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Financial industry at the crossroads between current practices and ethical virtues

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Exploring the determinants of ethical banks emergence and performance

Ana Kundid Novokmet
Faculty of Economics - University of Split
Croatia

Abstract
Recent financial crisis led to a widespread appearance of rethinking (i.e. mainly criticizing) the traditional banking model, and all of a sudden alternative or ethical banking gained a noteworthy attention as one of possible way outs. With reference to that, this paper gives an insight into ethical banking model, to be more precise, its content, worldwide emergence and performance. The data sample of the world’s leading 25 ethical banks from 19 countries with the membership in the Global Alliance for Banking on Values (GABV) in the period 2008-2013 is used in the dynamic panel data analysis, with a goal of estimating the bank-specific features which might explain differences in ethical banks profitability measured with the return on assets. The empirical research reveals that previous profitability, higher equity financing and higher growth of loans, add to ethical bank profitability, while higher growth of deposits reduces it. Furthermore, a noticeable difference in the average values of ethical banks profitability indicators (return on assets as well as return on equity), with reference to a country development level is found out using univariate statistics, One-Way ANOVA and Kruskal-Wallis test, to be more precise. Thus, the institutional theory of ethical banks emergence and performance is adopted and argued by taking into consideration selected country indicators from the World Development Indicators, the Global Financial Development Database and the Global Competitiveness Report. The overall results suggest that contextual properties are relevant for ethical banks emergence and performance.

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Key words
ethical banks, sustainable finance, bank profitability, institutional theory

Citation
Novokmet Kundid, A. 2015, “Exploring the determinants of ethical banks emergence and performance” in Boitan I., Barbu T. (Eds.) Financial industry at the crossroads between current practices and ethical virtues (Studies in Philosophy, Law and Economics), Sumy: Taadler Publishing House, LTD, pp. 1-20. Available at http://taadler.com/a62

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