Ethics and Banking: Do Banks Divest Their Kind?

Abstract

A growing group of institutional investors use divestment strategically to deter misconducts that are harmful for the climate and society. Based on Kantian ethics, we propose that divestment represents investors’ universal and absolute moral commitment to socially responsible investing (SRI). Following categorical and hypothetical imperatives and reciprocity as a norm, we hypothesize how institutional investors’ commit to SRI through a divestment strategy against ethically reprehensible behaviour of banks, especially when these investors represent banks themselves. Using a hand-collected database of the revelation dates of enforcement actions on banks, we find evidence that banks are less likely to divest equity holding on banks with misconduct (fined banks) than their non-bank institutional investors peers. Banks that commit to invest responsibly by signing for the Principles for Responsible Investment (PRI) are not significantly more likely to divest on fined banks stocks than non-signatory banks. Moreover, divestment of fined banks whose own legitimacy to operate is in question is not significantly different from non-fined banks divestment. We find that European banks are more inclined to sell their holdings permanently on fined banks than their United States peers. Therefore, bank’s moral commitment to SRI via divestments is influenced more by cultural and reciprocity norms than their moral commitment to participate in the PRI.

When unethical practices harm relationship outcomes: testing the influence of consumer-perceived unethical behaviour on trust and satisfaction in the banking sector

“…, 2019). Thus, the prevalence of unethical practices in the banking industry destroys the consumer-bank relationship and erodes consumer confidence in such unfair institutions (Guisande et al. , 2023).…”

“…Basically, banks are expected to operate in a IJBM 42,6 more trustful manner as banking relationships are built on positive social exchanges and interpersonal interactions between customers and bank employees (Ho and Wong, 2023). However, the multiple scandals and unethical acts that have been born and spread in the banking sector have eroded the trust that borrowers, savers and the larger public had once placed in banking institutions (Norberg, 2018;Zaal et al, 2019;Bayer et al, 2019;Guisande et al, 2023). By engaging in unethical behaviour, banks have damaged their reputation and are now perceived as thieves, and as immoral and even dangerous actors (Elhajjar, 2020).…”

“…This type of immoral behaviour reduces trust as it demonstrates that banks are unable to behave in a more sincere and trustable manner (Bayer et al, 2019). Thus, the prevalence of unethical practices in the banking industry destroys the consumer-bank relationship and erodes consumer confidence in such unfair institutions (Guisande et al, 2023). Consequently, bank misconduct and immersion in illegal practices has a high impact on the trust consumers place in the banking sector (Zeidan, 2013).…”