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The impact of corporate social responsibility on stock price volatility of the US banks: a moderating role of tax

Mashiyat Tasnia (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Syed Musa Syed Jaafar AlHabshi (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Romzie Rosman (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 12 August 2020

Issue publication date: 24 May 2021

1545

Abstract

Purpose

Corporate social responsibility (CSR) is considered one of the crucial branding and promotional tools for banks to legitimise their role in society to become socially and environmentally responsible corporate citizen. The purpose of this study is to investigate the effect of CSR on stock price volatility of the US banks. This study further examined the moderating role of tax on the relationship between CSR and stock price volatility.

Design/methodology/approach

This study uses the random-effects panel regression estimation technique to test the hypotheses. The authors include a sample of 37 US banks from 2013 to 2017 with 144 bank-years observation. The authors consider the environmental, social and governance (ESG) scores from Refinitiv as a proxy for CSR. The financial data are also collected from the Refinitiv Datastream database.

Findings

This study finds a significant and positive relationship between CSR and stock price volatility, which indicates that shareholders of the US banks may not prefer excess concentration on CSR because of the additional cost of investment associated with implementing CSR. Also, tax payments and stock price volatility show a significant positive association, which implies that there is a higher possibility of an increase in stock price volatility if the tax rate increases. Generally, shareholders are not interested in paying more taxes, so they may swap the market instead of paying more tax. On the other hand, the authors find a non-significant moderating effect of tax payment on CSR-volatility nexus.

Originality/value

Previous studies mainly focussed on CSR and financial performance of banks. Conversely, studies focussing on CSR and stock volatility are limited. This study will fill the gap in the literature by considering the effect of CSR on the stock price volatility of the US banks.

Keywords

Citation

Tasnia, M., Syed Jaafar AlHabshi, S.M. and Rosman, R. (2021), "The impact of corporate social responsibility on stock price volatility of the US banks: a moderating role of tax", Journal of Financial Reporting and Accounting, Vol. 19 No. 1, pp. 77-91. https://doi.org/10.1108/JFRA-01-2020-0020

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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