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

Author

Listed:
  • Lee, Chien-Chiang
  • Lu, Meiting
  • Wang, Chih-Wei
  • Cheng, Chia-Yu

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.

Suggested Citation

  • Lee, Chien-Chiang & Lu, Meiting & Wang, Chih-Wei & Cheng, Chia-Yu, 2024. "ESG engagement, country-level political risk and bank liquidity creation," Pacific-Basin Finance Journal, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x24000118
    DOI: 10.1016/j.pacfin.2024.102260
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    More about this item

    Keywords

    Liquidity creation; ESG; Geopolitical risk; Corruption risk; Democratization;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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