Corporate social responsibility and risk-taking in banking

Abstract

Purpose

The purpose of this study is to examine whether banks’ commitment to corporate social responsibility (CSR) is related to the diversification of their activities and whether CSR, as a result, affects banks’ risk profile.

Design/methodology/approach

Using a sample of 215 publicly traded U.S. bank holding companies between 1996 and 2016, this study applies regression analysis to examine the links between CSR and activity diversification and risk-taking. It also conducts a mediation test to determine whether CSR affects risk through its influence on banks’ activity diversification.

Findings

The results of this study show that banks engaging in positive CSR activities significantly increase the diversification of their banking activities, consistent with the theory that CSR serves as an implicit risk hedging strategy. Mediation analysis provides evidence that this translates into more stable and less risky banks.

Originality/value

This study contributes to the literature by suggesting that activity diversification is a channel through which CSR reduces bank risk and improves asset quality.

Citation

Shao, Y., Baradwaj, B.G., Dewally, M. and Liu, P. (2023), "Corporate social responsibility and risk-taking in banking", Social Responsibility Journal, Vol. 19 No. 9, pp. 1671-1688. https://doi.org/10.1108/SRJ-10-2020-0435