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Received: 18 January 2019 Revised: 6 March 2019 Accepted: 25 March 2019
DOI: 10.1002/csr.1759

RESEARCH ARTICLE

The impact of environmental, social, and governance

performance on stock prices: Evidence from the banking
industry

María Mar Miralles‐Quirós | José Luis Miralles‐Quirós | Jesús Redondo‐Hernández

Financial Economics, University of

Extremadura, Badajoz, Spain Abstract
After the global financial crisis, commercial banks have increased their social respon-
Correspondence
María Mar Miralles‐Quirós, Financial sibility activities with the aim of reinforcing the credibility and trust that their
Economics, University of Extremadura, Av. stakeholders have in them. However, prior research about the value relevance for
Elvas s/n, Badajoz 06006, Spain.
Email: marmiralles@unex.es their financial stakeholders of these sustainable practices is scarce. In this context,
the aim of this research is to examine whether environmental, social, and governance
(ESG) performance of commercial banks listed on 20 different stock markets provides
relevant information and has a significant impact on stock prices over the 2002–2015
period. Our overall results reveal that stock market investors value the three ESG
pillars in a different manner. We also observe that the value relevance of ESG
performance is significantly higher for banks from common law countries and after
the global financial crisis. These findings could have several implications for internal
and external stakeholders such as managers, investors, and market regulators.

K E Y W OR D S

banking industry, ESG performance, financial crisis, legal system, stock prices

JEL CLASSIFICATION
G10; G15; G20

1 | I N T RO D U CT I O N
Banks play an active role in the economic development of countries by
having the ability to select investment projects, manage risks, and
decide who has access to capital and what activities are financed. By
performing this function, these institutions also have a huge impact
on society (Beck, Demirgüç‐Kunt, & Levinem, 2010).
However, in the summer of 2007, one of the deepest economic
crises in modern history began, which was caused by the problems
of the banking industry in the United States with the outbreak of
the subprime mortgage crisis and later, in the fall of 2008, with the
bankruptcy of Lehman Brothers. It is from this bankruptcy that many
This research was funded by Junta de Extremadura under the VI Action Plan for Research and
Development 2017/20 through the GIMAF research group (reference GR18022).
countries saw how their financial systems were infected by the nega-
tive climate of the United States and began to have problems.
As a result, the need to introduce new business management tools
to restore credibility and confidence in the banking industry of its
stakeholders has been highlighted. In this sense, corporate social
responsibility (CSR) understands that it can reinforce the credibility
and trust of stakeholders or interest groups, because it refers to the
voluntary activities of a company that seem to favor some social good,
beyond the interests of the company, and what is required by law
(Aminia & Bienstock, 2014).
As a consequence, nowadays there are more banks that may be
considered socially responsible due to the fact that they adopt socially
responsible actions such as the publication of sustainability reports
following the Global Reporting Initiative guidelines, the adoption of
the Equator Principles, the inclusion of environmental risk

1446 © 2019 John Wiley & Sons, Ltd and ERP Environment wileyonlinelibrary.com/journal/csr Corp Soc Resp Env Ma. 2019;26:1446–1456.

MIRALLES‐QUIRÓS ET AL.
assessments in their credit policies, and more recently the assumption
of the United Nations' Sustainable Development Goals, among other
practices. This is mainly due to the pressure that stakeholders exert
on listed companies.
We highlight in this research the pressure exerted by financial
stakeholders. Not only shareholders but also potential investors and
analysts currently request environmental, social, and governance
(ESG) information in order to make better estimates of the company's
shares and, subsequently, make their investment decisions or prepare
their investment advice (Amel‐Zadeh & Serafeim, 2018). By consider-
ing this additional information, they can reduce the information
asymmetries with banks' managers attenuating the uncertainty about
the future benefits of these companies and the risks assumed by these
financial stakeholders.
However, previous research about the value relevance for financial
stakeholders of these sustainable practices is very limited. As Miralles‐
Quirós, Miralles‐Quirós, and Arraiano (2017) and Finger, Gavious, and
Manos (2018) indicate, among others, banks are often excluded from
samples in empirical work due to their special characteristics—such
as different accounting requirements, reporting incentives, or risk
exposures—compared with other industries. In this sense, we highlight
the works of Carnevale, Mazzuca, and Venturini (2012), Carnevale and
Mazzuca (2014a), and Carnevale and Mazzuca (2014b), which focus
on studying the reaction of the stock markets to the sustainability
reports prepared and disclosed by the banks themselves with the con-
sequent self‐reporting bias.
Meanwhile, in the last few years, diverse studies have been pub-
lished with the aim of analyzing the relationship between CSR prac-
tices and banks' financial performance (Cornett, Erhemjamts, &
Tehranian, 2016; Esteban‐Sánchez, de la Cuesta‐González, &
Paredes‐Gazquez, 2017; Laguir, Marais, El Baz, & Stekelorum, 2018,
among others). However, these previous studies analyze a specific
CSR category, the specific case of the United States, or a group of
large international banks in a time period before the international
financial crisis. Moreover, the aim of these studies has been to legiti-
mize managers when they incorporate CSR principles in their manage-
ment systems. Thus, there is still enough research field in order to
identify the implications of CSR activities for financial stakeholders.
In this context, the aim of this study is therefore to examine
whether ESG performance of listed commercial banks provides rele-
vant information for financial stakeholders and has a significant impact
on stock prices in the stock markets of Australia, Austria, Belgium,
Canada, France, Germany, Hong Kong, Ireland, Italy, Japan, Norway,
Portugal, Spain, Sweden, Switzerland, the Netherlands, the United
Kingdom, and the United States during the 2002–2015 period, taking
into account the country's legal regime and the international financial
crisis. To that end, we test the model proposed by Barth and Clinch
(2009), a modified version of the Ohlson (1995) valuation model,
employing different metrics to specify the ESG performance based
on environmental, social, and corporate governance scores provided
by Thomson Reuters Eikon.
It is precise to point out the importance of environmental perfor-
mance for investors and other stakeholders. Many of the decisions
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1447
of these stakeholders could be based on the environmental aspects
of the services offered. Therefore, there exists more and more pres-
sure forcing banks to change their management systems to meet these
growing demands. Meanwhile, although it is true that the banking
industry may not generate serious problems of environmental pollu-
tion, it is also true that great savings can be achieved in the billing of
electricity, water, fuel, and the use of paper, among others, if correc-
tive measures of environmental improvement are adopted (Jeucken,
2010).
In contrast, social performance refers to how the organization
treats its employees, the community, and the client through responsi-
bility in their products and services. Although all these aspects have a
positive impact on the company (Esteban‐Sánchez et al., 2017), the
value of this information for financial stakeholders and, therefore,
the impact on stock prices is indirect.
Finally, with the term governance, we refer to how power is
exercised and how decisions are made in a bank that ensures that
the members of its board of directors and executives act in the best
interest of their shareholders in the long term. In addition, corporate
governance is an important dimension of CSR that guarantees
accountability, compliance, and transparency. Therefore, responsible
governance implies reducing the problems of the agency with financial
stakeholders (Hill & Jones, 1992), which is expected to have a direct
impact on stock prices.
Our overall results show that investors value the three ESG pillars
in a different manner. Specifically, environmental and corporate gover-
nance performances are positively and significantly valued by inves-
tors among markets and over the entire sample period. However,
social performance is negatively and significantly valued. Our findings
also reveal that the market valuation of ESG performance differs
depending on the country's legal origin. More precisely, we observe
that the value relevance of ESG performance is significantly higher
for banks from common law countries with stronger shareholders pro-
tection. Finally, we also provide evidence of the incremental value of
the ESG performance after the global financial crisis, showing that this
crisis has changed the preferences of investors for this type of
information.
Our findings allow us to deepen our knowledge of the process of
generating value not only for investors but also for society in the spe-
cific area of the banking industry and suppose an argument of internal
legitimation for the managers of these companies for increasing the
inclusion of CSR principles in their strategic management.
The remainder of the paper is organized as follows. Section 2
includes a literature review. Section 3 describes the methodology pro-
posed for this empirical research. Section 4 introduces the database
employed. Section 5 presents our empirical results. Finally, Section 6
discusses the main conclusions.
2 | LITERATURE REVIEW
As we indicated in Section 1, studies about CSR practices in the bank-
ing industry and their implications for financial stakeholders are

1448
extremely scarce, unlike the numerous studies on the involvement of
CSR activities in other stakeholders such as consumers (Chomvilailuk
& Butcher, 2013; Mandhachitara & Poolthong, 2011; Matute‐Vallejo,
Bravo, & Pina, 2011; Pérez & Rodríguez del Bosque, 2015; Pomering
& Dolnicar, 2009; Thien, 2015, among others).
We have to highlight, in this sense, the works of Carnevale et al.
(2012), Carnevale and Mazzuca (2014a), and Carnevale and Mazzuca
(2014b), which examine the impact on stock prices of the publication
and disclosure of sustainability reports by the banks themselves pro-
viding mixed results.
More precisely, Carnevale et al. (2012) analyze 130 banks quoted
on Eurozone stock markets from which 73 publish sustainability
reports and 57 do not publish this kind of information during the
period 2002–2008. Employing the Ohlson (1995) valuation model,
they observe that there is no evidence that investors attribute value
relevance to sustainability reports during the entire sample. However,
they also observe in a cross‐country analysis that in some countries,
sustainability reporting positively affects the stock price, whereas in
others, the effect is significantly negative.
In a further investigation, Carnevale and Mazzuca (2014a) analyze
a sample of 176 European listed banks from the second quarter of
2002 to the second quarter of 2011. We use an unbalanced sample
that includes commercial and cooperative banks as well. They test
the direct and indirect effects of the sustainability report on stock
prices and whether the value relevance of sustainability reports varies
across countries. Their findings indicate that investors appreciate the
additional and complementary disclosure provided by the sustainabil-
ity report and that this disclosure produces a positive effect on stock
prices. However, they also observe that the value relevance of sus-
tainability reports varies across European countries.
The work of Carnevale and Mazzuca (2014b) goes a step forward
and analyzes whether investors value the sustainability reports elabo-
rated in accordance with the Global Reporting Initiative criteria in the
European banking industry. Their results for the 2005–2011 period
reveal that there is no homogeneity among markets when they are
grouped according to varieties of capitalism.
However, these previous studies have two relevant limitations:
(a) They are centered on the study of European listed banks; (b)
they are also limited to examining whether these European listed
banks publish or not sustainability reports, with the subsequent
self‐reporting bias, instead of directly considering CSR practices
measured by an external agency.
In this sense, there are more recent studies that consider CSR prac-
tices measured by an external firm and their relationships with banks'
financial performance. More precisely, Cornett et al. (2016) analyze
the relationship between CSR and financial performance in U.S. banks
during the financial crisis. Their results indicate that larger banks per-
form significantly more CSR activities than smaller banks. In addition,
larger banks have noticed a pronounced increase in the strengths of
their CSR activities and a sharp fall in CSR concerns after 2009. More-
over, Forcadell and Aracil (2017) examine the performance of the
European banks listed in the Dow Jones Sustainability Index for the
2003–2013 period and analyze the effect of having a reputation for
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MIRALLES‐QUIRÓS ET AL.
CSR on performance during a period of economic crisis. Their results
suggest that banks' efforts to build a reputation for CSR benefit per-
formance. Furthermore, García‐Sánchez and García‐Meca (2017)
study whether banks that follow CSR practices enhance earnings qual-
ity in 159 banks from nine countries during the 2004–2010 period.
Their results indicate that a bank's commitment to CSR practices
enhances earnings persistence and cash flow predictability.
Meanwhile, Esteban‐Sánchez et al. (2017) analyze whether 154
banks from 22 countries adopted a strategic CSR approach before
and during the years of financial crisis and whether it mitigates the
decline of their profit rates. To that end, they analyze the effect of
the four dimensions of CSR on financial performance. Their results
indicate that banks with better relationships with employees and cor-
porate governance have greater financial performance. However, they
also observe that the crisis has moderated this effect, suggesting fail-
ures in corporate governance mechanisms. Contrary to what was
expected, the product liability dimension did not positively influence
financial performance. Finally, they also provide evidence that, during
the crisis, the best relations with the community are valued positively
by investors, which in turn increase financial performance.
It is also necessary to highlight the works of Jo, Kim, and Park
(2015), Finger et al. (2018), Laguir et al. (2018), and Gangi, Meles,
D'Angelo, and Daniele (2018) that strictly analyze the creation of value
through the environmental activities carried out by banks. Specifically,
Jo et al. (2015) examine whether corporate environmental responsibil-
ity plays a role in improving operational performance in the financial
services sector of 29 countries. Their results show that the reduction
of environmental costs requires at least 1 to 2 years before improving
the financial performance, being the fastest process in developed mar-
kets and slowest in the developing markets. Finger et al. (2018), who
also distinguish between banks from developed and emerging coun-
tries, analyze the effect of the adoption of the Equator Principles on
banks' financial performance. Their results show that in developed
(emerging) countries, the adoption of the Equator Principles is associ-
ated with an increase (decrease) in financing activity and in the partic-
ipation of interest income. They also indicate that these results show
that the adoption of the Equator Principles is a strategic decision for
banks in emerging countries and a form of greenwashing in developed
countries. Meanwhile, Laguir et al. (2018) focus on the French banking
sector and document that the environmental and financial perfor-
mance of banks is mutually reinforcing, suggesting that there is a com-
plex bidirectional relationship between both magnitudes. Furthermore,
Gangi et al. (2018) analyze the factors that encourage banks to be
more environmentally friendly as well as the relationship between a
bank's environmental engagement and its risk. Using a sample of
142 banks from 35 countries covering the period from 2011 to
2015, they document the positive impact of effective corporate gov-
ernance mechanisms on banks' environmental engagement. Moreover,
they find that banks that are more sensitive to environmental issues
also exhibit less risk.
Finally, we have to highlight that these previous studies have been
carried out for a period of time prior to or during the international
financial crisis or have been focused on a particular country or a

MIRALLES‐QUIRÓS ET AL.
specific socially responsible aspect. Therefore, we consider it is essen-
tial to provide evidence in this research field for a more recent period
of time when the practice of socially responsible activities in the finan-
cial services sector has been consolidated. Moreover, it is essential to
take into account differences among countries and to provide evi-
dence distinguishing between environmental, social, and corporate
governance actions because, as Hassel and Semenova (2013) argue,
the modern concept of social responsibility has essentially developed
into these three main types of relationship with stakeholders.
We therefore consider that the value of social responsibility prac-
tices in the banking industry has not been sufficiently researched and
there is still a great deal of scope for research in this area. We there-
fore consider that it is more appropriate to employ sustainability infor-
mation prepared by external firms or social rating agencies, which
transparently and objectively measure these three ESG pillars.
3 | METHODOLOGY
The aim of this study is to evaluate the relationship between stock
prices and the level of ESG performance of commercial banks that
are listed on the stock exchanges of Australia, Austria, Belgium, Can-
ada, France, Germany, Hong Kong, Ireland, Italy, Japan, Norway, Por-
tugal, Spain, Sweden, Switzerland, the Netherlands, the United
Kingdom, and the United States. To achieve our objective, we examine
whether the level of performance of ESG is associated with the prices
of the shares as follows:
Pi;t ¼ α0 þ α1 BVPSi;t þ α2 EPSi;t þ α3 ESGi;t þ εi;t ; (1)
where Pi,t is the stock price of bank i at the end of year t; BVPSi,t is
the book value per share of bank i in year t; EPSi,t represents the earn-
ings per share of bank i for the year t; ESGi,t is a nonaccounting explan-
atory variable that represents the ESG performance of bank i in year t;
and finally, εi,t is the error of bank i in year t. Specifically, we expect
α3β3, the coefficient that accompanies the ESGi,t variable in this model,
to be significant and positive, supporting the value enhancing of CSR
practices for financial stakeholders. As can be seen, we use a panel
data methodology. Thus, the correct specification of the model is
demonstrated through the F statistic that tests the joint significance
of the explanatory variables and the adjusted R2 that indicates the per-
centage of variability of the dependent variable explained by the
explanatory variables included in the model.
This model was proposed by Barth and Clinch (2009). This is a
modified version of the stock valuation model of Ohlson (1995) in
which the equity market value is a function of the financial informa-
tion of the company represented in its book value and accounting
results as well as other relevant information of the company. The
Barth and Clinch (2009) version involves scaling the variables included
in the initial model proposed by Ohlson (1995) using the number of
shares outstanding. This allows the specification of the stock price as
a dependent variable of the model, and therefore, it is possible to ana-
lyze the direct effect of the ESG performance on stock prices, with the
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1449
important implications this has for financial stakeholders (share-
holders, potential investors, and financial analysts).
It should be noted that in this research, we use alternative ESG
performance variables following the most recent literature on social
responsibility in the banking industry (Cornett et al., 2016; Esteban‐
Sánchez et al., 2017; Laguir et al., 2018, among others). Specifically,
we use the environmental, social, and corporate governance perfor-
mance calculated by the Thomson Reuters Eikon agency. These vari-
ables are included in the model individually with the objective of
analyzing the market value of each of these ESG pillars.
More precisely, social performance variable measures those CSR
actions adopted by banks in relation to providing clients with financial
products and services that integrate ethical principles, their commit-
ment to the community as well as with employees creating a healthy
and safe work atmosphere, respecting diversity and human rights,
and providing equal opportunities. Meanwhile, corporate governance
performance measures whether banks include CSR values in their gen-
eral vision and strategy of the company and in their decision‐making
processes as well as their communication practices in terms of elabo-
ration and disclosure of sustainability reports. Finally, the environmen-
tal variable measures the contribution of banks in terms of minimizing
resources, reducing emissions and product innovation.
However, it should be noted that we also use a general ESG
performance variable calculated from the arithmetic mean of the
three ESG variables to estimate the average impact of these
practices on stock prices (Cheng, Ioannou, & Serafeim, 2014;
Mervelskemper & Streit, 2017; Miralles‐Quirós, Miralles‐Quirós, &
Valente Gonçalves, 2018).
Before concluding our empirical research, and taking into account
previous literature, we believe it is important to highlight the legisla-
tive differences between countries. As La Porta, Lopez‐de‐Silanes,
and Shleifer (1999), La Porta, Lopez‐de‐Silanes, Shleifer, and Vishny
(2000), and La Porta, López‐de‐Silanes, and Shleifer (2008) argue, legal
systems based on common law, such as Australia, Canada, Hong Kong,
Ireland, the United Kingdom, and the United States are systems more
oriented to the discretion that support the results of the private mar-
ket, impose less ex ante restrictions on the directors, and favor the
protection of the shareholders. In contrast, the legal system based
on civil law—such as those of Austria, Belgium, France, Germany,
France, Italy, Japan, Norway, Portugal, Spain, Sweden, and the Nether-
lands—is characterized by significant government participation in the
corporate structures and for having labor protection legislation gener-
ally regulated by law. Moreover, Chih, Chih, and Chen (2010) who ana-
lyze the determinants of CSR in the banking industry consider the
origin of the legal system of each country because empirical results
may suffer from endogeneity bias. More recently, García‐Sánchez
and García‐Meca (2017) provide evidence that intstitutional factors,
such as higher levels of investor protection, are a complementary
mechanisms for CSR activities in banks. Meanwhile, Liang and
Renneboog (2017) find that the company's CSR rating and the legal
origin of their country are strongly correlated. More precisely, they
note that companies in common law countries have lower CSR ratings
than companies in civil law countries, in which managers are more

1450
likely to make decisions in favor of employees and other stakeholders
to the detriment of shareholders.
Therefore, following these authors, we consider it highly relevant
to analyze if these legislative differences are also observed in relation
to the relevant value of ESG performance of commercial banks that
are listed on the stock exchange. Then, we extended the Model (1),
which includes a new variable ESGi,t × ComLawi,t which is the interac-
tion of ESG performance with a dummy variable that takes the value 1
if bank i operates in a common law country and 0 otherwise.
Pi;t ¼ α0 þ α1 BVPSi;t þ α2 EPSi;t þ α3 ESGi;t (2)
þα4 ESGi;t × ComLawi;t þ εi;t :
The incorporation of this new variable into Model (2) allows us to
identify the differential effect on stock prices of the ESG performance
of banks that operate in common law countries provided by the sign
and significance of α4 coefficient. Following previous research, we
expect α4 to be positive and significant, supporting the belief that in
common law countries, more than in civil law countries, managers
are more likely to make decisions in favor of shareholders, to the det-
riment of other stakeholders. Thus, one could expect a more positive
association between share prices and ESG performance in common
law countries than in civil law countries.
Moreover, it must be noted that our sample period covers the
global financial crisis that began in the United States in mid‐2007 with
the so‐called “subprime” mortgage crisis and continued in September
2008 with the bankruptcy of Lehman Brothers, one of the biggest
banks in the United States. These events were the beginning of a
period of recession in the developed countries with negative conse-
quences for all economies, including sharp falls in the stock markets
in general and in the shares of commercial banks in particular. Mean-
while, as we indicated in Section 1, this crisis played a crucial role in
making the banking industry assume a greater commitment to social
and environmental issues as well as to their shareholders.
Thus, we believe it is essential to analyze to what extent the eco-
nomic context may influence the initial results obtained for the full
sample. For that reason, we also carried out the following test:
Pi;t ¼ α0 þ α1 BVPSi;t þ α2 EPSi;t þ α3 ESGi;t (3)
þα4 ESGi;t × PostCrisisi;t þ εi;t ;
where ESGi,t × PostCrisisi,t is the interaction of ESG performance
with a dummy variable that takes the value 1 for years after the
“subprime” mortgage crisis and the bankruptcy of Lehman Brothers
(2009 to 2015), and 0 otherwise. The sign and significance of coeffi-
cient α4 allows us to identify whether the international financial crisis
has changed the preferences of these stakeholders for this type of
information. Following previous evidence about the commitment of
this sector to CSR issues, we expect α4 to be positive and significant,
supporting the belief that financial stakeholders have started to value
these initiatives from listed commercial banks after the crisis.
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MIRALLES‐QUIRÓS ET AL.
4 | DATABASE
The sample of this empirical research consists of 51 commercial banks,
which are listed in 20 stock markets during the 2002–2015 period and
for which exist CSR and financial information extracted from the
hugely employed Thomson Reuters Eikon database (Dell'Atti, Trotta,
Iannuzzi, & Demaria, 2017; Ferrero‐Ferrero, Fernández‐Izquierdo, &
Muñoz‐Torres, 2016; Mervelskemper & Streit, 2017; Miralles‐Quirós
et al., 2018; Sanches García, Mendes‐Da‐Silva, & Orsato, 2017; Yoon,
Lee, & Byun, 2018, among others).
Specifically, we employ the environmental, social, and corporate
governance performance calculated by Thomson Reuters Eikon for
each company. This database company calculates these scores as the
weighted average of the scores achieved in more than 70 key perfor-
mance indicators calculated from more than 400 data points that
make it up.
In Table 1, we present the average performance in environmental,
social, and corporate governance matters during the years studied of
all the selected banks, as well as grouped in the common law and
the civil law. It should be noted that the ESG database provided by
the Thomson Reuters Eikon agency is an annual score for each bank
from 0 to 100 points. This allows us to identify the ESG strengths
(50–100 points) or ESG weaknesses (0–49 points) of each group of
banks that constitute our sample data.
There are various aspects to be highlighted about Table 1. There
is a continuous increase of ESG scores over the years under study.
Of the three ESG pillars, the social one has the highest average
score when we consider all the banks selected, followed by the gov-
ernance pillar, and finally the environmental pillar, which unlike the
previous two is the only one which has an annual general score
below 50 points in the first year of the sample period, indicating that
environmental practices were initially a weakness for these banks.
Meanwhile, when banks are grouped in common law and civil law
origin, we observe relevant differences, as has been previously
documented by Liang and Renneboog (2017). Whereas banks that
operate in common law countries have a higher governance perfor-
mance, banks that operate in civil law countries have a higher social
performance. These findings point out the importance of considering
country's legal origin in this research.
Finally, the financial information that we need to test the Barth and
Clinch (2009) valuation model described in Section 3—price, book
value per share, and earnings per share—has also been obtain from
the Thomson Reuters Eikon database.
We present in Table 2 the summary statistics of the financial and
ESG variables. As we can see in Panel A, the average stock price of
the banks in the sample is 24.71 with a standard deviation of 23.29,
the average book value per share is 19.49 with a standard deviation
of 20.67, and average earnings per share is 12.38 with a standard
deviation of 74.55. Regarding the descriptive statistics of the ESG per-
formance measures, we observe that on average, these listed banks
have a score of 70.99 points out of 100 for environmental perfor-
mance, 76.54 for social performance, 68.41 for corporate governance
performance, and 71.98 for general ESG performance, with standard
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MIRALLES‐QUIRÓS ET AL. 1451

TABLE 1 Average environmental, social, and governance performance

Corporate governance performance Environmental performance Social performance

All banks Common law Civil law All banks Common law Civil law All banks Common law Civil law

2002 51.17 67.19 32.97 48.07 46.87 49.43 63.57 60.73 66.79
2003 53.22 68.25 36.15 55.13 58.70 51.08 64.70 63.80 65.72
2004 61.60 75.44 45.86 61.56 63.56 59.28 75.12 72.11 78.54
2005 66.91 78.96 53.22 65.32 61.84 69.27 77.06 75.47 78.88
2006 69.30 79.09 58.17 68.58 64.64 73.06 80.72 78.59 83.15
2007 70.54 79.21 60.70 70.83 66.60 75.63 79.33 76.34 82.73
2008 68.99 74.92 62.26 73.77 70.69 77.28 80.96 77.75 84.61
2009 71.55 78.47 63.68 76.96 74.24 80.04 79.94 75.58 84.89
2010 73.92 78.67 68.53 77.08 73.44 81.20 78.96 75.04 83.41
2011 76.75 80.84 72.09 78.43 76.30 80.86 77.48 74.28 81.11
2012 73.47 77.71 68.66 77.36 75.14 79.87 76.02 72.74 79.75
2013 73.51 79.53 66.66 77.77 75.76 80.05 76.25 71.80 81.30
2014 71.00 79.24 61.64 78.95 76.13 82.16 77.35 72.49 82.86
2015 73.38 80.70 65.06 81.87 79.69 84.35 82.65 79.53 86.20

Note. This table shows the average environmental, social, and corporate governance performance during the years under study of all banks selected, also
grouped in common law and civil law origin. It should be noted that the Thomson Reuters Eikon database provides an annual score for each company of
between 0 and 100 points.

TABLE 2 Summary statistics

P BVPS EPS ENV SOC GOV ESG

Panel A: descriptive statistics

Mean 24.71 19.49 12.38 70.99 76.54 68.41 71.98
Max 171.58 159.71 883.76 97.26 99.00 97.49 96.38
Min 0.31 0.47 0.00 8.60 4.88 1.72 7.64
Std. dev. 23.29 20.67 74.55 31.30 24.10 23.25 22.11
Panel B: correlation matrix
P 1.00
BVPS 0.74 1.00
EPS 0.13 0.10 1.00
ENV −0.05 0.01 0.10 1.00
SOC −0.08 −0.02 0.11 0.79 1.00
GOV 0.04 −0.04 0.10 0.45 0.40 1.00
ESG −0.04 −0.02 0.12 0.92 0.87 0.71 1.00

Note. This table shows the descriptive statistics (mean, maximum, minimum, and standard deviation) and the correlation matrix of the financial variables
(price, book value per share, and earnings per share) and the environmental, social, and corporate governance performance variables, as well as a general
ESG performance measure obtained from the arithmetic mean of the previous three.

deviations of 30.31, 24.10, 23.25, and 22.11 respectively. Finally, we 5 | E M P I R I C A L R ES U L T S

show in Panel B the matrix of correlations across variables. The high
correlation across the ESG performance variables is especially rele-
vant. That is why, following Cheng et al. (2014), Mervelskemper and
Streit (2017), and Miralles‐Quirós et al. (2018), we introduce them
individually in the Barth and Clinch (2009) valuation model instead
of testing them together.
We present in Table 3 the results of the stock market valuation model
proposed by Barth and Clinch (2009) including the ESG performance
measures described in the previous section. Unlike the previous stud-
ies in which a dummy variable was employed indicating the publication
of social responsibility reports (Carnevale et al., 2012; Carnevale &
 15353966, 2019, 6, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/csr.1759 by <shibboleth>-member@uwl.ac.uk, Wiley Online Library on [22/12/2022]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
1452 MIRALLES‐QUIRÓS ET AL.

TABLE 3 The impact on stock prices of environmental, social, and governance performance

Intercept 9.658*** (4.19) 17.883*** (5.70) 8.763*** (3.39) 9.924*** (3.02)

Book value per share 0.715*** (15.80) 0.717*** (15.91) 0.722*** (16.00) 0.720*** (15.92)
Earnings per share 0.023** (2.58) 0.024*** (2.78) 0.022** (2.53) 0.023*** (2.59)
Environmental performance 0.053* (1.69)
Social performance −0.089** (−2.22)
Governance performance 0.066* (1.80)
General ESG performance 0.041 (0.80)
2
Adjusted R 0.7745 0.7753 0.7747 0.7736
F value 36.024 36.186 36.054 35.849
p value (0.00) (0.00) (0.00) (0.00)

Note. This table shows the results of testing the valuation model proposed by Barth and Clinch (2009) in a sample of listed banks with ESG available infor-
mation during the 2002–2015 period. The results are presented adding the different ESG performance measures to the model. The last rows include the
adjusted R2 and F test statistics. In brackets is the p value, indicative of the significance of each coefficient and of the F test.
*Represents 10% significance level. **Represents 5% significance level. ***Represents 1% significance level.

Mazzuca, 2014a; Carnevale & Mazzuca, 2014b), we use the three
modern pillars of CSR.
We can see in Table 3 that the coefficients for book value per
share and earnings per share are positively and significantly associated
with share price, as was expected. In addition, the coefficients for
environmental and governance performance are positively and signif-
icantly related to banks' share prices. In contrast, in the case of social
performance, this is negatively and significantly associated with share
prices. Thus, general ESG performance is not significantly associated
with banks' share prices. Meanwhile, the F tests are statistically sig-
nificant, and the adjusted R2 statistic is high, which implies that this
information is relevant for the valuation of these companies on the
stock markets, along with the accounting information considered by
Barth and Clinch (2009).
These results highlight the importance of environmental perfor-
mance for financial stakeholders (shareholders, analysts, and future
investors). As indicated above, there is great pressure from these
stakeholders to adapt banks' management systems and incorporate
environmental aspects. As a consequence, there is a positive and sig-
nificant impact of environmental performance on the stock prices of
listed banks.
At the same time, our results support Jamali, Safieddine, and
Rabbath (2008) when they argue that corporate governance is an
important CSR dimension that guarantees accountability, compliance,
and transparency and implies a reduction in agency costs for financial
stakeholders. That is why there is a positive and significant impact on
stock prices when the listed bank has a higher score of governance
performance.
In contrast, social performance, which measures the bank's com-
mitment and effectiveness in generating trust and loyalty with its
employees, customers, and society, does not have a direct relationship
with the bank's financial stakeholders. That is why the valuation that
these stakeholders make in the stock markets of this measure is signif-
icant and negative. This result implies that responsible practices in
terms of quality, safety, diversity, and equal opportunities in
employment, concern for human rights, as well as quality and safety
in products and services, among others, reduce the market value of
the company.
Definitively, these results reveal that there is no homogeneity in
the value relevance of ESG practices adopted by the selected banks
over the entire sample period. It is therefore necessary to perform
additional tests in order to provide some conclusive results.
Meanwhile, as was indicated previously, banks must invest
considerable efforts and resources into ESG activities to meet the
requirements of their stakeholders. However, there are important
differences depending on whether the bank belongs to a common
law or civil law country. As Liang and Renneboog (2017) indicate,
CSR demand from different stakeholders can vary substantially with
the country's legal origin. That is why in this study, we also analyze
the different valuation in stock prices of the ESG performance of com-
mercial banks that operate in common law countries. The results are
presented in Table 4.
As we can see in Table 4, the coefficient of the variable that repre-
sents the interaction of ESG performance with common law countries
is positive and statistically significant. These results reveal that that
the value relevance of ESG performance is significantly higher for
banks from common law countries. As outlined by Liang and
Renneboog (2017), civil law countries have to face serious require-
ments to satisfy employees and other internal stakeholders due to
governance requirements. These are not voluntary practices. Thus,
they are not value relevant for financial stakeholders. However, in
common law countries that are more discretion oriented, banks with
a high ESG performance will be able to satisfy the expectations of
the interested parties and obtain their recognition.
In this sense, we must note that financial stakeholders in common
law countries are key stakeholders for listed banks and can exert con-
siderable influence over the sustainability strategy of the companies in
which they invest. As a result, the credibility of this type of informa-
tion and investors confidence in it is associated with an increase in
stock prices.
 15353966, 2019, 6, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/csr.1759 by <shibboleth>-member@uwl.ac.uk, Wiley Online Library on [22/12/2022]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
MIRALLES‐QUIRÓS ET AL. 1453

TABLE 4 The impact on stock prices of ESG performance: Legislative effect

Intercept 10.055*** (4.16) 15.735*** (5.31) 6.392** (2.42) 9.211*** (3.07)

Book value per share 0.771*** (20.46) 0.775*** (20.73) 0.773*** (20.82) 0.775*** (20.67)
Earnings per share 0.016** (1.98) 0.017** (2.09) 0.015* (1.89) 0.016* (1.92)
Environmental performance −0.009 (−0.30)
Environmental perf × Common law 0.073*** (2.67)
Social performance −0.116*** (−3.28)
Social performance × Common law 0.094*** (3.38)
Governance performance 0.049 (1.35)
Governance perf × Common law 0.069** (2.32)
General ESG performance −0.012 (−0.28)
Gral ESG perf × Common law 0.091*** (3.03)
2
Adjusted R 0.5377 0.5450 0.5430 0.5399
F value 44.248 45.536 45.177 44.638
p value (0.00) (0.00) (0.00) (0.00)

Note. This table shows the results of testing the valuation model proposed by Barth and Clinch (2009) in a sample of listed banks with ESG available infor-
mation during the 2002–2015 period. The results are presented adding the different ESG performance measures to the model as well as the interaction
effect of these performances with the country's legal origin. The last rows include the adjusted R2 and F test statistics. In brackets is the p value, indicative
of the significance of each coefficient and of the F test.
Abbreviation: ESG, environmental, social, and governance.
*Represents 10% significance level. **Represents 5% significance level. ***Represents 1% significance level.

Furthermore, we analyze to what extent the economic context
may influence the initial results obtained for the full sample. Results
are presented in Table 5, showing that the coefficient of the variable
that represents the interaction of ESG performance with the postcrisis
period is positive and statistically significant whereas the coefficient
for the ESG performance—that assesses the effect of these practices
on stock prices in previous years—is nonsignificant. These results
reveal a significant change in the preferences of these stakeholders
for this type of information. As we indicated in Section 1, the global
financial crisis initiated in mid‐2007 played a crucial role in making

TABLE 5 The impact on stock prices of ESG performance: Crisis effect

Intercept 10.691*** (4.54) 18.879*** (5.92) 11.611*** (4.45) 11.936*** (3.61)

Book value per share 0.705*** (15.49) 0.709*** (15.64) 0.701*** (15.73) 0.700*** (15.47)
Earnings per share 0.024*** (2.78) 0.026*** (2.95) 0.025*** (2.93) 0.026*** (2.96)
Environmental performance 0.035 (1.06)
Environmental perf × Postcrisis 0.065** (1.99)
Social performance −0.103** (−2.51)
Social performance × Postcrisis 0.072* (1.71)
Governance performance 0.019 (0.52)
Governance perf × Postcrisis 0.207*** (4.71)
General ESG performance 0.010 (0.19)
Gral ESG perf × Postcrisis 0.150*** (3.28)
2
Adjusted R 0.7757 0.7761 0.7827 0.7774
F value 35.701 35.779 37.152 36.053
p value (0.00) (0.00) (0.00) (0.00)

Note. This table shows the results of testing the valuation model proposed by Barth and Clinch (2009) in a sample of listed banks with ESG available infor-
mation during the 2002–2015 period. The results are presented adding the different ESG performance measures to the model as well as the interaction
effect of these performances with the international financial crisis. The last rows include the adjusted R2 and F test statistics. In brackets is the p value,
indicative of the significance of each coefficient and of the F test.
Abbreviation: ESG, environmental, social, and governance.
*Represents 10% significance level. **Represents 5% significance level. ***Represents 1% significance level.

1454
the banking industry aware of the impact of its activity on society and
the environment (Coulson, 2009).
Malik (2015), who reviews and summarizes the contemporary busi-
ness literature focusing on the role of CSR in improving the value of
the company, argues that this type of result is indicative of companies
aligning their social objectives with the corporate objectives in which
CSR is used as a strategic tool to maximize the value of the company
and that companies with a strong ESG performance have greater
potential to increase value for shareholders and the value of other
stakeholders. Specifically, she argues that although the cost–benefit
analysis of CSR has been much debated, the benefits outweigh the
potential costs. The superior quality of CSR positively affects the value
of the company, in both the short and long term. CSR can also be used
as an important strategic tool to maximize shareholder value and com-
pany value, protecting the interests of other interested parties.
Finally, it is important to point out that the results shown in
Tables 3–5 hold after performing different robustness tests following
the previous literature. Specifically, we use data on the share price
at the end of the first and second quarters of the following year to
avoid the effect on the results of having taken the prices at the end
of the year (Cardamone, Carnevale, & Giunta, 2012; De Klerk, De Vil-
liers, & Van Staden, 2015).1
6 | C O N CL U S I O N S
Nowadays, CSR has become a requirement for all companies and
therefore stakeholders increasingly demand it, regardless of its possible
positive or negative impact on firm performance of companies. These
demands are critical in the banking industry, as it is a key element for
the proper functioning of the economy. In this sense, the socially
responsible actions of banks are taken into account not only by their
main stakeholders but also by society in general. Additionally, we must
consider the discredit suffered by these entities because of the past
economic crisis, which has put in serious doubt the reputation of the
financial sector. In 2008, we witnessed how one of the most sophisti-
cated financial systems in the world generated the worst global
financial crisis in recent decades. Due to the collapse of the markets
of some developed countries, other markets, both in developed and in
developing countries, were inevitably dragged down. As a result of this
global financial crisis, there is a growing consensus that the financial
system should not only be solid and stable but also sustainable.
This work has basically two main implications in this context. The
first one is to contribute to enriching the existing literature on the
impact of CSR practices on stock prices by analyzing the specific
case of the banking industry using a large sample of banks in a
precrisis and postcrisis period in which the implementation of these
measures are already quite widespread since the CEOs of these
companies have taken due conscience on these matters. The second
implication has been to analyze the differentiated effect of environ-
mental, social, and corporate governance measures as well as the
differences among countries.
1
Results are available upon request.
15353966, 2019, 6, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/csr.1759 by <shibboleth>-member@uwl.ac.uk, Wiley Online Library on [22/12/2022]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
MIRALLES‐QUIRÓS ET AL.
Our overall results reveal that stock markets value the ESG perfor-
mances in a different manner. Whereas the environmental and gov-
ernment performance are positively and significantly related to
banks' share prices, social performance is negatively and significantly
associated with them. These results highlight the importance of envi-
ronmental performance for financial shareholders. At the same time,
our results also suggest that corporate governance is an important
dimension of CSR that guarantees accountability, compliance, and
transparency and implies a reduction in agency costs for financial
stakeholders. In contrast, we observe that social performance does
not have a direct relationship with bank's financial stakeholders. We
also observe that the value relevance of ESG performance is signifi-
cantly higher for banks from common law countries, in which share-
holder protection is stronger. Finally, we also provide evidence of
the incremental value of the ESG performance after the global finan-
cial crisis, showing that nowadays financial stakeholders value this
type of information more positively.
Our findings provide relevant information not only for financial
stakeholders but also for other stakeholders such as employees, cus-
tomers, and policymakers. Moreover, we consider that this study con-
tributes to promoting the research field of social responsibility in the
banking industry and allows us to know the positive and negative
impacts of the different CSR activities on stock markets.
However, before concluding, we consider it essential to note that
this research presents some limitations related to the database
employed, which should be taken into consideration. The research
sample is confined to 51 commercial banks listed on various devel-
oped markets with available information about their ESG perfor-
mances over a wide sample period. It has allowed us to analyze
the effect of the international financial crisis showing the significant
change in the preferences of investors regarding this type of
information. Therefore, it is recommended that future research in
this field considers a shorter and current period of analysis with
the aim of including a broader sample of banks, not only commercial
banks but also other types of banks as well as banks listed in devel-
oping stock markets, in order to extract wide‐ranging conclusions for
a postcrisis period.
ORCID
María Mar Miralles‐Quirós https://orcid.org/0000-0003-0255-2661
José Luis Miralles‐Quirós https://orcid.org/0000-0002-6591-1783
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How to cite this article: Miralles‐Quirós MM, Miralles‐Quirós
JL, Redondo‐Hernández J. The impact of environmental, social,
and governance performance on stock prices: Evidence from
the banking industry. Corp Soc Resp Env Ma. 2019;26:1446–1456.
https://doi.org/10.1002/csr.1759