Examining the Impact of Environmental, Social, and Corporate Governance Factors on Long-Term Financial Stability of the European Financial Institutions: Dynamic Panel Data Models with Fixed Effects

Georgia Zournatzidou, Konstantina Ragazou (), George Sklavos and Nikolaos Sariannidis
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Georgia Zournatzidou: Department of Business Administration, University of Western Macedonia, GR51 100 Grevena, Greece
Konstantina Ragazou: Department of Management Science and Technology, University of Western Macedonia, GR50 100 Kozani, Greece
George Sklavos: Department of Business Administration, University of Thessaly, GR41 500 Larissa, Greece
Nikolaos Sariannidis: Department of Accounting and Finance, University of Western Macedonia, GR50 100 Kozani, Greece

IJFS, 2025, vol. 13, issue 1, 1-20

Abstract: Modern economies are progressively acknowledging the need to assess environmental, social, and corporate governance (ESG) elements to identify possible risks and possibilities. The financial sector, exerting significant influence over the economy, is essential for sustaining economic stability via the lending mechanism. Our study focuses on examining the influence of ESG factors on the financial stability of European financial institutions. To attain this goal, we utilized fixed-effects and random-effects dynamic panel models, analyzing 352 financial institutions across many European nations from 2019 to 2021. The study’s findings reveal a complex scenario. The findings indicate that ethical and corporate responsibility practices significantly impact the financial performance of European financial institutions. Nonetheless, the execution of policies pertaining to ESG ethics seems markedly inadequate. Our research reveals substantial evidence of a direct correlation between ethical practices and profit stability, diverging from other studies. This newly established group directly influences the financial performance of financial institutions in Europe. These findings enhance the comprehension of the interaction between ESG variables and financial stability, illuminating both the beneficial effects and the current deficiencies in ethical behaviors within the European banking sector.

Keywords: financial stability; ESG; financial sector; panel data analysis; fixed-effects model (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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