issues for further investigation.

Variable	Predicted sign	Coefficient	t-value	p-value
BDSIZE	+	1.062^***	2.80	0.005
BDIND	+	3.137^***	2.63	0.009
BDGEND	+	−1.534^**	−2.33	0.020
BDMEET	+	0.270	0.85	0.397
TA	+	1.620^***	8.01	0.000
ROA	+	4.923	0.80	0.424
LEV	+	1.902^***	3.07	0.002
AGE	+/−	−0.529^***	−3.74	0.000
Intercept	−19.976^***	−8.25	0.000
Observation	420
Adjusted R-square	0.5844
F statistics (8, 411)	83.51

Table 5.

Ordinary least square regression clustered by firm and years.

The superscripts ^*,^** and ^*** indicate significance at the 10%, 5%, and 1% levels, respectively.

6.4 Result discussion

This study yields that board elements, such as board size (BDSIZE) and board independence, (BDIND) are significantly and positively associated with CSR expenditure by banks, implying that banks with large boards and boards with more independent directors tend to spend more money on CSR activities. This result strongly supports our hypothesis, which outlines that board size and independence would promote the CSR activities of the banks. Also, this result supports the stakeholder theory and legitimacy theory in that banks in developing economies focus on creating long-term relationships with different stakeholders to achieve lending supremacy on the one hand and obtain legitimacy on the other hand by catering to the needs of society. A large board tends to have more independent directors with diverse backgrounds and expertise, thereby increasing efficiency in monitoring managerial opportunism. Thus, independent directors can direct the firm’s management to spend money on CSR activities to enhance social capital. Arguably, the long-term success of the banking business depends not only on increasing transactional capital but also on improving the relational capital, suggesting that banks should undertake more CSR activities. This is particularly true for the banking sector in developing economies because this sector takes the prime responsibility for catering to the financial needs of the country. Our findings suggest that banks should hire more independent directors to enhance social and transactional capital to legitimate their activities by the societal forces. This finding supports the previous results [11, 12, 13, 35, 36]. However, it disapproves the earlier findings of Uddin and Choudhury [41] that agued independent directors may not function accurately in developing economies due to pressure from owner-directors and fear of losing their jobs. We note that, in Bangladesh, factors, such as corruption, poor governance, and family-led politics, provide strong incentives to firm managers to abuse financial resources. In such an environment, a larger board and a board with more independent directors can effectively monitor the guile behavior of the management, which in turn directs management to discharge more funds on social and environmental purposes to get public legitimacy.

An intriguing finding of the study is that female directors on the board negate CSR spending by banks, indicating the decrease of female representation in the top echelon positions to enhance CSR activities. This result contradicts the view that women are more sensitive to social and environmental issues so that they would raise their voices on the quantity, quality, and transparency of CSR disclosure. Also, this result is contrary to the earlier findings that claim female executives can enhance CSR expenditures [43, 44]. In this pretext, we note that female representation on the board is minimal in Bangladesh; hence, they are likely to be the free-rider to protect their jobs. This is because Bangladesh bank encourages female entrepreneurship with the support of its development partner, the Japan International Cooperation Agency (JICA), and Asian Development Banks (ADB) by creating a refinancing scheme and allocating 15% of the fund to female entrepreneurs. Simultaneously, many NGOs are working on improving the health and education of female entrepreneurs, besides the humanitarian activities. As a result, the participation of female executives in CSR activities is likely to be increased in Bangladesh. Thus, the negative connection between board gender and CSR spending by banks should not be generalized to other economies, and it warrants further investigation. Another outcome of this study is no significant relationship between the number of board meetings and CSR spending by banks. This is plausible for banks in developing economies where board members are likely to discuss critical business issues other than CSR activities whenever they sit for additional board meetings. However, this issue remains a point of debate.

For control variables, we find that bank size (TA) is significantly related to CSR spending by banks. This result is logical because larger banks can allocate more funds to CSR activities than smaller, financially weak banks. This finding approves the previous results of Muttakin and Subramaniam and Hu et al. [12, 49]. Also, the positive link between leverage and CSR spending is quite plausible because the banking industry is a highly leveraged sector where success depends on relational capital and reputation, which eventually influences CSR spending by banks. Also, Bangladesh Bank firmly guides the banking system of Bangladesh for allocating CSR expenditures and disclosure of CSR information in a timely fashion to perform social obligations of banks and legitimate banking activities by the society, resulting in a positive association between CSR spending and leverage. However, this result contradicts the earlier findings [51] that note a negative relationship between CSR and leverage. Finally, we find that bank profitability is not an essential factor for CSR spending by banks in Bangladesh. This may happen because CSR spending by banks is no longer voluntary in Bangladesh. Instead, it is a direct expenditure guided by Bangladesh bank. This issue warrants further investigation. Also, we find that the age of the bank is inversely related to the promotion of CSR activities. This result supports the earlier findings [51]. However, it disapproves of the view that banks with longer years in operation tend to accumulate financial resources and experience necessary to allocate funds for CSR activities. Hence, this remains another issue for further research.

7. Conclusion

This chapter investigated the relationship between board structure and CSR spending by commercial banks listed on DSE in Bangladesh, covering the period 2007–2020. Also, we reviewed CSR policies for the banks and explored the pattern of CSR expenditures by banks over the same period (2007–2020). Finally, we applied the ordinary least square regression model by clustering banks and years and utilized some firm-specific variables as controls to obtain efficient estimates.

Our empirical results confirm that board elements, such as board size and independence are significantly and positively associated with CSR spending by banks. By contrast, female director tends to inhibit CSR spending by banks, and the frequency of board meetings has no connection with the same. Furthermore, for firm-specific factors, we confirm that bank size and leverage positively and significantly influence the CSR spending of commercial banks in Bangladesh, suggesting that larger banks are incremental to promoting CSR spending. In addition, we note that CSR spending by banks has significantly increased over the study period (2007–2020). However, the sectoral distribution of CSR funds has been somewhat heterogeneous in areas, such as environmental pollution, education, health, gender equality, and other humanitarian activities. Simultaneously, Bangladesh Bank has taken significant measures to improve banks’ CSR spending and ensure control thereon. One of such measures is to publish CSR activities on a half-yearly basis to ensure the proper use of CSR funds. Additionally, Bangladesh bank has prescribed priority areas for CSR activities for banks in recent times to enhance both stakeholders’ welfare and economic growth.

7.1 Theoretical contributions

This study unearths the link between board elements and CSR spending by banks in the context of an emerging economy. The banking industry deals with multifaceted stakeholders compared to conventional manufacturing and trading firms. Also, banks play a critical role in enhancing the economic growth rates by effectively intermediating funds to various sectors, some of which are environmentally sensitive. Thus, this study falls under the ambit of corporate governance, stakeholder and legitimacy theories. Our results suggest that board elements, such as board size and independence, are essential factors for promoting CSR spending by banks. By contrast, the presence of women on the board negates the same, and board meeting frequency has no such connection. This result is critical for the literature on bank governance. At the same time, it expects to raise interest in studying CSR performance by diverse stakeholders because CSR spending can enhance a bank’s relational and reputational capitals, which are needed to ensure long-term sustainable success. Also, our results can help banks restructure board elements to reap the benefits of CSR spending, which is one of the powerful financial instruments for obtaining legitimacy by societal forces.

7.2 Policy implications

Our findings have several policy implications. First, we reveal that board elements, such as board size and independence, are instrumental to CSR spending, suggesting that policymakers should pay more attention to these factors to improve board members’ attitudes toward CSR spending. Second, policymakers should evaluate the role of female directors on the board as they are likely to deter CSR spending by banks. Third, bank size is critical to CSR spending, suggesting that policymakers should direct large banks to incorporate CSR in their lending portfolios. Finally, Bangladesh Bank should formulate clear-cut strategies for the scheduled banks to ensure the allocation of CSR funds to the priority sectors and invigorate ethical and social justice. Apart from this, policymakers should not overlook the quality, quantity, and level of CSR disclosures.

7.3 Limitations

This study is not free of limitations. Due to data limitations, we studied the CSR spending for the domestic private commercial banks, although there are foreign and state-owned commercial banks. Also, we did not examine the role of ownership and audit elements in motivating CSR spending by banks, which may have critical implications for CSR spending. An analysis by decomposing the banks into different age groups may provide further insight in this respect. In addition, our results may not remain consistent if estimation issues, such as reverse causality and endogeneity, are considered. We leave all those issues as avenues for future research.

Acknowledgments

We greatly appreciate anonymous reviewers and editors for their comments.

Conflict of interest

The authors declare no conflict of interest.