The impact of ESG scores on bank market value? evidence from the U.S. banking industry

Abstract

Although there is a large volume of literature on the relationship between Environmental, Social and Governance (ESG) and firm performance, only a limited number of studies have focused on the banking sector. In addition, most of them used linear models. Therefore, in this study, we examined the impact of ESG and ESG pillar scores (environmental, social, and governance) on the market value of U.S. commercial banks by using linear and non-linear panel regression models over the period of 2016–2020. Moreover, we used the market value as a bank value indicator and included the effect of COVID-19. Results show an inverted U-shaped relationship between market value and ESG and The Social Pillar Score (SPS) and a U-shaped relationship between market value and The Environment Pillar Score (EPS). Findings from this study are important indicators for investment managers and policymakers who want to maximise bank market value while complying with ESG standards.