The Moderating Effect of Size of the Bank on the Relationship Between Environmental, Social, and Governance (ESG) Practices and the Financial Performance of Listed Commercial Banks in Africa
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Date
2025-12
Journal Title
Journal ISSN
Volume Title
Publisher
EdinBurg
Abstract
This study investigated the moderating effect of bank size on the relationship between
Environmental, Social, and Governance (ESG) practices and the financial performance of listed
commercial banks in Africa. Panel data were collected for fifteen banks across South Africa,
Egypt, and Morocco over ten years (2013–2022), with ESG pillar scores sourced from the
London Stock Exchange Group database and financial performance proxied by Return on
Assets (ROA). Using fixed effects regression with lagged ESG variables, bank size (log of total
assets) was tested as a moderator, while a Covid-19 dummy captured 2020–2021 shocks.
Results from the baseline moderation model show that Environmental Score (β = 0.0001823,
p = 0.005) and Governance Score (β = 0.0001298, p < 0.001) had significant positive effects
on ROA, while Social Score (β = 0.0000074, p = 0.629), bank size (β = 0.0003479, p = 0.216),
and Covid-19 (β = –0.000534, p = 0.995) were insignificant. The model explained 56.1% of
the variation in profitability (R² overall = 0.5608, F(5,130) = 15.41, Prob > F = 0.000). In the
extended interaction model, environmental (β = 0.000202, p = 0.004) and governance (β =
0.000226, p < 0.001) effects remained significant, while social turned negative and
insignificant (β = –0.000062, p = 0.131). Crucially, the governance × size interaction was
significant and negative (β = –0.0000048, p = 0.003), suggesting that the profitability benefits
of governance weaken in larger banks. Interactions involving environmental (β = –0.000003,
p = 0.246) and social (β = 0.00000615, p = 0.079) were statistically insignificant. The
interaction model explained 59.6% of profitability variation (R² overall = 0.5957, F (8,127) =
11.75, Prob > F = 0.000). The findings demonstrate that while environmental and governance
practices consistently enhance financial performance, their effects are not uniform across bank
sizes. Specifically, larger banks face diminishing governance-related gains, highlighting the
importance of streamlining governance structures in large institutions and strengthening ESG
disclosure standards across African markets
Description
Research Article
Keywords
Citation
Njuguna, I. M., Mwangi, L. W., & Waweru, F. W. (2025). The Moderating Effect of Size of The Bank on The Relationship Between Environmental, Social, and Governance (ESG) Practices and The Financial Performance of Listed Commercial Banks in Africa. Journal of Finance and Accounting, 5(11), 36- 53.