IMPACTS OF CODE OF ETHICS ON FINANCIAL PERFORMANCE IN THE ITALIAN LISTED COMPANIES OF BANK SECTOR

Maria Teresa Cuomo,Gerardino Metallo,Debora Tortora,Guiseppe Festa,Alice Mazzucchelli,Angelo Di Gregorio

doi:10.26870/jbafp.2018.01.005

Maria Teresa Cuomo, Gerardino Metallo + Show 4 more

Open Access

https://doi.org/10.26870/jbafp.2018.01.005

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Abstract

Over the last two decades academic literature has addressed much attention to the relationship between corporate ethical practices and financial performance. Results however remain contradictory, especially in terms of direction and effectiveness of their connection. Broadly speaking, most theorizing on the link between social and economic indicators assumes that the evidence is insufficient or too contrasting to draw any generalizable conclusions. In this perspective, this study aims to better explain the connection between corporate ethical practices and corporate financial performance, verifying that it is impacted by a large number of key variables. The empirical research is based on a longitudinal study on Italian listed companies operating in the banking sector. The adoption of the code of ethics is considered to measure their ethical practices, while regarding financial performance several accounting indicators are taken into consideration, including some control variables. To process the dataset a panel regression with fixed effect is applied. The paper aims at strengthening recent studies that consider bidirectional causality in the theory that “corporate social responsibility is both a predictor and consequence of firm financial performance”. Thus, the interest of the study lies in the identification of a reverse causality between positive financial performance and ethical orientation of Italian banking services companies.

Highlights

Several studies show as trust represents the variable with the greatest impact on customer emotional responses in the banking industry (Marinkovic and Obradovic, 2015; McNeish, 2015; Yu, et al, 2015; Ivanauskiene and Vilte, 2015), since in financial services companies it is driven far more by emotional than by functional considerations, among investors as well (Ipsos Public Affairs, 2013)
The present study aims to analyze a bi-directional connection between the application of corporate ethical practices and financial performance
The sample is composed of 27 listed companies belonging to the banking services industry in Italy

Summary

Introduction

Several studies show as trust represents the variable with the greatest impact on customer emotional responses in the banking industry (Marinkovic and Obradovic, 2015; McNeish, 2015; Yu, et al, 2015; Ivanauskiene and Vilte, 2015), since in financial services companies it is driven far more by emotional than by functional considerations, among investors as well (Ipsos Public Affairs, 2013). Even ethics appears inextricably connected to financial and banking activities as it forms the basis for trust (Boatright, 2011), without which the banking system could become either dysfunctional or unbalanced (Cullen, 2016; Monferrer-Tirado et al, 2016). Both trust and corporate social responsibility initiatives affect relationships with stakeholders that need to be correctly managed, especially in conditions of information asymmetry (Cui et al, 2016). Reputation can be included quite legitimately among the tools of corporate governance, with reference to the mechanisms of management and coordination of interaction with stakeholders (Cuomo et al, 2014)

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