Corporate social performance and its relation with corporate financial performance: International evidence in the banking industry

By Pablo Esteban-Sanchez, M. Cuesta-González, J. Paredes-Gázquez. 2017

331 citations recorded by the source corpus.

Abstract The economic and financial crisis that began in 2008 has raised concerns over the impact of Corporate Social Performance (CSP) on Corporate Financial Performance (CFP). The controversies and scandals in regard to the role of banks in the crisis have revealed failures in some CSP dimensions and questioned the CSR policies of banks as a real strategic commitment to the main stakeholders. The financial sector has been one of the hardest hit by the crisis. We study whether banks adopted a strategic approach to CSP and the extent to which this approach attenuated the decrease in CFP during the crisis. To that end, we analyze the effect of four CSP dimensions on the CFP of 154 financial entities in 22 countries, most of them notably affected by the crisis, from 2005 to 2010. The results show that banks with better employee relationships and corporate governance had better CFP. Nevertheless, the crisis negatively moderated this effect in the latter, suggesting failures in corporate governance mechanisms. Contrary to what was expected, the product responsibility dimension did not positively influence CFP. We found evidence that, during the crisis, better relations with the community could be valued positively by investors, which, in turn, increases CFP. The results are relevant for managers and policymakers. We recommend that banks incorporate CSP concerns into their corporate governance mechanisms, review their commitment to customers and attach greater importance to relations with the community. Moreover, regulatory reforms are suggested to clarify the responsibilities of financial institutions in the design and marketing of banking products.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/87055e9096c88c9b23ec8973e77ca3787752d5c2

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Citations in the corpus

Corporate social responsibility and bank efficiency (2020, background): “Ambiguous results may also come from the fact that the financial consequences of CSR could be sector-specific (Esteban-Sanchez et al., 2017).”
Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks (2019, methodology): “Esteban-Sanchez et al. (2017) found a significant positive relationship between corporate governance and bank financial performance in an international sample which includes mostly developed country banks.”
ESG and reputation: The case of sanctioned Italian banks (2020, background): “…empirical studies – conclude that 90% of academic studies found a non-negative and stable relationship between corporate financial performance and ESG; Esteban-Sanchez, de la Cuesta-Gonzalez, and Paredes-Gazquez (2017) – on a sample composed by 154 companies affected by the financial crisis –…”
ESG Performance and Shareholder Value Creation in the Banking Industry: International Differences (2019, methodology): “In this sense, it is necessary to take into account the industry analyzed, the sample period, as well as the variables used to measure both the creation of value and CSR activities, among other aspects [4,11].”