The Impact of Corporate Sustainability and Digitalization on International Banks’ Performance

Abstract

We analyse the implications for international banks of two contemporary megatrends: corporate sustainability (CS) and digitalization. The digital environment and the availability of massive data from customers generate asymmetric information for banks to the detriment of customers, who experience individual vulnerabilities such as privacy rights. This can hinder the positive influence of digitalization in banks' performance, with relevant managerial and political implications. In this context, the reputation generated by CS strategies can constitute a credence factor that reduces customers' fears of opportunistic behavior and information asymmetries. We test and find support for our hypothesis over a panel data of large international banks from developed countries. Our findings shed light on the mutual reinforcement of CS and digitalization strategies in enhancing banks' market performance and efficiency. Policy Implications• Our study shows that digitalization requires the complementary action of CS-based reputation to enhance banks' performance. This suggests the need for reputation building in those sectors (public and private) immersed in the digital transformation. By doing so, organizations can reduce information asymmetries for their main stakeholders. Since CS efforts exhibit an important potential for building organizational reputation, governments should stimulate the firms' CS investments.• Banks' survival against disruptive forces urges to reconsider the basis of its business model. It is not sufficient to react against digital-born companies' menace with M&A-driven strategies. For that reason, we suggest that including CS in the basis of the banking business model can contribute to achieving better market performance and efficiency and to overcoming fierce competition by new entrants.

Addressing endogeneity by proposing novel instrumental variables in the nexus of sustainability reporting and firm financial performance: A step‐by‐step procedure for non‐experts

“…Likewise, the reputation of the banks relies on their socially responsible programs and CSD, and this is why the banking industry tends to have a high position on national and international CSD ranking indexes (Fatma, Rahman, & Khan, 2014). Being an indirect polluter and less vulnerable to the nature since the banking industry was the center of investigations in many studies on the relationship between CSD and FFP (Forcadell, Aracil, & Úbeda, 2020;Jan, Marimuthu, & Pisol, 2019;Khan, 2019;Ur Rehman et al, 2020).…”

Using reputation for corporate sustainability to tackle banks digitalization challenges

“…This is especially worrying in the case of financial disruptors, such as Internet giants or fintechs, where advertising supports their business models. The increased digitalization of financial activity generates a massive amount of data collection, which creates concerns among clients regarding their privacy and security (Forcadell, Aracil, & Úbeda, 2020).…”

Financial Inclusion Paradigm Shift in the Postpandemic Period. Digital-Divide and Gender Gap

“…The specialists noted that the digitalization phenomenon has a considerable impact on consumers, public institutions and companies, which is why it is considered to have a predominantly positive contribution on the socioeconomic development. Digitization generates challenges but also opportunities for various categories of stakeholders, both for the demand and supply bearers of financial products and services [32,[48][49][50][51][52]. On the financial market, digitalization has had a rapid implementation considering the specifics of the traded services and products.…”