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Credit Markets with Ethical Banks and Motivated Borrowers

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  • Barigozzi, Francesca

    (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

  • Tedeschi, Piero

    (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

Abstract

This paper investigates banks’ corporate social responsibility. Two different competitive credit markets do exist: one for standard projects and one for ethical ones. Ethical projects have also a social profitability, but a lower (positive) expected revenue with respect to standard ones. Ethical projects are financed by ethical banks and undertaken by motivated borrowers. These borrowers obtain additional benefit (a social responsibility premium) from accomplishing ethical projects when trading with ethical banks. If the expected profitability of ethical project is sufficiently close to that of standard ones and/or the social responsibility premium of motivated borrowers is sufficiently high, the market for ethical projects is active and the credit market is fully segmented. This result holds true irrespective of the information structure: only moral hazard on the borrower side, moral hazard and screening on the borrower side, moral hazard on the borrower side and screening on the lender side. The optimal contract in our set-up is always a debt contract. However, its precise form and welfare properties depend on the information structure.

Suggested Citation

  • Barigozzi, Francesca & Tedeschi, Piero, 2012. "Credit Markets with Ethical Banks and Motivated Borrowers," AICCON Working Papers 99-2012, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    • Handle: RePEc:ris:aiccon:2012_099
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    Cited by:

    1. Simon Cornée & Ariane Szafarz, 2014. "Vive la Différence: Social Banks and Reciprocity in the Credit Market," Post-Print CEB, ULB -- Universite Libre de Bruxelles, vol. 125(3), pages 361-380.
    2. 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.
    3. Simon Cornée & Panu Kalmi & Ariane Szafarz, 2020. "The Business Model of Social Banks," Kyklos, Wiley Blackwell, vol. 73(2), pages 196-226, May.
    4. Barigozzi, Francesca & Tedeschi, Piero, 2019. "On the credibility of ethical banking," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 381-402.
    5. Emmanuel Mamatzakis & Christos Triantopoulos, 2022. "Allocative and technical efficiency of social banks vis a vis conventional banks," Economics Bulletin, AccessEcon, vol. 42(4), pages 1817-1825.
    6. 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.
    7. 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.
    8. 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.
    9. Bernal, Oscar & Hudon, Marek & Ledru, François-Xavier, 2021. "Are impact and financial returns mutually exclusive? Evidence from publicly-listed impact investments," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 93-112.
    10. Simon Cornée & Marc Jegers & Ariane Szafarz, 2018. "A Theory of Social Finance," Economics Working Paper Archive (University of Rennes & University of Caen) 2018-02, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    11. Jasman Tuyon & Okey Peter Onyia & Aidi Ahmi & Chia-Hsing Huang, 2023. "Sustainable financial services: reflection and future perspectives," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(4), pages 664-690, December.
    12. Nikolas Höhnke, 2020. "Doing Good or Avoiding Evil? An Explorative Study of Depositors’ Reasons for Choosing Social Banks in the Pre and Post Crisis Eras," Sustainability, MDPI, vol. 12(23), pages 1-26, December.
    13. Silvana Secinaro & Davide Calandra & Denisa Petricean & Federico Chmet, 2020. "Social Finance and Banking Research as a Driver for Sustainable Development: A Bibliometric Analysis," Sustainability, MDPI, vol. 13(1), pages 1-19, December.
    14. Jerry Cao & Robert Faff & Jing He & Yong Li, 2022. "Who's Greenwashing Via the Media and What are the Consequences? Evidence From China," Abacus, Accounting Foundation, University of Sydney, vol. 58(4), pages 759-786, December.
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    More about this item

    Keywords

    corporate social responsibility; ethical banks; motivated borrowers; microfinance;
    All these keywords.

    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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