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Social Capital, Trust, and Bank Tail Risk: The Value of ESG Rating and the Effects of Crisis Shocks

Lookup NU author(s): Dr Vu TrinhORCiD, Rosie Cao, Dr Teng Li, Professor Marwa ElnahassORCiD

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).

Abstract

Using a global sample of 244 banks in 52 stock markets, we investigate the effect of corporate social responsibility (CSR) on bank tail risk in normal and turbulent times. Our analysis shows no significant evidence that CSR intensity protects banks from tail risks ex ante or during the global financial crisis of 2007–2009. However, investors appear to become more tolerant and more lenient towards banks with stronger CSR post ante economic recession by reducing the likelihood of extreme devaluation of banking stocks. Socially responsible banks with higher social capital and trust (associated with superior CSR performance) experience lower idiosyncratic and systematic tail risks even in the context of the COVID-19 pandemic in 2020. Our empirical evidence implies that the trust between banks and investors started to build through banks’ investments in social capital through committed CSR performance since the credit crunch erupted.

Publication metadata

Author(s): Trinh VQ, Cao ND, Li T, Elnahass M

Publication type: Article

Publication status: Published

Journal: Journal of International Financial Markets, Institutions and Money

Year: 2023

Volume: 83

Print publication date: 01/03/2023

Online publication date: 26/01/2023

Acceptance date: 23/01/2023

Date deposited: 24/01/2023

ISSN (print): 1042-4431

ISSN (electronic): 1873-0612

Publisher: Elsevier

URL: https://doi.org/10.1016/j.intfin.2023.101740

DOI: 10.1016/j.intfin.2023.101740

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