Does ESG performance impact value and risk-taking by commercial banks? Evidence from emerging market economies

The study examines the impact of environmental, social, and governance (ESG) performance on the value and risk-taking behavior of listed commercial banks in emerging market economies (EMEs). The study analyzes a comprehensive sample of 178 commercial banks listed in the top 20 emerging markets from 2015 to 2021. The study employs the System generalized method of moments (GMM) with Arellano-Bond estimation to address the endogeneity issue. The results indicate that banks with higher ESG disclosure scores are linked to reduced risks for commercial banks such as insolvency, leverage, and liquidity risks, in line with shareholder theory. Furthermore, the results demonstrate that sample banks with higher ESG disclosure scores show better accounting (ROE and ROA) and market (Tobin's Q) performance, supporting both agency theory and resource-based theory. The robustness tests validate the consistency of the results.