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Ethical Finance and Governance


Special issue call for papers from Journal of Applied Accounting Research

Guest Editors:
Jean-Michel Sahut, IDRAC Business School (France), & HEG Fribourg - University of Applied Sciences Western Switzerland
Samir Saadi, Telfer School of Management, University of Ottawa, Canada
Lorne N. Switzer, John Molson School of Business, Concordia University, Canada

Aims and Scope
Social scientists have devoted considerable attention to linking human behavior to economic and social forces. A shared belief among classical and neoclassical economists, backed by empirical evidence, is that ethics represents a relevant driver of behavior. Adam Smith introduces the concept of empathy in explaining human behavior in The Theory of Moral Sentiments (1759).  The Wealth of Nations (1776) expands on this notion, with empathy serving as a corrective device for countering the potential adverse effects of the market mechanism in the allocation of resources. Early neoclassical models carry on the tradition of incorporating ethics as a moderating force to address the potential adverse effects of pure utility or profit maximization behavior (Jevons, 1871).
In a world with increased labor mobility, designing company strategies and policies that are consistent with cultural differences remains a serious challenge (García-Sánchez et al., 2015). Carroll (1999) put forward a positive relationship between ethical behavior and company profits. Moreover, Tella and Weinschelbaum (2008) suggest that a reduction in unethical behavior in a society is associated with enhanced social capital, human capital, and monitoring activities. Zingales, Guiso, and Sapienza (2016) argue that integrity is the most important dimension of corporate culture that is related to a firm’s financial performance. Interestingly, Zingales, et al. (2016) report that a culture of integrity is weaker among publicly-traded companies.
The ethical behavior of agents in the finance sector has come under increased scrutiny over the past several years. An in-depth examination of the issue of ethical finance and governance is particularly important given the alarming increase both in the frequency and severity of incidents of corporate fraud. The scandals associated with Enron, WorldCom and Lehman Brothers, as well as the Ponzi schemes of Allen Stanford, Bernard Madoff and others have served to undermine the confidence of investors and the public. Remarkably, Dyck, Morse and Zingales (2014) estimate that only 1 in 4 committed frauds is detected in the U.S. market, and that about 15% of U.S. firms were engaged in corporate fraud over the period 1996-2004. This is particularly troublesome for those who believe that the US has the highest standards of monitoring and investor protection worldwide. Equally disturbing, they find that the annual cost of fraud among large US corporations is about $380 billion. For markets with weaker regulatory protections than the US, these results are especially disconcerting.
Given the underdeveloped nature of financial markets and the banking systems of many countries (particularly emerging and frontier markets), alternative solutions for financing investments have appeared, including microfinance entities. Some major international banks have joined local microcredit providers to service this niche, both to demonstrate their commitments to social development, as well as for profit.  Banks are increasingly rethinking their activities and criteria to finance projects and firms in developing countries. As highlighted by Gangi and Trotta (2015), the investment funds linked to social commitment aims, in times of economic crisis, show greater stability in their benefits than the funds whose sole aim is profit. It seems that the moral and economic values linked to ethics provide balance and solidity to the system while tempering the required freedom and search for profits in the markets.
This special issue aspires to provide a forum for new research that looks at the nexus of ethics, finance, and governance within and across companies as well as markets in general around the world.

Suggested Topics

This special issue aims to consider the development of financial activities in an ethical perspective and problematic of corporate governance. Based on recent calls for research on the linkages between Ethics and Finance, we encourage submissions that focus on the following topics (please note that this list of topics is not exhaustive): 

  • Impacts of Financial Regulations on Corporate governance
  • Ethics & Accounting
  • Ethics, Reporting & Corporate Social Responsibility
  • Influence of Ethics Codes on Financial Decisions
  • Accounting & Financial Frauds: Problems and Solutions
  • Corporate Financial Performance, Governance and Commitment to Ethics
  • Ethics, CSR and Mechanisms of Governance
  • Impacts of Ethical Behavior and Governance on Remuneration and Performance

Schedule and deadlines

References

Carroll, A. B. (1999). Corporate social responsibility. Business & Society, 38, 3, 268-295.
Dyck, A., Morse,A. and Zingales, L. (2014). How Pervasive is Corporate Fraud? University of Chicago, Working paper.
Fama E. F. and Jensen M. C. (1983). Agency problems and residual claims. Journal of Law & Economics, XVI, 327-349.
Gangi, F. and Trotta, C. (2015). The ethical finance as a response to the financial crises: an empirical survey of European SRFs performance. Journal of Management and Governance, Springer, 19, 2, May, 371-394.
García-Sánchez, I-M., Rodriguez-Dominguez, L. and Frías-Aceituno, J-V. (2015). Board of Directors and ethics codes in different corporate governance systems. Journal of Business Ethics, 131, 681-698.
Jensen M. C. and Meckling W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 306-360.
Jevons, W. S. (1871). The theory of political economy. London: Macmillan and CO.
Scholtens, B. (2006). Finance as a driver of corporate social responsibility. Journal of Business Ethics, 68, 19-33.
Smith, A. (1759). The theory of moral sentiments. Edinburgh: A. Kincaid and J. Bell Publisher.
Smith, A. (1776). The wealth of nations. London: W. Stranhan and T. Cadell.
Stanley, M. T. (1990). Ethical perspectives on the foreign direct investment decision. Journal of Business Ethics, 9, 1, 1-10.
Tella, R. D. and Weinschelbaum, F. (2008). Choosing agents and monitoring consumption: A note on wealth as a corruption‐controlling device. The Economic Journal, 118, 1552-1571.
Zingales, L., Guiso, L., and Sapienza, P. (2016). The Values of Corporate Culture. Journal of Financial Economics, forthcoming.