Does being a responsible bank pay off? Evidence from the COVID-19 pandemic

Abstract

We investigate whether banks’ initial responses during the first wave of the COVID-19 pandemic in supporting their customers, communities, and governments were perceived as value-enhancing by investors. Using a unique responsible banking measure for a sample of the largest US and European banks, we find a negative relationship between responsible bank behavior and stock market performance, particularly in the first wave of the pandemic. We also find that riskier banks were affected more negatively if they behaved responsibly. Overall, our findings show that banks’ responsible behavior during a crisis reduces, or at best is not relevant to, shareholder value.

Keywords: COVID-19 pandemic, market performance, responsible banking, stakeholder vs. shareholder value

JEL Classification: G21, G32, M14