Customer responses on CSR, evidences from vietnamese banking sector

Hoang Hai Yen & Nguyen Thi Hong Nhung | 735 Customer responses to corporate social responsibility: Evidences from Vietnamese banking sector HOANG HAI YEN University of Economics HCMC – yenhh@ueh.edu.vn NGUYEN THI HONG NHUNG University of Economics HCMC – hongnhungnt@ueh.edu.vn Abstract The purpose of this paper is to investigate the impacts of corporate social responsibility (CSR) on the relationship of commercial bank and its customers It also aims to identify the linkages between CSR practices of the bank and the purchase behavior of customers This study employs a quantitative research design to test a selective CSR model which is considered a suitable model applied for commercial banks A structural equation model is tested with information collected from customer survey to determine if customer’s CSR perceptions support their continuous intention to purchase banking services The study identifies the component factors of CSR of commercial bank The results show that only the bank’s economic and ethical responsibilities have affected on the bank and customer relationship, thereby influencing the customer’s purchase behavior However, the tested results show that there is no impact of legal and environmental responsibilities on the bank and customer relationship and thus no influence on purchase intention of customers Although there is a rich stream of research reporting the impact of CSR on purchasing intention but there is no research about which component of CSR affects the direction of purchase intention of customers, among several components of CSR This research finds out not all components of CSR indirectly affect the customer’s purchase behavior and as a result this paper provides valuable insights, and contributes to existing literature Moreover, research results provide reference information for banking managers to allocate resources to CSR components which directly influence on purchase intention of customers, to reinforce the bank and customer relationship and increase customer’s using of banking services However, the context of the study may be limited by its single category, banking services in Vietnam Keywords: CSR; purchase behavior; banking customer relationship 736 | ICUEH2017 Introduction The concept of corporate social responsibility (CSR) has become an increasingly common term and formation in the academic and business realms over the last century Since 1990s, when the concept and structure of CSR was shaped with several models such as the theory of stakeholders in CSR (Freeman, 1984), a four-part comprehensive model of the ‘‘Pyramid of CSR’ (Carroll, 1991)…, the role of CSR has not only been significantly discussed in literature, but also acknowledged as business practice CSR activities have received significant attention in the banking sector (Grougiou et al., 2014; Wagoruntu et al., 2014; Fatma et al, 2016, Peréz 2014, 2015,2017…) Although these studies were conducted in different periods and markets, there was the same conclusion: large commercial banks often have higher interest and involvement in CSR than small ones The better CSR performance, the higher ROA and ROE, the lower the bad debt ratio (Grougiou et al., 2014; Wagoruntu et al., 2014) Other studies about customers’ behaviour towards CSR activities of organizations found that customers are willing to buy products of companies that perform better CSR at higher prices (Pohnar et al., 2007) CSR performances increase customer’s perception of product quality, customer satisfaction and loyalty (Mandhachitara & Poolthong, 2011) Customers are willing to support products of social responsible companies and turn down other companies that lack of social responsibility (Creyer, 1997) In banking sector, the products and services are mainly related to currency and of quite similar characteristics Most commercial banks in Vietnam are not competitive on specific products, but mainly attract customers in terms of prices, interest rates So what are the factors that affect customer’s choice of a bank's products or services? Will commercial banks get more support from their customers as they increases their social responsibility activities? Identifying this issue is still a gap in CSR research The commercial banking system in Vietnam has a certain interest in CSR activities through policies, incentives and social welfare In addition, the State Bank of Vietnam has issued a regulation in 2015 on promoting “green credit” growth, environmental and social risk management in credit activities Some banks have implemented "green credit" such as Vietinbank, Sacombank, Techcombank, Vietcombank and ABBank… These commercial banks have set quantitative or qualitative criteria for environmental protection and social benefits in the indicators and procedures of credit assessment However, the program "green credit" has been just applied in several banks, not a compulsory program for all commercial banks in Vietnam Hoang Hai Yen & Nguyen Thi Hong Nhung | 737 As there are theoretical gap in CSR research and the interest of commercial banks about CSR and customer relationships, this research is aimed at identifying how CSR performance of commercial banks affect their customer relationships and whether or not the increasing of CSR activities of commercial banks will raise their customers’ intention to use banking services The research result is to contribute to the theory of CSR, customer support for CSR as well as to provide the fundamental for bank managers to distribute the bank resources to strengthen the bank-customer relation, increase customer purchase intention The research results show that there are only two components of CSR, including economic responsibility and ethical responsibility that have direct impacts on banks and their customer relationship and these two components also have indirect influences on customer intention to purchase banking services Literature review and hypotheses CSR and its components for commercial banks There are many concepts of CSR which were introduced by Bowen and Johnson (1953); Frederick (1960); Friedman, (1970); Freeman (1984); Carroll (1991); Aras and Crowther (2009) However, the CSR concept of the above mentioned scholars has the common points that CSR refers to the organization's responsibility to generate profits for the business, benefits for the stakeholders, increases social welfare and community benefits Since the concept of CSR became known in the 1940s, many models of CSR have been developed so far; for example: Freeman's “Stakeholder theory” model (1984); Carroll's “Pyramid of CSR” model (1991) and the "Sustainable development" CSR model developed by Aras and Crowther (2009) According to “Stakeholder Theory”, Freeman (1984) stated that organization need to care not only shareholders’ benefits but also all stakeholders’ concerns and ‘‘the social responsibility of business is to increase its profits” All stakeholders are including those affecting and to be affected by the organization However, Freeman's theory of stakeholders was also criticized for not addressing ethical issues and how the organization should behave to stakeholders In 1991, Carroll built “Pyramid of CSR” model which emphasized the importance of businesses responding to all aspects of the social world: economic, legal, ethical and philanthropic The economic feature of the pyramid is positioned at the bottom as the foundation of the pyramid which means creating profit for corporate’s shareholders is considered the most important responsibility that an organization must undertake Therefore, only after this principle has been satisfied can other responsibilities occur This model is one of the earliest CSR model to structure how the responsibilities should arrange within a 738 | ICUEH2017 corporation Although it is still widely used, it has also faced the criticism Campbell (2007) argued that companies who are poor economic resources are less likely to engage in acts of CSR as they have fewer resources to invest time, effort and money into it Another criticism of Carroll’s pyramid pointed out its lack of consideration of environmental management and corporate sustainability, which is particularly appropriate as corporate managers are more likely to adopt CSR using the triple bottom line approach (Visser, 2005) Developing this argument, Aras and Crowther (2009) observed that CSR models proposed by Freeman (1984) and Carroll (1991) not adequately demonstrate “corporate sustainability” which focuses on “ensuring that the resource utilisation of the present does not affect the future” They also assert that most analyses of sustainability concentrate solely on the environmental and the social whilst financial performance, which is also essential to the success of sustainability, is overlooked, because of “the conflict between financial performance of a corporation and its social and environmental performance” (Aras and Crowther, 2009) They proposed a comprehensive CSR model that examines all four elements of CSR in both short and long term contexts: environment, society, financial performance and organisational culture Moreover, they affirmed that in order to achieve sustainable development, corporate must first be sustainable, obtained via four actions: maintaining economic activity (sustainable financial performance), protecting the environment (reserve resources for future generations), ensuring social justice (eliminating poverty and securing human rights) and developing spiritual and cultural values where “the corporate and societal values align in the individual” (Aras and Crowther, 2009) Some researches have demonstrated that CSR perceptions positively impact customer identification with the banking company, emotions, satisfaction, recommendations and repurchase behaviors (Perez at el, 2013; Fatma at el, 2016) This perception is reflected in their belief in the economic, legal, business ethics and corporate philanthropy (Carroll, 1991, Maignan, 2001; Ramasamy and Yeung, 2009) Environmental protection, corporate social responsibility and corporate sustainability ( Aras and Crowther, 2009, Visser, 2010) Banking products and services have special characteristics as banking activities related to monetary trading and services, business ethic is increasingly being concerned In Vietnam banking industry, there were several scandals recently such as Huyen Nhu and Nguyen Duc Kien’s counterfeit and cheating cases occurred at Vietinbank and ACB in 2014; Pham Cong Danh's case with bank loss of VND9 trillion at VNCB in 2016 These scandals increased customer’s concern about business ethics in banking activities Therefore, the ethical responsibility component is an essential component of CSR and should be included in this study Besides, the component of environmental responsibility is also an important component as the Hoang Hai Yen & Nguyen Thi Hong Nhung | 739 pollution environment has been discussed globally Banking activities may not directly affect the environment, but the bank's contributions to environmental protection and improvement, cultural preservation activities etc also that are highly praised by its customers (Perez at el, 2013) Thus, the CSR of the bank in this study will consist of four components: economic responsibility, legal responsibility, ethical responsibility and environmental responsibility CSR on consumer behavioural responses There are a number of studies reporting that CSR activities have affected customer attitudes (Carvalho et al., 2010, Tian et al., 2011; Oppewaletal., 2006; Becker-Olsenetal Fatma and Rahman, 2015), but the conclusion of the actual effect is still debatable (Chomvilailuk & Butcher, 2013) Some studies have confirmed the positive impact of CSR on customer attitudes and then behaviors such as CSR activities that help customers better evaluate their products (Brown & Dacin, 1997), better know about the organization (Sen & Bhattacharya, 2001), increase word of mouth marketing (Handelman & Arnold, 1999), increased purchase intention (Tian et al., 2011), increase satisfaction and loyalty (Garcia deLos Salomones et al., 2005; Luo and Bhattacharya, 2006) Ina MORI's research (2000) showed that 70% of consumers are concerned about the ethics of the business when making a purchase decision However, several CSR studies found that there is no relationship between corporate CSR activities and consumer attitudes (Vaaland et al., 2008) Consumers will turn their backs on companies with unacceptable CSR behavior However, if they are interested in the product, not only is it because of its manufacture with acceptable CSR activities, but also many more (BeckerOlsenetal, 2006) Even positive corporate CSR activities can lead to a decline in consumer intentions to purchase as the cost of CSR activities can increase the company's operating costs, leading to price increase or product quality decrease (Sen and Bhattacharya, 2001) CSR and the bank-customer relationship Some empirical studies have identified the impact of CSR on the bank-customer relationship, related to customer trust and loyalty Customer perception and appraise about CSR, mostly through business ethics, could increase trust and loyalty of customers (Pérez et al., 2014) CSR activities have created a corporate image with friendly, honest, credible and responsible characteristics that address customer concerns, increase customer satisfaction and leading to customer loyalty (Pérez et al., 2013), increase customer trust (Swaen and Chumpitaz, 2008), reduce customer skepticism (Maignan and Ferrell, 2001) The above-mentioned studies have argued that CSR awareness and trust of customers are two important variables in creating longterm relationship between corporate and its customers Furthermore, García de los Salmones et 740 | ICUEH2017 al (2009) identified a direct influence of ethical responsibility of a corporate and its customer trust Similarly, Choi et al (2013) have proved that legal and ethical responsibilities of a corporate have a positive influence on customer trust The higher level in the bank-customer relationship is customer loyalty that is customer trusts and only uses his / her bank's products and services, ignores other bank competitors offered attractive sale promotions It must be true loyalty, stemming from customer trust and intention to purchase banking services, difference from customer’s shopping habit of buying commodities (Dick and Basu, 1994; Bloemer et al , 1999) The bank-customer relationship is defined as a combination of intangible values that results in a long-term relationship between the bank and its customer (Fruchter, 2005) A good relationship, describing in positive effects, shows the bank ability to response suitably to customer needs related to the relationship (Hennig-Thurau, 1997) The quality of the relationship expresses in the depth and intensity of the relationship (Johnson, 1999) and also related to customer perceptions of how well the bank meets customer’s goals and expectations (Jarvelin, 1996) In summary, the bank-customer relationship is the overall impression that the customer perceives about the bank, related to all the factors that affect the relationship (Wong, 2006) Developing this concept, the components of CSR in this study were separated and placed in the hypotheses that each CSR component has directly positive impacts on the bank-customer relationship Therefore, the following hypothesis will be explored for each CSR component identified in the field study: H1: Corporate economic responsibility has a directly positive impact on the bank-customer relationship H2: Corporate legal responsibility has a directly positive impact on the bank-customer relationship H3: Corporate environmental responsibility has a directly positive impact on the bankcustomer relationship H4: Corporate ethical responsibility has a directly positive impact on the bank-customer relationship The bank-customer relationship as an intermediate variable for CSR and customer purchase intention According to the principles of consumer behavior of Madrigal (2001), customers not immediately change from those who are not interested into being persuaded to buy the product Hoang Hai Yen & Nguyen Thi Hong Nhung | 741 Instead, customer purchase decision is formed through a multi-stage process Each stage is a different level of perception (awareness level, emotion level and behavioral intention level) Purchasing (behavioral intention level) is the last stage of perception (Madrigal, 2001) This approach has an important contribution that allows scholars to explain the impact of CSR on purchase intention which is more complex and indirect (Fatma, 2016) Therefore, it is difficult to examine a direct impact from CSR to intention to purchase without using an intermediary variable Intermediate variables used in reseaches of CSR are customer satisfaction (García, 2009, Pérez et al., 2013a), customer loyalty (Brown and Dacin, 1997; Sen and Bhattacharya, 2001) Research Currás et al (2009) suggested that the intermediate variables could be used due to the complexity of CSR perceptions and purchase intention of customer In addition, this intention leads to purchase behavior which is relatively high risk as related to financial products and services Customers are cautious when choosing this type of products or services and the purchase intention is determined by a number of factors, including CSR Competitive advantage derived from the pursuit of CSR activities of a bank may not directly impact on customer’s purchase intention Madrigal (2001) suggested the appropriate model for understanding the effects of CSR on customer purchase intention should be used intermediate variable such as the bank-customer relationship, rather than directly studying the effects of each stage of CSR perception on customer behavior CSR initiatives of a bank mostly displays through "bank image” which is advertised with active CSR activities and particularly focus on creating customer awareness and emotion rather than on customer behavior (Lavidge, 1961; Madrigal, 2001) This approach is a guided process including the cognitive (about CSR) - emotion (through relationship) – behavior (purchase decision) Better customer perception of CSR enhances and strengthens the bank-customer relationship, thereby influencing customer purchase decision The above-mentioned studies are background for the hypothesis H5 H5: The bank-customer relationship impacts directly on customer purchase intention Hypothesized model The proposed hypothesized model is shown in Figure 742 | ICUEH2017 Figure Hypothesized model Reseach method Sample and data collection The data were collected through a field survey of existing customers of commercial banks in Vietnam The respondents in the survey were selected between the ages 22-65 because at these ages they have more chances to use banking services or have their own judgement about banking services Research conducted by two-step quantitative method: a pilot test and formal survey A pilot test was performed to assess how well the survey instrument captures the constructs it was supposed to measure and Cronbach’s alpha was used to verify the validity and reliability, using EFA to test convergent and discriminant validity The data used in the pilot test was collected in January 2017 The sample size is expected to be 85 and samples were selected according to a convenient method Formal survey was performed to confirm scales, test hypotheses and research models A data sets of 320 questionnaires were collected from commercial bank customers in HCM city in February and March 2017 After eliminating unqualified questionnaires, the official sample remained 271 questionnaires The measurement scale is verified through the Confirmatory Factor Analysis (CFA) CFA can verify the structure of the scales as well as the relationship between the research concepts without deviation from the measurement error (Nguyen Dinh Hoang Hai Yen & Nguyen Thi Hong Nhung | 743 Tho, 2011) Furthermore, when testing the convergence value and discriminant value of the scale, CFA is simpler than other methods such as EFA or MultiTrait-MultiMethod (MTMM) While EFA must evaluate the entire model, CFA supports to assess each concept separately, evaluate each pair of concepts and evaluate all concepts in the saturated model at the same time Theoretical models and research hypotheses are validated by using SEM model Research was carried out with six concepts, in which CSR is measured by four concepts: economic responsibility, legal responsibility, ethical responsibility and environmental responsibility The two concepts of bank-customer relationship and customer purchase intention are unidimensional concepts The scale used to measure the concepts and conceptual elements has been developed from previous studies 3.1 Measures Alpha reliability coefficients (Cronbach, 1951) were calculated for the identified factors All six concepts have Cronbach’s alpha values > 0.07 which is acceptable and deemed to be adequate All observed variables measuring the six study concepts have Corrected Item-Total Correlation greater than 0.3 Thus, the scales of six research concepts are reliable Table Observing variables of concepts and conceptual elements Concepts and Authors Code Conceptual elements Economic responsibility-CEX Carroll (1979, 1991, 1999) Turkey (2009) Chau & Nguyen, 2012 CEX1 This bank takes profit as the bank’s only concern CEX2 This bank has strong competitive position in the market CEX3 This bank works only for the shareholders’ interests CEX4 This bank has substainable development policies LA1 This bank conducts business in line with legal principles LA2 This bank has sound competitive performance within the legal framework LA3 This bank fulfills tax obligations in accordance with the law LA4 This bank provides products and services in accordance with the law ER1 This bank cares about the interests of employees Legal responsibility Carroll (1979, 1991, 1999) Turkey (2009) Ethical responsibility Carroll (1979, 1991, 1999) 744 | ICUEH2017 Concepts and Authors Eun et al (2013) Brown and Dacin (1997) Code Conceptual elements ER2 This bank cares about the interests of customers ER3 This bank provides honest advertising information ER4 This bank provides clear information about banking products and services ER5 This bank has strict commitment to customers PHR1 This bank contributes to the donation programme PHR2 This bank actively involves in volunteer activities (eg sponsorship of sports programs, community jogging etc.) PHR3 This bank actively involves in study promotion activities PHR4 This bank actively involves in environmental improvement activities PHR5 This bank actively involve in cultural preservation activities CCI1 I feel unhappy when someone complains about this bank CCI2 I am very interested in what people think about this bank CCI3 I often refer to this bank when someone asks me about banking products and services CCI4 When someone praises this bank, I feel like I'm being praised PI1 I consider this bank as my main bank for the next few years PI2 I will continue to be a customer of this bank in the next few years, even if other banks offer more attractive products PI3 I will introduce this bank to my friends PI4 If I use my saving to invest, I will buy this bank's investment product Aimie Jade (2011) Environment responsibility Eun et al (2013) Bank-customer relationship Delgado-Ballester, 2004 Customer purchase intention Fatma (2016) The results of the EFA analysis of CSR concept and the two unidimensional concepts of "bank-customer relationship" and "customer purchase intention" shows that all research concepts are convergent validity In addition, combined with Cronbach Alpha's reliability analysis results, all variables in the questionnaire of pilot test can be retained for further use in formal survey 3.2 CFA and Saturated model The scale of the research concepts was assessed by the Cronbach alpha reliability coefficient on the formal survey data Preliminary evaluation results help to remove CEX2 variable, which Hoang Hai Yen & Nguyen Thi Hong Nhung | 745 is measure only 22.9% of the CEX variable value After removing CEX2, the Cronbach alpha of CEX increased from 0.51 to 0.72 and Corrected Item-Total Correlation of CEX variables is greater than 0.4 The remaining variables were further measured CFA by using AMOS (Figure 2) Figure 2: Saturated model 746 | ICUEH2017 The metrics used to assess the suitability of data against the actual results of the measurement model (Figure 2) are acceptable (CMIN / DF = 1,955 005 Thus, the research measurement was used alternative coefficients for Chi-squared The SEM results indicate that the CMIN/ df value = 2,889; TLI = 808; CFI = 827 The values above were satisfactory (CMIN/ df < and TLI, CFI > 0.8) However, the RMSE = 095> 0.8, the model does not fit well with the data collected The estimated (standardized) results of the major parameters are presented in Table (based on the CFA results of the theoretical model) as the result of the remaining parameters 750 | ICUEH2017 Table Hypothesis test Correlation coefficients CCI CCI CCI CCI PI < < < < < - ER LA PHR CEX CCI Critical Estimated value Standardized Deviation (S.E) Value (C.R) 1.02 -0.085 0.046 0.34 0.979 0.157 0.092 0.064 0.103 0.121 6.483 -0.926 0.709 3.3 8.059 P *** 0.355 0.478 *** *** The results of statistical data processing show that two concepts of "economic responsibility" and “ethical responsibility” have impact on the "bank-customer relationship", in which "economic responsibility" has more impact on "bank-customer relationship" than the other (Table 3) As the result, a bank engages in activities that increase its "economic responsibility" and “ethical responsibility” with its shareholders, stakeholders and society; its customer relationship also consolidates and customer purchase intention increase accordingly The impact of "legal responsibility" and "environmental responsibility" on “bank-customer relationship” are not supported by statistically analysis Statistical results not support H2 and H4 hypothesis The formal research model has been modified The SEMs results of modified model are presented in Table Table Hypothesis test Correlation coefficients CCI CCI PI ER CEX CCI Estimated value Standardized Deviation (S.E) Critical Value (C.R) P 0.73 0.229 0.95 0.157 0.102 0.122 6.474 3.162 8.027 *** 0.002 *** The hypothesis H4 is that “ethical responsibility” (ER) has a direct, positive impact on the bank-customer relationship (CCI) The effect of ER on CCI has β = 0.73 with p