Exploring the Perception of CSR: Insights from Islamic Financial Institutions

Mohd Rizal Muwazira

Heba Abou-El-Soodb*

Marwan Izzeldinc

Sept 2017

a University of Malaya, 50603 Kuala Lumpur, Malaysia.b Cairo University Faculty of Commerce, Giza 12613, Egypt.* Corresponding author e-mail address: h.abouelsood@foc.cu.edu.egc Lancaster University, Lancaster, LA1 4YW, UK.

Exploring the Perception of CSR: Insights from Islamic Financial Institutions

Abstract

This study provides novel evidence on the perception of Islamic financial institutions’ (IFIs)

executives of corporate social responsibility (CSR) disclosure and explores executives’ views

towards CSR practices in Malaysia, one of the most prominent Islamic finance hubs and a key

Islamic finance partner for Middle Eastern, Central Asian, and European markets. We tackled the

unexamined objective of prioritising CSR elements based on their relative significance. The

study employs a questionnaire survey design to examine the perception of IFIs executives of

CSR. It then tests whether demographic characteristics affect this perception. A total of 186

responses were obtained through stratified random sampling of 27 banks and insurance

companies.

Overall, the results suggest that executives perceive that ethical element is fundamental in

Islamic financial practices, which generally agrees with the philosophical concept of Islamic

Shariah principles governing financial transactions. The significance then is given to

philanthropic, then legal, and finally to economic elements. This finding challenges prior

theoretical framework of CSR developed by Carroll (1979; 1991). Both philanthropic and ethical

responsibilities show no significant differences when statistically compared with selected

demographic characteristics. This might be attributed to ethics permeating the pyramid, being the

building block of Islamic Shariah principles.

The importance of this study stems from Malaysia being the Islamic financial hub in the region.

The findings of this study provide decision makers and managers in financial institutions better

guidance in refining their CSR commitments. Good CSR conduct is central not only to attract

prospective investors – domestically and internationally, but also to ensure IFIs operations are in

line with Islamic Shariah. This study provides insight on the perception of CSR framework in

the IFIs, which builds on Carroll (1979; 1991) framework used in most prior research. It

contributes to prior work by testing whether religion, ethnicity, age, and work experience affect

this perception.

Keywords – Corporate social responsibility (CSR); developing countries; emerging markets;

Islamic finance; Islamic financial institutions (IFIs)

JEL Classification – M14 G30 G21 G22 M41

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Introduction

Corporate social responsibility (CSR) agenda has increasingly come under the spotlight

especially in the aftermath of unethical business practices and global scandals (examples include

Enron, BP, and Magna). Shareholders and members of the general public are being confronted

with a steady stream of corporate scandals that have an increasingly deteriorating effect on

investors’ confidence. Wilson (2000) asserted that this trend is in the making as corporations

realise that their practices and products are being subjected to moral and ethical scrutiny by

society around their business operations. In the early 2000’s, the environmental, social, and

governance (ESG) framework emerged, with investors advocating scrutiny and examination of

the environmental and social practices besides corporate governance policies. The importance of

CSR initiatives may have a direct impact on the success of the future business atmosphere as

many organisations worldwide have come under pressure to comply with the international

standards (Miller, 2009).

Growing awareness of and demand for investing in accordance with Islamic ethical principles on

a global scale have been catalyst towards making the Islamic banking and financial system a

profitable industry (Hassan and Latiff, 2009). This in turn, reflects the increasing demands from

various stakeholders of Islamic financial institutions (IFIs) to inspect their role, commitment and

involvement of social responsibility. This article provides information on the current level of

CSR understanding within IFIs. Therefore, the questionnaire survey was designed to answer the

following research questions; (1) What are the distribution levels of CSR understanding of

Islamic financial executives in Malaysia?, and (2) What are the motivations of IFIs for engaging

in CSR activities? The results of this study will hopefully aid decision makers in IFIs in order to

enhance their involvement and development in CSR practices.

Visser (2011) contends that there are myths about CSR in developing countries as each region, or

country has a different set of drivers of CSR. He suggests that political reforms, socio-economic

factors, and cultural diversity/homogeneity are among the most important (Visser 2011).

However, research revisiting Carroll’s pyramid to identify the unique significance and linkages

of CSR elements in emerging markets, and more specifically in IFIs, is lacking. Further research

is needed to unravel the specifics of CSR application in different localities and organizational

ownership structures (Carroll, 2016).

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Prior studies on CSR perception in Malaysia emphasised CSR development and level of

awareness (Abdul Hamid, 2004); Zuriana et al., 2002; Ahmad and Abdul Rahim, 2003). The

studies concluded that the level of awareness towards CSR appears to be growing (Thompson

and Zakaria, 2004) and that Malaysian firms engage in CSR practices because of government

efforts to promote it and the effect of foreign direct investment urging Malaysian companies to

abide by the international investors’ CSR reporting guidelines (Amran and Devi, 2007).

However, lower level of CSR reporting is still present for local firms (Williams and Ho, 1999;

Ahmad and Abdul Rahim, 2003). Therefore, prior literature on CSR perception in a Malaysian

context can be viewed as lacking when it comes to prioritizing the significance of CSR elements

to enhance managerial decisions. Another area where prior work is lacking is whether executive-

specific characteristics; i.e. characteristics of those setting and implementing CSR strategies,

affect the importance of respective CSR elements.

We use Carroll (1979, 1991) model to identify the major elements of CSR framework and test

whether the model holds at IFIs in an emerging-market context. Our study complements a

growing stream of research by focusing on dimensions of CSR in a dynamic and highly complex

sector affecting the economy of one of the biggest Asian financial hubs. In this study, we explore

the perception of executives towards CSR elements and the degree to which these elements are

prioritized in IFIs. The choice of the sample to include financial institutions, banks and insurance

companies, is based on the importance of the Malaysia as a global financial hub for Islamic

financial instruments. Hence, the results of this study provide valuable findings.

Our tests provide interesting findings. Contrary to the classical CSR pyramid (Carroll, 1979),

ethical responsibilities prove to be perceived as most significant, followed by philanthropic

responsibilities, then legal responsibilities, and finally economic responsibilities. Legal

responsibilities, in our constructed pyramid, have a lower priority than in developed countries.

This finding does not necessarily imply that IFIs flaunt laws and regulations, but rather laws are

far less of a pressure for good CSR practices. In IFIs institutions in Malaysia, the relative

significance of CSR elements contradict Visser’s (2008) argument that ethical responsibilities

should be the least important element by firms operating in emerging markets.

Another interesting finding is that executives in IFIs perceive community support and public

image as significant drivers for CSR involvement. On the other hand, pressure from local

governments, NGOs, and global initiatives are relatively insignificant. Further empirical testing

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is needed to identify the applicability of local and global CSR initiatives to IFIs and whether they

need to be adapted to the specific nature of these institutions. Further tests suggest significant

difference in the perception based on sample demographic characteristics only towards economic

and legal responsibilities. However, the sample shows insignificant difference, i.e. are in

agreement, towards ethical and philanthropic responsibilities, regardless of their demographic

profile. This finding confirms our results on the ethical element being the base of the pyramid

and the building block of Islamic Shariah rulings in IFIs.

Background and Literature Review

Corporate Social Responsibility (CSR)

The basic idea of CSR is that business corporations should take into account activities beyond

profit generation. This includes protecting the environment, caring for employees, being ethical

in trading, and getting involved in the philanthropic activities. This has been the result of

increasing attention by corporations in the past 50 years to deliver better contributions towards

society well-being (Carroll, 1999). However, according to the economist Milton Friedman

(1970), the only social responsibility of firms is to make profits and increase shareholders’

wealth. Accordingly, business activities are bound only by legal guidelines and economic rules

(Falck and Heblich, 2007).

It is argued that pursuing non-economic motives may hurt shareholders’ interests by generating

low profits, hence such motives should not be acted upon (Blowfield and Frynas, 2005). Levitt

(1983) suggested that the function of business corporations is to maximise profit through

vigorous competition in any way consistent with the survival of business in the economic

system, while the government is responsible for the general welfare (Klonoski, 1991).

Friedman’s argument on CSR has been the subject of much study and empirical research since

his 1970 article. Many scholars have tried to reconcile economic goal of the corporation (profit-

maximisation) with non-economic goal (social and environmental objectives) by proposing that

CSR can lead to enhanced form performance and long-term profitability. For instance, Margolis

and Walsh (2003) had conducted a research between 1972 and 2002 on 127 published empirical

studies examined the relationship between CSR involvement and firm financial performance.

Surprisingly, they discovered that majority of the studies showed a positive link between the two

variables (see for examples, Joyner and Payne, 2002; Fussler, 2004).

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Though there is no single definition of the notion of CSR, several scholars and institutes define

CSR in a different perspective. According to Carroll (1979), “social responsibility of business is

to encompass the economic, legal, ethical, and philanthropy expectations that society has of

organisations at a given point of time”. She believed that corporations not only have the

economic responsibility of being profitable and the legal responsibility to follows laws and

regulations that guide their ability to achieve economic objectives, but they also have ethical and

philanthropic responsibilities that encompass social norms and standards (Carroll, 2000; Shahin

and Zairi, 2007). Carroll (1979; 1991) proposed a definition of CSR, known as ‘The Pyramid of

Corporate Social Responsibilities, which helps to delineate and characterise the nature of four

elements of corporate responsibilities towards society.

The first element is economic responsibility. Economic responsibility is designed to fulfil

societal needs and wants by producing products and services to them. As a basic economic entity

in the society, the existence of business is motivated by the maximisation of profit and increasing

shareholder value. It is to be expected that corporation has to build and maintain strategic

planning and under pressure to keep its production cost as low as possible, so that it can sustain

strategic advantages over its rivalry. Economic responsibilities of corporations further create

employment opportunities, generate investment, develop and transfer new research and

technology and produce safe products and services (Nelson, 2003). The second element of legal

responsibility of business corporations embraces the expectation of the society to pursue their

objectives within the framework of the law (Dusuki, 2005). It is important to note that

corporations are bound with various federal, state and local rules and regulations. It is also

important for corporations to comply with other legal responsibilities such as employee welfare,

consumer protections laws, pollution control and tax payment.

The third element is ethical responsibility which refers to the ethical responsiveness of the

business corporations as expected by the society. Societal members include shareholders,

employees, suppliers, competitors, local community and environment. It is important for the

business corporations to recognise what is right and what is wrong so that they can provide

fairness and justice to the societal members. Ethical norms often vary across different society.

Therefore, corporations need to set up formal codes of conduct or ethical standards as a guideline

and reference to the organisational members.

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The final element is philanthropic responsibility. Philanthropic responsibility refers to the

common desire to see business contribution in response to society’s expectation. Although the

absence of philanthropic activities is not deemed as unethical, any voluntary programmes

conducted by business community such as promoting art and cultural activities, supporting

charity activities and education will contribute to the improvement of life. It was argued that

philanthropic activities tend to get a higher priority as CSR manifestation in developing countries

(Arora and Puranik, 2004; Ahmad, 2006; Amaeshi et al., 2006).

Today, business corporations are expected to embrace social responsibility activities because of

several reasons such as (i) the emerging public standards for social performance (the United

Nations Global Compact), (ii) the proliferation of independent evaluations and rankings that

make social performance more transparent (Fortune’s Most Admired Companies), and (iii) the

scandals associated with big giant companies (Enron and Worldcom) (Pirsch et al., 2007). The

existing literature indicates that many successful and profitable organisations spent significant

amounts of money in fulfilling their social responsibilities (Doukakis et al., 2005). Kitchen and

Schultz (2002), Joyner and Payne (2002) and Brammer and Millington (2005) argued that

companies that adopt CSR programme often build positive corporate reputation and profitability.

At the time Carroll’s pyramid (1979) was developed, CSR was most prevalent in the American

capitalistic society. Since that time, several authors have proposed that the elements constituting

the building blocks of the pyramid need to be reordered to meet the conditions of other countries

or smaller enterprises. Crane and Matten (2007) showed that the elements in Carroll’s pyramid

play a role in Europe but with a different significance and order. Similarly, Visser (2006) argued

that the order of the CSR elements in Africa differ from the classic Carroll’s pyramid. He argued

that in developing countries, economic responsibility continues to be most significant. However,

philanthropy is given second highest priority followed by legal and then ethical responsibilities.

Political and Socio-economic Background: Implications to CSR in Malaysia

In Malaysia, the emergence of CSR takes place in a setting, where the economy has been

recently open for foreign trade and foreign direct investment. The Malaysian economy has relied

mainly on agricultural activities for decades. Recently, information-technology, manufacturing,

automotive industries contribute to a GDP growth rate of 5.6% in 2017.1 Malaysia has been one

of 13 countries identified in the 2008 Growth Report of the Commission on Growth and

1 GDP annual growth rate in 2017 (2016) has been 5.6% (4.2%) according to https://www.worldbank.org

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Development to have recorded average growth exceeding 7% per year for more than 25 years.2

This rapid and steady economic growth, attributed to political stability, has given rise to conflicts

between the need for enhanced profitability and demands for socially-responsible business

conduct.

The attention of CSR aspiration in Malaysia has taken place since the early 1990s, when Tun

Mahathir Mohamed, the Prime Minister of Malaysia at that time conceived the Vision 2020 to

drive the country from being consumer society into being knowledge generating society (Wad

and Chong, 2008). Three out of the nine challenges in the Vision 2020 reflect the fundamental

principles of social responsibility namely: (1) a moral and ethical community, (2) a fully caring

culture, and (3) an economically just society. The ultimate aim of Vision 2020 is to establish a

united nation – a Malaysian society that is infused by strong moral and ethical values,

democratic, liberal and tolerant, economically just and equitable, progressive and prosperous

(Amran and Devi, 2007). The Vision 2020 outlines five strategic objectives of which one is the

need to enhance the standards of corporate governance and business ethics as well as to improve

the quality of life and the quality of the Malaysian citizens.

The East-Asian financial crisis of 1997/1998 is believed to have created a politically-related

perception of corporate governance and nurtured the rise of new CSR practices by both the

public sectors as well as the private sectors in Malaysia (Wad and Chong, 2008). In order to

demonstrate the commitment to achieve economic advancement, the Malaysian government is

keen to incorporate CSR programmes into companies’ agenda to heighten their profile, so that

they can gain recognition and increase investors’ confidence from the perspective of local and

international investors. Since 2007, companies that are listed in Bursa Malaysia are required to

disclose a CSR statement, hence increasing the number of companies conforming to government

guidelines. Government strategy has been reflected the definition of CSR by the Bursa Malaysia

(2009) “as open and transparent business practices that are based on ethical values and respect

for the community, employees, the environment, shareholders and other stakeholders”.

Urged by rapidly progressing CSR global initiatives, the Malaysian government has been

encouraging firm corporate governance and social responsibility by enabling firms with good

practices to raise more capital domestically and internationally. An efficient market differentiates

amongst the firms that embrace better ethical and governance practices (Nalband and Al-Amri, 2 The Growth Report (2008) can be accessed through the World bank website https://openknowledge.worldbank.org/handle/10986/6507

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2013). Despite the dynamic global CSR practices, it is believed that firms in Malaysia are

generally slower in responding to global initiatives (Abu-Baker and Nasser, 2000; Chambers et

al. 2003). Furthermore, the Malaysian government efforts to promote CSR are only embedded in

international and big local corporations in Malaysia, where investors place high premiums for

poor CSR practices (Arman and Siti-Nabiha, 2009).

Early CSR studies in Malaysia, by Ostlund (1977) and Teoh and Thong (1984), aimed at

examining the perception towards CSR. These studies focused on the perception towards the

concept of CSR, the nature and extent of CSR involvement, importance of CSR, and the degree

of corporate social reporting. The findings revealed that CSR is generally perceived as important

and that companies were more concerned with human resources and product/service contribution

and less concerned with reporting on CSR social information. Later, studies put more emphasis

on the usefulness of CSR reporting, CSR perception and the development of CSR disclosure

both for conventional and IFIs (see for example Rashid and Abdullah, 1991; Haniffa, 2002;

Zakaria and Isa, 2003; Thompson and Zakaria, 2004; Muwazir et al., 2012).

CSR values and Islamic Financial Institutions (IFIs)

The significant increase in the development of Islamic fund in Malaysia basically started from

the Government’s effort in introducing Islamic banking system through the establishment of

Bank Islam Malaysia Berhad (BIMB) in 1983. Since then, Islamic banking and financial

institutions in Malaysia has continued to grow steadily as one of the fastest growing industries in

terms of its size, with an annual growth rate of 12 to 15 per cent or higher (Zaher and Hassan

2001; Rogers, 2004). There have always been demands for banking and financial products and

services that conform to the Shariah principles. Many conventional banks and financial

institutions are increasingly becoming interested in Islamic banking and finance. In fact, there

were more than 300 Islamic banks and financial institutions operating in over 70 countries all

over the world at the end of 2008 (Khan and Bhatti, 2008).

Although the Islamic banking and finance offers similar functions and services as the

conventional system (Chapra, 1985; Khir et al., 2008), the fundamental structures are derived

from the Qur’an and the Sunnah (sayings and actions of Prophet Muhammad), in what construct

Shariah rulings. Scholars such as Chapra (1985), Ghani (1999), Dusuki (2005) and Khir et al.

(2008) argued that Islamic banking system operates within dual parameters; legal and ethical

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dimensions. Based on legal and ethical dimension of the Shariah principles, Islamic banking

operations are confined to the following guidelines (Rosly, 2005; Khir et al. 2008):

1. The prohibition of riba (usury/interest) – Islam prohibits Muslim from taking or giving riba

regardless of the purpose for which such loans are made and regardless of the rates at

which interest rate is charged.

2. The prohibition of gharar (uncertainty/speculation) and maysir (gambling) – under this

prohibition, any economic transactions under Islamic banking system should be free from

hoarding, uncertainty, speculation and gambling.

3. The prohibition in engaging haram (religiously non-permissible) activities – Islamic

financial institutions (IFIs) participate in business activities that do not violate the rules of

Shariah. Any investment in business dealings with alcohol, casinos, pork and pornography

would be strictly prohibited.

Essentially, the fundamental feature of Islamic business organisation is to establish socio-

economic justice that is derived from the principle of general mutual responsibility and the

principle of social balance (Khir et al., 2008). In fact, Islam takes an integrated view of

individuals and society. The intense commitment of Islam to justice and brotherhood demands

that business corporations should take care of some of the needs of the community (Hassan and

Latiff, 2009). For example, Islam requires that business should give the needy a specific portion

of wealth. This contribution is called zakat and is usually about 2.5 per cent of wealth or profit.

The main philosophy of zakat contribution is to narrow the gap between the rich and the poor as

well as to reduce social inequality through philanthropic orientation. This shows how important

business corporations to establish commitment, engagement and wider positive impact on

society.

In other words, business activities in Islamic perspective are not solely undertaken to satisfy

material needs and wants but more importantly it should be undertaken to achieve other non-

material objectives such as to secure social needs (Rahman and Goddard, 1998), as well as to

fulfil religious obligation (Al-Shaibani, 1997). This commitment flows from the fundamental

philosophical concept of tawhid (Oneness of God), where the objective of CSR should be to

demonstrate the responsibility and accountability to wider society, environment and God

(religious obligations) (Muwazir et al., 2006). To sum up, the concept of CSR in Islamic

business corporations such as Islamic banking and financial institutions is to encourage, response

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and contribute to philanthropic and ethical activities which is not inconsistency with ‘The

Pyramid of Corporate Social Responsibilities’ model offered by Carroll.

Benefits of CSR

Today, business corporations are under growing pressure to embrace social responsibility

practices due to (i) the emerging public standards for social performance (the United Nations

Global Compact), (ii) the proliferation of independent evaluations and rankings that make social

performance more transparent (Fortune’s Most Admired Companies), and (iii) the scandals

associated with big giant companies (Enron and Worldcom) (Pirsch et al., 2007). There could be

a variety of motivations for corporations to voluntarily undertake CSR programmes.

A review of literature has identified several motivations for adopting good CSR practices. The

existing literature indicated that many successful and profitable organisations spent significant

amounts of money in fulfilling their social responsibilities (Doukakis et al., 2005). Kitchen and

Schultz (2002), Joyner and Payne (2002) and Brammer and Millington (2005) argued that

companies that adopt CSR programmes often build positive corporate reputation and

profitability. This proposition is supported by both theoretical and empirical research. For

instance, Arjoon (2000) and Marshall (2005) asserted that business corporations that adopt CSR-

driven strategies generate greater profits relative to those that pursue a solely profit-driven

strategy.

Furthermore, by raising its reputation through being associated with good CSR conduct, business

corporations can experience a greater competitive advantage (Doukakis et al., 2005). According

to Acuff (2005) social responsibility effort can produce enrichment marketing, where well-being

of consumers is enriched, leading to favourable goodwill towards the company. A number of

studies indicated that CSR initiatives in various forms are positively related to customer loyalty

and brand name (Kroll, 1996; Miller 2002). In his study, Mackiewicz (1993) found that nine out

of ten consumers used CSR reputation of an organisation in order to decide which product and

services they will consume. In some cases, consumers are willing to actively support socially

responsible organisations and disperse positive information about these companies to others

(Maignan, 2001; Berens et al., 2005; Davis, 2005). Another motivation is that socially

responsible organisations are capable of retaining high quality employees and attract superior job

applicants (Barnett and Vaicys, 2000; Backhaus et al., 2002). For example, Greening and Turban

(2000) found that job applicant’s perceptions of a firm’s CSR practices influenced their desire to

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work for that firm. Moreover, Aguilera et al. (2007) claimed that employees’ perception of a

firm’s social policies will impact their willingness to participate in, contribute to and initiate

social change initiatives. The study conducted by Ramus and Steger (2000) revealed that when

employees perceive their organisation is committed to pursue environmental protection, they are

more likely to generate ideas to improve company’s environmental policies. In Malaysia, the

need to apply good CSR practices is also driven by the increased foreign direct investment and

the foreign partners’ requirements to comply with global CSR initiatives. Subsequently, local

companies may need to follow good conduct for competition and image building reasons.

Hypotheses development

It was argued that individual characteristics such as gender, age group, work experience and

education have an impact on organisational behaviour (Akintayo and Abu, 2006, Gunawan and

Putra, 2014). Additionally, prior literature also suggests that demographic characteristics are

important determinants of individual’s concerns on both social and environmental issues (for

example William, 2007; Pamwar et al., 2010; Cheah et al., 2011; Kahreh, 2014; Muttakin, 2015).

These studies focus on non-Islamic financial settings. We therefore explore whether further

analysis of the views of executive members according to demographic characteristics in IFIs

provide further insight. To achieve this objective, we developed hypotheses related to five

demographic factors; gender, age group, ethnicity, religion and work experience.

Gender

Prior literature suggests that gender-based differences have been a topic of interest to explain

ethical attitudes (Smith and Rogers, 2000; Panwar, et al., 2010). A number of studies have

indicated that gender is an important determinant of individual’s concerns about social and

environmental issues (Wall, 1995; Al-Simadi, 2013). Tippet (2001), Bear et al. (2010), Cheah et

al. (2011), Giannarakis (2014) and Liao et al. (2015) have shown that women hold stronger

attitude towards CSR commitment than man. On the other hand, Iyigun (2015), Shamil et al.

(2014) and Rahman and Ismail (2016) found out that gender has no significant influence on

firms’ CSR commitment. To express this view, we therefore developed the following hypothesis:

H1: The perception about how CSR affects IFIs’ performance differs significantly with

differences in gender

Age group

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It has been argued that older people are more conservative in their ethical standpoints (Posner

and Schmidt, 1984; Burnett and Karson, 1987). According to Serwinek (1992), as the age of

employees increases, they appear to become more conservative in ethical decision making

process. He added that younger employees tend to have a more liberal view of potentially

unethical circumstances. However, with regards to social responsibility issues, past studies found

mixed results on age group diversity towards CSR perceptions. For instance, Cheah et al. (2011)

reported that age group has a significant impact on CSR attitudes. The result suggested that

younger respondents believe that firm’s social and environmental performance is as important as

financial performance. The finding is in accord with previous studies such as Serwinek (1992)

and Zimmer et al. (1994). In contrast, McIntyre et al. (2007), Panwar et al. (2010) and Iyigun

(2013) were unable to find any significant influence of age on CSR perceptions. The second

hypothesis conjectures the following:

H2: The perception about how CSR affects IFIs’ performance differs significantly with

differences in age groups

Ethnicity

There are a few studies investigating the impact of ethnicity on firms’ commitment towards

social responsibility. Associating CSR with the composition of ethnic group members in

particular organisation or industry is a relatively new development. By and large, in the context

of CSR perceptions, exploration on the impact of ethnicity is almost unknown and under-

investigated. Only few studies have looked into the association of perceived importance of CSR

perceptions in different regions and countries (Samdahl and Robertson, 1989; Arcury and

Christianson, 1993, Iyigun, 2013). Study carried out by Panwar et al. (2010) found that rural

residents perceived social and environmental issues significantly higher than urban residents.

Another study conducted by Iyigun (2013) in Turkey also suggested that people in different

regions tend differ in perceived importance of CSR elements. Examining the differences in CSR

perceptions amongst ethnic groups in this research is important because of the nature of social

diversity in Malaysia. To express this view, we therefore developed the following hypothesis.

H3: The perception about how CSR affects IFIs’ performance differs significantly with

differences in ethnic groups

Religion

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Most of the studies on CSR in Islamic perspective or related to Islamic business practices seem

to give less attention on the impact of religious belief diversity towards CSR issues. This is

perhaps due to the supposition that Islamic business corporation is managed by Muslim

employees in Muslim countries. This assumption may be true for certain industries but not for

IFIs. Hence, less attention has been given to study the connection between of religious belief

diversity and CSR. The only current literature that tested the relationship between religion and

CSR perception was done by Tan and Komran (2006) in Singaporean companies. The findings

revealed that employees with different religious beliefs expressed distinctive perceptions on CSR

commitment with Christian respondents scored the highest rank for ethical responsibility. An

observation on overall CSR rating shows that Muslim and Hindus employees were the highest.

Overall, literature provides inadequate direction on how religion related to and might affect CSR

perceptions of certain industry, particularly IFIs. Therefore, the following hypothesis states:

H4: The perception about how CSR affects IFIs’ performance differs significantly with

differences in religious beliefs

Work experience

A number of studies have investigated the association between work experience and CSR

perceptions. However, findings show that the relationship between work experience and CSR

perceptions has been inconsistent and conflicting. For instance, when Tan and Komaran (2006)

seem to find work experience as an important factor in determining CSR commitment, other

researchers such as Serwinek (1992) and Gunawan and Putra (2014) do not. Tan and Komaran

(2006) argued that people with longer work experience rated social, environmental and

philanthropic responsibilities the highest in comparison with less experience workers.

While the past research found the impact of work experience towards CSR, but it is known

whether such differences in perception are general in nature or they change from one sector to

another. To express this conjecture, we therefore developed the following hypothesis:

H5: The perception about how CSR affects IFIs’ performance differs significantly with

differences in work experience

Methodology

Research design

This study adopts a cross-sectional design, also known as survey design, for executive members

of IFIs in Malaysia. The questionnaire survey was design to investigate the attitudes of the

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respondents towards issues pertaining to CSR. The selection of the sample was based on the

Bank Negara Malaysia’s (Central Bank of Malaysia) lists of licensed IFIs.

Sample and data collection

The sample of the study was selected from two different segments of IFIs, Islamic banks and

Islamic insurance (takaful) companies. In this study, the sample was drawn from all 27 IFIs

including both local and foreign ownership structures (see Table 1). The sample comprises 16

Islamic banks and 11 Islamic insurance companies. Total number of institutions with majority

local ownership is 29 (10 banks and 19 insurance companies). The total number of institutions

with majority foreign ownership is 8 (6 banks and 2 insurance companies). A total number of

540 questionnaires were initially distributed. Then, we followed up with respondents through e-

mails and telephone calls. All questionnaires returned were anonymous and treated

confidentially. This process resulted in a total number of 186 responses. This gives a response

rate of 34.4 per cent, which is considerably adequate for statistical analysis. The response rate of

this study compares favourably with prior similar studies.3

The questionnaire

The questionnaire survey was divided into three sections. The first section of the questionnaire

asked about respondents’ attitudes towards Carroll’s pyramid of CSR. There are 16 items in

total, which are measured using a five-point Likert scale ranging from 1 to 5, where 1 denotes

strongly agree and 5 denotes strongly disagree. The second section of the questionnaire

examined the perception of executives on the motivation of Malaysian IFIs to engage in CSR

activities. The respondents were provided with 10 statements to evaluate using a five-point

Likert scale. The final section of the questionnaire consists of 5 close ended questions related to

demographic characteristics of gender, age group, ethnicity, religion, and work experience.

Empirical analysis

To test whether the perception of the four CSR elements (Carroll, 1979; 1991) are associated

with executive-specific characteristics, we use four regression models in which the dependent

variable is economic responsibility, social responsibility, ethical responsibility, and philanthropic

responsibility, respectively.

EconRespij=∂1+∂2Genij+∂3 Ageij+∂4 Ethnij+∂5 Rlgij+∂6 expij+∂7Own ij+εij (1)

SocRespij=β1+ β2 Genij+β3 Ageij+β4 Ethnij+ β5 Rlgij+β6exp ij+β7 Ownij+εij (2)3 For example, a study conducted by Ahmad, et al. (2016) yielded 15.5 per cent, Darus, et al. (2014) and Iyigun (2013) yielded 21.4 per cent.

15

EthicRespij=γ 1+γ 2Genij+γ3 Ageij+γ 4 Ethn ij+γ5 Rlgij+γ 6 expij+γ7 Ownij+εij (3)

PhilRespij=δ 1+δ2 Genij+δ 3 Ageij+δ 4 Ethn ij+δ5 Rlg ij+δ6 expij+δ 7Own ij+εij (4)

Where; each dependent variable in the regression models are measured as the mean score for

questions on each element (economic/social/ethical/philanthropic) for respondent i at firm

j; Genij is a dummy variable that equals 1 if respondent i at firm j is a male and 0

otherwise; Ageij is a dummy variable that represents age group of below 30, 31-40, 41-50,

and above 51; Ethnij is a dummy variable that represents ethnicity groups of Malay,

Chinese, and Indian; Ethnij is a dummy representing religion of Buddhism, Christianity,

Hinduism, Islam, and Other; Expij is a dummy variable that represents work experience of

≤ 5 years, 6-10 years, 11-15 years, 16-20 years, and ≥ 21 years; and Ownij is a control

variable representing ownership structure and is measured as a dummy variable that equals

1 if the firm i, of respondent j, is dominated by foreign investment and 0 otherwise.

Prior studies, of firms operating in developing countries, show a positive association between

foreign ownership and firm’s performance (Khawar, 2003; Arnold and Javorcik, 2005). The

results revealed that firms with foreign ownership perform better financially in comparison with

domestic owned companies (Aydin et al., 2005). Firms with foreign ownership potentially

outperform domestic firms because of their ability to transfer superior technology, better access

to the international market and superior business strategy and strong financial resources (Douma,

et al., 2006). Therefore, we expect a positive association between Owni and CSR elements as

indicators of firm performance.

Empirical Results

Descriptive Statistics

Figure 1 graphically depicts the differences in the hierarchy of CSR elements between the

classical Carroll’s CSR pyramid and the proposed CSR pyramid in IFIs in Malaysia based on our

analysis. As show, in IFIs, more emphasis is placed on ethical responsibility, followed by

philanthropic responsibilities. Legal responsibilities come in third place and finally come

economic responsibilities. Further analysis of drivers of CSR elements and perception of relative

significance follow in our empirical tests.

Table 2 shows that 76.9% of sample respondents are predominantly male relative to 23.1%

female. Respondents aged 31-40 and 41-50 years old comprise 79.6% of the total sample. On the

other hand, only 5.9% of respondents belong to the age group below 30 years old and 14.5% of

16

respondents are aged over 50 years old. It appears from the distribution of sample age groups

that the findings of this study are dominated by the opinion of middle-aged respondents. As for

the ethnic group distribution, the sample is dominated by majority Malay respondents (67.7%),

followed by Chinese (24.8%), and Indians (7.5%). The majority of respondents (68.8%) are

Muslims followed by Buddhists, Christians, Hindus and other religions (12.4%, 11.3%, 4.3%,

and 3.2%, respectively). Regarding work experience, 81.2% of respondents generally have more

than 10 years of experiences. Hence, the sample has majority respondents with relatively more

experience.

Table 3 provides descriptives of respondents’ scores for the CSR elements in Malaysia based on

Carroll’s pyramid of economic, ethical, legal and philanthropic responsibilities. The respondents’

attitudes were analysed using mean (ranking) and standard deviation. The CSR element

perceived to have the most significance is ethical responsibility (mean 15.92) followed by

philanthropic responsibility (mean 15.83), legal responsibility (mean 14.91), and finally

economic responsibility (mean 12.25).

Ethical and philanthropic responsibilities, respectively, were ranked the most significant,

implying that the participants strongly believe that IFIs should always contribute to enhancing

the society, based on Islamic beliefs and scriptures. This is confirmed by the philosophical

concept behind establishing Islamic business organisations, particularly IFIs, to promote good

ethical practices and social responsibilities as core values in their operations rather than simply

seeking profit.

The responses from participants, regardless of their ethnicity and demographic background,

collectively agreed that IFIs should emphasise morals and values. This means that focusing on

ethical and philanthropic responsibilities are perceived important without repudiating the

importance of profit generation. These findings on relative significance of CSR elements

contradict Visser’s (2008) argument that ethical responsibilities should be the least important

element by firms operating in developing countries.

The correlation between each element of CSR (i.e. economic responsibilities, legal

responsibilities, ethical responsibilities, philanthropic responsibilities) and the extent to which

variables vary between them are depicted in Table 4. Results from the survey participants clearly

show that all CSR elements in IFIs in Malaysia are highly correlated at the 1% significance level.

Findings

17

Table 5 on the other hand, displays the results of regression analysis. This model was to measure

the influence of selected demographic characteristics of survey participants on their perception of

CSR elements. From the table, it was revealed that gender, age group, ethnicity, religion, and

work experience of the respondents significantly influenced the perception of participants

towards economic and legal responsibilities (p<0.01). It should be noted ownership structure of

sample companies (i.e. local vs. foreign ownership) is only a significant determinant of the

perception of participants towards economic responsibilities of CSR.

Regarding results reported in table 6, panel A shows that no significant association between

gender and CSR orientation. This indicates that attitude of survey participants towards economic,

legal, ethical, and philanthropic responsibilities are not influenced by gender. Panel B reveals

that here is a significant association between age group and economic and legal responsibilities

(p<0.01). Respondents in the age group ‘below 30’ have better attitudes (mean 13.71) towards

economic responsibility. On the other hand, respondents in the age group ‘above 51’ have the

highest attitudes (mean 16.33) towards legal responsibility compared to their younger

counterparts. Hence, executives from different age groups put different emphasis on CSR

orientation.

Panel C indicates that there is a statistically significant association between ethnicity and

economic and legal responsibilities at significance level of 0.000 and 0.050 respectively. Malay

respondents show better attitudes towards economic responsibility with mean value of 12.87.

Whilst Indian respondents have better attitudes (mean: 16.14) towards legal responsibility

followed by Chinese (mean 15.25) and Malay (mean 14.65).

Panel D shows a significant association between religion and CSR orientation. Results show that

only the attitudes towards philanthropic responsibility are not significantly associated with

religion. Muslims show better attitude towards economic responsibility (mean 12.88) relative to

respondents from other religions. On the other hand, Christians have better attitude (mean 16.86)

towards legal responsibility. Hindus have better attitude towards ethical responsibility (mean

17.00) and consider it to be more important than respondents from other religions. Panel E

indicates that the relationship between work experience and four types of CSR elements are not

significant. This means that the attitudes towards economic, legal, ethical and philanthropic

responsibilities are not influenced by work experience.

18

Our results shown in table 6 support the conjectures in each of the hypotheses, but only related to

legal and economic responsibility elements. The differences are insignificant with regard to

ethical and philanthropic responsibility elements. Crane and Matten (2007) suggest that ethical

responsibilities enjoy a much higher priority in Europe than in the US. In Malaysia, ethics even

supersedes all other elements. The insignificant results may be attributed to respondents’

unanimity on the importance of ethics, being a building block of Islamic Shariah principles and

rulings governing IFIs.

Panel A of table 7 demonstrates a collective response from survey participants towards

motivations inducing CSR practices. With mean value of 4.39, ‘increase community trust and

support’ was ranked by respondents as the strongest motivation towards good CSR practices.

This is followed by ‘enhance public image and reputation’ (mean 4.33), ‘increase competitive

advantage’ (mean 3.91) and ‘personal ethical and cultural tradition’ (mean 3.63). Overall, results

from Table 7 reveal that community and ethical elements are perceived as the most motivating

factors for good CSR practices in the IFIs.

Panel B shows a detailed evaluation of motivations to apply CSR practices in IFIs. The results

indicate that over 90% of respondents perceived each of ‘increase community trust and support’

and ‘enhance public image and reputation’ as the most important motivations for CSR practices

(mean values are 4.39 and 4.33, respectively). This consensus is also shown based on low

standard deviation values of 0.642 and 0.703, respectively. In contrast, the respondents perceived

‘pressure from government’, ‘global pressure’ and ‘pressure from special interest groups/NGOs’

as least important drivers for CSR involvement with mean values of 2.96, 2.88, and 2.79,

respectively. Interestingly, these motivations also possess the highest number of ‘undecided’

respondents (91, 90 and 89 respondents out of 186, respectively).

Panel A of table 8 depicts descriptive analysis for each CSR element from all 16 statements

listed in the questionnaire. The results reveal that ‘ethical responsibilities’ and ‘philanthropic

responsibilities’ have more statement with mean score of 4.00 and above. An analysis on the

mean section reveals that ‘treating all employees and job applicants equally without

discrimination’, and ‘avoid any projects or activities involving alcohol, drugs and gambling’

received the highest score from respondents (mean values are 4.30 and 4.13, respectively).

Unlike ethical and philanthropic responsibilities, respondents perceived ‘legal responsibilities’

and ‘economic responsibilities’ the least important CSR elements.

19

On the other hand, Panel B demonstrates detailed evaluation of CSR elements in IFIs. As for

‘ethical responsibilities’ element, the majority of respondents (156 out of 186 samples) agreed

with the statement that ‘treating all employees and job applicants equally without discrimination’

is most important. Furthermore, ‘ensuring that the respect for ethical values has priority over

economic performance’ had the least mean score (3.66). This may imply that ethical values is

already regarded as a basis prior to economic profit making.

Respondents generally agreed with regard to the ‘philanthropic responsibilities’ element. The

low value of standard deviations for all statements is adequate to measure the degree of

consensus amongst them. The vast majority of the respondents agree with the statement that

businesses should ‘allocate some of the profits for philanthropic activities such as offering

scholarships and donations to the underprivileged’, ‘help to solve social problems such as

poverty, crime and illiteracy’ and ‘promote sustainable development activities’ (144, 141 and

150 out of 186, respectively).

For the ‘legal responsibilities’ element, 160 respondents agree with the statement ‘ensure that

company’s operations are in compliance with environmental laws and regulations’. Interestingly,

more than half of the respondents (98 out of 186 samples) were undecided with the statement

‘refrain from putting aside their contractual obligations’, suggesting the importance of valuing

obligations as a core value in IFIs.

Panel B also shows interesting findings on the respondent’s emphasis on the ‘economic

responsibilities’ element without disregard to CSR. The majority of respondents (146 out of 186

samples) agreed that IFIs should ‘involve in social welfare activities if it creates competitive

advantage’. However, 115 out of 186 respondents disagreed with the statement ‘emphasise profit

maximisation rather than promoting corporate social responsibility’. Furthermore, almost half of

the sample (96 respondents) perceived that IFIs should ‘disregard social and environmental

responsibility involvement if it negatively affects financial performance’.

Conclusion

This study provides an exploratory understanding of CSR practices and effect on performance in

Malaysian Islamic financial institutions (IFIs). This paper empirically investigates financial

executives’ perception about the importance of CSR practice in IFIs. As far as CSR in Malaysia

is concern, the results indicate a growing concern in CSR involvement by IFIs.

20

The research also shows that Islamic financial executives perceive ethical and moral elements as

fundamental in Islamic financial practices. For instance, ethical and philanthropic responsibilities

are ranked highly in this study. This finding challenges the prior theoretical framework of CSR

developed by Carroll (1979, 1991), which appears to be a better portrait of the US or western

contexts. Surprisingly, both responsibilities show no significant differences when statistically

tested according to demographic characteristics. Therefore, the sample respondents are in

agreement about ethical and philanthropic responsibilities, irrespective to their demographic

profile. It is also found that the perception of economic responsibility importance is significantly

influenced by age group, ethnicity and religion. Younger Malay Muslim executives place higher

emphasis over economic responsibility than other executive groups.

This study also outlines four factors classified as the most important CSR activities by IFIs.

These are ‘public health and safety’, ‘employee welfare and training’, ‘public education’ and

‘quality of work life programmes’. This assessment suggests that IFIs’ executives possess high

intention of creating benefit to the society. Furthermore, the output of the study reveals that the

executives of IFIs agreed that they engage in CSR activities with the objective to enhance

community trust and support and to improve reputation and public image. Finally, the study

reports that ethical was given the highest importance level by IFIs. This argument is based on the

proposition that different society react differently to the idea of CSR depending on the nature of

business operations. Overall, this study, consequently, confirm with the notion that IFIs are able

to translate its operations into social, ethical, religious and economic justice.

Our results show that executives in IFIs perceive community support and public image as

significant drivers for CSR involvement. However, pressure from local governments, NGOs, and

global initiatives are relatively insignificant. Further empirical investigation is needed to identify

the degree of acceptance/trust in local and global CSR initiatives and their applicability to IFIs

and whether they need to be adapted to the specific nature of these institutions.

Our empirical findings have several important implications for industry and researchers. Islamic

financial institutions are urged to work within the special fundamental structure of socio-

economic environment to garner its potential and develop as strategic tools to achieve

competitive advantage and good reputation globally. CSR is a crucial determinant to trigger the

interest of socially responsible investors, locally and internationally, to potentially enter Islamic

banking and finance markets. It is vital to translate the positive CSR views of IFIs top

21

management by incorporating CSR activities into IFIs operations harmoniously. IFIs should have

CSR policies and procedures in place which integrate philanthropic, social, and ethical

environments as well as Shariah principles into business operations and core strategy. The paper

also contributes some understanding of CSR literature, especially in Islamic financial context.

What is clear from this research is that, Western CSR frameworks and models are inadequate for

optimizing CSR practices and enhancing performance in IFIs.

Acknowledgement

This study is supported by a post-doctoral research grant from the Ministry of Higher Education

Malaysia and University of Malaya. The authors also thank Gulf One Lancaster Centre for

Economics Research (GOLCER), Lancaster University Management School for providing

support.

22

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(i) CSR in Islamic Financial Institutions (ii) Carroll’s CSR (1991)

Figure 1: Comparison of CSR elements

27

LegalResponsibility

EconomicResponsibility

PhilanthropicResponsibility

EthicalResponsibility

LegalResponsibility

EconomicResponsibility

EthicalResponsibility

PhilanthropicResponsibility

Table 1: Characteristics of Sample Financial Institutions

Panel A: List of sample financial institutions

No. Islamic banks Ownership1 Affin Islamic Bank Berhad Local

2 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Foreign

3 Alliance Islamic Bank Berhad Local

4 AmBank Islamic Berhad Local

5 Asian Finance Bank Berhad Foreign

6 Bank Islam Malaysia Berhad Local

7 Bank Muamalat Malaysia Berhad Local

8 CIMB Islamic Bank Berhad Local

9 HSBC Amanah (Malaysia) Berhad Foreign

10 Hong Leong Islamic Bank Berhad Local

11 Kuwait Finance House (Malaysia) Berhad Foreign

12 Maybank Islamic Berhad Local

13 OCBC Al-Amin Bank Berhad Foreign

14 Public Islamic Bank Berhad Local

15 RHB Islamic Bank Berhad Local

16 Standard Chartered Saadiq Berhad Foreign

No. Islamic insurance companies Ownership

1 AIA Public Takaful Berhad Foreign

2 AmMetLife Takaful Berhad Local

3 Etiqa Takaful Berhad Local

4 Great Eastern Takaful Berhad Foreign

5 HSBC Amanah Takaful (Malaysia) Berhad Local

6 Hong Leong MSIG Takaful Berhad Local

7 Prudential BSN Takaful Berhad Local

8 Sun Life Malaysia Takaful Berhad Local

9 Syarikat Takaful Malaysia Berhad Local

10 Takaful Ikhlas Berhad Local

11 Zurich Takaful Malaysia Berhad Local

Panel B: Ownership Structure and Charter TypeType Islamic banks Islamic insurance companies TotalLocal ownership 10 9 29Foreign ownership 6 2 8Total 16 11 27

28

Table 2: Profile of Respondents (n = 186)

Profile Frequency Percentage (%)Gender:Female Male

43143

23.176.9

Age group:Below 3031-4041-50Above 51

11697927

5.937.142.514.5

Ethnicity:ChineseIndian Malay

4614126

24.87.567.7

Religion:Buddhist ChristianHinduMuslimOther

23218

1286

12.411.34.368.83.2

Work experience:≤ 5 years6-1011-1516-20≥ 21 years

1124403774

5.912.921.519.939.8

Table 3: CSR elements (mean, ranking and standard deviation)

CSR Elements Mean (Ranking) Standard deviation 95% confidence interval

Economic responsibilityLegal responsibilityEthical responsibilityPhilanthropic responsibility

12.25 (4)14.91 (3)15.92 (1)15.83 (2)

2.512.442.552.60

11.88 to 12.6114.56 to 15.2715.56 to 16.2915.45 to 16.20

Table 4: Pearson correlation coefficient

CSR Elements Economic responsibility

Legal responsibility

Ethical responsibility

Philanthropic responsibility

Economic responsibilityLegal responsibilityEthical responsibilityPhilanthropic responsibility

10.243*0.287*0.222*

10.573*0.621*

10.785* 1

Notes: * Highly significant correlations at the 0.01 level

29

Table 5: Multiple linear regression models

Model (1) Model (2) Model (3) Model (4)

Intercept Coef. t-stat Coef. t-stat Coef. t-stat Coef. t-stat

Genij -0.037 -0.522 -0.152 -2.065** -0.008 -0.103 -0.058 -0.755

Ageij -0.002 -0.013 0.121 0.951 0.072 0.550 0.040 0.302

Ethnij -0.145 -1.237 0.017 0.136 -0.075 -0.590 0.090 0.701

Rlgij -0.251 -2.093** 0.181 1.435 -0.088 -0.675 -0.076 0.576

Expij -0.070 -0.581 0.010 0.082 0.048 0.371 0.044 0.335

Owni 0.217 3.019*** 0.035 0.460 0.071 0.907 0.040 0.509

No. of obs. 186 186 186 186

Adjusted R2 0.176 0.083 0.033 0.014

F-ratio 6.367 2.705 1.022 0.437

p-value 0.000*** 0.015** 0.413 0.853Notes:EconRespij=∂1+∂2Genij+∂3 Ageij+∂4 Ethnij+∂5 Rlg ij+∂6 expij+∂7Ownij+εij (1)SocRespij=β1+ β2 Genij+β3 Ageij+β4 Ethnij+ β5 Rlgij+β6exp ij+β7 Ownij+εij (2)EthicRespij=γ 1+γ 2Genij+γ3 Ageij+γ 4 Ethn ij+γ5 Rlgij+γ 6 expij+γ7 Ownij+εij (3)PhilRespij=δ 1+δ2 Genij+δ 3 Ageij+δ 4 Ethn ij+δ5 Rlg ij+δ6 expij+δ 7Own ij+εij (4)Where; each dependent variable in the regression models are measured as the mean score for questions on each element (economic/social /ethical/philanthropic) for respondent i at firm j; Genij = a dummy variable that equals 1 if respondent i at firm j is a male and 0 otherwise; Ageij = a dummy variable that represents age group of below 30, 31-40, 41-50, and above 51; Ethnij = a dummy variable that represents ethnicity groups of Malay, Chinese, and Indian; Ethnij = a dummy representing religion of Buddhism, Christianity, Hinduism, Islam, and Other; Expij = a dummy variable that represents work experience of ≤ 5 years, 6-10 years, 11-15 years, 16-20 years, and ≥ 21 years; Owni = a control variable representing ownership structure and is measured as a dummy variable that equals 1 if the firm i, of respondent j, is dominated by foreign investment and 0 otherwise.

30

Table 6: ANOVA tests Panel A: The relationship between gender and CSR orientation

Gender

F-ratio Sig.Female Male

Mean SD Mean SD

Economic responsibilityLegal responsibilityEthical responsibilityPhilanthropic responsibility

12.1614.2815.8115.51

2.192.502.302.64

12.2715.1015.9615.92

2.602.392.622.58

0.0633.8850.1050.830

0.0820.0510.7460.364

Panel B: The relationship between age group and CSR orientation

Age groupF-

ratio Sig.Below 30 31-40 41-50 Above 51

Mean SD Mean SD Mean SD Mean SD

Economic responsibilityLegal responsibilityEthical responsibilityPhilanthropic responsibility

13.7114.7315.3615.64

1.621.191.032.20

11.9714.6715.8315.61

2.362.913.173.18

12.7214.6715.9415.89

2.522.182.162.32

10.9616.3316.3716.30

2.581.712.261.75

5.1833.7320.4850.486

0.0020.0120.6930.692

Panel C: The relationship between ethnicity and CSR orientation

Ethnicity

F-ratio Sig.Chinese Indian Malay

Mean SD Mean SD Mean SDEconomic responsibilityLegal responsibilityEthical responsibilityPhilanthropic responsibility

11.0215.2615.3315.37

2.112.061.981.98

10.7116.1415.5717.00

1.732.031.991.36

12.8714.6516.1815.87

2.482.562.752.85

13.5363.0472.0072.185

0.0000.0500.1280.115

Panel D: The relationship between religion and CSR orientation

Religion

F-ratio Sig.Buddhist Christian Hindu Muslim Other

Mean SD Mean SD Mean SD Mean SD Mean SDEconomic resp.Legal resp.Ethical resp.Philanthropic resp.

11.0014.7014.7815.09

1.731.492.041.95

10.1916.8615.1915.90

2.401.771.831.76

11.2515.5017.0017.00

0.882.450.761.69

12.8814.6416.2115.88

2..472.542.742.83

12.0014.0015.3315.67

1.792.372.072.73

8.5264.4182.5160.899

0.0000.0020.0430.466

continued

31

Table 6 (continued): ANOVA tests Panel E: The relationship between work experience and CSR orientation

Working experience

F-ratio Sig.≤ 5 years 6-10 years 11-15 years 16-20 years ≥ 21 years

Mean SD Mean SD Mean SD Mean SD Mean SDEconomic resp.Legal resp.Ethical resp.Philanthropic resp.

13.7314.7315.3615.64

1.621.191.032.20

12.4614.3815.8315.96

2.132.792.483.09

12.0814.5315.5015.40

2.723.233.693.48

12.2714.9216.2415.32

1.771.882.131.99

12.0415.3216.1116.30

2.872.182.132.12

1.1771.0910.6561.262

0.3220.3620.6240.287

Table 7: Analysis of Motivations to Apply CSR PracticesPanel A: Descriptives

Items Mean Std. RankIncrease community trust and support

Enhance public image and reputation

Increase competitive advantage

Personal ethical and cultural tradition

Matching of social needs to corporate skill and ability to help

Religious responsibility

Increase profitability

Pressure from general public

Pressure from government

Global pressure

Pressure from special interest groups/NGOs

4.39

4.33

3.91

3.63

3.60

3.56

3.42

3.06

2.96

2.88

2.79

0.642

0.703

0.794

0.783

0.731

1.050

0.957

0.960

0.966

0.911

0.841

1

2

3

4

5

6

7

8

9

10

11

32

Table 8: Overall Evaluation of CSR Elements in Islamic Financial Institutions

Panel A: Descriptives

CSR Element Statement Mean Std.

Ethical Responsibilities

Treat all employees and job applicants equally without discrimination 4.30 0.867

Avoid any projects or activities involving alcohol, drugs and gambling 4.13 1.129

Respect and understand ethics and cultural diversity among difference ethnic groups

3.83 0.844

Ensure that the respect for ethical values has priority over economic performance 3.66 0.936

Philanthropic Responsibilities

Allocate some of the profits for philanthropic activities such as offering scholarships and donations to the underprivileged

4.03 0.863

Help to solve social problems such as poverty, crime and illiteracy 4.03 0.854

Promote sustainable development activities 4.03 0.906

Support charities and community projects even if there is probably no profit potential 3.74 0.970

Legal Responsibilities

Ensure that company’s operations are in compliance with environmental laws and regulations 4.25 0.816

Commit to take action and disclose any violation of laws, regulations and policies such as abuse of power, fraud and bribery 3.96 0.946

Pay tax and royalty consistently 3.79 0.967

Refrain from putting aside their contractual obligation 2.91 0.908

Economic Responsibilities

Involve in social welfare activities if it creates competitive advantage 3.98 0.805

Enhance corporate reputation and goodwill solely based on economic strength 3.38 1.148

Disregard social and environmental responsibility involvement if it negatively affects financial performance

2.52 1.097

Emphasise profit maximisation rather than promoting corporate social responsibility 2.38 1.002

continued

33

Table 8 (continued): Overall Evaluation of CSR Elements in Islamic Financial Institutions

Panel B: Detailed Evaluation of CSR Elements in Islamic Financial Institutions

CSR Elements Statement n =

Strongly disagree/Disagree

UndecidedStrongly

agree/Agree

Mean Std. Dev.

Ethical Resp. . Treat all employees and job applicants equally without discrimination. Avoid any projects or activities involving alcohol, drugs and gambling. Respect and understand ethics and cultural diversity among difference ethnic groups. Ensure that the respect for ethical values has priority over economic performance

186

186

186

186

7

20

11

20

23

23

45

58

156

143

130

108

4.30

4.13

3.83

3.66

0.867

1.129

0.844

0.936

Philanthropic Resp.

. Allocate some of the profits for philanthropic activities such as offering scholarships and donations to the underprivileged. Help to solve social problems such as poverty, crime and illiteracy . Promote sustainable development activities. Support charities and community projects even if there is probably no profit potential

186

186

186186

9

7

1420

33

38

2243

144

141

150123

4.03

4.03

4.033.74

0.863

0.854

0.9060.970

Legal Resp.

. Ensure that company’s operations are in compliance with environmental laws and regulations. Commit to take action and disclose any violation of laws, regulations and policies such as abuse of power, fraud and bribery. Pay tax and royalty consistently. Refrain from putting aside their contractual obligation

186

186

186186

6

11

1550

20

42

5098

160

133

12138

4.25

3.96

3.792.91

0.816

0.946

0.9670.908

Economic Resp.

. Involve in social welfare activities if it creates competitive advantage. Enhance corporate reputation and goodwill solely based on economic strength. Disregard social and environmental responsibility involvement if it negatively affects financial performance. Emphasise profit maximisation rather than promoting corporate social responsibility

186

186

186

186

8

48

96

115

32

45

55

42

146

93

35

29

3.98

3.38

2.52

2.38

0.805

1.148

1.097

1.002

34