Case Study 3: On Values in Finance and Ethics

Financial Market Trends. https://www.oecd.org/finance/financialmarkets/44362117.pdf Kennon, J. (2022, January 26). The Pros and Cons of Investing in Bank Stocks. The Balance. https://www.thebalance.com/investing-in-bank-stocks-357314

DEPARTMENT OF BUSINESS ADMINISTRATION

STUDENT TRAINING PROGRAM

Name: Alegarbes, Caney Rose Date: May 17, 2022

Case Study 3: On Values in Finance and Ethics (Forgotten Trails and Promising Pathways) by Henry Schafer CHAPTER 6: Concluding Remarks

Topic 6.6 (It Is Always Good to Be Good)

Financial literacy is critical since it affects nearly every aspect of a person's life. So, even in families and marriages, a lot of the difficulties that people will face will be related to money. Everything revolves around money in the system we live in. It is in everyone's best interest to learn as much as they can about money management so that they can at least provide themselves some financial security in the future. As a result, most scholars or people are more concerned with financial issues because of their importance. It is crucial to them because it provides them with the knowledge and skills they need to effectively manage money, and without it, their financial decisions and actions may lack a firm foundation for success. Non Financial issues, on the other hand, must be addressed, which is why the topic first sparked a thought, stating that academic research has approached to tackle generally speaking "non financial issues," in which

environmental, social, and other governance issues have entered capital market models, business models, and management approaches, decades after ignorance of intensified discussions among politicians, managers, NGOs, and the media. ESG guidelines have now been applied to the majority of firms. Environmental, social, and governance (ESG) criteria are a set of operational requirements used by socially concerned investors to analyze possible investments. The Environmental criteria look at how a company manages relationships with its employees, suppliers, customers, and the communities where it operates, while the Social criteria look at how it manages relationships with its employees, suppliers, customers, and the communities where it operates, and the Governance criteria look at a company's leadership, executive pay, internal controls, shareholder rights and etc. As a result, many mutual funds and brokerage firms now provide ESG-based products to help investors avoid companies that may pose a higher financial risk owing to their environmental or other practices. However, in recent years, some investors have come to believe that ESG criteria have a practical purpose beyond ethical considerations, and that by adhering to ESG criteria, they may be able to avoid companies whose activities indicate a risk factor.

Furthermore, the topic stated that after years of ignorance and partly refusal by the academic community, sustainability and CSR issues have conquered research agendas, with the study of Segura et al. (2019) demonstrating that due to the process of globalization, companies are obligated to observe corporate social responsibility and best practices from a sustainability approach towards their stakeholders and society and that the explicit goal of this study is to determine the relevance of corporate social responsibility (CSR) and its relationship with sustainability in order to establish trends and future lines of research, which the purpose of this research was to look at research trends in corporate social responsibility practices focusing on global sustainability during the last 18 years. The Journal of Business Ethics and Sustainability was found to be the most productive journal for CSR's sustainability approach research. Furthermore, while most empirical studies demonstrate that CSR has a favorable link with business financial success, others appear to reflect a generally positive attitude of academics toward CSRrelated topics. As a result, Rost and Ehrmann (2015) found that many of the extant empirical research in their meta-study are biased by a value judgment. According to their

research, reporting biases are a critical concern since systematic reviews and metaanalyses conclusions can be deceptive. The authors demonstrate that published evidence in win-win CSR research tends to overstate efficiency. In the CSP–CFP literature, the results indicate substantial tentative support for a positive reporting bias, but only modest tentative evidence for CSP efficiency

Topic 6.9 (Information Overflow)

Sustainable investments, as stated in the topic, necessitate asset allocation methodologies that incorporate sustainability, one example is extra-financial data. Sustainability and non-financial reporting are extra financial data that can be included in a company's corporate reporting portfolio alongside financial reports. It also exposes information about sustainable development subjects that are judged important to a company by a diverse group of stakeholders who believe these issues are influenced by or affect the company. Also, a subset of sustainability reporting is non-financial reporting, which are interpreted in mainstream economics as additional information that can be exploited in order to improve an investment portfolio's risk-return profile or to align a portfolio with certain organizational values. Quantity, quality, and complexity all contribute to information overload, as stated in the topic, which is supported by studies by Hafenstein and Bassen (2016) and Reimsbach et al (2017). According to Hafenstein and Bassen (2016), when considering environmental, social, and governance (ESG) issues for their investment activities, non-professional investors face a series of challenging considerations. As a result, the study sheds light on the following question: what factors influence non-professional investors' utilization of sustainable information and decision to invest in a sustainable company? The study's findings show that personal sustainability orientation is the most important factor in deciding to use a company's sustainability information, and that the decision to invest in a sustainable company is influenced by personal sustainability orientation, identification induced by a good feeling, willingness to waive returns for sustainability, exposure to sustainability information, the investor's age, and information overload. Sustainability-related non-financial information is increasingly judged value relevant, according to a study by Reimsbach et al. (2017). In

light of this, two recent trends in non-financial reporting have received a lot of attention: integrated reporting and certification of sustainability data. The findings show that assurance of sustainability information positively affected professional investors' evaluation of a firm's sustainability performance, resulted in a higher weighting of this information, and led to higher investment-related judgments, based on a sample of professional investors. Integrated reporting, on the other hand, had a smaller assurance effect than separate reporting.

Furthermore, as stated in the topic, when information overload exceeds an information-processing capacity, research has found a number of negative consequences, which may lead to lower performance in complex tasks, less systematic and thorough search strategies in capital budgeting (Swain and Haka 2000), a reduction in decision performance in the context of financial distress (Ding and Beaulieu 2011), and lower predictive accuracy in the case of financial distress (Simnett 1996). According to Roetzel (2019), information overload research in new domains (e.g., social media, virtual collaboration) is fast increasing in many fields of business administration research with a diversity of methods and subjects in light of the information age. The study identifies the important publications of several research streams to catch the pulse of the information overload-related research, and the results show that information overload is viewed as a decisive issue across all disciplines within business administration and economics. In terms of business implications, it has an impact on employee performance at work, one's capacity to attract and retain top personnel, and one's brand reputation. In such cases, at the end of the day, information overload may affect one's entire business. Furthermore, as indicated in the article, the combination of information overload and insufficient financial literacy is becoming a growing concern. Many studies show that average private households in many countries have low financial literacy when it comes to basic investment topics like retirement provision, risk-adjusted investing, indebtedness, and so on (Lusardi and Tufano 2009; Mason and Wilson 2000), and if this is true, not only will their individual wealth positions be inefficient, but they will also have a low ability to influence policymakers. With this, according to the study of Askar et al. (2020) that financial literacy has gotten a lot of attention from scholars and policymakers alike, and that there's a growing body of evidence suggesting it has an impact on many people's

financial decisions and behavior, in which, the findings show that financial literacy is crucial in decreasing poverty, and that having a greater degree of financial literacy can help people improve their investing behavior, raise their savings and investment income, and so have a higher total income and consumption.

Topic 6.10 (A Wolf in Sheep’s Clothing?)

As stated in the topic, sustainable finance and investments are concerned with the question of where the money goes. The basic idea is that investors are concerned about the output, outcome, or impact of their investment decisions in terms of positive ESG effects or the avoidance of negative effects on such issues, which, from an academic standpoint, it is about the external effects of money in economic transactions as a medium of exchange, a store of wealth, and a unit of account. With this, it has been a great deal to people or investors on how much they would receive in return for their investments, with research studies analyzing investors' behavior in investing, with the most common reasons being the output, outcome, and influence of their decision of a given product and one example is the study by Annamalah et al. (2019), which found that financial position, risk-taking behavior, and information sources all have a substantial impact on investors' unit trust investing decisions. It demonstrates that it attributes the economic role of money in accordance with the conventional understanding as explored in the microeconomic theory of money and the theory of banking, in which the concealment of the origin of actions behind money and monetized transactions allows the transformation of good money into "dirty money," as stated in the topic. Extortion money, insider trading money, drug trafficking money, and illicit gambling money is "dirty" and needs to be "cleaned" so that banks and other financial institutions will deal with it without suspicion which is the way of dirty money.

Money laundering is one example of dirty money, which is the ugly face of unethical and immoral economic transactions, as described in the topic. Money laundering is the illegal process of making large sums of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. It is a serious financial crime perpetrated by both white-collar and

street-level criminals, which is why most financial institutions have anti-moneylaundering (AML) policies in place to detect and prevent this kind of activity. Furthermore, despite governments' efforts to dry up illicit financial flows, as indicated in the topic, Unger (2013) demonstrated that money laundering is still on the rise. Schneider and Caruso (2011) provide an overview of the many sources of illegal funding, emphasizing the importance of charities, ethnic communities, and religious organizations as major entities that distribute unlawful cash. According to Schneider (2013), unlawful cross-border flows of global "dirty money" now account for the vast majority of all illegal transactions. He also discovered evidence that transnational organized crime (TOC) infiltrates official economic systems, with banking and financial hubs continuing to play a key role in this process. According to The Economic Times, there are multiple recent news stories indicating that money laundering continues to occur in several countries (2022).

As stated in the topic, the research into money's dark sources should complete the relationship of finance and ethics in those conditions. Since dirty money, such as money laundering, has remained unsolved, it has had disastrous consequences for the financial system and national security, as it provides funds for terrorists, drug traffickers, arms dealers, and criminal groups. Criminals can use dirty money to fund their legal entities with criminal proceeds, distorting competition between legal and illegal enterprises. As a result, ethics plays a critical role in finance, particularly in this case which should be addressed by researchers.

Conclusion

These three areas may be relevant to my future job, particularly because I am a finance student. In terms of the first point, business experts and researchers believe that a more balanced approach to performance monitoring should incorporate both financial and non-financial goals. Non-financial objectives aid firms in identifying and developing relevant assets, particularly intangibles. Quality, innovation, and employee satisfaction may all contribute to financial success. In addition, through CSR (Corporate Social Responsibility), a firm commits to society and stakeholders to contribute to sustainable development and social welfare by following local and international standards,

maintaining ethical behavior, and providing transparent management. Financial literacy, the second topic, has gotten a lot of attention from researchers, practitioners, and policymakers all around the world. Furthermore, given the critical role of financial literacy in increasing people's economic well-being, it is recommended that national and international poverty-reduction efforts focus more on building and expanding an individual's financial knowledge and skills. Finally, because ethics is affected in this area, knowing filthy money and what it does to the financial system is critical. Because I will be working in a specific industry, I will be able to apply the knowledge and concepts that I have gained as a guide throughout my career. It is also concerned about financial ethics, in which adherence to the highest standards is required, and the consequences of unethical behavior are obvious, ranging from loss of reputation and trust to monetary penalties and criminal prosecution. In which, being an effective leader pays attention to an internal moral compass, which helps one avoid the urge to act unethically. Good people, on the other hand, make bad choices, and ethical leadership entails more than just following the laws. As a finance student, I must follow the regulations and operate in the best interests of myself, my clients, my staff, and even the company.

References:

Abad-Segura, E. (2019, September 28). The Sustainable Approach to Corporate Social

Responsibility: A Global Analysis and Future Trends. MDPI.

https://www.mdpi.com/2071-1050/11/19/5382/htm

Annamalah, Raman, Marthandan, & Logeswaran. (2019). An Empirical Study on the

Determinants of an Investor’s Decision in Unit Trust Investment. Economies, 7(3), 80. https://doi.org/10.3390/economies7030080

Askar, M. W., B. Ouattara, and Y.-F. Zhang. 2020. Financial Literacy and Poverty

Reduction:

The Case of Indonesia. ADBI Working Paper 1097. Tokyo: Asian Development Bank

Institute. Retrieved from https://www.adb.org/publications/financial-literacy-