Explanation of variables
| Variable | Description measure | Formula | Reference |
|---|---|---|---|
| Dependent variables | |||
| Bank performance variables | |||
| Return on equity (ROE) | Profitability of investment equity (financial performance) | Net income after taxes divided by average total equity | Buallay et al. (2020b); Esteban-Sanchez et al. (2017) |
| Return on assets (ROA) | Profitability of total assets (operational performance) | Net income after taxes divided by average total assets | Buallay et al. (2020b); Esteban-Sanchez et al. (2017) |
| Tobin’s Q (TQ) | Ratio of the market value of the bank to the replacement cost of its assets (market performance) | Sum of the market value of equity and total book value of liabilities, divided by total book value of assets. The market value of equity is calculated as the total number of outstanding shares multiplied by year-end closing price | Albertini (2013) |
| Stock market return (SR) | Change in stock price over the analyzed period | Closing price at the end of time t1 minus the closing price at the end of time t0, divided by the closing price at time t0 | Miralles-Quirós et al. (2019) |
| Independent variables | |||
| ESG predictors – ESG combined, ESG pillars and ESG dimensions (source: Refinitiv) | |||
| ESG combined (ESG_comb) | Comprehensive scoring of the sustainability impact and corporate conduct | Weighted average of the ESG scores and ESG controversies (captured from global media sources) | |
| Environmental (ENV) | The relative sum of category weights for the environmental categories | It is based on three dimensions: ENV_Ru (resource use efficiency), ENV_Em (emission and waste reduction) and ENV_In (environmental innovation) ENV_Ru = bank’s efficiency in reducing the use of materials, energy or water and capacity to find more eco-efficient solutions for the business processes ENV_Em = bank’s commitment and effectiveness in reducing environmental emissions and waste in operational activities ENV_In = bank’s capacity to reduce the environmental burdens and costs for its clients and to create new opportunities for eco-designed products and services | |
| Social (SOC) | The relative sum of category weights for the social responsibility categories | It is based on four dimensions: SOC_Wf (workforce), SOC_Hr (human rights), SOC_Com (community) and SOC_Prd (product responsibility) SOC_Wf = bank’s effectiveness toward job satisfaction, safe and healthy workplace, while developing both equal and diversity opportunity SOC_Hr = bank’s effectiveness in respecting fundamental human rights conventions SOC_Com = bank’s commitment to being a good citizen, respecting business ethics and protecting public health SOC_Prd = bank’s capacity to offer high quality products and services, regarding the customers’ health and Safety, data privacy and integrity | |
| Governance (GOV) | The relative sum of category weights for the governance categories | It combines three dimensions: GOV_Mo (management and oversight), GOV_Shr (shareholders rights) and GOV_Csr (CSR strategy) GOV_Mo = bank’s commitment and effectiveness in following corporate governance principles GOV_Shr = bank’s effectiveness in treating its shareholders in an equal manner GOV_Csr = bank’s way to incorporate social and environmental dimensions in its decision-making processes | |
| Control variables | |||
| Size (SIZE) | Bank dimension | Natural logarithm of total assets | Nizam et al. (2019), Platonova et al. (2018), Velte (2017) |
| Capital adequacy ratio (CAP) | Most recognizable measure of compliance to regulatory capital requirements as it measures the extent to which a bank can absorb losses using specific equity components | Total own funds divided by total risk-weighted assets | Platonova et al. (2018), Siueia, Wang and Deladem (2019) |
| Liquidity asset ratio (LIQ) | A broad measure of liquidity | (Cash and due from banks + other earnings assets) divided by total assets | Nizam et al. (2019) |
| Loans to total deposits ratio (LOANDEP) | The proportion of loans that are funded by deposits | Net loans divided by total deposits | Wu and Shen (2013) |
| Customer deposits to total liabilities (CUSTDEP) | The relevance of customer deposits in the funding mix | Customer deposits divided by total liabilities | Shen et al. (2016) |
| GDP growth (GDP) | The annual percentage growth rate of gross domestic product (GDP) at market prices based on constant local currency | Annual percentage growth rate of GDP per capita | Bikker and Hu (2002), Demirguc-Kunt and Huizinga (1999), Flamini et al. (2009) |
| Inflation (INF) | The inflation rate | The annual growth rate of the GDP deflator | Athanasoglou et al. (2008), Molyneux and Thornton (1992), Pasiouras and Kosmidou (2007) |
| Variable | Description measure | Formula | Reference |
|---|---|---|---|
| Return on equity (ROE) | Profitability of investment equity (financial performance) | Net income after taxes divided by average total equity | |
| Return on assets (ROA) | Profitability of total assets (operational performance) | Net income after taxes divided by average total assets | |
| Tobin’s Q (TQ) | Ratio of the market value of the bank to the replacement cost of its assets (market performance) | Sum of the market value of equity and total book value of liabilities, divided by total book value of assets. The market value of equity is calculated as the total number of outstanding shares multiplied by year-end closing price | |
| Stock market return (SR) | Change in stock price over the analyzed period | Closing price at the end of time t1 minus the closing price at the end of time t0, divided by the closing price at time t0 | |
| ESG combined (ESG_comb) | Comprehensive scoring of the sustainability impact and corporate conduct | Weighted average of the ESG scores and ESG controversies (captured from global media sources) | |
| Environmental (ENV) | The relative sum of category weights for the environmental categories | It is based on three dimensions: ENV_Ru (resource use efficiency), ENV_Em (emission and waste reduction) and ENV_In (environmental innovation) | |
| Social (SOC) | The relative sum of category weights for the social responsibility categories | It is based on four dimensions: SOC_Wf (workforce), SOC_Hr (human rights), SOC_Com (community) and SOC_Prd (product responsibility) | |
| Governance (GOV) | The relative sum of category weights for the governance categories | It combines three dimensions: GOV_Mo (management and oversight), GOV_Shr (shareholders rights) and GOV_Csr (CSR strategy) | |
| Size (SIZE) | Bank dimension | Natural logarithm of total assets | |
| Capital adequacy ratio (CAP) | Most recognizable measure of compliance to regulatory capital requirements as it measures the extent to which a bank can absorb losses using specific equity components | Total own funds divided by total risk-weighted assets | |
| Liquidity asset ratio (LIQ) | A broad measure of liquidity | (Cash and due from banks + other earnings assets) divided by total assets | |
| Loans to total deposits ratio (LOANDEP) | The proportion of loans that are funded by deposits | Net loans divided by total deposits | |
| Customer deposits to total liabilities (CUSTDEP) | The relevance of customer deposits in the funding mix | Customer deposits divided by total liabilities | |
| GDP growth (GDP) | The annual percentage growth rate of gross domestic product (GDP) at market prices based on constant local currency | Annual percentage growth rate of GDP per capita | |
| Inflation (INF) | The inflation rate | The annual growth rate of the GDP deflator | |
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