nach oben

Journal of Business Ethics

Erschienen in:

26.11.2015

Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?

verfasst von: Laura Baselga-Pascual, Antonio Trujillo-Ponce, Emilia Vähämaa, Sami Vähämaa

Erschienen in: Journal of Business Ethics | Ausgabe 3/2018

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper examines the association between board characteristics and the ethical reputation of financial institutions. Given the pivotal governance role of the board of directors and the value-relevance of ethical corporate behavior, we postulate a positive relationship between ethical reputation and board features that foster more effective monitoring and oversight. Using a sample of large financial institutions from 13 different countries, we run several alternative panel regressions of ethical reputation on board characteristics and firm-specific controls. Our results demonstrate that the ethical reputation of financial institutions is positively associated with board size, gender diversity, and CEO duality, while being negatively related to the busyness of the board members and a composite index reflecting poor monitoring. Nevertheless, inconsistent with our hypothesis, we also document that financial institutions with less frequent board meetings have better ethical reputation. Overall, our empirical findings suggest that stronger board oversight may promote ethical behavior in the financial industry.

Vorheriger Artikel Corporate Social Responsibility Through a Feminist Lens: Domestic Violence and the Workplace in the 21st Century

Nächster Artikel Family Firms’ Corporate Social Performance: A Calculated Quest for Socioemotional Wealth

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

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!

Jetzt informieren

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!

Jetzt informieren

Nur mit Berechtigung zugänglich

As noted, e.g., by Mitchell et al. (1992), ethical problems in the financial industry may be related to conflicts of interest, handling of confidential information, quality of financial reporting, lending practices, antitrust compliance, compensation schemes, insider abuse, insider trading, and money laundering. Recent notorious examples of unethical behavior in the financial industry include the Libor manipulation scandal, tax evasion controversies, and fraudulent mortgage foreclosure practices in the U.S.

Garcia-Sanchez et al. (2015) argue that the firm’s ethical commitment is governed by the composition of the board. They further assert that improvement of the firm’s ethical reputation is one of the important reasons behind the implementation of ethics codes.

Ethical reputation is a more generic concept than ethical behavior, ethical conduct, or ethicality.

The hypotheses for how each individual board characteristic should be related to ethical reputation are presented in “Board characteristics” Section.

Ethical behavior is considered to be a central component of corporate social responsibility, and consequently, the two concepts are closely linked and somewhat overlapping (see, e.g., Friedman 1970; Epstein 1989).

Sonnenfeld (2004) anecdotally notes that many of the high-profile scandals involving unethical and illegal accounting practices (e.g., Enron, Worldcom, and Vivendi) have involved firms in which the CEO and the board Chair positions were held by separate individuals.

Almost 50 % of the firm-year observations in our sample are from the U.S. and some countries are represented by a single bank, and therefore, it is infeasible to use country dummies for each individual country. Nevertheless, it should be noted that most of the financial institutions included in the sample have substantial operations in the U.S.

A closer look at our data indicates that for some institutions the number of board meetings increased considerably during the financial crisis. For instance, the maximum of 47 meetings were held by the board of UBS in 2008, which met only seven times annually during the pre-crisis years 2005–2007.

For brevity, we do not tabulate the correlation coefficients for the control variables. The full correlation matrix is available from the authors upon request.

We conduct the univariate tests also by comparing differences between the first and last quartiles and tertiles. The results of these additional tests are similar in terms of both signs and statistical significance.

In further analysis, we observe that financial institutions which were experiencing severe problems during the global financial crisis increased the frequency of board meetings in 2008 and 2009.

Although we include seven board characteristics in the regressions under both setups, our estimates should not be affected by multicollinearity. As can be seen from Table 2, albeit being statistically significant, the correlation coefficients between the board characteristics included in both setups are relatively low in magnitude (|ρ| < 0.31). Furthermore, the variance inflation factors for all the board variables under both setups are below 5, suggesting that the estimates should not be influenced by multicollinearity.

A few words of caution are in order. The small number of financial institutions and the short-time dimension of our sample combined with the large number of parameters to be estimated in the two-way fixed effects specifications impair the statistical precision of the coefficient estimates. Hence, the results of the regressions which include both year and firm fixed effects should be interpreted with caution.

Again, it is important to emphasize that the small number of observations impairs the statistical precision of the coefficient estimates of the two-way fixed effects regressions.

It is worth noting that board characteristics change slowly over time, and therefore, the one-year lagged values of the board characteristics are highly correlated with the contemporaneous values. The only board characteristic that displays significant within-firm variation during our sample period is Board meetings; troubled financial institutions increased the frequency of board meetings amidst the financial crisis.

For brevity, we do not tabulate our robustness checks. The results of these additional tests are naturally available from the authors upon request.

In our main analysis, we have used a dummy variable for non-U.S. financial institutions to control for potential country-level differences. Furthermore, we have also estimated regressions with firm fixed effects which should account for omitted and potentially unobservable variables, such as regional differences in regulations and norms.

The estimates of these regressions should be interpreted cautiously due to the very small number of observations.

Acharya, V. V., Carpenter, J., Gabaix, X., John, K., Richardson, M., Subrahmanyam, M., et al. (2009). Corporate governance in the modern financial sector. In V. V. Acharya & M. Richardson (Eds.), Restoring financial stability. Hoboken, NJ: Wiley.CrossRef

Adams, R., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. Review of Financial Studies, 18, 1403–1432.CrossRef

Adams, R., & Ferreira, D. (2009). Women on the boardroom and their impact on governance performance. Journal of Financial Economics, 94, 291–309.CrossRef

Adams, R., Hermalin, E. B., & Weisbach, M. S. (2010). The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of Economic Literature, 48, 58–107.CrossRef

Adams, R., & Mehran, H. (2012). Bank board structure and performance: Evidence for large bank holding companies. Journal of Financial Intermediation, 21, 243–267.CrossRef

Aebi, V., Sabato, G., & Schmid, M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking and Finance, 36, 3213–3226.CrossRef

Albaum, G., & Peterson, R. A. (2006). Ethical attitudes of future business leaders: Do they vary by gender and religiosity? Business and Society, 45, 300–321.CrossRef

Almazan, A., & Suarez, J. (2003). Entrenchment and severance pay in optimal governance structures. Journal of Finance, 58, 519–547.CrossRef

Amazeen, M. (2011). Gap (RED): Social responsibility campaign or window dressing? Journal of Business Ethics, 99, 167–182.CrossRef

Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68, 29–51.CrossRef

Bacon, C. J., Cornett, M. M., & Davidson, W. N. (1997). The board of directors and dual class recapitalizations. Financial Management, 26, 5–22.CrossRef

Basel Committee on Banking Supervision. (2010). Principles for enhancing corporate governance. Basel: Bank for International Settlements.

Bear, S., Rahman, N., & Post, C. (2010). The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97, 207–221.CrossRef

Beasley, M. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. The Accounting Review, 71, 443–465.

Beltratti, A., & Stulz, R. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105, 1–17.CrossRef

Betz, M., O’Connell, L., & Shepard, J. M. (1989). Gender differences in proclivity for unethical behaviour. Journal of Business Ethics, 8, 321–324.CrossRef

Blazovich, J. L., & Smith, L. M. (2011). Ethical corporate citizenship: Does it pay? Research on Professional Responsibility and Ethics in Accounting, 15, 127–163.CrossRef

Blundell, R. W., & Bond, S. R. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115–143.CrossRef

Board of Governors of the Federal Reserve System. (2009). Bank holding company supervision manual, supplement 35. Washington, D.C.: Board of Governors of the Federal Reserve System.

Board of Governors of the Federal Reserve System. (2010). Bank holding company supervision manual, supplement 38. Washington, D.C.: Board of Governors of the Federal Reserve System.

Boone, A. L., Casares Field, L., Karpoff, J. M., & Raheja, C. G. (2007). The determinants of corporate board size and composition: An empirical analysis. Journal of Financial Economics, 85, 66–101.CrossRef

Boyd, B. K. (1995). CEO duality and firm performance: A contingency model. Strategic Management Journal, 16, 301–312.CrossRef

Brammer, S., Millington, A., & Pavelin, S. (2009). Corporate reputation and women on the board. British Journal of Management, 20, 17–29.CrossRef

Brick, E. D., & Chidambaran, N. K. (2010). Board meetings, committee structure, and firm value. Journal of Corporate Finance, 16, 533–553.CrossRef

Brickley, J. A., Coles, J. L., & Terry, R. L. (1994). Outside directors and the adoption of poison pills. Journal of Financial Economics, 35, 371–390.CrossRef

Chih, H., Chih, H., & Chen, T. (2010). On the determinants of corporate social responsibility: International evidence on the financial industry. Journal of Business Ethics, 93, 115–135.CrossRef

Choi, T. H., & Jung, J. (2008). Ethical commitment, financial performance, and valuation: An empirical investigation of Korean companies. Journal of Business Ethics, 81, 447–463.CrossRef

Coles, J. L., Naveen, D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87, 329–356.CrossRef

Crutchley, C., Marlin, J., & Marshall, B. (2007). Climate for scandal: Financial environments that contribute to fraud. The Financial Review, 42, 53–73.CrossRef

de Andrés, P., & Vallelado, E. (2008). Corporate governance in banking: The role of the board of directors. Journal of Banking & Finance, 32, 2570–2580.CrossRef

de Haan, J., & Vlahu, R. (2015). Corporate governance of banks: A survey. Journal of Economic Surveys, forthcoming.

Donker, H., Poff, D., & Zahir, S. (2008). Corporate values, codes of ethics, and firm performance: A look at the Canadian context. Journal of Business Ethics, 82, 527–537.CrossRef

Epstein, E. M. (1989). Business ethics, corporate good citizenship and the corporate social policy process: A view from the United States. Journal of Business Ethics, 8, 583–595.CrossRef

Erkens, D., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18, 389–411.CrossRef

Erwin, P. M. (2011). Corporate codes of conduct: The effects of code content and quality on ethical performance. Journal of Business Ethics, 99, 535–548.CrossRef

Ferris, S., Jagannathan, M., & Pritchard, A. (2003). Too busy to mind the business? Monitoring by directors with multiple board appointments. Journal of Finance, 58, 1087–1112.CrossRef

Fich, E. M., & Shivdasani, A. (2006). Are busy boards effective monitors? Journal of Finance, 61, 689–724.CrossRef

Fields, M. A., & Keys, P. Y. (2003). The emergence of corporate governance from Wall St. to Main St.: Outside directors, board diversity, earnings management, and managerial incentives to bear risk. The Financial Review, 38, 1–24.CrossRef

Finkelstein, S., & D’Aveni, R. A. (1994). CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37, 1079–1108.CrossRef

Fischer, K., & Khoury, N. (2007). The impact of ethical ratings on Canadian security performance: Portfolio management and corporate governance implications. The Quarterly Review of Economics and Finance, 47, 40–54.CrossRef

Fombrun, C., & Shanley, M. (1990). What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33, 233–258.CrossRef

Fortin, R., Goldberg, G., & Roth, G. (2010). Bank risk taking at the onset of the current banking crisis. The Financial Review, 45, 891–913.CrossRef

Friedman, M., (1970). The social responsibility of business is to increase its profits. The New York Times Magazine.

García-Sánchez, I-M., Rodríguez-Domínguez, L., & Frías-Aceituno, J-V. (2015). Board of directors and ethics codes in different corporate governance systems. Journal of Business Ethics, forthcoming.

Goyal, V. K., & Park, C. K. (2002). Board leadership structure and CEO turnover. Journal of Corporate Finance, 8, 49–66.CrossRef

Gunthorpe, D. L. (1997). Business ethics: A quantitative analysis of the impact of unethical behavior by publicly traded corporations. Journal of Business Ethics, 16, 537–543.CrossRef

Haldane, A. (2012). A leaf being turned. A speech given by Andrew G. Haldane, Executive Director, Financial Stability and member of the Financial Policy Committee to Occupy Economics, “Socially useful banking” at Friend’s House, Euston, London on 29 October 2012.

Harjoto, M. A., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100, 45–67.CrossRef

Harvey, K. D., & Shrieves, R. E. (2001). Executive compensation structure and corporate governance choices. Journal of Financial Research, 24, 495–512.CrossRef

Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as and endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 7–26.

Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125, 601–615.CrossRef

Jo, H., & Harjoto, M. A. (2012). The causal effect of corporate governance on corporate social responsibility. Journal of Business Ethics, 106, 53–72.CrossRef

Joecks, J., Pull, K., & Vetter, K. (2013). Gender diversity in the boardroom and firm performance: What exactly constitutes a ‘‘critical mass”? Journal of Business Ethics, 118, 61–72.CrossRef

Kosnik, R. D. (1990). Effects of board demography and directors’ incentive on corporate greenmail decisions. Academy of Management Journal, 33, 129–150.CrossRef

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106, 1113–1155.CrossRef

Linck, J. S., Netter, J. M., & Yang, T. (2008). The determinants of board structure. Journal of Financial Economics, 87, 308–328.CrossRef

Lund, D. B. (2008). Gender differences in ethics judgment of marketing professionals in the United States. Journal of Business Ethics, 77, 501–515.CrossRef

Macey, J. R., & O’Hara, M. (2003). The corporate governance of banks. FRBNY Economic Policy Review, 9, 91–107.

Mallette, P., & Fowler, K. L. (1992). Effects of board composition and stock ownership on the adoption of poison pill. Academy of Management Journal, 35, 1010–1035.CrossRef

Maon, F., Lindgreen, A., & Swaen, V. (2009). Designing and implementing corporate social responsibility: An integrative framework grounded in theory and practice. Journal of Business Ethics, 87, 71–89.CrossRef

Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38, 163–184.CrossRef

Minton, B., Taillard, J., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49, 351–380.CrossRef

Mishra, C. S., & Nielsen, J. F. (2000). Board independence and compensation policies in large bank holding companies. Financial Management, 23, 163–184.

Mitchell, W. J., Lewis, P. V., & Reinsch, N. L. (1992). Bank ethics: An exploratory study of ethical behaviors and perceptions in small, local banks. Journal of Business Ethics, 11, 197–205.CrossRef

Musteen, M., Datta, D., & Kemmerer, B. (2010). Corporate reputation: Do board characteristics matter? British Journal of Management, 21, 498–510.

Pathan, S. (2009). Strong boards, CEO power and bank risk-taking. Journal of Banking & Finance, 33, 1340–1350.CrossRef

Pathan, S., & Faff, R. (2013). Does board structure in banks really affect their performance? Journal of Banking & Finance, 37, 1573–1589.CrossRef

Scholtens, B. (2009). Corporate social responsibility in the international banking industry. Journal of Business Ethics, 86, 159–175.CrossRef

Sierra, G. E., Talmor, E., & Wallace, J. S. (2006). An examination of multiple governance forces within bank holding companies. Journal of Financial Services Research, 29, 105–123.CrossRef

Simpson, W. G., & Kohers, T. (2002). The link between corporate social and financial performance: Evidence from the banking industry. Journal of Business Ethics, 35, 97–109.CrossRef

Singh, J. B. (2011). Determinants of the effectiveness of corporate codes of ethics: An empirical study. Journal of Business Ethics, 101, 385–395.CrossRef

Sonnenfeld, J. (2004). Good governance and the misleading myths of board metrics. Academy of Management Executive, 18, 108–113.CrossRef

Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary Accounting Research, 28, 1610–1644.CrossRef

Torchia, M., Calabrò, A., & Huse, M. (2011). Women directors on corporate boards: From tokenism to critical mass. Journal of Business Ethics, 201, 299–317.CrossRef

Webb, E. (2004). An examination of socially responsible firms’ board structure. Journal of Management and Governance, 8, 255–277.CrossRef

Wu, M., & Shen, C. (2013). Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37, 3529–3547.CrossRef

Yang, T., & Zhao, S. (2014). CEO duality and firm performance: Evidence from an exogenous shock to the competitive environment. Journal of Banking & Finance, 49, 534–552.CrossRef

Yeh, Y.-H., Chung, H., & Liu, C.-L. (2011). Committee independence and financial institution performance during the 2007–08 credit crunch: Evidence from a multi-country study. Corporate Governance: An International Review, 19, 437–458.CrossRef

Titel: Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?
verfasst von: Laura Baselga-Pascual
Antonio Trujillo-Ponce
Emilia Vähämaa
Sami Vähämaa
Publikationsdatum: 26.11.2015
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 3/2018
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-015-2949-x

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 3/2018

Family Firms’ Corporate Social Performance: A Calculated Quest for Socioemotional Wealth

Corporate Social Responsibility Through a Feminist Lens: Domestic Violence and the Workplace in the 21st Century

A Bi-Directional Examination of the Relationship Between Corporate Social Responsibility Ratings and Company Financial Performance in the European Context

Corporate Social Responsibility and Investment Efficiency

“Teaching the Sushi Chef”: Hybridization Work and CSR Integration in a Japanese Multinational Company

Does Corporate Social Responsibility Affect Information Asymmetry?

Premium Partner