CSR and Bank Risk During Covid-19

Abstract

Corporate Social Responsibility (CSR) has gained growing interest in recent years in the busi-ness sector globally. This effect is also present in the banking sector, which plays a significant role in the broader economy. An increasing volume of research focuses on CSR and its impact on the banking sector. However, the relationship between CSR and risk mitigation in the banking sector is inconclusive. Some studies show CSR to be a significant factor in bank risk reduction, while others do not find CSR to be a relevant factor in reducing risk for banks.

This study contributes to previous research by using multiple risk measures to create a com-prehensive overview of the effects of CSR on bank risk. Specifically, this study focuses on the impact of CSR during the COVID pandemic. The impact of CSR on bank risk during a crisis period remains insufficiently explored in existing research. This study aims to contribute to existing research by analyzing various risk measures and CSR components within the context of a crisis.

The results of this study provide strong evidence of CSR’s risk mitigation effects during a crisis period. CSR consistently decreases banks’ default, portfolio, and liquidity risks. CSR and all its subcomponents are associated with risk mitigation. However, the regressions in this study have limitations such as limited sample size and emphasis on larger banks in developed economies. The topic should be studied further to confirm the effects.

The findings suggest that CSR can serve as an effective tool for mitigating banks’ riskiness. Banks can strategically utilize CSR to enhance financial stability and gain competitive ad-vantage during market instability. These insights are also relevant to many of the banks’ key stakeholders. Regulators can implement them into policy decisions, while employees and investors can utilize this information to protect their interests during economic turmoil.