Do Sustainable Banks Perform Better? Evidence from The Interplay of Financial Health and ESG Disclosure in Developing Asia Countries
Keywords: Loan to deposit ratio, Debt-to-equity ratio, ESG exchange rate
Abstract
Purpose – This study aims to examine the impact of banks’ financial health, proxied by the Loan-to-Deposit Ratio (LDR) and Debt-to-Equity Ratio (DER), on bank market value, measured using Tobin’s Q, in developing Asian economies. In addition, the study investigates whether ESG disclosure serves as a mediating mechanism through which financial health is translated into firm value.
Methodology – The study employs a quantitative approach using an unbalanced panel dataset covering 102 banks from developing Asian countries over the period 2009–2023, yielding 1,695 observations. Secondary data are obtained from the Bloomberg Terminal. Empirical analysis is conducted using panel regression with robust standard errors, incorporating country and year fixed effects. The mediating role of ESG disclosure is examined using path analysis and the Sobel test.
Findings – The results indicate that LDR has a positive and significant effect on Tobin’s Q, while DER has a negative and significant effect. ESG disclosure positively affects bank value and mediates the relationship between LDR and Tobin’s Q, but not between DER and firm value. These findings suggest that ESG disclosure strengthens liquidity signals but cannot offset the adverse valuation effects of excessive leverage.
Originality – This study integrates financial health indicators and ESG disclosure within a mediation framework, demonstrating that ESG disclosure complements financial fundamentals and enhances market valuation when supported by sound liquidity conditions in developing Asian economies.
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