Academic journal article Academy of Accounting and Financial Studies Journal

Measuring Social Efficiency: The Case of Italian Mutual Banks

Academic journal article Academy of Accounting and Financial Studies Journal

Measuring Social Efficiency: The Case of Italian Mutual Banks

Article excerpt

INTRODUCTION

The academic literature has paid close attention to defining and measuring Corporate Social Performance (CSP). Its "integrative nature" (Wartick & Cochran, 1985), composed of the three facets of social responsibility, social responsiveness and social issues (Carroll, 1979), simultaneously reveals its multiple dimensions and its dynamic framework. Although there is "only one social responsibility of business" (Friedman, 1970), in recent decades a lively debate has centred on definition of CSP and the interests pursued by corporate leaders (Madsen & Bingham, 2014). Moreover, the lack of both a univocal definition of CSP and a systematic methodology for measuring it (Ruf, Muralidhar & Paul, 1998) has spurred authors to provide indicators that could be helpful in this task.

The measurement of CSP has been the main focus of many empirical investigations based on: 1) structural principles of corporate social responsibility such as legitimacy (Neubaum & Zahara, 2006; Cox, Brammer & Millington, 2008) and public responsibility (Longo, Mura & Bonoli, 2005); b) CSP outcomes such as disclosure (Freedman & Stagliano, 1991), environmental impacts (Chen & Metcalf, 1980), customer impacts (Rundle-Thiele, Ball & Gillespie, 2008), employees impacts (Jones & Murrel, 2001), and reputation (Griffin & Mahon, 1997). Despite all these studies, there is no consensus on aggregate CSP measures with which to assess the overall corporate social performance of firms.

Within this framework, the aim of this study is to measure the overall CSP dimension using a methodology based on Data Envelopment Analysis (DEA). The CSP measures will focus on a sample of 82 (the only ones with social reports published) Italian Mutual Banks (IMBs) during the time period 2010-2011. Following Chen & Delmas (2010), but differing from their method in the selection of input and output variables, the DEA approach allows determination of a ratio which is interpretable as a social efficiency measure. Moreover, once the social efficiency score (SES) has been estimated, the next step is to analyse the impact on it of certain financial characteristics (size, ROA, bank productivity, credit risk, non-performing credit), contributing to the large body of academic literature focused on the relationship between CSP and financial performance (Cochran & Wodd, 1984; Pava & Krauzs, 1996; Griffin & Mahon, 1997; Preston & O'Bannon, 1997; Roman, Haybor & Agle, 1999; Ruf et al, 2001; Simpson & Kohers, 2002; Orlitzky, Schmidt & Rynes, 2003; Cuesta-Gonzales, Munoz-Torres & Fernandez-Izquierdo, 2006; Callado-Munoz & Utrero-Gonzales, 2009; Soana, 2011; Andersen & Olsen, 2011; Piatti, 201a).

Overall, the empirical results emphasise the greater strength and robustness of DEA approach compared with aggregate score measures. The comparison between SESs obtained by DEA (deaSES) and equal weight aggregation (ewSES) highlights a remarkable difference in ranking. In particular, with the aggregation method, if banks underperform on some CSP dimensions, they will tend to have low ewSES. On the other hand, DEA, by assigning a weighted variable to each CSP dimension in order to determine the optimal trade-off between inputs and social outputs, reduces the weight of the poor performance dimension and increases the weight of the highest one. The distinctive features of DEA are its endeavour to determine the optimal trade-off between input and social output, set up at the beginning for each bank, and its lower "sensitivity" to weight changes.

Moreover, the choice of treating IMBs is determined both by their lower integration/greater autonomy with respect to other cooperative banks operating abroad (Gutierrez, 2008) and by their business model, which is strongly rooted in the local community (Bongini, Di Battista & Zavarrone, 2007; Boscia & Di Salvo, 2009; E. …

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