Moderating effect of bank size on capital adequacy and sustainable finance: Evidence from Asian banking

Abstract

This study aims to examine the effect of capital adequacy on sustainable finance in Asian banks, with a particular focus on the moderating role of bank size. Using a quantitative approach and panel data drawn from annual and sustainability reports of selected banks, the analysis employs Moderated Regression Analysis (MRA) to test the research hypotheses. The descriptive statistics provide an overview of the key variables, including capital adequacy ratio (CAR), sustainability performance (ESG), and bank size. The results indicate that in the baseline model, CAR and SIZE independently exert a positive and significant impact on ESG. However, when bank size is incorporated as a moderating factor, the direct effects of CAR and SIZE become negative, while the interaction term (CAR × SIZE) emerges as highly positive and statistically significant. These findings highlight that bank size does not function merely as a control variable but as a decisive moderator that strengthens the effect of capital adequacy on sustainability outcomes. Practical implications include recommendations for managers, first that regulators and policymakers should recognize that capital adequacy alone is not sufficient to ensure financial sustainability; institutional attributes such as bank size significantly influence outcomes. The regulatory framework should be designed not only to strengthen capital reserves but also to encourage economies of scale, especially in developing countries where small banks face resource constraints.