Does corporate social performance improve bank efficiency? Evidence from European banks

Abstract

This paper analyses the impact of corporate social performance (CSP) on bank efficiency in a sample of 108 European listed banks across 21 countries over the period 2011–2019. Simar and Wilson’s two-stage approach (Simar and Wilson in J Econom 136:31–64, 2007) has been applied, specifically using data envelopment analysis (DEA) at the first stage to estimate efficiency scores and then truncated regression estimation with double-bootstrap to test the significance of the relationship between bank efficiency and CSP as well as its different dimensions. Our results suggest evidence of a U-shaped relationship between CSP and efficiency, indicating that banks with either high or low corporate social performance levels are the most efficient. Considering the isolated effect of environmental, social, and governance dimensions, the same conclusion can be drawn for the latter two, while the former does not appear to have any effect on a bank’s efficiency. Our work contributes to the existing literature by providing a holistic procedure for assessing CSP in terms of efficiency, allowing us to study the separate effect of each component on bank efficiency. Our results have strong implications for regulators, policymakers, bank managers and investors supporting the changes in the EU Regulatory Taxonomy that lead banks to align their activities and strategies with the Sustainable Development Goals.

Does corporate social performance improve environmentally adjusted efficiency? Evidence from the energy sector

“…Regarding the effectiveness of systems and processes aimed at implementing best corporate governance practices, Nollet et al (2016) confirmed a U‐shaped relationship with various accounting performance measures. This finding aligns with studies examining their impact on efficiency in both the financial sector, particularly banking (López‐Penabad et al, 2022), and the EAE aspects of industrial companies (Ren et al, 2022).…”

“…This relationship has been confirmed by Nollet et al (2016) for Standard & Poor's (S&P) listed companies, where, in the short term, profitability decreases as CSR activity increases, and in the long term, profitability rises. This metatheory has also been established in papers on specific sectors, such as Wang et al (2016) in construction, Franco et al (2020) in hospitality, and López‐Penabad et al (2022) in the financial sector. The same conclusion has been reached in multi‐sector studies conducted in contrasting geographical contexts such as India (Maqbool & Bakr, 2019) and Germany (Nuber et al, 2020).…”

“…Kumar et al (2022) and Grassmann (2021) have found an inverted U‐shaped relationship between social performance and firm performance in energy companies and a multi‐sector sample, respectively, suggesting short‐term benefits. In contrast, other studies have indicated a U‐shaped relationship and have highlighted the positive long‐term effects of socially responsible investments, as observed in investment funds (Barnett & Salomon, 2006), international multi‐sector firm samples (Barnett & Salomon, 2012; Brammer & Millington, 2008) and the financial (López‐Penabad et al, 2022) and industrial (Ren et al, 2022) sectors.…”

“…The ESG score, its three pillars, and eight of their dimensions extracted from the Thompson Reuters Refinitiv Eikon company database were used as proxies for CSP. This database has been widely used in previous literature (Lahouel et al, 2022; López‐Penabad et al, 2022; Ren et al, 2022), and has also been employed to obtain the financial data of the companies. The macroeconomic data was extracted from the World Development Indicators database managed by the World Bank.…”

“…2016),Franco et al (2020) andL opez-Penabad et al (2022) for the construction, hospitality and financial sectors, respectively. In addition,Nuber et al (2020) for German companies, andMaqbool and Bakr (2019) for Indian ones, have come to the same conclusion.…”