Exporting corporate social responsibility: Evidence from foreign bank entry

Abstract

This paper examines the effect of foreign bank entry on local firms' social performance. We find that foreign bank entry is associated with better performance of local firms in regard to corporate social responsibility (CSR). The effect is more pronounced when firms face less favorable financial conditions and when corporate governance is weaker. Meanwhile, the role of foreign banks in promoting CSR is stronger in firms subject to environmental concerns but weaker in firms with foreign institutional investors or CEOs with overseas experiences in place. Further analyses show that foreign bank entry significantly releases firms' financial constraints, reduces corporate risk, and improves CSR awareness, further verifying the three channels of how foreign banks increase firms’ CSR performance. These findings provide valuable insights into the consequence of financial liberalization by highlighting the important role of foreign banks as intermediaries in facilitating CSR practice globally.