Does corporate social performance improve bank efficiency? Evidence from European banks

Abstract

This paper analyses the impact of corporate social performance (CSP) on bank efficiency in a sample of 108 European listed banks across 21 countries over the period 2011–2019. Simar and Wilson’s two-stage approach (Simar and Wilson in J Econom 136:31–64, 2007) has been applied, specifically using data envelopment analysis (DEA) at the first stage to estimate efficiency scores and then truncated regression estimation with double-bootstrap to test the significance of the relationship between bank efficiency and CSP as well as its different dimensions. Our results suggest evidence of a U-shaped relationship between CSP and efficiency, indicating that banks with either high or low corporate social performance levels are the most efficient. Considering the isolated effect of environmental, social, and governance dimensions, the same conclusion can be drawn for the latter two, while the former does not appear to have any effect on a bank’s efficiency. Our work contributes to the existing literature by providing a holistic procedure for assessing CSP in terms of efficiency, allowing us to study the separate effect of each component on bank efficiency. Our results have strong implications for regulators, policymakers, bank managers and investors supporting the changes in the EU Regulatory Taxonomy that lead banks to align their activities and strategies with the Sustainable Development Goals.