Firmansyah Arifin

Type of the article: Research Article

Abstract
The growing global demand for the integration of strong corporate governance in the banking industry is essential for enhancing financial performance. However, the interactive role of sustainable finance in strengthening governance mechanisms remains relatively underexplored. This study aims to examine whether adopting sustainable finance practices strengthens corporate governance mechanisms in the banking sector in ASEAN countries during the period 2018–2022. Utilizing the Fixed Effects Model, this study presents a notable finding. The results indicate that the interaction between management scores and green bonds has a positive and significant effect on Return on Assets, whereby a 5% increase in green bonds exposure raises ROA by 0.248, but exerts a negative effect on Return on Equity, with a decrease of 0.340 for every 1% increase. In contrast, the interaction between shareholder scores and green bonds has a negative and significant impact on ROA, with a decline of 0.223 for each 5% increase, while positively influencing ROE by 0.222 for every 1% increase. This study confirms that green bonds asymmetrically moderate the relationship between corporate governance and banking performance, in which management-oriented governance enhances asset efficiency but suppresses ROE, whereas shareholder-oriented governance reduces ROA while improving ROE. Conceptually, green bonds function as a balancing mechanism between corporate governance and banking performance, whereby managerial governance improves asset efficiency at the expense of equity returns, while shareholder-based governance enhances ROE with the trade-off of lower ROA.