This week’s tidbits consider whether high risk factors, amongst others, have an impact on making ethical decisions.
Too-big-to-fail? Managerial risk-taking behaviour
The authors examine the implications of the US government’s too-big-to-fail (TBTF) policy as it has been applied to banks. Using alternative measures of risk, the authors compare the risk-taking behaviour of 11 TBTF banks, identified by the Comptroller of the Currency in 1984, to a number of non-TBTF banks.
The authors provide both theory and new empirical evidence to support the argument that the TBTF policy leads management to significantly increase risk-taking, with no corresponding increase in performance. While prior studies have considered the effects of the TBTF policy on limited, but risk-related aspects of bank behaviour, such as the cost of funds, this study provides direct evidence about the risk-taking behaviour associated with the TBTF policy.
This study has important implications for the current political debate regarding the too-big-to-fail policy.
Asghar Zardkoohi, Eugene Kang, Donald Fraser and Albert A. Cannella. 2018. Managerial Risk-Taking Behavior: A Too-Big-To-Fail Story.
Journal of Business Ethics, 149(1), 221–233.
Social performance and firm risk following the financial crisis
This paper examines the impact of the recent financial crisis (2008–2009) on the relation between a firm’s risk and social performance (SP) using a sample of non-financial U.S. firms covering the period 1991–2012. The authors find that the relation between SP and risk is significantly different in the crisis period (post-crisis period) compared to the pre-crisis period.
SP reduces volatility during the financial crisis. The risk reduction potential of SP is mainly due to the strengths component of SP. Since the relation of risk is stronger with SP strengths than SP concerns, this implies an asymmetric relation between these SP components and a firm’s risk.
Specifically, strengths act as a risk reduction tool during an adverse economic environment.
Read this Open Access article online for free
Kais Bouslah, Lawrence Kryzanowski and Bouchra M’Zali. 2018. Social Performance and Firm Risk: Impact of the Financial Crisis.
Journal of Business Ethics, 149(3), 643–669.
CSR and firm financial performance: The role of productivity
This study treats firm productivity as an accumulation of productive intangibles and posits that stakeholder engagement associated with better corporate social performance helps develop such intangibles. The authors hypothesise that because shareholders factor improved productive efficiency into stock price, productivity mediates the relationship between corporate social and financial performance.
Furthermore, the authors argue that key stakeholders’ social considerations are more valuable for firms with higher levels of discretionary cash and income stream uncertainty. Therefore, the authors hypothesise that those two contingencies moderate the mediated process of corporate social performance with financial performance.
This analysis, based on a comprehensive longitudinal dataset of the U.S. manufacturing firms from 1992 to 2009, lends strong support for these hypotheses. In short, this paper uncovers a productivity-based, context-dependent mechanism underlying the relationship between corporate social performance and financial performance.
Iftekhar Hasan, Nada Kobeissi, Liuling Liu and Haizhi Wang. 2018. Corporate Social Responsibility and Firm Financial Performance: The Mediating Role of Productivity.
Journal of Business Ethics, 149(3), 671–688.
Investor reactions to same time positive and negative stakeholder news
This paper examines the impact on firm value created by investor reaction to same day news of corporate social responsibility (CSR) and corporate social irresponsibility (CSiR) activities.
First, using trading volume, the authors establish that the perceived value of moral capital generated by news involving institutional (e.g., environmental and community) stakeholders is less clear to investors than that of the news involving technical (e.g., customers and employees) stakeholders. Subsequently, the authors analyse abnormal returns from 565 unique firm events—each comprising at least one positive and one negative stakeholder news item.
Using signalling theory, the authors demonstrate that news of the number of CSR activities involving institutional groups counteracts the effects of same day CSiR news in an inverted U-shaped fashion. In contrast, they find that news of the number of CSR activities involving technical groups mitigates the effects of same day CSiR news in a U-shaped fashion.
Christopher Groening and Vamsi K. Kanuri. 2018. Investor Reactions to Concurrent Positive and Negative Stakeholder News.
Journal of Business Ethics, 149(4), 833–856.
Do professional norms in the banking industry favour risk-taking?
In recent years, the banking industry has witnessed several cases of excessive risk-taking that frequently have been attributed to problematic professional norms. These authors conduct experiments with employees from several banks in which the authors manipulate the saliency of their professional identity and subsequently measure their risk aversion in a real stakes investment task.
If bank employees are exposed to professional norms that favour risk-taking, they should become more willing to take risks when their professional identity is salient. The authors find, however, that subjects take significantly less risk, challenging the view that the professional norms generally increase bank employees’ willingness to take risks.
Alain Cohn, Ernst Fehr and Michel André Maréchal. 2017. Do Professional Norms in the Banking Industry Favor Risk-taking?
The Review of Financial Studies, 30(11), 3801–3823.
Do responsible and ethical business practices affect health, safety and well-being?
The nature of the relationship between business responsibility, sustainability, and health, safety and well-being in the workplace varies widely among initiatives. Some initiatives refer explicitly to occupational health and safety issues, while others focus only on new social issues that have no tradition in companies, or on totally voluntary aspects (such as for example action against the use of unfair labour practices by suppliers in developing countries or employment of vulnerable workers).
Health and safety at work is an essential component of an organisations’ responsibility and companies are increasingly recognizing that they cannot be responsible externally, while having poor ethical performance internally. The internal dimension of business responsibility and sustainability is now identified as a critical component of engagement to move the area of occupational health and safety forward.
In this chapter, the authors discuss the synergies between business responsibility, sustainability, and health, safety and well-being highlighting their link with organizational sustainability, strategic management and sustainable development.
Aditya Jain, Stavroula Leka and Gerard I. J. M. Zwetsloot. 2018. Responsible and Ethical Business Practices and Their Synergies with Health, Safety and Well-Being.
Managing Health, Safety and Well-Being pp 99-138.
Part of the Aligning Perspectives on Health, Safety and Well-Being book series (AHSW).
Ethical reputation of financial institutions: Do board characteristics matter?
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 behaviour, the authors 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, the authors run several alternative panel regressions of ethical reputation on board characteristics and firm-specific controls. The 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 their hypothesis, the authors also document that financial institutions with less frequent board meetings have better ethical reputation. Overall, the empirical findings suggest that stronger board oversight may promote ethical behaviour in the financial industry.
Laura Baselga-Pascual, Antonio Trujillo-Ponce, Emilia Vähämaa and Sami Vähämaa. 2018. Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?
Journal of Business Ethics, 148(3), 489–510.