Work

Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe

Year: 2021

Type: article

Abstract: This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005–2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG–bank stability linkages vary significantly across banks’ characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non–financial information.

Source: European Journal of Finance

DOI: 10.1080/1351847x.2021.1964556

Authors: Laura Chiaramonte, Alberto Dreassi, Claudia Girardone, Stefano Piserà

Institutions: University of Verona, University of Trieste, University of Essex, University of Udine

Language: English

Topic: Corporate Social Responsibility Reporting

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Funders: Florida Atlantic University, Universidad del Atlántico, University of St Andrews, Menzies Centre for Australian Studies, King's College London, University of London

OpenAlex ID: W3200548867

FWCI: 35.37

Cites: 120

Cited by: 429

Related to: 10