The relationship between corporate social responsibility, brand equity and financial performance of joint-Stock commercial banks in mekong delta

H6, H8, H9 said that the community, legal and ethical requirement

and customer dimensions positively impact on bank's brand equity and are

supported. SEM results showed that some CSR’s dimensions have a

positive impact on brand equity. This result is consistent with the study of

He & Li (2011) in Taiwan telecommunications industry; Torres et al.

(2012); Iglesias et al. (2017) research customers in eight service areas.

Studies in banking industry such as Marin et al. (2009), Martínez et al.

(2014), Fatma et al. (2016b) also had similar results on positive impact of

CSR on brand equity. Employees, shareholders dimension impacted

positively on brand equity but two hypothesises were rejected due to

unsignificant. This problem can be explained by the difference of

perception.

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hen (2013), Adegbola (2014) and Iqbal et al. (2014). In the context of Pakistan banks, Malik & Nadeem (2014) argued that banks have many limitations in implementing CSR’s activities, although CSR positively impact on financial performance. Understanding the relationship between CSR and financial performance is really valuable for managers, shareholders and other stakeholders to help them making decisions on allocating resources, promoting CSR’s activities (Simpson & Kohers, 2002). However, the perceived of CSR is ambiguous and adapting to CSR is limited (Truong, 2016). After literature review, I have not found any research to study the relationship between CSR, brand equity and financial performance in banking industry and some issues have not been properly concerned. Some gaps in the study of CSR’s topics are as follows: (1) Previous research focused on secondary data of listed companies on the stock exchange. CSR’s perception is ambiguous. (2) Most of the CSR’s studies in the first period focused on developed countries. (3) CSR’s research in Vietnamese banking industry has not used primary data as well as quantitative methods. (4) Putting the brand equity to the intermediate component in CSR- financial performance relationship has not found any research done, especially the banking sector. (5) Factors that are considered to have an impact on measuring brand equity from the perception of customers and employees is related to CSR. So putting brand equity in the relationship between CSR and financial performance has special significance in banking industry. 2.6 HYPOTHESIS DEVELOPMENT CSR and financial performance One of the most important goals of enterprises is to consider how the impact of CSR investment on financial performance (Pätäri et al., 2014). Friedman (1970) which argues that corporate responsibility is to add value to shareholders, regardless of social issues, while Narver (1971) argues that moderate businesses must maximize shareholders' benefits and should take voluntary actions for social issues, especially pollution. According to Lee (2008), CSR’s studies have shifted from macro-level research to micro-level (enterprise) and shifted to studying the impact of CSR on profits. Literature review showed that there are three groups of discussing the CSR - financial performance relationship including 8 positive relationship, negative relationship and no relationship. The second group based on stakeholder theory of Freeman (1984) argues that there exists a positive relationship between CSR and financial performance. CSR will improve company value through cost savings, strengthening reputation. However, a positive relationship is evident with some specific conditions. According to Crifo et al. (2016), many CSR’s dimensions combined together will positively impact on financial performance rather than approach only one dimension. The positive direct relationship between CSR and financial performance is demonstrated by many empirical studies such as Kang et al. (2010), Babalola (2012), Chetty et al. (2015). Lee et al. (2013) researched employees' awareness of CSR’s activities that showed that CSR’s perception has a positive impact on company performance. CSR and brand equity Studying the CSR - brand equity relationship often focuses on customer to operate managerial strategies. Polonsky & Jevons (2009) believed that there is a relationship between CSR and brand equity, so managers should connect CSR’s activities and branding activities. Empirical researches provided evidences of positive effects of CSR on components of brand equity (Lai et al., 2010; Hsu, 2012). In service sector, CSR impacts on brand equity directly (He & Li, 2011). CSR used all stakeholder’s approach has a positive impact on brand equity, especially customer (Torres et al., 2012). CSR is considered as a good tool to achieve brand image, perceived quality and customer loyalty (Martínez et al., 2014; Tingchi Liu et al., 2014; Hur et al., 2014; Enock & Basavaraj, 2014; Esmaeilpour & Barjoei, 2016). In summary, there is a relationship between CSR and brand equity with different levels when studying different industries. Brand equity and financial performance There is a large number of studies about the positive relationship between brand equity and firm performance in different industries. For example, the brand equity positively impacts on profitability (Park & Srinivasan, 1994; Aaker, 1996; Kim et al., 2003). Moreover, Srivastava & Shocker (1991) and Shocker et al. (1994) demonstrated that brand equity influences on future profits and long-term cash flows. According to customer approach, the components of brand equity such as brand loyalty, perceived quality, brand image have a positive effect on financial 9 performance (Kim & Kim, 2005). In service industry, this impact is even more dramatic, but few studies have empirically demonstrated the relationship between brand equity and financial performance for service brands (Kim et al., 2003). Non-parametric analysis shows that there is a positive relationship between the components of brand equity and financial performance (Kim et al., 2003). The success of brand management comes from understanding brand equity and managing brand equity to increase financial performance (Kim & Kim, 2005). In terms of effectiveness, some studies have confirmed a positive relationship between brand equity and company performance (Park & Srinivasan, 1994; Aaker, 1996). Prasad & Dev (2000) argue that strong brand equity will drive up revenue. Wang and Sengupta (2016) showed that brand equity plays an intermediary role in the positive relationship between stakeholders and company performance. From the proposed conceptual framework, the author review literature to build hypotheses. Literature review and the current situation of banking industry, the perceived of CSR is divided into 5 dimensions (employee, shareholder, legal and ethical requirement, customer, community) according to Pérez et al. (2013) and these dimensions have a positive impact on brand equity and financial performance. This discussion leads to hypotheses: H1 to H5 each CSR’s dimension is positively associated with financial performance. We proposed the following hypotheses from H6 to H10 each CSR’s dimension impacts positively on brand equity and H11 Brand equity is positively associated with financial performance, mediates the impact of CSR on financial performance. 2.7 CONCEPTUEL MODEL After literature review, the author proposes the proposed conceptuel model. Accordingly, dimensions of corporate social responsibility impact positively on brand equity and financial performance; brand equity positively impact on financial performance. 10 CHAPTER 3: RESEARCH DESIGN 3.1 QUALITATIVE RESEARCH The main objective of qualitative research is to understand the status of how joint-stock commercial banks implement CSR’s activities, the financial performance of joint-stock commercial banks. The author aims to explore CSR’s dimensions, and whether these dimensions affect on brand equity and financial performance. At the same time, the author aims to discover the perception of customers and employees as a result of the process of perceived CSR of customers and staffs, and whether these factors are related to brand equity and financial performance. The author selected 23 experienced managers in banking management to assess the overall picture of CSR’s perception, brand equity and financial performance for joint-stock commercial banks operating in Mekong Delta. Specifically, it is summarized in the following table: Table 3.1 Design of qualitative research Research method Characteristics Scope Joint-stock commercial banks are operating in Mekong Delta Information Managers in the banking industry Collected data Analysis of secondary information from financial statements, annual reports, sustainable reports, information on Joint- stock commercial bank website, State Bank of Vietnam. Data analysis In-depth interviews and content analysis Cases 12 of the total 29 joint-stock commercial banks in 12 provinces in Mekong Delta. 11 3.2 QUANTITATIVE RESEARCH From the results of the literature review and qualitative research, the author proposes conceptual model and hypotheses. In order to test these hypotheses, the author needs to conduct a large-scale survey, collect data from customers and employees, and then analyzed collected data. The sequence of steps is carried out as follows: constructing the scales, collecting data for formal research and data analysis. Constructing the scales to measure concepts The proposed conceptual framework has four main concepts, in which CSR is divided into five dimensions, specifically as shown in Table 3.2. Table 3.2 Measurement scale for CSR Ident. Item References In my bank Community dimension csr101 Uses part of its budget for donations and social projects to advance the situation of the most unprivileges groups of the society Carroll (1991), Maignan et al. (1999), Maignan (2001), David et al. (2005), Singh et al. (2008), Melo & Garrido- Morgado (2012), Martinez et al. (2013), Tingchi Liu et al. (2014), Fatma et al. (2014), Raufflet et al. (2014), Khan et al. (2015). Fatma & Rahman (2016) csr102 Contributes money to cultural and social events (music, sports...) csr103 Plays a role in the social beyond the economical benefits generation csr104 Is concerned with improving the general well-being of society csr105 Is concerned with respecting and protecting the natural environment Employee dimension csr201 Pay fair salaries to its employees Boal & Peery (1985), Maignan et al. (1999), Mercer (2003), David et al. (2005), Marin et al. (2009), Tingchi Liu et al. (2014), Pérez & del Bosque (2014), Khan et al. (2015) csr202 Offer safety at work to its employees csr203 Treats its employees fairly csr204 Offers training and career opportunities to its employees csr205 Offers a pleasant work environment csr206 Helps solving social problems Customer dimension csr301 Establishes procedures to comply with customers’s complains Carroll (1991), Maignan et al. (1999), McWilliams & Siegel (2001), Mercer(2003), Decker (2004), Crespo & del Bosque (2005), Singh csr302 Treats its customers honestly csr303 Has employees that offer complete information about corporate products/services to customers 12 Ident. Item References csr304 Uses customers’ satisfaction as an indicator to improve the product/service marketing et al. (2008), Fatma et al. (2014), Zheng et al. (2014), Tingchi Liu et al. (2014), Fatma & Rahman (2016) csr305 Make an effort to know customers’ needs Shareholder dimension csr401 Tries to maximize its profits Maignan et al. (1999), Maignan (2001), Mercer (2003), Crespo & del Bosque (2005), Fatma et al. (2014), Fatma & Rahman (2016) csr402 Keep a strict control over its costs csr403 Tries to ensure its survival and long-term success Legal and ethical requirement dimension csr501 Always respects rules and regulations defined by law Maignan et al. (1999), Maignan (2001), Mercer (2003), Crespo & del Bosque (2005), Tingchi Liu et al. (2014), Khan et al. (2015) csr502 Is concerned with fulfilling its obligations vis-a-vis its shareholders, suppliers, distributors, and other agents with whom it deals csr503 Is committed to well-established ethic principles Customer-based brand equity scale consists of 11 items, modified by experts in banking industry is showed in Table 3.3 as follows: Table 3.3 Measurement scale for customer-based brand equity Ident. Item References cbbe01 The appearance of counter and staff (clean, neat, appropriately dressed). Yoo et al. (2000), Yoo & Donth (2001), Kim et al. (2003), Kim & Kim (2005), Kayaman & Arasli (2007), He & Li (2011), Pinar et al.(2012), Martinez et al. (2014), Tingchi Liu et al. (2014), Khan et al.(2015), Fatma et al. (2016), Khan et al. (2016) cbbe02 The bank has up-to-date equipment. cbbe03 This bank is a top brand cbbe04 Its personnel are knowledgeable about all areas of bank services and friendly. cbbe05 I can recognize this bank branding among other competitors. cbbe06 Financial services of this bank are high quality cbbe07 This bank offers high level of services. cbbe08 This bank is my first choice. cbbe09 I am satisfied with the perceived quality of this bank. cbbe10 I recommend this bank to others. cbbe11 I would not switch to other banks for the next time. 13 From the scale of King & Grace (2010) and modified by experts in banking industry, the employee-based brand equity scale is showed in Table 3.4 as follows: Table 3.4 Measurement scale for employee-based brand equity Ident. Item In my bank ebbe01 Take responsibility for task outside of own area ebbe02 I always behave based on the brand's reputation ebbe03 Consider impact on brand before acting ebbe04 Regularly recommend brand as the best place for trading and working. ebbe05 Interested to learn more about brand ebbe06 Employee satisfaction ebbe07 Employee intention to stay ebbe08 Positive employee word-of-mouth Source: King & Grace, 2010 Thus, the perceived of CSR is divided into five dimensions (employee, shareholder, legal and ethical requirement, customer, community); brand equity are measured based on customers and employees; Financial performance measures according to each bank. Although there are many tools to measure financial performance, ROA and ROE are popular. According to Boaventura et al. (2012), 48% and 29% of the study respectively used ROA and ROE to measure financial performance, the highest among other measures of financial performance such as revenue growth (22%), ROS (16%), profit margin (15%), Tobins'Q (10%). ROA and ROE are directly related to customer profits and management strategies. With the majority of studies using ROA and ROE, the thesis continues to use two indicators to measure financial performance. The thesis uses 5 points Likert scale to measure concepts, this is the most common measurement and used by previous studies. Sampling for quantitative research: Primary data was collected from interviews directly with questionnaires. Respondents are customers, employees and managers who are trading and working at joint stock commercial banks in Mekong Delta. Samples collected by non- probability method. Sample actual size is n1 = 356 customers and n2 = 344 staffs. The thesis focuses on studying 29/31 joint stock commercial banks (there are two banks namely Dong A and Ban Viet in the period of special control from the State Bank of Vietnam). 14 Quantitative research methods: data are analyzed according to different methods and tools depending on the research objectives such as descriptive statistics, Cronbach’s Alpha analysis, Exploratory factor analysis EFA, Confirmatory factor analysis CFA and Structural equation modeling SEM. CHAPTER 4: RESULTS AND DISCUSSION 4.1 THE SITUATION OF CORPORATE SOCIAL RESPONSIBILITY OF JOINT STOCK COMMERCIALS BANKS Corporate social responsibility is divided into customer, community, employee, shareholder and environment dimension. The CSR’s dimensions are summarized in the following figure: 4.2 SAMPLE DESCRIPTION The survey area of the sample is Mekong Delta, Can Tho city is the most observed area, accounting for 32% of customer group and 40% of employee group. Statistics by banks shown that VietinBank accounts for a high proportion in the sample with 14.9% of customer group and 9.3% of employee group. The number of female is higher than male, but the difference between the gender is not much. The survey sample has the lowest age of 20 years, the highest is 61 years old. Through analysis by age, the group of interest in CSR’s activities in youth and reflect the 15 characteristics of young labor in banking industry. Low-income customers accounted for 32.6% due to low age accounting for a high proportion. In general, the income of customer group is lower than this of employee group. Qualification of the respondents is quite high, mainly the bachelor degree. Particularly, the employee group managing 99.7% of the respondents has a bachelor degree or higher. This proves that when academic level is high, the respondents are more concerned about CSR and academic level of staff in banking industry is high. Specifically, profile of the sample is presented in the following table: Table 4.1 Sample description Categor y Customer Group Employee Group Sample % Sample % Gender Male 164 46 141 41 Female 192 54 203 59 Age 20 – 29 240 67 203 59 30 – 39 85 24 109 32 40 – 49 24 7 25 7 0ver 50 7 2 7 2 Income (monthly in VND) Below 5.000.000 VND 116 33 9 3 5.000.000–7.000.000 VND 89 25 120 35 7.000.000–9.000.000 VND 103 28 115 33 9.000.000 VND and above 48 13 100 29 Qualific ation High school 7 2 0 0 Intermediate 38 11 1 0.29 Bachelor degree 272 76 318 92 Master degree 39 11 25 7 Total 356 100 344 100 Career of customer group divided into six groups, respondents are 27% officers, 21% business staff, 20% students. Customer group with continuous trading time at branch is 3.7 years on average, ranging from 1 to 18 years, with 93% of customers having 7 years or less dealing with surveyed branch and the remaining (7%) have seniority transactions over 7 years. The staff has a number of consecutive years at the branch from 1 to 34 years, concentrating most in groups of 2 to 5 years, accounting for 51% of respondents. 4.3 ANALYSIS AND RESULTS FOR CUSTOMER GROUP Reliability and validity – Customer group The CSR scale includes five dimensions of customers, shareholders, employees, community, legal and ethical requirement. This scale is taken from the study of Pérez et al. (2013) (23 items), then translated and edited from the experts into 22 items. The brand equity scale is also conducted 16 similar procedures and then measured through 11 items that reflect brand image, perceived quality and brand loyalty. Cronbach’s Alpha coefficients are greater than 0.6, so all major constructs used in the main study achieved adequate levels of reliability. All items have Item-to-total greater than 0.3 should be retained entirely. Table 4.3 Reliability and validity – Customer group Construct Item Cronbach’s Alpha Factor loadings Corporate social responsibility (KMO = 0.867; Cumulative = 56.88%) Community dimension 4 0.800 0.644 – 0.760 Employment dimension 4 0.787 0.614 – 0.707 Customer dimension 3 0.652 0.605 – 0.774 Shareholder dimension 3 0.765 0.778 – 0.855 Legal and ethical requirement dimension 4 0.628 0.638 – 0.727 Brand equity (KMO = 0.942; Cumulative = 50.78%) + Brand equity 11 0.902 0.690 – 0.740 The convergent and discriminant validity – Customer group: The convergent, discriminant validity and content of the scale continue to be evaluated according to the results of the Exploratory factor analysis. The CSR’s scale has five factors extracted. The customer-based brand equity scale (CBBE) has one factor extracted, unchanged from the original proposal and satisfactory statistical parameters, showing that the Exploratory factor analysis is fit. Measurement Scales by confirmatory factor analysis – Customer group: In the CFA model, the measurement model fit well with the data as seen in the fit statistics for the model with CMIN/DF = 1.8 < 3; CFI = 0,904; CFI = 0,914 > 0.9. The coefficients RMSEA = 0.048; SRMR = 0.047 < 0.06 so all measures of goodness of fit indicated a worse fit for the one-factor model for the original measurement model data. The results of the weights of CFA model all have pvalue < 0.001 and the results of the weights are greater than 0.5, so providing evidence of convergent validity among our measures. The scales all have good composite reliability (ρc ≥ α). From 7 constructs with 35 items to be preliminarily evaluated, EFA analysis, CFA analysis was reduced to 31 items. The correlation coefficients between the constructs are less than 0.9, indicating that concepts have discriminant validity and no autocorrelation between constructs. Therefore, constructs are reasonably reliable and valid. 17 Structural model testing – Customer group After testing the reliability and validity of the proposed measurement model, the relationships among all observed and latent variables in the proposed model were tested using structural equation modelling and testing hypotheses. The results of estimation were showed in Figure 4.2. Results show a good fit to the data: CMIN/DF = 1.91 < 3, TLI = 0.904, CFI = 0.914 > 0.9 and RMSEA = 0.051< 0.06; SRMR = 0.073 < 0.08. Chi2-bs(418) = 799.955; CFI = 0.914 P = 0.000; TLI = 0.904 RMSEA = 0.051; SRMR = 0.073 Figure 4.2 SEM results for Customer group. Solid-line arrows stand for significant relationships while dashed-line arrows stand for non- significant relationship. The results of testing hypotheses are shown in the regression weight table as follows: 18 SEM results showed that five CSR’s dimensions affect on financial performance. H1 and H4 show that the community and customer dimensions negatively effect on bank's financial performance. Although H1 and H4 are supported but contrary to expectations. This negative effect implies that these two CSR’s dimensions can be detrimental to maximizing profit in the short term. This implication has been warned by Friedman (1970) that corporate resources should focus on increasing profits, instead of investing in CSR’s activities. This result is similar to the experimental results of Kang et al. (2010) of Airline industry and Esteban- Sanchez et al. (2017) of banking industry also shown the negative relationship between CSR and financial performance. In fact, in recent years, banks have spent a lot of resources for CSR’s activities in customers and community dimension and this investment has increased over the years, leading to improve customer perception in these dimensions even ROE and ROA decreased. More specifically, from 2011- 2016, VPbank's business results are better but investment costs for community responsibilities are declining. H2, H3 and H5 showed that employee, shareholder, legal and ethical requirement dimensions positively impact on the bank's financial performance. The quantitative research results are consistent with many previous studies such as Wu & Chen (2013) and Maqbool & Zameer (2018) using banking data with dependent variable ROA, ROE measuring financial performance. In fact, commercial banks comply with laws, regulations, ethical standards, care for employees and good performance with shareholders make financial performance better. 19 H6, H8, H9 said that the community, legal and ethical requirement and customer dimensions positively impact on bank's brand equity and are supported. SEM results showed that some CSR’s dimensions have a positive impact on brand equity. This result is consistent with the study of He & Li (2011) in Taiwan telecommunications industry; Torres et al. (2012); Iglesias et al. (2017) research customers in eight service areas. Studies in banking industry such as Marin et al. (2009), Martínez et al. (2014), Fatma et al. (2016b) also had similar results on positive impact of CSR on brand equity. Employees, shareholders dimension impacted positively on brand equity but two hypothesises were rejected due to unsignificant. This problem can be explained by the difference of perception. While managers judged subjectively employee and shareholders dimension positively impact the brand equity, but the survey is customer's perception of these two CSR’s dimensions did not impact on brand equity. Saeednia & Sohani (2013) also rejected the relationship between CSR and brand equity. In fact, customers often care about other dimensions except employees and shareholders dimension, so two dimensions were not sufficient evidence to have an impact on brand equity. Brand equity positively impact on bank's financial performance (H11) was supported, consistent with the study of Kim et al. (2003) and Kim & Kim (2005) in hotel restaurant and Wang et al. (2015) research high-tech companies in Taiwan. Group analysis by gender: Gro

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