FINANCIAL CONSTRAINT MODERATE THE EFFECT OF CORPORATE SOCIAL RESPONSIBILITY AND INSTITUTIONAL QUALITY ON BANK RISK TAKING IN IDX

Abstract

Banking sector holds a strategic position that demands excellent risk management. Improper risk management can lead to systemic failures which can affect the financial stability of a nation. Information asymmetry problems between managers and other parties can trigger moral hazard problems. This study examined how corporate social responsibility (CSR) and institutional quality affect bank risk taking and to determine the role of financial constraints in weakening the relationship between CSR and bank risk taking. This quantitative study involved banks listed on the Indonesia Stock Exchange from 2013-2020. Dynamic panel data regression analysis using system generalized method of moments (System GMM) approach was employed in data analysis. The results indicated that CSR and institutional quality had a significant negative influence on bank risk taking. Furthermore, as a moderating variable, financial constraint weakened the relationship between CSR and bank risk taking. The findings of this study added an empirical evidence in the field of financial management on the relationship between CSR, financial constraints, institutional quality and bank risk taking. Bank managers should employ CSR strategies to reduce bank risk taking. In addition, both the government and regulators can improve institutional quality to reduce bank risk taking.