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The impact of social and environmental sustainability on financial performance: A global analysis of the banking sector

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  • Nizam, Esma
  • Ng, Adam
  • Dewandaru, Ginanjar
  • Nagayev, Ruslan
  • Nkoba, Malik Abdulrahman

Abstract

While there is ample evidence that non-financial firms’ financial performance and social and environmental performance are related, evidence for the banking sector remains limited and inconclusive. This paper examines the impact of access to finance and environmental financing on the financial performance of the banking sector globally. Based on cross-sectional linear regressions and non-linear threshold regressions of 713 banks from 75 countries over the period 2013–2015, we find that access to finance has significantly positive effects on banks’ financial performance in most estimation models controlling for both bank-specific and macroeconomic variables. The positive impact on financial performance is channeled through loan growth and management quality. We find that for banks with total assets less than USD 2 billion, access to finance has a significantly positive impact on return to equity. The paper concludes by discussing policy implications.

Suggested Citation

  • Nizam, Esma & Ng, Adam & Dewandaru, Ginanjar & Nagayev, Ruslan & Nkoba, Malik Abdulrahman, 2019. "The impact of social and environmental sustainability on financial performance: A global analysis of the banking sector," Journal of Multinational Financial Management, Elsevier, vol. 49(C), pages 35-53.
    • Handle: RePEc:eee:mulfin:v:49:y:2019:i:c:p:35-53
    DOI: 10.1016/j.mulfin.2019.01.002
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    More about this item

    Keywords

    Sustainability; Bank performance; ESG; Access to finance; Environmental financing; Threshold;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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