Does it pay to be green? Evidence from banks in emerging markets

Abstract

Purpose

The purpose of this study is twofold. The first is to examine the impact of environmental disclosure on banks’ performance, while the second is to investigate the moderating role of a country’s economic activities and institutional quality on the relationship between environmental activities disclosure and banks’ operational, financial and market performance.

Design/methodology/approach

The sample includes 246 banks from emerging markets from 2008 to 2020, comprising 1,899 bank-year observations. The independent regressors are environmental disclosure, two moderators and two sets of control (bank and country) variables. The dependent variables are return on assets, return on equity and Tobin’s Q. This study adopts ordinary least squares, panel fixed effect and instrumental variables generalized method of moments to estimate the parameters of the models.

Findings

This study reveals a negative relationship between environmental disclosure and bank performance, lending credence to the agency and neoclassical theories. The moderator regressors show positive influence on banks performance. The results indicate that it is difficult to make a business case for environmental commitment.

Practical implications

There is a need for effective monitoring by shareholders to ensure that funds allocated for environmental activities are spent wisely.

Originality/value

This study provides new evidence on the ways in which economic and institutional quality influence the environmental practices of banks in emerging and frontier markets.

Citation

Al-Ajmi, J., Saudagaran, S., Kukreja, G. and Fadel, S. (2023), "Does it pay to be green? Evidence from banks in emerging markets", Competitiveness Review, Vol. 33 No. 1, pp. 85-106. https://doi.org/10.1108/CR-11-2021-0151