Publication detail

The Effect of Ethics on Banks’ Financial Performance

Author(s): prof. PhDr. Petr Teplý Ph.D., Mgr. Radek Halamka
Type: Articles in journals with impact factor
Year: 2017
Number: 0
ISSN / ISBN: ISSN 1210-0455 (print), ISSN 2336-730X (online)
Published in: Prague Economic Papers, Czech Republic
Publishing place: Prague, Czech Republic
Keywords: bank, ethics, financial performance, bank business models, profitability
JEL codes: A13, B12, B16, G21, Q56
Suggested Citation: Halamka, R., Teplý, P. (2017). "The Effect of Ethics on Banks’ Financial Performance", Prague Economic Papers, Vol. 26, No. 3, pp. 330-344
Grants: GACR 14-02108S The nexus between sovereign and bank crises GACR 15-00036S Credit Risk Modeling for Financial and Commodity Assets Portfolios VŠE IP100040
Abstract: In this paper, we contribute to the literature focusing on ethics in banking from both theoretical and empirical point of view. We argue that the recent business of the global banking industry is not sustainable and we believe that ethical banking may represent one of the alternative models. In the empirical section, we investigate how ethics in the banking business models affects their financial performance. We identified 69 ethical banks and compared them with conventional banks using Bankscope data of more than 80,000 bank-year observations for the 2003–2013 period. We apply the Within-Between Estimation method to bank financial indicators of Return on Assets, Return on Equity and their respective volatilities. We conclude that ethical banks report significantly lower volatility in Return on Equity than their conventional counterparts. In addition, the hypothesis that ethical banks would have higher profitability than their peers is not rejected.
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