Corporate social responsibility, financial globalization and bank soundness in Europe – Novel evidence from a GMM panel VAR approach

Abstract

Based on macro and micro perspectives, this paper is a pioneering effort to study the causal relationship between corporate social responsibility (CSR), bank soundness (profitability, stability) and financial globalization in the European banking sector. The results show that CSR performance enhances bank stability, while the financial costs of CSR can reduce bank profitability. We also reveal a virtuous circle between financial globalization and bank soundness, as well as a positive effect of financial globalization on CSR. However, the divergence between local and foreign CSR practices in the banking sector can hinder the financial integration process.