Abstract:

This study intended to evaluate association between corporate social responsibility (CSR) and financial performance of Islamic banks using accounting measures such as ROA, ROE and market-based performance measure, Tobin’s Q. Carroll’s Pyramid was used to measure the CSR. Secondary data were collected from the annual reports of 4 full-fledged Islamic banks of Pakistan for a period of five years i.e. 2013-2017. Data were analyzed through Stata software applying GLS to assess the requisite dependence of financial performance on the diverse dimensions of CSR. Results indicate a significantly positive relationship between economic responsibilities and financial performance whereas philanthropic and legal responsibilities have a negative relationship with financial performance. Consequently, it is concluded that CSR has a somewhat mixed (favourable as well as unfavourable) effect on the financial performance of Islamic banks. The nature of mixed results may be attributed to the diverse nature of dimensions of CSR. Therefore, the management of banks is recommended to relocate their resources to increase the financial performance of their banks.

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