Effects of corporate ethical practices on financial performance in the Italian banking services listed companies

Purpose In the banking services industry social responsibility and welfare of stakeholders represent key factors able to influence wealth maximization and long-term survival. Unfortunately, even though numerous studies affirm a link between corporate ethical practices and financial performance, it is not so evident the direction and effectiveness of their connection. In this perspective, this study aims to better explain the relationship between corporate ethical practices and corporate financial performance, verifying that it is impacted by a number of key variables. Methodology The empirical research is based on a longitudinal analysis on Italian listed companies operating in the banking services industry, covering the period 2001-2015. The adoption of the Code of Ethics is considered to measure their ethical practices, while as regards financial performance several accounting indicators are taken into consideration, including some control variables. To process the dataset a panel regression with fixed effect is applied. Findings In controlling the potential effects of the circular relation has been tested a reverse causality between the application of corporate ethical practices, thanks to the adoption of the code of ethics, and financial performance. Practical implications The research hypotheses have verified an order of priority of company stakeholders fulfillment, with many consequences in terms of ethical firms orientation positioning toward the market. Originality/value The paper aims at strengthening recent studies that consider bi-directional causality in the theory that “corporate social responsibility is both a predictor and consequence of firm financial performance”. Thus, the interest of the study lies in the identification of a reverse causality between positive financial performance and ethical orientation of Italian banking services industry companies.