Ali Shaddady and Faisal Alnori
The purpose of this paper is to investigate whether banks’ environmental, social and governance (ESG) initiatives increase or decrease banks’ efficiency.
Abstract
Purpose
The purpose of this paper is to investigate whether banks’ environmental, social and governance (ESG) initiatives increase or decrease banks’ efficiency.
Design/methodology/approach
The sample used includes all listed banks in Saudi Arabia over the years 2016–2021. The authors performed different methods, including data envelopment analysis (DEA), ordinary least squares (OLS) and quantile regressions.
Findings
The OLS regression results show a negative linkage between ESG and banks’ efficiency. Further, the quantile regression analysis indicates that the ESG effect on banks' efficiency is negative across different quantiles. However, the DEA method shows that the DEA-generated scores for Banks’ efficiency are higher for ESG-adjusted scores in comparison to efficiency scores without incorporating ESG. Further, the comparison of the DEA-generated efficiency scores, over the sample period, of adjusted ESG banks still suffers from decreasing in their efficiency over the years. Concerning existing theory, the results are consistent with the stakeholders and the resource-based theories postulating that banks' ESG practices are ethical commitments and enable firms to gain competitive advantage and increase their reputation among stakeholders.
Practical implications
The findings of this study offer important implications for regulators and bankers. Policymakers and bank regulators should make collective efforts to encourage financial institutions to adopt green finance initiatives to create an efficient financial system capable of counteracting risks from the external environment and stimulating economic growth. Banks’ managers should be aware that ESG initiatives serve society and the environment and offer a positive influence on banks’ efficiency.
Originality/value
To the best of the authors’ knowledge, this is the first study to explore the influence of ESG activities on banks' efficiency using DEA for banks in Saudi Arabia.
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This study aims to examine the various internal and external factors affecting the financial stability of Indian Commercial Banks. The aim is to improve the effectiveness of the…
Abstract
Purpose
This study aims to examine the various internal and external factors affecting the financial stability of Indian Commercial Banks. The aim is to improve the effectiveness of the Indian banking system in facilitating the transmission of monetary policy and to strengthen its resilience in the event of a banking crisis.
Design/methodology/approach
A panel data regression analysis is employed on unbalanced panel data of Indian commercial banks including public sector, private sector and foreign sector banks for the period of 2005–2022.
Findings
This study revealed that Indian banks with higher profits and high capitalization are more stable than others. However, banks with large bank size and high management costs are less stable as compared to other banks. In the case of macroeconomic variables, foreign exchange reserves have a significant positive impact on banking stability. Moreover, the unemployment rate has a significant negative impact on the banking stability of India.
Research limitations/implications
Research identifies relevant micro and macroeconomic drivers pertaining to India’s banking stability, a developing economy. These findings have significant implications and can attract the attention of analysts, regulators, bankers and academicians in this area. Nevertheless, the scope of the study is limited to the variables chosen to evaluate their contribution to banking stability, but other variables may influence Indian banking conditions.
Practical implications
Indian banks are advised by the research to place a high priority on profitability, capitalization and effective risk management. Customers and investors should choose banks with strong metrics. The priorities for policymakers should be preserving robust reserves and tackling unemployment with focused initiatives. Adopting digitalization can improve banks’ customer service and operational effectiveness, which is important for overcoming economic obstacles. These tactics provide doable measures to improve the resilience and stability of the banking industry in India and other emerging nations.
Originality/value
This research differentiates from the rest by focusing solely on the Indian banking system, in contrast to previous ones that often treated India as part of a bigger part like the BRICS or South Asia continent. It acknowledges the need to comprehending the unique traits and difficulties faced by the Indian banking system. Moreover, the current study distinguishes itself by focusing on the combined impact of microeconomic and macroeconomic indicators in the Indian context, unlike earlier research that concentrated on assessing the effects of individual variables. The current study also investigated new variables like corporate governance and foreign exchange reserves in the context of Indian banking which have not been explored by existing literature. Research is also crucial in the context of the analysis’s time frame, since it captures the period of economic transformation that included demonization, implementation of GST, major mergers and global COVID-19 pandemic.
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Nemer Badwan, Besan Saleh and Montaser Hamdan
This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by…
Abstract
Purpose
This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by using yearly data for the years 2012–2022.
Design/methodology/approach
Pooled ordinary least squares (OLS) and two-stage least squares (2SLS) were used to identify the variables and factors affecting the financial stability and banking sector of Palestinian banks. The study’s data were collected from the banks listed on PEX and from the yearly reports posted on the Palestine Monetary Authority’s (PMA) webpage over the years from 2012–2022. According to this research’s analysis, SMEs loans and capital sufficiency have a statistically significant positive impact on the stability of Palestinian banks. Unobserved heterogeneity, simultaneity and dynamic endogeneity are taken into account when using the 2SLS regression approach to adjust for the study endogeneity factor.
Findings
The study’s findings show that some factors and determinants might have both good and negative effects on financial stability and banking sector. Loans to small and medium-sized businesses (SMEs) and enough capital are two characteristics that statistically have a major favourable impact on the stability of Palestinian banks since they help the banks withstand deficits. A further potential discovery relates to the favourable effects of financial inclusion (FI) and digital financial services (DFS) on the stability of banks.
Research limitations/implications
This research has faced some limitations, such as the lack of a defined index from the regulatory organizations, this research is based on information from bank annual accounts. It has mostly relied on self-developed or World Bank indexes. Furthermore, the research solely used information from the supply side (banks); demand-side data were not taken into consideration.
Practical implications
This paper has managerial implications for stability of banking sector. The Palestine Monetary Authority, as the central bank, must increase the percentage of bank loans directed to small and medium-sized companies and oblige bank management to adhere to adequate capital standards, which contributes to strengthening the Palestinian banking sector and increasing its profits. The study findings advise banks that are enjoying financial stability to speed up the pace of FI and DFSs because most of these reliable banks have relatively low FI ratios. PMA is responsible for preserving the stability of the financial system. PMA, decision makers and banks management must retain adequate liquidity in their institutions and raise client collateral expectations to raise credit conditions.
Originality/value
This paper adds some contributions to the literature. To adjust for discrepancies between various types of banks, the authors concentrate on conventional and Islamic banks, which enables us to use a homogenous data set as opposed to depending on dichotomous variables. The authors used Z-scores, which have recently been used in research, to measure stability and FI at the level of specific institutions. This research contributes in some key aspects that no prior research has addressed. Conventional banks are different from Islamic banks, and a number of issues might impact their stability. To evaluate the connection between FI and DFSs, it is important to consider the actions of bank regulators.
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Mohamed Ismail Mohamed Riyath and Debeharage Athula Indunil Dayaratne
This study aims to explore the motives behind the company’s decision to go public in Sri Lanka.
Abstract
Purpose
This study aims to explore the motives behind the company’s decision to go public in Sri Lanka.
Design/methodology/approach
This study adopts the explanatory sequential mixed-method approach based on the benefit-cost trade-off theory, incorporating survey-based descriptive statistics of 143 respondents from listed companies in the Colombo Stock Exchange (CSE) followed by content analysis of 52 initial public offering prospectuses and 11 interviews with top management of listed companies.
Findings
Companies primarily go public to raise capital for long- and short-term growth, followed by enhancing corporate image and governance structure. Also, they go public to rebalance capital structure, lower the cost of capital, diversify risk, compete in their product market and grab market timing opportunities. Furthermore, the qualitative analysis established that companies are going public also for value addition, broadening the ownership structure, establishing new strategic partnerships and funding for working capital requirements, which are not highlighted in previous studies.
Practical implications
These findings offer valuable insights for policymakers aiming to attract new companies to CSE, which would contribute to the capital market development of Sri Lanka.
Originality/value
This study combines quantitative survey and qualitative content analysis in a single investigation, revealing novel motives for going public that were not previously identified. This approach allows for a more comprehensive topic exploration, including the participants’ experiences and perceptions, while minimizing bias and maximizing robustness. This study is more comprehensive than previous studies that relied on descriptive statistics.
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Inzamam Ul Haq, Chunhui Huo and Irum Saba
This paper aims to examine the dynamic relationship between economic growth and sustainable development, integrating the Environmental Kuznets Curve (EKC) in 22 Organization of…
Abstract
Purpose
This paper aims to examine the dynamic relationship between economic growth and sustainable development, integrating the Environmental Kuznets Curve (EKC) in 22 Organization of Islamic Cooperation (OIC) member countries across income groups.
Design/methodology/approach
Using annual data between 1990 and 2022, the authors apply the cross-correlation coefficient (CCC) approach of Narayan et al. (Economic Modeling, 2016, 53, 388–397) to examine the lead/lag relationship between GDP per capita and sustainable development. This study further validates the findings through a panel Granger causality test and a fixed panel regression model.
Findings
This research provides evidence of a U-shaped EKC for only 1 out of 22 (5%) OIC countries. For 13 out of the 22 (59%) OIC countries, increasing income growth is expected to enhance sustainable development in the future. The results show that as income levels rise, there will be a more significant decline in sustainable development for high-income OIC countries in the future than for both middle-income groups, contradicting the EKC hypothesis. The findings from the panel Granger causality and panel regression models also support the CCC results.
Originality/value
This study proposes a reverse version of the EKC hypothesis and contributes to the literature on economic growth and environmental sustainability. With increasing economic growth, the results can assist OIC member governments and policy-makers in designing tailored policies and practical measures for future sustainable development.
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Mushtaq Hussain Khan, Zaid Zein Alabdeen and Angesh Anupam
By combining the notion of prospect theory with advanced machine learning algorithms, this study aims to predict whether financial institutions (FIs) adopt a reactive stance when…
Abstract
Purpose
By combining the notion of prospect theory with advanced machine learning algorithms, this study aims to predict whether financial institutions (FIs) adopt a reactive stance when they perceive climate change as a risk, consequently leading to the adoption of environmental, social and governance (ESG) practices to avoid this risk. Prospect theory assumes that decision-makers react quickly when decisions are framed as a risk or threat rather than as an opportunity.
Design/methodology/approach
We used a sample of 168 FIs across 27 countries and seven regions over the period 2003–2020. To conduct our empirical investigation, we compared the prediction accuracy of various machine learning algorithms.
Findings
Our findings suggest that out of 12 machine learning algorithms, AdaBoost, Gradient Boosting and XGBoost have the most precision in predicting whether FIs react to climate change risk in adopting ESG practices. This study also tested the overall climate change risk and risks associated with physical, opportunity and regulatory shocks of climate change. We observed that risks associated with physical and regulatory shocks significantly impact the adoption of ESG practices, supporting prospect theory predictions.
Practical implications
The insights of this study provide important implications for policymakers. Specifically, policymakers must take into account the risk posed by climate change in the corporate decision-making process, as it directly influences a firm’s adoption of corporate actions (ESG practices).
Originality/value
To the best of our knowledge, this is the first study to investigate the firm-level climate change risk and adoption of ESG practices from a prospect theory perspective using novel machine learning algorithms.
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Mustafa Raza Rabbani, Madiha Kiran, Abul Bashar Bhuiyan and Ahmad Al-Hiyari
This study aims to investigate the impact of gender diversity in top management teams and boards on environmental, social and governance (ESG) performance. The authors propose a…
Abstract
Purpose
This study aims to investigate the impact of gender diversity in top management teams and boards on environmental, social and governance (ESG) performance. The authors propose a corporate social responsibility (CSR) committee as a moderating variable in this relationship, drawing on resource dependence and legitimacy theories. This study is crucial in understanding the dynamics of gender diversity and its impact on ESG performance in the banking sector.
Design/methodology/approach
The study examines a sample of Islamic and conventional banks from 10 Middle Eastern and North African countries during 2008–2022. Initial analysis was conducted using fixed effects panel regression, whereas the robustness test used the generalized method of movement dynamic system.
Findings
The findings, which are significant for both conventional and Islamic banks, indicate that female directors are crucial in promoting ESG performance in conventional banks. In contrast, female executives do not appear to contribute significantly. However, for Islamic banks, neither board nor executive gender diversity significantly affects ESG performance. Moreover, the find that the positive moderating role of the CSR committee is significant only for the nexus between board gender diversity and conventional banks’ ESG performance and for the connection between executive gender diversity and Islamic banks’ ESG performance.
Originality/value
Despite the widespread belief that gender diversity in top management teams is pivotal in promoting ESG performance, empirical studies supporting these claims are scarce, particularly in the banking sector. The study, therefore, brings a novel perspective to this discourse. These findings have the potential to significantly assist stakeholders in evaluating how gender diversity in top management teams influences banks’ sustainability practices, thereby empowering them to make more informed and impactful investment decisions.