ESG and financial performance of banks in the MENAT region: concavity-convexity patterns

This study aims to investigate the impact of Environmental, Social and Governance (ESG) on bank performance (FP) in the Middle East, North Africa and Turkey (MENAT) region. The sample consists of 46 listed banks between 2007-2019. FP is measured through accounting (Return on Assets Return on Equity)...

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Bibliographic Details
Published inJournal of sustainable finance & investment Vol. 13; no. 1; pp. 406 - 430
Main Authors El Khoury, R., Nasrallah, N., Alareeni, B.
Format Journal Article
LanguageEnglish
Published Taylor & Francis 02.01.2023
Subjects
bank accounting and market performance
environmental score
ESG disclosure
governance score
MENAT countries
social score
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Summary:This study aims to investigate the impact of Environmental, Social and Governance (ESG) on bank performance (FP) in the Middle East, North Africa and Turkey (MENAT) region. The sample consists of 46 listed banks between 2007-2019. FP is measured through accounting (Return on Assets Return on Equity) and market indicators (Tobin's Q Stock Return ). We test the effect of ESG and its quadratic term on FP by controlling for bank-specific, macroeconomic and financial development variables. Our results support the presence of a non-linear ESG-FP relationship. ESG incremental investments remain beneficial till reaching an inflection point. Interestingly, the financial development variables are significant, while ESG pillars follow different patterns. Governance pillar has a concave relationship with accounting performance while environmental pillar has a convex relationship with the market return. The ESG-FP relationship depends on three vectors: pillars; measure of FP; and level of ESG. Banks should determine ESG turning points to rationalize their investments and contemplate efficient returns.
ISSN:2043-0795
2043-0809
DOI:10.1080/20430795.2021.1929807