Corporate Social Responsibility and Bank Risk

43 Pages Posted: 1 Oct 2019

See all articles by Florian Neitzert

Florian Neitzert

University of Cologne - Department of Banking

Matthias Petras

University of Cologne - Department of Banking; University of Cologne; University of Cologne - Faculty of Management, Economics and Social Sciences

Date Written: September 19, 2019

Abstract

In this study, we analyse the impact of Corporate Social Responsibility (CSR) on idiosyncratic bank risk. Our sample comprises 3,392 banks from 121 countries over the period from 2002 to 2018. We approximate CSR by the Thomson Reuters' ESG company ratings. By using the risk measures z-score and risk density, we address both, default and portfolio risk. Based on the established theory, we assumed a negative relationship between CSR and idiosyncratic risk. Our empirical results confirm a risk-reducing effect of the overall CSR on default and portfolio risk. Looking separately at the three CSR-pillars - i.e. environmental, social, and governance - a significant negative influence on bank's individual default risk can be inferred. In addition, we observe a risk-reducing effect of the environmental pillar on portfolio risk. On a further disaggregated level, we find strong significance for five of ten sub-components of CSR. In particular, all environmental sub-components - i.e. Innovation, Emissions, and Resource Use - affect both risk measures significantly. On the other hand, Human Rights and the CSR-Strategy are the only sub-components from the social, respectively from the governance pillar with comparable significant effects. Finally, controversies decrease idiosyncratic bank stability.

Keywords: Bank Risk, Default Risk, Portfolio Risk, CSR, ESG

JEL Classification: G21; G32; M14; Q56

Suggested Citation

Neitzert, Florian and Petras, Matthias, Corporate Social Responsibility and Bank Risk (September 19, 2019). Available at SSRN: https://ssrn.com/abstract=3456754 or http://dx.doi.org/10.2139/ssrn.3456754

Florian Neitzert

University of Cologne - Department of Banking ( email )

Germany

Matthias Petras (Contact Author)

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://www.bankseminar.uni-koeln.de/en/seminar/staff/staff/petras/

University of Cologne ( email )

Albertus Magnus Platz
Cologne, NRW 50923
Germany

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

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