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Financial stability: does social activism matter?

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  • Peterson K. Ozili

Abstract

Purpose - This study investigate the impact of social activism on financial system stability. Design/methodology/approach - Financial stability was analysed from two complementary perspectives: bank-led financial stability and financial system stability driven by sector-wide credit supply. Social activism was analysed from three perspectives: gender equality advocacy, environmental sustainability advocacy and social protection advocacy. Findings - The findings reveal that gender equality and environmental sustainability advocacy have significant positive effects for financial stability, whereas social protection advocacy has a significant negative effect for financial stability. In addition, social activism has negative effects for financial stability in the post-2008 financial crisis era. Finally, there are differential effects for country-groups, for instance, social activism strongly improves bank-led financial stability in African countries and for BLEND countries (countries that are eligible for International Development Association (IDA) borrowing based on per capita income levels and are also creditworthy for some borrowing from the International Bank of Restructuring and Development). The findings are relevant for the on-going debate about whether social inclusivity and activism has any economic value for the stability of businesses and the financial system. The findings have implications. Research limitations/implications - The implication for policy-making is that the pressure on, or commitment of, financial institutions to be socially inclusive in all social matters such as gender equality, environmental sustainability and social protection does not guarantee stability in the financial system – whether bank-led financial stability or sector-wide financial stability. Therefore, regulators should ensure that financial institutions exercise careful discretion when adjusting their risk models to include all “social risk” factors amidst the recent pressure on corporations to be socially inclusive. Practical implications - Another implication for business practice is that business leaders in financial institutions should identify the optimal level of social inclusivity that improves the stability of their corporations, because it would seem counterproductive if business leaders adopt full-scale social inclusion (or considerations) that subsequently make their corporations financially unstable which could lead to loss of shareholders wealth. Originality/value - This study is the first attempt to investigate the impact of social activism on financial stability to determine whether greater social activism promotes stability or instability in the financial system.

Suggested Citation

  • Peterson K. Ozili, 2019. "Financial stability: does social activism matter?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 28(2), pages 183-214, June.
    • Handle: RePEc:eme:jfrcpp:jfrc-08-2018-0118
    DOI: 10.1108/JFRC-08-2018-0118
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    Cited by:

    1. Peterson K. Ozili, 2020. "Social inclusion and financial inclusion: international evidence," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 19(2), pages 169-186, April.
    2. Ozili, Peterson K, 2019. "Determinants of Banking Stability in Nigeria," MPRA Paper 94092, University Library of Munich, Germany.
    3. Ozili, Peterson K, 2023. "Can social inclusion policies promote financial inclusion?," MPRA Paper 116971, University Library of Munich, Germany.

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    More about this item

    Keywords

    Gender equality; Financial stability; Social activism; Financial crisis; Environmental sustainability; Financial institutions;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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