Analysis of the Relationship Between Corporate Sustainability and Banks’ Financial Performance During the Covid-19 Pandemic

Abstract

This study aims to understand the relationship between corporate sustainability and banks’ financial performance during the Covid-19 pandemic. There are 506 banks from 56 countries observed. For data analysis, the author utilized panel data regression. From 32 models, corporate sustainability indicators are significant in 25 models. However, the findings show a mixed sign of corporate sustainability impact on banks’ financial performance. There is a robust finding that corporate sustainability indicators are significant and negatively correlated with the financial performances, which are ROE, ROA, and Tobin’s Q. Nonetheless, a different relationship is found with the NPL Ratio. Thus, even though the result is mixed, the finding strongly inclined to reject the hypothesis that corporate sustainability could boost banks’ financial performance. The author analyzes the effect of the Covid-19 Pandemic in two ways: using the government stringency index and using the interaction variable. The government stringency index shows a negative impact on banks’ financial performance. Thus, there are robust findings that the government response to the Covid-19 amplifies the negative effect of corporate sustainability on banks’ financial performance.

Keywords: Corporate Sustainability, banks’ financial performance, the Covid-19 pandemic