Tobin’s Q and ESG Score in the Banking Industry: Are There Differences Among Banks?

In recent years, and especially after the global financial crisis, sustainability has attracted increasing attention from regulators, investors, firms, academics, and, in general, stakeholders. This interest has created opportunities and challenges for firms in their risk-return relationship with shareholders and, in general, stakeholders (Ng and Zabihollah, 2015), pushing them to pursue coherence between corporate financial performance and corporate social performance (Crespi and Magliavacca, 2020). Financial intermediaries are increasing their attention on socially responsible aspects in order to reinforce their credibility and reputation among stakeholders (Coulson, 2009), considering a three-dimensional financial logic (risk, return, and social impact) in order to enhance their long-term value by fulfilling their social responsibilities (Freeman, 1984; Amini and Bienstock, 2014; Ng and Zabihollah, 2015; Ziolo et al., 2019). In this context, a critical characteristic of a successful sustainable business model is the explicit recognition of the importance of acknowledging multiple perspectives in defining and creating value, with a pluralistic and iterative process (Wheeler et al., 2003). The growth of banks sustainable practices is also strongly driven by legislation, with the adoption of regulatory provisions at both global (Global Reporting Initiative, United Nations Global Compact, Equator Principles) and European levels (Directive 78/669/EEC, Directive 83/349/EEC, EBA s Guideline, European Regulation 2019/2088). Moreover, economical, legal and self-regulated aspects have influenced the financial firm behavior in acting in a more socially responsible way, in order to enhance its competitive advantage in high market competitiveness contexts and to attract socially responsible investors (Chih et al., 2010; Oliveira et al., 2019). At the same time, these issues have become a new theme for academics in the field of management, and a number of contributions covering various issues and aspects have been published. Two main strands of literature can be distinguished in this regard. On the one hand, research sheds light on internal practices, by investigating how sustainability criteria are integrated in the decision-making process (Ziolo et al., 2019) and into policies, strategies, products and processes (Weber, 2005), with a specific attention on risk management frameworks (Weber, 2005; Weber et al., 2010; Attig et al., 2013; Birindelli et al., 2015; Devalle et al., 2017; Witold and McGlinch, 2019), lending practices (Goss & Roberts, 2011; Attig et al., 2013; Witold and McGlich, 2019), capital requirements (Zeidan et al., 2015; Thomä & Gibhardt, 2019), funding structure (Gangi et al., 2019; Wu and Shen, 2013), and profitability (Soana, 2011; Cornett et al., 2016; Laguir et al., 2018; Miralles-Quiròs et al., 2019; Brogi and Lagasio, 2019; Gangi et al., 2019). On the other hand, research focuses on external practices, by analyzing the relevance of corporate social disclosure (Baldini et al., 2018), with specific attention to the role played by the board of directors in creating and developing a corporate culture and ethical values that consider sustainability aspects (Sethi, 2002; Baldini et al., 2018; Birindelli and Iannuzzi, 2019; Cremona and Passador, 2019). In this regard, several studies have investigated the effect of board disclosure on firms reputation (Gray et al., 1995; Li et al., 2010; Vanhamme et al., 2012), trust (Carnevale and Mazzuca, 2014) and competitive advantage (Aguilera et al., 2006; Money and Schepers, 2007; Gill, 2008; Kolk and Pinkse, 2010; Garcia-Torea et al., 2016; Baldini et al., 2018). Board disclosure aspects have also been investigated in terms of number and presence of independent directors (Cheng and Courtenay, 2006; Patelli and Prencipe, 2007; Cucari et al., 2018; García-Meca and Pucheta-Martínez, 2018), age and gender of directors (Slater and Dixon-Fowler, 2009; Cucari et al., 2018; Galbreath, 2018; Birindelli and Iannuzzi, 2019), and environmental committee existence (Kent and Monem, 2008; Peters and Romi, 2014; Liao et al., 2015; Cucari et al., 2018). This study examines the relationship between the adoption of ESG criteria and shareholder value creation by banks, also taking into account differences in banks business models (traditional, hybrid, and non-traditional) and size (large, medium, and small). Specifically, this paper investigates the effects of the implementation of sustainability conducts on shareholder value creation (measured by the Tobin s Q) in a sample of 290 banks from 48 countries over the period 2011-2019. Our research aims to fill a gap in directly comparing and contrast banks in the relationship between ESG performance and shareholder value creation, with a specific focus on business models (traditional, hybrid, and nontraditional) and size (large, medium, and small).