Skip to main content
Top

2019 | OriginalPaper | Chapter

2. A “Selfie” of Finance and Ethics

Author : Henry Schäfer

Published in: On Values in Finance and Ethics

Publisher: Springer International Publishing

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

Historically, finance and capital market theory have passed remarkable milestones. They have developed from a very practically minded tool box for the requirements of a firm’s financial management to a highly sophisticated scientific discipline. The focus on mathematics, statistics, and physics has encouraged groundbreaking research in modern capital market theories. Without exaggeration it can be claimed that, for years, the research output of finance has outshone other research fields in economics and business administration. Financial economics have emerged in tandem with natural sciences, just as Irving Fisher and his followers have been sincerely wishing for. With the success of well-known capital market models in both practice and academia, the neoclassically based dichotomies between the real and the monetary sector have become fact. However, repeated crises in financial markets augmented a growing distrust for stakeholders, politicians, regulators, and media concerning the stability and efficiency of the financial sector. A growing awareness of and the demand for ethics and morality in financial markets has increased over the past decade. It has inspired new research that questions long-standing positions in finance but has still been unable to lay the groundwork for a new paradigm in finance and capital market theory that integrates ethics and morality within finance. Nevertheless the need to think and elaborate on finance and ethics remains.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Footnotes
1
Fisher’s point of view and self-understanding is very reminiscent of the later so-called debate on positivism that underwent an intensive programmatic discussion in economics under the umbrella of the monetarism debate between the two Nobel laureates Milton Friedman and James Tobin. Friedman defended the research community of positivism. He argued that sound research can be based solely on axiomatic grounds and the resulting explanations are valid although they have not been verified through prior realistic circumstances (Friedman 1953, p. 4). Tobin criticized Friedman and his proponents for causing the so-called “post hoc ergo propter hoc” problem, i.e., missing a causal model as the underlying rational for empirical validity (Tobin 1970).
 
2
The development of new classes of mathematical formulated valuation models with exact solutions has fascinated practitioners in capital markets until recently. With such tools, every skilled agent was able to calculate asset prices with his pocket calculator and later on with Microsoft Excel program and other claculation software. More complex calculations were eased by preprogrammed spreadsheets that could be retrieved by the F9 button. In a heretical article in the Financial Times, such agents therefore have been called F9 monkeys (Tett 2005) as they rely solely on mathematical operations without any deeper understanding of assumptions and model causalities that lie behind.
 
3
Uncertainty can have two origins: lack of information (which is substantive uncertainty) and limited cognitive capabilities of decision-makers to consistently pursue their objectives with given information (represented by procedural uncertainty) (Dosi and Egidi 1991, p. 145).
 
4
So-called Black Swans as Taleb (2007) has discussed it.
 
5
“Expectations, since they are informed predictions of future events, are essentially the same as the predictions of the relevant economic theory” (Muth 1961, p. 316).
 
7
Similar arguments can be found in publications of supranational organizations, e.g., UNEP (2015), UNCTAD (2015), UNEP FI (2018), and United Nations Framework Convention on Climate Change (UNFCCC) (2010).
 
8
Stakeholders are “(…) those groups who can affect or are affected” (Freeman 1984, p. 49).
 
Literature
go back to reference Alchian AA (1977) Why money? J Money Credit Bank 9:7–16 Alchian AA (1977) Why money? J Money Credit Bank 9:7–16
go back to reference Alchian A, Allen A (1983) Exchange and production, 3rd edn. Wadsworth, Belmont, CA Alchian A, Allen A (1983) Exchange and production, 3rd edn. Wadsworth, Belmont, CA
go back to reference Arrow KJ (1964) The role of securities in the optimal allocation of risk-bearing. Rev Econ Stud 31:91–96 Arrow KJ (1964) The role of securities in the optimal allocation of risk-bearing. Rev Econ Stud 31:91–96
go back to reference Atkinson G (2015) Inequality: what can be done. Harvard Business Press, Cambridge, MA Atkinson G (2015) Inequality: what can be done. Harvard Business Press, Cambridge, MA
go back to reference Benston GJ, Smith WS (1976) A transaction approach to the theory of financial intermediation. J Financ 31(2):215–231 Benston GJ, Smith WS (1976) A transaction approach to the theory of financial intermediation. J Financ 31(2):215–231
go back to reference Bernstein R (1992) Capital ideas. Free Press, New York Bernstein R (1992) Capital ideas. Free Press, New York
go back to reference Bernstein P (1996) Against the gods – the remarkable story of risk. Wiley, New York Bernstein P (1996) Against the gods – the remarkable story of risk. Wiley, New York
go back to reference Black F, Scholes M (1973) The pricing of options and corporate liabilities. J Polit Econ 81(3):637–654 Black F, Scholes M (1973) The pricing of options and corporate liabilities. J Polit Econ 81(3):637–654
go back to reference Brealey RA, Myers SC, Allen F (2011) Principles of corporate finance, 10th edn. McGraw-Hill, New York Brealey RA, Myers SC, Allen F (2011) Principles of corporate finance, 10th edn. McGraw-Hill, New York
go back to reference Breslau D (2003) Economics invents the economy: mathematics, statistics, and models in the work of Irving Fisher and Wesley Mitchel. Theory Soc 32:379–411 Breslau D (2003) Economics invents the economy: mathematics, statistics, and models in the work of Irving Fisher and Wesley Mitchel. Theory Soc 32:379–411
go back to reference Brunner K, Meltzer AH (1971) The use of money: money in the theory of an exchange economy. Am Econ Rev 61(5):784–805 Brunner K, Meltzer AH (1971) The use of money: money in the theory of an exchange economy. Am Econ Rev 61(5):784–805
go back to reference Clower RW (1977) The anatomy of monetary theory. Am Econ Rev., Papers & Proceedings 67(1):206–212 Clower RW (1977) The anatomy of monetary theory. Am Econ Rev., Papers & Proceedings 67(1):206–212
go back to reference Copeland TE, Weston JF, Shastri K (2005) Financial theory and corporate policy, 4th edn. Addison-Wesley, Boston, MA Copeland TE, Weston JF, Shastri K (2005) Financial theory and corporate policy, 4th edn. Addison-Wesley, Boston, MA
go back to reference Cornell B, Shapiro AC (1987) Corporate stakeholders and corporate finance. Financ Manag 16(1):5–14 Cornell B, Shapiro AC (1987) Corporate stakeholders and corporate finance. Financ Manag 16(1):5–14
go back to reference Cox JC, Ross SA, Rubinstein M (1979) Option pricing: a simplified approach. J Financ Econ 7(1):229–263CrossRef Cox JC, Ross SA, Rubinstein M (1979) Option pricing: a simplified approach. J Financ Econ 7(1):229–263CrossRef
go back to reference Dallas L (2011) Short-termism, the financial crisis, and corporate governance. J Corp Law 37(2):264–363 Dallas L (2011) Short-termism, the financial crisis, and corporate governance. J Corp Law 37(2):264–363
go back to reference Dauten CA (1948) Business finance. Prentice-Hall, Englewood Cliffs, NJ Dauten CA (1948) Business finance. Prentice-Hall, Englewood Cliffs, NJ
go back to reference Dean J (1951) Capital budgeting. Columbia University Press, New York Dean J (1951) Capital budgeting. Columbia University Press, New York
go back to reference Debreu G (1959) The theory of value. Wiley, New York Debreu G (1959) The theory of value. Wiley, New York
go back to reference Dewing AS (1920) The financial policy of corporations. Ronald Press, New York Dewing AS (1920) The financial policy of corporations. Ronald Press, New York
go back to reference Diamond DW (1984) Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–414 Diamond DW (1984) Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–414
go back to reference Dosi G, Egidi M (1991) Substantive and procedural uncertainty: an exploration of economic behaviours in changing environments. J Evol Econ 1(2):145–168 Dosi G, Egidi M (1991) Substantive and procedural uncertainty: an exploration of economic behaviours in changing environments. J Evol Econ 1(2):145–168
go back to reference Etzioni A (1991) Reflections on teaching of business ethics. Bus Ethics Q 1(4):355–365 Etzioni A (1991) Reflections on teaching of business ethics. Bus Ethics Q 1(4):355–365
go back to reference Fama E (1970) Efficient capital markets. J Financ 25(3):383–417 Fama E (1970) Efficient capital markets. J Financ 25(3):383–417
go back to reference Fama E (1991) Efficient capital markets: II. J Financ 46(5):1575–1617 Fama E (1991) Efficient capital markets: II. J Financ 46(5):1575–1617
go back to reference Fisher I (1892) Mathematical investigations in the theory of value and prices, vol 1965. Yale University Press, New Haven, CT Fisher I (1892) Mathematical investigations in the theory of value and prices, vol 1965. Yale University Press, New Haven, CT
go back to reference Fisher I (1930) The theory of interest as determined by impatience to spend income and opportunity to invest it. Macmillan, New York Fisher I (1930) The theory of interest as determined by impatience to spend income and opportunity to invest it. Macmillan, New York
go back to reference Freeman RE (1984) Strategic management: a stakeholder approach. Pitman, Boston, MA Freeman RE (1984) Strategic management: a stakeholder approach. Pitman, Boston, MA
go back to reference Friedman M (1953) Essays in positive economics. University of Chicago Press, Chicago, IL Friedman M (1953) Essays in positive economics. University of Chicago Press, Chicago, IL
go back to reference Friedman M (1970) The social responsibility of business is to increase its profits. New York Times Magazine:33 Friedman M (1970) The social responsibility of business is to increase its profits. New York Times Magazine:33
go back to reference Granger CWJ, Morgenstern O (1970) Predictability of stock market prices. Heath Lexington Booke, Lexington, MA Granger CWJ, Morgenstern O (1970) Predictability of stock market prices. Heath Lexington Booke, Lexington, MA
go back to reference Greenbaum S, Hong H, Thakor A (1981) Bank loan commitments and interest rate volatility. J Bank Financ 5(2):497–510 Greenbaum S, Hong H, Thakor A (1981) Bank loan commitments and interest rate volatility. J Bank Financ 5(2):497–510
go back to reference Gutenberg E (1958) Einführung in die Betriebswirtschaftslehre. Gabler, Wiesbaden Gutenberg E (1958) Einführung in die Betriebswirtschaftslehre. Gabler, Wiesbaden
go back to reference Haugen RA (1995) The new finance: the case against efficient markets. Prentice Hall, Englewood Cliffs, NJ Haugen RA (1995) The new finance: the case against efficient markets. Prentice Hall, Englewood Cliffs, NJ
go back to reference Henley N, Spash CL (1993) Cost benefit analysis and the environment. Edward Elgar, Cheltenham Henley N, Spash CL (1993) Cost benefit analysis and the environment. Edward Elgar, Cheltenham
go back to reference Hirshleifer J (1973) Exchange theory. The missing chapter. West Econ J 11(2):129–146 Hirshleifer J (1973) Exchange theory. The missing chapter. West Econ J 11(2):129–146
go back to reference Hirshleifer J, Riley JG (1979) The analytics of uncertainty and information – an expository survey. J Econ Lit 17(12):1375–1421 Hirshleifer J, Riley JG (1979) The analytics of uncertainty and information – an expository survey. J Econ Lit 17(12):1375–1421
go back to reference Hoagland HE (1933) Corporation finance. McGraw-Hill, New York Hoagland HE (1933) Corporation finance. McGraw-Hill, New York
go back to reference Hoover KD (1984) Two types of monetarism. J Econ Lit 22:58–76 Hoover KD (1984) Two types of monetarism. J Econ Lit 22:58–76
go back to reference Howard BB, Upton M (1953) Introduction to business finance. McGraw-Hill, New York Howard BB, Upton M (1953) Introduction to business finance. McGraw-Hill, New York
go back to reference Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs, and ownership structure. J Financ Econ 3(2):305–360 Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs, and ownership structure. J Financ Econ 3(2):305–360
go back to reference Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. Econometrica 67(2):263–291 Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. Econometrica 67(2):263–291
go back to reference Klausner M (1984) Sociological theory and the behavior of financial markets. In: Adler PA, Adler P (eds) The social dynamics of financial markets. JAI Press, Greenwich, CT, pp 57–81 Klausner M (1984) Sociological theory and the behavior of financial markets. In: Adler PA, Adler P (eds) The social dynamics of financial markets. JAI Press, Greenwich, CT, pp 57–81
go back to reference Klein N (2000) No logo: taking aim at the brand bullies. Knopf Canada, Toronto Klein N (2000) No logo: taking aim at the brand bullies. Knopf Canada, Toronto
go back to reference Knight FH (1921) Risk, uncertainty and profit. Houghton Mifflin, Boston, MA Knight FH (1921) Risk, uncertainty and profit. Houghton Mifflin, Boston, MA
go back to reference Kuhn TS (1970) The structure of scientific revolutions, 2nd edn. University of Chicago Press, Chicago, IL Kuhn TS (1970) The structure of scientific revolutions, 2nd edn. University of Chicago Press, Chicago, IL
go back to reference Kyläheiko K, Sandström J, Virkkunen V (2002) Dynamic capability view in terms of real options. Int J Prod Econ 80(1):65–83 Kyläheiko K, Sandström J, Virkkunen V (2002) Dynamic capability view in terms of real options. Int J Prod Econ 80(1):65–83
go back to reference Lintner J (1965) The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Rev Econ Stat 47(1):13–37 Lintner J (1965) The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Rev Econ Stat 47(1):13–37
go back to reference Lutz F, Lutz V (1951) The theory of investment of the firm. Greenwood Press, New York Lutz F, Lutz V (1951) The theory of investment of the firm. Greenwood Press, New York
go back to reference Marglin SA (1963) The social rate of discount and the optimal rate of investment. Q J Econ 77(1):95–11 Marglin SA (1963) The social rate of discount and the optimal rate of investment. Q J Econ 77(1):95–11
go back to reference Markowitz H (1952) Portfolio selection. J Financ 7(1):77–91 Markowitz H (1952) Portfolio selection. J Financ 7(1):77–91
go back to reference McKenzie L (1959) On the existence of general equilibrium for a competitive economy. Econometrica 27(1):54–71 McKenzie L (1959) On the existence of general equilibrium for a competitive economy. Econometrica 27(1):54–71
go back to reference Modigliani F (1963) The monetary mechanism and its interaction with real phenomena. Rev Econ Stat 65(1):79–110 Modigliani F (1963) The monetary mechanism and its interaction with real phenomena. Rev Econ Stat 65(1):79–110
go back to reference Modigliani F, Miller MH (1958) The cost of capital, corporate finance and the theory of investments. Am Econ Rev 48(3):261–297 Modigliani F, Miller MH (1958) The cost of capital, corporate finance and the theory of investments. Am Econ Rev 48(3):261–297
go back to reference Mossin JF (1966) Equilibrium in a capital asset market. Econometrica 34:768–783 Mossin JF (1966) Equilibrium in a capital asset market. Econometrica 34:768–783
go back to reference Muth JF (1961) Rational expectations and the theory of price. Econometrica 29(6):315–335 Muth JF (1961) Rational expectations and the theory of price. Econometrica 29(6):315–335
go back to reference Pava ML, Krausz J (1996) the association between corporate social responsibility and financial performance: the paradox of social cost. J Bus Ethics 15(3):321–357 Pava ML, Krausz J (1996) the association between corporate social responsibility and financial performance: the paradox of social cost. J Bus Ethics 15(3):321–357
go back to reference Picketty T (2014) Capital in the twenty-first century. Belknap Press of Harvard University Press, Cambridge, MA Picketty T (2014) Capital in the twenty-first century. Belknap Press of Harvard University Press, Cambridge, MA
go back to reference Ross SA (1976) The arbitrage theory of capital asset pricing. J Econ Theory 13(2):341–360CrossRef Ross SA (1976) The arbitrage theory of capital asset pricing. J Econ Theory 13(2):341–360CrossRef
go back to reference Samuelson PA (1968) What classical and neoclassical theory really was. Can J Econ 1(1):1–15 Samuelson PA (1968) What classical and neoclassical theory really was. Can J Econ 1(1):1–15
go back to reference Samuelson PA (1998) How foundations came to be. J Econ Lit 36:1375–1386 Samuelson PA (1998) How foundations came to be. J Econ Lit 36:1375–1386
go back to reference Schäfer H, Goldschmidt R (2010) Corporate social responsibility of large family owned firms in germany: conceptual outline and empirical results. Special issue “family firms”. Int J Entrep Small Bus 11(3):285–307 Schäfer H, Goldschmidt R (2010) Corporate social responsibility of large family owned firms in germany: conceptual outline and empirical results. Special issue “family firms”. Int J Entrep Small Bus 11(3):285–307
go back to reference Schmalenbach E (1922) Finanzierungen, vol 3. Akademische Verlagsgesellschaft, Leipzig Schmalenbach E (1922) Finanzierungen, vol 3. Akademische Verlagsgesellschaft, Leipzig
go back to reference Shah AK (1997) The social dimensions of financial risk. J Financ Regul Compliance 5(3):195–207 Shah AK (1997) The social dimensions of financial risk. J Financ Regul Compliance 5(3):195–207
go back to reference Sharpe WF (1964) Capital asset prices: a theory of market equilibrium under conditions of risk. J Financ 19:442–452 Sharpe WF (1964) Capital asset prices: a theory of market equilibrium under conditions of risk. J Financ 19:442–452
go back to reference Shiller RJ (2003) From efficient markets theory to bounded rationality. J Econ Perspect 17(1):83–104 Shiller RJ (2003) From efficient markets theory to bounded rationality. J Econ Perspect 17(1):83–104
go back to reference Solomon E (1963) The theory of financial management. Columbia University Press, New York Solomon E (1963) The theory of financial management. Columbia University Press, New York
go back to reference Soppe A (2004) Sustainable corporate finance. J Bus Ethics 53(2):213–224 Soppe A (2004) Sustainable corporate finance. J Bus Ethics 53(2):213–224
go back to reference Stiglitz J (2013) The price of inequality: how the today’s divided society endangers our future, and what can be done. W. W. Norton & Company, New York Stiglitz J (2013) The price of inequality: how the today’s divided society endangers our future, and what can be done. W. W. Norton & Company, New York
go back to reference Stulz R (2000) Why risk management is not rocket science. Financial Times, 3–5 London Stulz R (2000) Why risk management is not rocket science. Financial Times, 3–5 London
go back to reference Taleb N (2007) The black swan. Random House, New York Taleb N (2007) The black swan. Random House, New York
go back to reference Tett A (2005) Market faith goes out the window as the ‘model monkeys’ lose track of reality. Financial Times New York: 23 Tett A (2005) Market faith goes out the window as the ‘model monkeys’ lose track of reality. Financial Times New York: 23
go back to reference Tobin J (1958) Liquidity preferences as behavior towards risk. Rev Econ Stud 25(1):65–86 Tobin J (1958) Liquidity preferences as behavior towards risk. Rev Econ Stud 25(1):65–86
go back to reference Tobin J (1970) Money and income: Post Hoc Ergo Propter Hoc? Q J Econ 84(2):301–317 Tobin J (1970) Money and income: Post Hoc Ergo Propter Hoc? Q J Econ 84(2):301–317
go back to reference Weston JF (1966) The scope and methodology of finance. Prentice-Hall, Englewood Cliffs, NJ Weston JF (1966) The scope and methodology of finance. Prentice-Hall, Englewood Cliffs, NJ
go back to reference Williams JB (1938) The theory of investment. Harvard University Press, Cambridge, MA Williams JB (1938) The theory of investment. Harvard University Press, Cambridge, MA
go back to reference Zingales L (2000) In search of new foundations. J Financ 55(4):1623–1653 Zingales L (2000) In search of new foundations. J Financ 55(4):1623–1653
Metadata
Title
A “Selfie” of Finance and Ethics
Author
Henry Schäfer
Copyright Year
2019
DOI
https://doi.org/10.1007/978-3-030-04684-2_2