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Credit Markets with Ethical Banks and Motivated Borrowers

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  • Francesca Barigozzi
  • Piero Tedeschi

Abstract

We investigate the corporate social responsibility of banks. Lenders offer loans to standard and motivated borrowers who undertake either standard or ethical projects. Standard banks have no restriction on the types of projects for which they can provide a loan. Ethical banks, instead, commit to financing only ethical projects, which have social profitability but lower expected revenues. Motivated borrowers are keen to invest in ethical projects and to deal with ethical banks. When they are active, ethical banks increase social welfare because the matching of ethical lenders with motivated borrowers reduces the frictions caused by the agency issue.

Suggested Citation

  • Francesca Barigozzi & Piero Tedeschi, 2015. "Credit Markets with Ethical Banks and Motivated Borrowers," Review of Finance, European Finance Association, vol. 19(3), pages 1281-1313.
    • Handle: RePEc:oup:revfin:v:19:y:2015:i:3:p:1281-1313.
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    File URL: http://hdl.handle.net/10.1093/rof/rfu030
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    3. Richard Bofinger & Simon Cornée & Ariane Szafarz, 2024. "When in Rome, Do as the Romans Do: Disclosure Regulation and ESG Fund Management by Social and Conventional Banks," Working Papers CEB 24-003, ULB -- Universite Libre de Bruxelles.
    4. Simon Cornée & Panu Kalmi & Ariane Szafarz, 2016. "Selectivity and Transparency in Social Banking: Evidence from Europe," Journal of Economic Issues, Taylor & Francis Journals, vol. 50(2), pages 494-502, April.
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    6. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
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    8. Simon Cornée & Anastasia Cozarenco & Ariane Szafarz, 2023. "The Changing Role of Banks in the Financial System: Social Versus Conventional Banks," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Chrysovalantis Gaganis & Fotios Pasiouras & Menelaos Tasiou & Constantin Zopounidis (ed.), Sustainable Finance and ESG, pages 1-25, Palgrave Macmillan.
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    10. Koray Aktaş & Gian Paolo Barbetta, 2023. "The Effect of Giving Credit to Social Enterprises: Evidence From Italy," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(1), pages 235-263, March.
    11. Simon Cornée & Marc Jegers & Ariane Szafarz, 2018. "A Theory of Social Finance," Working Papers halshs-01717167, HAL.
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    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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