Does Green Banking Performance Pay Off? Evidence from a Unique Regulatory Setting in Bangladesh

Corporate Governance - An International Review, https://doi.org/10.1111/corg.12349

51 Pages Posted: 1 Dec 2020 Last revised: 4 Jan 2021

See all articles by Sudipta Bose

Sudipta Bose

Discipline of Accounting and Finance, Newcastle Business School, The University of Newcastle, Sydney, Australia

Habib Khan

University of Canberra

Reza Monem

Griffith University - Griffith Business School; Griffith Business School, Griffith University

Date Written: October 23, 2020

Abstract

Manuscript Type: Empirical

Research Question/Issue: A firm’s choice to ‘go green’ largely remains unregulated worldwide. This study uses an institutional setting in Bangladesh experiencing a green banking regulatory reform to examine whether banks’ green performance translates into improved financial performance and whether this is moderated by banks’ political connections.

Research Findings/Insights: Results based on a sample of 172 firm-year observations from 2008–2014 suggest that green banking performance is positively associated with a bank’s financial performance. Further analysis suggests that cost efficiency mainly drives this relationship. However, banks’ political connections negatively affect this relationship by counterbalancing green banking’s non-financial benefits. Our findings are robust to sensitivity tests which examine endogeneity concerns using difference-in-differences (DiD) and propensity score matching (PSM) analyses and Heckman’s (1979) two-stage analysis.

Theoretical/Academic Implications: Most prior studies on corporate social responsibility (CSR) were conducted in voluntary settings: however, our study utilises a unique regulatory setting in Bangladesh. With this exogenous shock to the banking industry, the regulatory setting helped to alleviate endogeneity concerns arising from voluntary motives behind CSR performance. To the best of our knowledge, this is the first study to examine any link between green banking performance in a regulatory setting and banks’ financial performance.

Practitioner/Policy Implications: This study’s findings suggest that sustainable business practices promoted through regulatory intervention can improve financial performance. A regulatory green banking initiative can be a win-win for all competing stakeholders. Our findings have significant policy implications for governments and regulatory agencies worldwide in the fight against global warming and climate change.

Keywords: Green banking performance, Regulatory setting, Banking industry, Financial performance, Political connections, Emerging economy

JEL Classification: G21; G34; M14; M41

Suggested Citation

Bose, Sudipta and Khan, Habib and Monem, Reza M., Does Green Banking Performance Pay Off? Evidence from a Unique Regulatory Setting in Bangladesh (October 23, 2020). Corporate Governance - An International Review, https://doi.org/10.1111/corg.12349, Available at SSRN: https://ssrn.com/abstract=3717494 or http://dx.doi.org/10.2139/ssrn.3717494

Sudipta Bose (Contact Author)

Discipline of Accounting and Finance, Newcastle Business School, The University of Newcastle, Sydney, Australia ( email )

Sydney
Australia

HOME PAGE: http://www.newcastle.edu.au/profile/sudipta-bose

Habib Khan

University of Canberra ( email )

Canberra, Australian Capital Territory 2601
Australia

Reza M. Monem

Griffith University - Griffith Business School ( email )

170 Kessels Road
Brisbane, Nathan, QLD 4111
Australia

Griffith Business School, Griffith University ( email )

170 Kessels Road
Nathan
Brisbane QLD 4111
Australia

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