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Good Banks, Bad Banks, and Public Scrutiny: The Determinants of Corporate Social Responsibility in the Financial Sector

European Union
Political Economy
Business
Quantitative
Adam Chalmers
University of Edinburgh
Adam Chalmers
University of Edinburgh

Abstract

The 2008 European financial crisis rewrote the relationship between financial industry firms and society. The stream of corporate scandals and the collapse of large firms in the wake of the crisis have seriously tarnished the public image of financial industry actors. While these events have sent many financial firms scrambling to rebuild their public image, they have also drawn greater scholarly attention to the question of corporate social responsibility (CSR) in the financial sector. This paper examines the link between the European financial crisis and the CSR policies of nearly 700 individual firms in 15 different EU member states. Advancing on existing studies, this paper argues that variation in CSR policies is largely a function of public scrutiny. I assess public scrutiny both in terms of how often firms are reported on in the news media, as well as whether these reports are positive or negative. Controlling for a battery of alternative explanations (country level factors like financial volatility, firm level factors like firm resources, and inter-firm factors like competition) and comparing finance to firms operating in other economic sectors, an econometric analysis finds considerable evidence linking greater public scrutiny to more robust CSR policies. I also find, however, that this effect is diminished for firms operating in countries least effected by the financial crisis. The power of so-called ‘loud politics’ is greatest in moments of crisis.