Do corporate governance mechanisms and ESG disclosures improve bank performance and stability in an emerging economy?

Abstract

PurposeThis paper aims to investigate the impact of corporate governance mechanisms and the environmental, social and governance (ESG) disclosure score on bank performance and financial stability. Further, this paper analyses how this relationship varies over the different ownership structures.Design/methodology/approachThe paper uses a sample of 41 Indian banks (including both public sector and private sector banks) over the period ranging from 2008 to 2020. The data is analyzed in both static and dynamic frameworks using panel regression and system generalized methods of moments.FindingsThe results indicate that the frequency of board meetings has a negative influence on the performance of the banks. Gender diversity reveals both linear and non-linear relationships with bank performance. In the sample of public sector banks, the board size and promoters’ ownership have a significant negative effect on the bank's performance. In private sector banks, CEO duality adversely affects performance. Further, the results indicate that ESG disclosure score is positively linked with the profitability of banks.Originality/valueThis paper provides a comprehensive analysis of the impact of corporate governance mechanisms and ESG disclosure scores on bank performance and stability in the context of the Indian economy. To the best of the authors’ knowledge, there has been no empirical investigation or study that has been conducted in this respect.