International Conference on Economics, Finance & Business, Rome

GOVERNING TAIL RISK: THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY COMMITTEE ON BANK’S TAIL RISK

ASIF SAEED

Abstract:

Purpose: This study aims to explore whether the presence of a CSR committee is effective in mitigating the bank tail risk. Next, how individual CSR committee attributes contribute to these associations. Design/methodology/approach: Using data from the US banking sector, the final sample consists of 583 bank-years from 130 banks. The authors start with bank-year fixed effect regression analysis. Further, they used bank-level cluster effect, Fama–MacBeth regression, and Weighted least squares regression for robustness. For endogeneity, they also apply 2SLS and GMM. Findings: Our regression estimation documents that the existence of a CSR committee effectively reduces the tail risk in the banking sector. Our main findings are robust with different regression settings and alternate proxies of tail risk. Further, we also confirm the existence of this relationship with different levels of corporate governance (CEO duality, board independence, board size, and gender diversity) and corporate social responsibility. Social Implications: Enhancing comprehension of the CSR committee's influence on banking tail risk is pivotal for banks in refining their sustainability strategies, a matter of significant societal importance. This research contributes to advancing the UN SDGs, particularly Goal 17, which emphasizes fostering partnerships to achieve common objectives. Originality/value: Prior research has intensively focused on whether CSR policies are associated with bank risk-taking. In addition, it has mostly formulated the causality from ESG performance to bank risk; hence, the literature lacks heterogeneity in this respect. Our investigation validates that the presence of a CSR committee in the financial sector effectively enhances the bank’s ESG performance and mitigates its risk.

Keywords: CSR committee, tail risk, governance mechanism, ESG, banking