Corporate Social Responsibility Engagement as a Determinant of Bank Reputation: An Empirical Analysis

Abstract

The relationships between sustainable behavior, firm reputation, and economic performance are significant issues that continue to become more important. Corporate reputation has important implications for economic performance while corporate social responsibility engagement is considered a key determinant of reputation. The aim of this study is to empirically test such relationships regarding the banking sector and for the sub-prime crisis period (2008)(2009)(2010)(2011)(2012). We apply our hypothesis to 75 large international banks using Reputation Institute and ASSET4 data and adopting a multiple econometric approach. Our initial results are encouraging and consistent with the existing literature: bank reputation is positively related to accounting performance and is negatively related to leverage and riskiness profiles. However, while a positive relationship between reputation and social performance exists, relationships between reputation, corporate governance, and environmental performance are always negative. We discuss these results by identifying related causes and by presenting avenues for future research.

Sustainable development and corporate governance in the financial system: Are environmentally friendly banks less risky?

“…the positive relationship between CSR and reputation(De Castro, López, & Sáez, 2006;Kim, 2017;Melo & Garrido-Morgado, 2012), the results of the current study seem consistent with prior investigations that find both a positive impact of CSR on bank performance(Cornett et al, 2016;García-Sánchez & García-Meca, 2017;Shen et al, 2016;Wu & Shen, 2013) and a positive association between a bank's reputation and its accounting-based performance(Dell'Atti et al, 2017; …”

“…This statement is even more true because the bursting of the subprime mortgage bubble has increased customer scepticism towards banks. Therefore, getting involved in environmentally responsible practices has also been considered a way to obtain social legitimacy and improve the image of the banking industry (Dell'Atti, Trotta, Iannuzzi, & Demaria, 2017). According to this idea, Pérez and Rodríguez del Bosque (2015) find that only a relatively small portion of the banking industry's customers is nonsupportive of banks' CSR engagement.…”

The impact of water information disclosure on the cost of capital: An empirical study of China's capital market

“…Efficient market theory (Fama, ) also asserts that information disclosure can improve market efficiency so that prices can fully reflect enterprises' operating conditions and market information to reduce the risk premium of enterprises, thereby reducing the cost of capital. Dell'Atti, Trotta, and Iannuzzi () argue that the function of social responsibility information disclosure and financial information disclosure is similar, that is, to improve the enterprise's level of information disclosure, so that investors and creditors can have a better understanding of the company's internal information, leave a positive impression on the outside world, reduce investor and creditor's risk estimate to enterprise, and reduce capital costs. From the perspective of corporate governance, Liu and Zhang () argue that social responsibility information disclosure helps to ameliorate the contradiction between the agent and the stakeholders of enterprises, strengthen the legitimacy of the organization and meet the expectations of stakeholders, thereby reducing the cost of capital.…”

Corporate reputation and firms' performance: Evidence from Spain

“…The reasons for this choice are twofold. First, it isolates the study of the effects of financial institutions marked by the recent financial crisis and its particular risk regulations, which could bias the results, since Dell'Atti, Trotta, Iannuzzi, and Demaria () verify that CSR dimensions affect bank reputations most and there are relationships between banks' corporate reputation, banks' performance and banks' riskiness profiles during a financial crisis. Second, it selects companies with an identified and defined market portfolio (IBEX‐35) to analyze the abnormal returns model and avoid bias from factors other than the market (see Ali et al, ).…”