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This study aims to investigate the relationship between corporate social responsibility (CSR) and financial distress and the moderating effect of firm characteristics, auditor characteristics and the Coronavirus disease 2019 (Covid-19) in China.

The research question is empirically examined on the basis of a data set of 1,257 Chinese-listed firms from 2011 to 2021. The dependent variable is financial distress risk, which is measured mainly by Z-score. CSR score is used as a proxy for CSR. Propensity score matching, two-stage least square and generalized method of moments are adopted to mitigate the potential endogeneity issue.

This study reveals that CSR can reduce financial distress. Specifically, results show an inverse relationship between CSR and financial distress, more significantly in non-state-owned enterprises, firms with non-BigN auditor and during Covid-19. The results are consistent and robust to endogeneity tests and sensitivity analyses.

This study enriches the literature on CSR and financial distress, resulting in a more attractive corporate environment, improved financial stability and more crisis-resistant economies in China.

Academic research has intensively analyzed the relationship between market concentration or market power and banking stability but provides ambiguous results, which are summarized under the concentration-stability/fragility view. We provide empirical evidence that the mixed results are due to the difficulty of identifying reliable variables to measure concentration and market power.

Using data from 3,943 banks operating in the European Union (EU)-15 between 2013 and 2020, we employ linear regression models on panel data. Banking market concentration is measured by the Herfindahl–Hirschman Index (HHI), and market power is estimated by the product-specific Lerner Indices for the loan and deposit market, respectively.

Our analysis reveals a significantly stability-decreasing impact of market concentration (HHI) and a significantly stability-increasing effect of market power (Lerner Indices). In addition, we provide evidence for a weak (or even absent) empirical relationship between the (non)structural measures, challenging the validity of the structure-conduct-performance (SCP) paradigm. Our baseline findings remain robust, especially when controlling for a likely reverse causality.

Our results suggest that the HHI may reflect other factors beyond market power that influence banking stability. Thus, banking supervisors and competition authorities should investigate market concentration and market power simultaneously while considering their joint impact on banking stability.

Environmental, social and governance (ESG) issues have become the cornerstone of investment decisions in firms today. With that, publicly traded ESG indices (like the BSE ESG 100 index in India) have come into existence. The existing literature signifies that ESG generates financial implications and induces stability. The current study aims to test whether the firms listed on the ESG index (ESG-sensitive firms) face less financial distress than those not listed on such an index.

The study applies panel data difference-in-differences (DID) regression by considering ESG as an unstaggered treatment to 74 non-financial firms listed on India's Bombay Stock Exchanges (BSE) 100 index. In total, 42 firms are ESG treated as they got listed on the BSE ESG 100 index, formed in 2017. The remaining 32 firms form the control group. The confidence intervals and standard errors are estimated using clustered robust errors and the Donald and Lang method.

Listing on the ESG index matters for financial stability; differences in financial distress are significant on financial distress. ESG-sensitive firms face less financial distress than non-ESG firms (or firms not perceived as ESG-sensitive). The results are consistent across two financial distress measures, Altman z-scores for emerged and emerging markets. Thus, the DID in distress status between ESG-sensitive and non-ESG firms matter.

The study creates vibrant implications for practitioners using ESG to reduce financial distress.

The study is one of its kind to test the treatment effects of ESG on firm value and quantify treatment effects on financial distress.

This study aimed at exploring the differential effects of different corporate governance (CG) indicators on risk management practices in Islamic financial institutions (IFIs) and conventional financial institutions (CFIs) of Pakistan. It also investigated the moderating role of institutional quality (IQ) in shaping the effects of CG practices on financial institutions of Pakistan.

A sample of 57 financial institutions including commercial banks, insurance companies and Modarba companies over the period 2006–2017 is used to carry out the empirical analysis. The authors applied the robust two-step system-generalized method of moments estimator, which is also called the dynamic panel data estimator. They also built the PCA-based composite index of CG and IQ by using different indicators to investigate the moderating role of IQ. They used three proxies for risk taking, five for CG and one for Shari’ah governance. To test the validity of the instruments, they applied the Arellano and Bond’s (1991) AR (1) and AR (2) tests and the J-statistic of Hansen (1982).

The results provided strong evidence that several individual characteristics of CG and the composite index are significantly related to the operational risk, the liquidity risk and the Z-score (a proxy for solvency risk). The results also revealed that IQ significantly and substantially contributes in reducing the level of risks. Finally, the estimation results indicated that the effects of CG on risk management are significantly different at IFIs and CFIs. This differential impact is mainly attributed to the fundamental differences in business models, operational strategies and contractual obligations of both types of institutions.

The findings of this study are important for enhancing our understanding of how CG relates to risk taking in Islamic and conventional financial services industries and how good quality institutions are important for formulating the governance effects on the risk-taking behavior of financial institutions. The findings suggest that a suitable size of board should be chosen to manage the risk effectively. As the findings show that the risk-taking behavior of IFIs differs from that of CFIs, the regulators and international standard setting bodies should tailor the regulatory frameworks accordingly.

This paper is different from the existing studies in four aspects. First, to the best of the authors’ knowledge, this is the first empirical investigation in Pakistan, which does the comparison of IFIs and CFIs while examining the impacts of CG on risk management. Second, the paper constructs the composite index of CG by considering several different indicators of governance and examines the combined effect of governance indicators on risk management process. Third, this paper adds to the growing literature on the role of IQ by investigating whether it acts as a moderator between CG structures and risk management and if yes, then whether this moderating role is different for IFIs and CFIs. Finally, the paper builds upon the existing research work on the CG effects for different types of financial institutions by proposing a single regression based analytical framework for comparing the effects across two different types of institutions, harvesting the benefits of higher degrees of freedom and avoiding/minimizing the measurement error.

This paper evaluates the effect of corporate social responsibility (CSR) on the performance of rural banks, as well as the moderating influence of effective governance on the surmised nexus.

Annual data for 122 Ghanaian rural banks from ARB Apex Bank, World Development Indicator (WDI) and World Governance Indicator (WGI) for the period 2014–2020 were compiled for analysis. A two-stage system generalized method of moments (GMM) estimator was used in examining the relationships under study.

The findings suggest that CSR has a significant negative effect on return on assets (ROA), return on equity (ROE) and stability (Z-score). On the other hand, further results showed that CSR positively influences net interest margin (NIM). Again, the results suggest that government effectiveness exerts a positive moderating influence on the effect of CSR on performance from all four measurement criteria (ROA, ROE, NIM and Z-score) in the Ghanaian rural banking sector.

The study focuses on the rural banking sector in the Ghanaian economy, compared to related studies that examine the subject matter for commercial banks. The moderating influence of governance structures is also assessed on the relationships to guide policy on rural banking.

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-02-2023-0116.

Amidst the backdrop of a wide array of structural developments that have revolutionized the competitive landscape of Indian commercial banking, this paper aims to empirically examine the role of two external monitoring mechanisms – competition and concentration on financial stability and further highlights the significance of bank-level heterogeneity in the nexus.

The study uses the Lerner index, defined through a translog specification, as a measure of market power. A system generalized method of moments technique accounts for the dynamic associations among the competition-concentration-stability nexus. The study further examines the moderating effect of ownership, size and capitalization on the nexus. The study also uses the Boone indicator and comments on the competition-bank stability relationship after controlling for bank governance.

The findings indicate that banks are less stable in a more competitive and higher concentrated environment. Exploring bank-level heterogeneity, first, the authors report that as competition increases, state-owned banks have greater incentives to undertake risky activities than private and foreign banks, which point to implicit sovereign guarantees that characterize the former. Second, the authors document an adverse influence of competition on the soundness of larger banks consistent with the “too-big-to-fail” assertion. Third, results corroborate the disciplinary role of regulatory capital and lend support to stricter capital norms under Basel III in a more competitive environment.

This paper is perhaps the first to capture competition and concentration in a single model; to reconcile conflicting evidence on competition-risk nexus; to shed light on the joint effect of competition and Basel accords for Indian banks.

This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by using yearly data for the years 2012–2022.

Pooled ordinary least squares (OLS) and two-stage least squares (2SLS) were used to identify the variables and factors affecting the financial stability and banking sector of Palestinian banks. The study’s data were collected from the banks listed on PEX and from the yearly reports posted on the Palestine Monetary Authority’s (PMA) webpage over the years from 2012–2022. According to this research’s analysis, SMEs loans and capital sufficiency have a statistically significant positive impact on the stability of Palestinian banks. Unobserved heterogeneity, simultaneity and dynamic endogeneity are taken into account when using the 2SLS regression approach to adjust for the study endogeneity factor.

The study’s findings show that some factors and determinants might have both good and negative effects on financial stability and banking sector. Loans to small and medium-sized businesses (SMEs) and enough capital are two characteristics that statistically have a major favourable impact on the stability of Palestinian banks since they help the banks withstand deficits. A further potential discovery relates to the favourable effects of financial inclusion (FI) and digital financial services (DFS) on the stability of banks.

This research has faced some limitations, such as the lack of a defined index from the regulatory organizations, this research is based on information from bank annual accounts. It has mostly relied on self-developed or World Bank indexes. Furthermore, the research solely used information from the supply side (banks); demand-side data were not taken into consideration.

This paper has managerial implications for stability of banking sector. The Palestine Monetary Authority, as the central bank, must increase the percentage of bank loans directed to small and medium-sized companies and oblige bank management to adhere to adequate capital standards, which contributes to strengthening the Palestinian banking sector and increasing its profits. The study findings advise banks that are enjoying financial stability to speed up the pace of FI and DFSs because most of these reliable banks have relatively low FI ratios. PMA is responsible for preserving the stability of the financial system. PMA, decision makers and banks management must retain adequate liquidity in their institutions and raise client collateral expectations to raise credit conditions.

This paper adds some contributions to the literature. To adjust for discrepancies between various types of banks, the authors concentrate on conventional and Islamic banks, which enables us to use a homogenous data set as opposed to depending on dichotomous variables. The authors used Z-scores, which have recently been used in research, to measure stability and FI at the level of specific institutions. This research contributes in some key aspects that no prior research has addressed. Conventional banks are different from Islamic banks, and a number of issues might impact their stability. To evaluate the connection between FI and DFSs, it is important to consider the actions of bank regulators.

The academic literature has examined why bank runs happen based on the work of 2022 Nobel Prize-winning economists Diamond and Dybvig. They have found the source of banking/financial crisis in terms of mismatch between liabilities (deposits being short term and savers wanting to short-term access to their money) and assets (long term and illiquid). The Lakshmi Vilas Bank (LVB) crisis intensified when it came under Prompt Corrective Action (PCA) of the Reserve Bank of India (RBI). This situation provides the opportunity to study whether the elements embodied in the theoretical models like Diamond and Dybvig hold true for LVB crisis. This study aims to examine the reasons for the demise of LVB in India using DuPont financial model, peer group analysis and time series structural break in crucial financial parameters.

The study examines the reason for insolvency of LVB using financial ratios, financial models (DuPont), financial distress model (Z-score) and asset-liability management. The study also adopts univariate structural break models using quarterly financial data covering the key financial measures used in the RBI’s PCA framework.

LVB crisis is like Diamond–Dybvig model, in the sense, savers requiring short-term access to their money (liquidity for their deposits) on the information of high non-performing assets, which further deteriorates the illiquid nature of loan portfolio (assets) of banks. The study finds its profit margin (net interest margin and non-interest margin) and managerial efficiency had started deteriorating since 2018. The study finds that LVB’s main weakness lies in its limited credit appraisal ability, its monitoring and weak internal controls. Lending to sensitive sectors (like real estate, capital markets and commodities) and exposure to large business groups also contributed to its weakness. The study also finds huge, elevated asset-liability mismatch, especially in the short-term maturity buckets. Using univariate econometric time series model, the study also confirms financial weakness being evident much earlier than the time when resolution was undertaken by the RBI through PCA.

The study has implications for analysing and monitoring financial distress of banks. The study also has implications for devising banking regulation and supervision.

The study brings in a perspective of the banking regulations using the application of PCA framework on a listed private sector bank. The authors combine an accounting ratio model and combine risk measures that could identify the incipient risks in a bank. The authors believe this will help in refinement of banking regulations and better monitoring mechanisms.

Motivated by recent financial liberalization policies in emerging markets, this study investigates whether bank competition and regulatory capital affect bank risk taking in an international banking context.

Bank competition is regressed, using GLS regression, on various measures of bank risk, to reflect regulatory, accounting and market-based risk-taking. The authors use a sample of publicly traded banks operating in Africa during 2004–2019.

Results show that higher level of bank competition increases bank risk taking and results in greater financial fragility in the absence of banking capital regulations. Furthermore, larger capital adequacy ratios control the risk-taking incentives of managers and guard banks against the risk of default. Further tests confirm the significance of market-based risk measures over accounting and regulatory measures.

Findings are relevant to bank managers and regulators in their sustained effort of finding an optimal balance between bank competition and financial stability. Increased competition should be balanced with capital regulations to curtail bank excessive risky behavior and derive the social benefits of greater competition in the market while sustaining overall economic growth.

This study provides novel evidence in an international context. First, it uses regulatory, accounting and market-based measures of bank risk taking to reflect regulators', management and market participants' emphasis. Another original contribution is the investigation of bank competition across African economies characterized by financial liberalization, stringent banking system and interesting socio-economic challenges.

Nowadays, the competition is not only emerging from within the banking sector, but nonbanking companies like nonbanking financial companies (NBFCs) and FinTech are also growing in size and numbers, offering innovative financial products and services, giving a stiff competition to Indian banks. Thus, this study aims to investigate whether competition from within and outside the banking sector enhances or reduces the financial stability of the banking industry.

The study uses Herfindahl–Hirschman index to measure market share and Z score to measure financial stability. The study further examines the role of NBFCs and FinTech companies in impacting the financial stability by introducing variables like innovation, cybercrimes, systemically important institutions, etc. Thereafter, panel regression has been applied.

Empirical results show a positive relation of market share with financial stability, implying that increased competition in the Indian banking industry erodes the market power, adversely affecting the profit margins which encourages banks to take more risk and which may impact financial stability. The study shows a positive impact of innovation on financial stability which implies that the competition is acting as an enabler for banks. The authors find a negative relation of systemic important NBFCs with financial stability. The authors observe a negative association of cybercrimes with financial stability, reflecting that competition emerging from FinTech sector has exposed banks to new risks.

The policymakers should make sure that the competition of banks with other financial institutions, such as FinTech sector, remains healthy; otherwise, it can jeopardize the entire financial system. It is for the policymakers to define a boundary for FinTech sector, as the development of this sector has exposed the banking industry to new kinds of risks potential to create financial instability. The banks should do a comprehensive check on the company to which it is granting loans, and the government should amend laws. Though big banks have huge potential, consolidations can pose challenges at a macroeconomic level.

FinTech firms are a new entrant in the financial world which are providing immense competition to the banking sector, and thus radically changing the entire financial system. Therefore, it is extremely vital to study and explore the role of NBFCs and the FinTech industry as the main variable to analyze bank competition, which to the best of the authors’ knowledge is completely missing in the previous studies.