ANALYSIS OF THE RELATIONSHIP BETWEEN CORPORATE SUSTAINABILITY AND BANKS’ FINANCIAL PERFORMANCE DURING THE COVID-19 PANDEMIC

• Main Author: Gunawan, Albert
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/57807
• Institution: Institut Teknologi Bandung

This study aims to understand the relationship between corporate sustainability and banks’ financial performance during the Covid-19 pandemic. In total, there are 506 banks from 56 countries observed. The author used ESG, E, S, G, and interaction variables which calculated by multiplying the corporate sustainability indicators with the government stringency index as the independent variables. The dependent variables are ROA, ROE, Tobin’s Q, and NPL Ratio. There are six control variables, which are equity-to-asset, loan-to-deposit, total assets, GDP growth, the government stringency index, and country fixed effect. For data analysis, the author utilized panel data regression to reach the conclusion of this study. From 32 models, corporate sustainability indicators are significant in 25 models. However, the findings show a mixed sign of corporate sustainability impact on banks’ financial performance. There is a robust finding that ESG, E, S, and G score are significant and negatively correlated with the financial performances, which are ROE, ROA, and Tobin’s Q. Nonetheless, a different relationship is found in the relationship between corporate sustainability and the NPL Ratio, which shows a positive relationship. Thus, even though the result is mixed, the finding strongly inclined to reject the hypothesis that corporate sustainability could boost banks’ financial performance. The author analyzes the effect of the Covid-19 Pandemic in two ways: using a pandemic-specific variable (the government stringency index) and using the interaction variable, which multiplies ESG, E, S, and G score with the government stringency index. The government stringency index shows a negative impact on banks’ financial performance. The second model shows a similarity with the first model. Thus, there are robust findings that the government response to the Covid-19 amplifies the negative effect of corporate sustainability on banks’ financial performance.