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Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?

Author

Listed:
  • Laura Baselga-Pascual

    () (Pablo de Olavide University
    Deusto Business School, University of Deusto)

  • Antonio Trujillo-Ponce

    () (Pablo de Olavide University)

  • Emilia Vähämaa

    () (Hanken School of Economics
    University of Vaasa)

  • Sami Vähämaa

    () (University of Vaasa)

Abstract

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.

Suggested Citation

  • Laura Baselga-Pascual & Antonio Trujillo-Ponce & Emilia Vähämaa & Sami Vähämaa, 2018. "Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?," Journal of Business Ethics, Springer, vol. 148(3), pages 489-510, March.
  • Handle: RePEc:kap:jbuset:v:148:y:2018:i:3:d:10.1007_s10551-015-2949-x
    DOI: 10.1007/s10551-015-2949-x
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    Keywords

    Ethical reputation; Board of directors; Board characteristics; Board monitoring; Corporate governance; Financial institutions;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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