ESG engagement, country-level political risk and bank liquidity creation

Chien-Chiang Lee (), Meiting Lu, Chih-Wei Wang and Chia-Yu Cheng

Pacific-Basin Finance Journal, 2024, vol. 83, issue C

Abstract: This study explores the influence of banks' environmental, social, and governance (ESG) performance and country-level risk factors on liquidity creation. Utilizing a distinctive sample of 2103 bank-year observations from 2000 to 2020 in Asia, the study finds that banks' ESG performance exerts a positive impact on bank liquidity creation. Furthermore, this relationship is more prominent in countries with high geopolitical risk and corruption risk and low levels of democratization. To address endogeneity concerns, a two-stage least squares regression is employed using two instrumental variables, and the findings remain robust. These findings have practical implications for banks and policymakers to consider a country's political risk when promoting ESG activities and facilitating liquidity creation.

Keywords: Liquidity creation; ESG; Geopolitical risk; Corruption risk; Democratization (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x24000118

DOI: 10.1016/j.pacfin.2024.102260

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