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Does it pay to be socially responsible? Evidence from Spanish retail banking sector

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  • Callado-Muñoz, Francisco J

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  • Utrero-González, Natalia

Abstract

This paper presents a theoretical and empirical analysis of strategic competition in retail banking when some of the financial firms are non-profit organisations that invest in social activities. Banking literature about competition is fairly large, but the strategic interaction between profit maximizing and non profit maximizers has not been extensively analysed except for Purroy and Salas (1999). In this paper, a completely different approach is taken. An adaptation of Hotelling’s two stage model of spatial competition is developed to take into account consumer perceptions respect to the two different types of financial institutions. The empirical analysis confirms that consumers take into account other features different from the price, such as social contribution or closer service to make a deposit or mortgage decision. These conclusions are of interest in the debate about a firm’s social or ethical activities. It is shown that if consumers value social activities, firms can improve their results by behaving socially responsible.

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Paper provided by Department of Economics, University of Girona in its series Working Papers of the Department of Economics, University of Girona with number 16.

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Date of creation: Jan 2006
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Handle: RePEc:udg:wpeudg:016

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Keywords: Strategic competition; Hotelling´s model; Spanish banking; Corporate social responsibility;

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  1. Chiappori, Pierre-Andre & Perez-Castrillo, David & Verdier, Thierry, 1995. "Spatial competition in the banking system: Localization, cross subsidies and the regulation of deposit rates," European Economic Review, Elsevier, vol. 39(5), pages 889-918, May.
  2. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
  3. Giovanni Cespa & Giacinta Cestone, 2002. "Stakeholder activism, managerial entrenchment and the congruence of interests between shareholders and stakeholders," Economics Working Papers 634, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 30(3), pages 387-409, July.
  5. Aleix Calveras & Juan José Ganuza, 2004. "Responsabilidad social corporativa. Una visión desde la teoría económica," Working Papers, Research Center on Health and Economics 797, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. Manuel Arellano & Olympia Bover, 1990. "La econometría de datos de panel," Investigaciones Economicas, Fundación SEPI, vol. 14(1), pages 3-45, January.
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