We examine the relation between banks’ corporate social responsibility (CSR) and financial performance in a context of the recent financial crisis. We find that banks, in general, appear to be rewarded for being socially responsible as financial performance is positively and significantly related to CSR scores. We find that the biggest banks pursue socially responsible activities to a significantly greater extent than smaller banks. Further, the largest banks see a steep increase in CSR strengths and a steep drop in CSR concerns after 2009.

In this paper, we look at how the pre-crisis health of banks is related to the probability of receiving and repaying TARP capital. We find that financial performance characteristics that are related to the probability of receiving TARP funds differ for the healthiest (“over-achiever”) versus the least healthy (“under-achiever”) banks. We find that TARP under-achievers have some, but not consistent, weaknesses in income production. These banks also are experiencing liquidity issues as customers, shut out of public debt markets, get bank loans through drawdowns of loan commitments. Unlike TARP under-achievers, TARP over-achievers’ loans are performing well. Yet, liquidity issues (from low levels of liquid assets and core deposits and drawdowns of loan commitments) hurt the abilities of these banks to continue their lending. Differences between under-achiever and over-achiever banks are also found for repayment and deadbeat TARP banks.

In this paper we examine whether regulation can be used to substitute for internal monitoring mechanisms (percentage of outside directors, officer and director common stock ownership, and CEO/Chair duality) to control for agency conflicts in a firm. We find that, in general, the percentage of outside directors is negatively related to insider stock ownership, but is not affected by CEO/Chair duality. CEO/Chair duality is, however, less likely when insider stock ownership increases. We find these internal monitoring mechanisms to be significantly less related with regulated firms (banks and utilities). We conclude that to the extent that regulations reduce the impact of managerial decisions on shareholder wealth, effective internal monitoring of managers becomes less important in controlling agency conflicts.

This paper examines the relation between institutional investor involvement in and the operating performance of large firms. We find a significant relation between a firm’s operating cash flow returns and both the percent of institutional stock ownership and the number of institutional stockholders. However, this relation is found only for a subset of institutional investors: those less likely to have a business relationship with the firm. These results suggest that institutional investors with potential business relations with the firms in which they invest are compromised as monitors of the firm.

Liquidity dried up during the financial crisis of 2007–2009. Banks that relied more heavily on core deposit and equity capital financing, which are stable sources of financing, continued to lend relative to other banks. Banks that held more illiquid assets on their balance sheets, in contrast, increased asset liquidity and reduced lending. Off-balance sheet liquidity risk materialized on the balance sheet and constrained new credit origination as increased takedown demand displaced lending capacity. We conclude that efforts to manage the liquidity crisis by banks led to a decline in credit supply.

Examining bank behavior around Federal Reserve stress tests, we find that stress test banks increase capital ratios at the starting point for annual stress testing significantly more than non-stress test banks. These trends are completely reversed (and economically significant) in the other quarters. Further, the differences between stress test and non-stress test banks seen in stress test years do not occur in 2010, when the Fed did not conduct a stress test. Results show that, as they enter the stress test, stress test banks lower dividends significantly more than non-stress test banks. Finally, stress test banks spend significantly more on lobbying than non-stress test banks. The results suggest that stress test banks may be managing financial performance and investing in political spending to improve their chances of passing stress tests.

This paper examines the relation between the degree and type of strategic interaction among industry firms and firm performance. As a measure of firm performance, we use data envelopment analysis (DEA) to estimate the efficiency of a firm relative to the ‘best practice’ firms in its industry. We find that firms in industries with higher levels of strategic interaction are less efficient and the negative relation is more pronounced in industries where firms compete in strategic substitutes. This finding is consistent with the idea that there is significantly more cooperation (tacit collusion) under strategic complements than strategic substitutes. We also find that frontier efficiency methodology outperforms other measures of firm performance in explaining the relation between strategic interaction and firm performance.

Examining the relationship between social capital and bank/consumer relations, we find banks in high social capital areas pay more interest and charge fewer fees on deposits, charge lower rates on loans, are less risky, more profitable, hold less capital, and display lower likelihoods of default and failure. Results reflect that commercial banks operating in high social capital areas do not solely maximize profits but seem to pursue objectives promoting stakeholder interests. To clarify this, we examine and find that banks operating in high social capital areas have higher community CSR scores. Banks operating with a CSR conscious perspective are more inclined to consider community interests than purely profit-maximizing banks. Thus, social capital matters because it motivates banks to adopt objectives other than pure profit maximization.