Beschreibung:
The global financial crisis reignited concerns regarding the stability of banks and sustainable finance. Since liquidity creation (LC) is a core output of banks, we examine if the nexus between LC and bank stability is conditional on ESG (environmental, social, and governance) disclosure by banks. Our sample comprises 178 commercial banks (1568 observations) during the period 2010-2019 in the Asia-Pacific region. Using a two-step system GMM estimation, our results document a positive impact of LC on bank stability. Additionally, ESG disclosures positively modify the stability effect of LC, i.e., higher LC is associated with significantly more enhancement in bank stability for banks that have a higher disclosure of ESG scores compared to banks that have a moderate disclosure. Furthermore, we also provide evidence of variation in the moderating role of ESG in advanced and emerging economies. Overall, our results recommend that integrating ESG practices into the internal processes of banks improves the financial soundness of banks. Furthermore, blanket implementation of liquidity regulations might be detrimental to banks’ stability