Does It Pay to Be Socially Responsible? Evidence from Spain's Retail Banking Sector

Authors


  • We thank an anonymous referee and Pere Ortin for valuable comments and suggestions. Francisco J. Callado-Muñoz acknowledges financial support from the Spanish Ministry of Education (SEJ2007-60671/ECON). Natalia Utrero-González acknowledges financial support from the Spanish Ministry of Education (SEJ2007-62500 and SEJ2007-67895-C04-02).

Abstract

This paper extends the research on the relation between financial performance and corporate social responsibility in two respects. First, it develops a model of strategic competition that includes consumer perceptions with respect to firm social performance. It is shown that in the presence of a positive valuation of social responsibility practices by consumers, a firm that endorses this responsible behaviour may obtain a better strategic position in the market, along with higher margin, demand, and profit. Second, the model's predictions are tested with a sample of Spanish banking firms. The empirical analysis confirms that consumers significantly value other features apart from price in making deposit and mortgage decisions, particularly a financial institution's social responsibility. A more disaggregated analysis shows first, that not every CSR dimension has relevance for consumers and second, that customers equally value activities that can have a direct impact on their well-being (e.g., culture and leisure), as well as other activities that can be viewed more generally as public goods (e.g., heritage and the environment). These conclusions are of interest in the debate about a firm's social or ethical activities. It is shown that, provided that consumers value corporate social responsibility activities, firms can improve both their competitive position in the market and their profits by behaving in a socially responsible manner. Therefore, the design and implementation of corporate social responsibility practices could confer upon firms an initial competitive advantage over their competitors.

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