This study aims to examine the relationship between corporate social responsibility (CSR) disclosure and financial stability in Islamic banks, with a focus on insolvency risk, liquidity risk and credit risk.
The study examines 29 Islamic banks in the Gulf Cooperation Council (GCC) region from 2010 to 2022, constructing a comprehensive CSR index from annual report content.
The study finds a significant negative relationship between CSR disclosure and banks’ insolvency risk, as well as a significant positive relationship between CSR disclosure and banks’ liquidity risk. A disaggregated analysis reveals that most individual dimensions have a positive influence on insolvency risk. Conversely, the majority negatively affect liquidity risk. Notably, only the dimension of commitment towards debtors harms credit risk. These results remain robust even after addressing potential endogeneity issues.
The study highlights the impact of CSR disclosure on the financial stability of Islamic banks in the GCC, demonstrating their role in promoting stable returns and enhancing overall financial health.
