Professional competence and business ethics

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maryna Murdock ◽  
Nivine Richie ◽  
William Sackley ◽  
Heath White
Keyword(s):  
Decision Making ◽  
Virtue Epistemology ◽  
Professional Competence ◽  
Business Schools ◽  
Financial Industry ◽  
Content Type ◽  
Behavioral Biases ◽  
Finance Industry ◽  
Epistemic Virtues ◽  
Theoretical Approaches

Purpose The purpose of this paper is to determine if the failure of the Securities and Exchange Commission (SEC) to persecute Madoff is, in fact, an ethical failure. The authors turn to the extension of Aristotelian theory of moral values, virtue epistemology, to identify specific failures. The authors generalize this study’s conclusions to an overall responsibility of regulatory agencies to exercise epistemic virtues in their decision-making process. The authors explore how behavioral biases confound the execution of epistemic duty, and how awareness of behavioral biases can alleviate epistemic failures. The authors conclude this study with recommendations to prevent future frauds of Madoff proportions. Design/methodology/approach The authors rely on recent advances in virtue epistemology and behavioral finance. The authors combine these two theoretical approaches to better understand the duty of competence inherent in being a finance professional, and even more so in being a regulator entrusted with overseeing financial industry, and psychological biases that may prevent finance professionals and regulators from performing this duty. Findings The paper concludes that the SEC employees failed to exercise epistemic virtues in their handling of the complaints implicating Madoff’s firm of fraud. This failure reveals a consistent pattern of behavioral biases in decision-making. The authors posit that knowledge of ethical theory, specifically virtue epistemology, as well as awareness of behavioral biases, which inhibit epistemically virtuous cognitive process, can improve the functioning of both finance industry and its overseers. The authors suggest that future finance professionals and regulators need to acquire this knowledge while pursuing their undergraduate education: it is the duty of business schools to facilitate this progress. Originality/value This paper combines the theory of virtue epistemology with the current knowledge of behavioral biases, which distort rational decision-making, to explain the failures of regulators to analyze fraud reports. The authors extend this finding to recommend the inclusion of the theory of virtue epistemology in business schools’ ethics curriculum.

Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process

2019 ◽  
Vol 12 (3) ◽  
pp. 297-314 ◽  
Author(s):  
Jinesh Jain ◽  
Nidhi Walia ◽  
Sanjay Gupta
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Investment Decisions ◽  
Analytic Hierarchy ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
Overconfidence Bias ◽  
Hierarchy Process

Purpose Research in the area of behavioral finance has demonstrated that investors exhibit irrational behavior while making investment decisions. Investor behavior usually deviates from logic and reason, and consequently, investors exhibit various behavioral biases which impact their investment decisions. The purpose of this paper is to rank the behavioral biases influencing the investment decision making of individual equity investors from the state of Punjab, India. This research would provide valuable insight into the different behavioral biases to investors and other participants of the capital market and help them in improving investment decisions. Design/methodology/approach The research is conducted on the individual equity investors of Punjab, India. Fuzzy analytic hierarchy process was applied to rank the factors influencing the decision making of individual equity investors of Punjab. The primary factors considered for the study are overconfidence bias, representative bias, anchoring bias, availability bias, regret aversion bias, loss aversion bias, mental accounting bias and herding bias. Findings The three most influential criteria were herding bias, loss aversion bias and overconfidence bias. The five most influential sub-criteria were “I readily sell shares that have increased in value (C61),” “News about the company (Newspapers, TV and magazines) affects my investment decision (C84),” “I invest each element of my investment portfolio separately (C71)” and “I usually hold loosing stock for long time, expecting trend reversal (C52).” Research limitations/implications Although sample survey conducted in the present study was based on a limited sample selected from a particular area that truly represented the total population, it is considered as the limitation of this study. Practical implications The outcome of this research provides investors with a better understanding of behavioral biases that influence their decision making. This study provides them a guideline on different behavioral biases that they should consider while making investment decisions. Originality/value The research model is based on the available literature on behavioral finance and the research results and findings would add value to the existing knowledge base.

scholarly journals How do emotional intelligence and behavioral biases of investors determine their investment decisions?

2020 ◽  
Vol 14 (1) ◽  
pp. 35-47
Author(s):  
Saloni Raheja ◽  
Babli Dhiman
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Investment Decision ◽  
Sample Selection ◽  
Investment Decisions ◽  
Risk Tolerance ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
The Impact

Purpose In earlier studies, research has shown that EI is the only element, which influences the ways in which people develop in their lives, jobs and social skills control their emotions and get along with other people. It is EI that dictates the way people deal with one another and understand emotions. The research gap is to explore the impact of behavioral factors and investors psychology on their investment decision-making. Design/methodology/approach The information was gathered from 500 financial specialists. The region of research was the financial specialists who contribute through LSC Securities Ltd. in Punjab State. The purposive testing system was used in this examination. Findings The investigation found that the positive connection between the conduct predispositions of the financial specialists and venture choices of the speculators and positive connection between enthusiastic insight of the financial specialists and their venture choices. Yet, the authors found that the enthusiastic insight better foresees the venture choices of the financial specialists than the conduct predispositions of the speculators. Among the different elements of conduct inclinations of the speculator’s lament and carelessness are identified with the financial specialist’s venture choices. Among the various estimations of eager understanding – care, dealing with emotions, motivation, empathy and social aptitudes are related to the hypothesis decisions of the monetary pros. Research limitations/implications The sample selection was based on purposive sampling, rather than a random probability sample. The sample was area specific, restricted only to Ludhiana Stock Exchange in Punjab state. Therefore, the results of the study cannot be generalized with certainty to all the investors investing through other exchanges in other states. The inferences are based on the assumption that the data provided by the investors are true and correct. The findings may be relevant for other stock exchanges as that of the Ludhiana Stock Exchange. However, the authors do not claim the generalization of the results. Practical implications This study also helps to understand the relationship between investment decision-making and risk tolerance of investors. It will helpful for the financial advisors to know the behavioral biases of investors while making an investment decision, and therefore, they can advise investors properly to mitigate such biases. It may help the investors in understanding the subjective part of their behavior and control their emotions while taking decisions for their investment in stock market options. Social implications This research will help investment advisors and finance professionals to judge investors’ attitudes toward risk in a better way, which leads to better investment decisions. Originality/value This study is my own study and it is original and has not been published anywhere.

Development and validation of behavioral biases scale: a SEM approach

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ritika ◽  
Nawal Kishor
Keyword(s):  
Decision Making ◽  
Investment Decision ◽  
Phase 1 ◽  
Secondary Data ◽  
Higher Order ◽  
Second Order ◽  
Individual Investors ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making

PurposeThis paper attempts to identify the biases in decision-making of individual investors. The paper aims to develop and validate a higher-order behavioral biases scale.Design/methodology/approachScale development is done by identifying the relevant items of the scale through existing literature and then, adding new items for some biases. In phase 1, using a structured questionnaire, data was collected from 274 investors who invest in financial markets. The major dimensions of the scale have been pruned by using exploratory factor analysis administered on data collected in phase 1. Higher-order CFA is used to analyze the data and to validate the scale on another set of data (collected in phase 2) containing 576 investors.FindingsThe study reveals that the scale for measuring behavioral biases has many dimensions. It has two second-order factors and 13 zero-order constructs. Two second-order constructs have been modeled on the basis of cause of errors in investment decision-making, that is, biases caused due to cognition, biases caused due to emotions.Originality/valueBehavioral biases are yet to receive a due attention, especially, in the Indian context. The present research is focusing on providing an empirically tested scale to test the behavioral biases. Some of the biases, which have been analyzed using secondary data in previous studies, have been tested with the help of statements in this study.

Conflicts of interest in finance

2018 ◽  
Vol 26 (3) ◽  
pp. 334-350
Author(s):  
Morten Kinander
Keyword(s):  
Business Ethics ◽  
Moral Reasoning ◽  
Moral Psychology ◽  
Financial Services ◽  
Conflicts Of Interest ◽  
Negative Consequences ◽  
Financial Industry ◽  
Content Type ◽  
Finance Industry ◽  
The Impact

Purpose Relying on research from social psychology and business ethics, this paper aims to argue that the current massive regulatory regime surrounding the attempts to curb what is perceived to be damaging conflicts of interests in the financial industry is based on misguided assumptions, and that the trend of increasingly detailed rule-making, supervision and sanctioning in this area might be counter-effective. This should cause financial services legislators and regulators to be cautious when proposing more detailed rules as solutions to perceived problems. The paper argues that disclosure is no remedy for a harmful conflict of interest, and that such an obligation can only be based on the client’s right to know about the conflict. This right, however, does not, in itself, justify all the extensive and detailed regulation in the area. The paper ends with a recommendation for more research into the moral reasoning ability of financial services professionals, as well as the interplay between judgment and rules in the finance industry. Design/methodology/approach The paper relies on research within behavioural moral psychology, and applies it to business ethics with the aim of discussing the impact of regulation on moral reasoning within the finance industry. Findings Regulation might lead to a decrease in moral reasoning, which is the premise of proper handling of conflicts of interest. Additionally, disclosure of unavoidable conflicts of interest might even strengthen the negative consequences of such conflicts. Research limitations/implications More research should be conducted within the financial services sector about the effect of regulation on individual judgment. Practical implications The paper proposes that care should be exercised when proposing increased and complex regulation to avoid unintended and adverse consequences for the financial services industry. Originality/value The paper synthesises existing research within different fields – such as moral psychology and analytic business ethics – and applies it to financial regulation.

Shari’ah issues, challenges, and prospects for Islamic derivatives: a qualitative study

2016 ◽  
Vol 8 (2) ◽  
pp. 168-190 ◽  
Author(s):  
Muhammad Rizky Prima Sakti ◽  
Ahmad Syahid ◽  
Mohammad Ali Tareq ◽  
Akbariah Mohd Mahdzir
Keyword(s):  
Financial Institutions ◽  
Foreign Currency ◽  
Risk Mitigation ◽  
Financial Industry ◽  
Structured Interviews ◽  
Content Type ◽  
Banking And Finance ◽  
Finance Industry ◽  
Derivative Instruments ◽  
Islamic Financial Institutions

Purpose The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives. Specifically, this paper critically examines the criticisms toward conventional derivative instruments and the controversies surrounding underlying contracts and current Islamic derivative products. Design/methodology/approach This study uses qualitative methods to form a deeper understanding of shari’ah scholars’ perception and experience on Islamic derivatives. Semi-structured interviews were conducted with five shari’ah scholars who are currently working in Islamic financial institutions in Malaysia and Singapore. This study used phenomenological techniques for its data analysis. Findings This study has found that shari’ah scholars are aware of the shari’ah issues surrounding Islamic derivatives and have provided comprehensive insight on the solution to these issues. It was found that it is important to take into account the derivatives instruments in Islamic financial industry because of the need for hedging and risk mitigation within Islamic financial institutions. Nonetheless, the study has also found that the use of wa’ad contracts to structure Islamic profit rate swaps and foreign currency exchanges are problematic because of it having features of bay’ al-kali’ bil-kali (the sale of one debt for another). Originality/value This study is one of few studies that highlight the shari’ah issues of Islamic derivatives in Islamic banking and finance industry. This paper is of value in discussing risk management and Islamic derivatives in Islamic financial institutions and how there are many issues under the investigation process, particularly issues related to controversial underlying contracts and products.

Malaysia bank merger failure exacerbates future risks

2015 ◽  
Keyword(s):  
Financial Integration ◽  
Economic Conditions ◽  
Islamic Finance ◽  
Financial Industry ◽  
Building Society ◽  
Content Type ◽  
Share Prices ◽  
Bank Merger ◽  
Finance Industry ◽  
Industry Integration

Subject Malaysian banking outlook ahead of ASEAN financial integration. Significance On January 14, Malaysian commercial banks CIMB Group, RHB Capital and Malaysian Building Society (MBS) confirmed in a statement that their merger plan had been cancelled, blaming adverse economic conditions and falling share prices. The merger's cancellation has compounded difficulties facing Malaysian banking, and disadvantaged Malaysia in ASEAN financial industry integration and in expanding its Islamic finance industry. Impacts Malaysia will face increasing competition in Islamic finance. Until market conditions improve, Malaysian banks cannot realistically strengthen their capital bases. RHB may seek a merger to strengthen its business position.

Performance of Shari’ah-compliant and non-Shari’ah-compliant listed firms: a case study of Malaysia

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Irum Saba ◽  
Mohamed Ariff ◽  
Eskandar Shah Mohd Rasid
Keyword(s):  
Decision Making ◽  
Design Methodology ◽  
Islamic Finance ◽  
Decision Making Process ◽  
Content Type ◽  
Listed Firms ◽  
Finance Industry ◽  
The Impact ◽  
Statistical Results

Purpose Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be “Shari’ah-compliant” and what form of connections it can have, even in theory, to either the firm’s value or profitability is still an untapped question. This study tries to answer this question. This study aims to find the impact of Shari’ah compliance on firm performance. The results obtained would be useful in helping investors, regulators, companies, government, academicians and practitioners in their decision-making process as to ensure better economic and business gains, both locally and globally. Design/methodology/approach Panel data on 634 Shari’ah-compliant firms have been used in this study for the period of 2000–2014. Findings The results indicate that Shari’ah compliance adds to the value of firms as firms perform transactions according to Shari’ah while avoiding non-permissible activities. Originality/value This study adds value to the existing literature by showing the statistical results for the impact of Shari’ah compliance on the performance of the listed firms on Bursa Malaysia.

Management accounting networks in corporate processes – a cross-national study

2017 ◽  
Vol 13 (1) ◽  
pp. 25-43 ◽  
Author(s):  
Christoph Endenich ◽  
Rouven Trapp ◽  
Michael Brandau
Keyword(s):  
Decision Making ◽  
Field Study ◽  
Corporate Culture ◽  
Management Accounting ◽  
Actor Network Theory ◽  
National Study ◽  
Content Type ◽  
Theoretical Approaches ◽  
Corporate Context ◽  
Management Accountants

Purpose This study aims to compare styles of management accounting (MA), i.e. the way in which MA influences corporate decision-making, in German and Spanish companies. The study illustrates relevant differences by comparing the role of management accountants in decision-making processes and puts a particular emphasis on their networking activities in a corporate context. Design/methodology/approach This study builds on field study data from semi-structured interviews with senior management accountants in German and Spanish companies. The authors analyze the data within the framework of the actor-network theory (ANT). Findings In the sampled German companies, strong networks between management accountants and other corporate functions have been established, whereas the corresponding Spanish networks are emerging but remain fragile because of interference from anti-programs, mistrust and defensive departmental attitudes. Although MA in Spain has established only few accepted routines and remains distant from managerial decision-making, it enjoys an unquestioned standing in the German companies, because its routines and procedures are embedded into corporate culture. This embedding is facilitated by not only information technology but also relatively simple tools such as templates, timetables and standardized agendas. Research limitations/implications The present study underlines how combining the field study approach with rationales from ANT can provide relevant insights into MA practices in its corporate context. Practical implications The present study provides guidance for management accountants striving for an increased influence on corporate decision-making and an improved collaboration with corporate management. Originality/value The authors extend the traditional spectrum of theoretical approaches in comparative MA studies. The ANT lens allows to show how styles of MA are shaped by interdependencies between institutional settings and networking processes. In this way, this paper complements previous cross-country research, which has mainly relied on contingency theory to examine static, country-specific differences in relation to distinct environmental and cultural conditions.

scholarly journals Behavioral biases in pension fund trustees’ decision making

2019 ◽  
Vol 11 (2) ◽  
pp. 128-143
Author(s):  
Leonardo Weiss-Cohen ◽  
Peter Ayton ◽  
Iain Clacher ◽  
Volker Thoma
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Asset Allocation ◽  
Institutional Investors ◽  
Pension Fund ◽  
Content Type ◽  
Behavioral Biases ◽  
The Past ◽  
State Of Affairs

PurposeBehavioral finance research has almost exclusively investigated the decision making of lay individuals, mostly ignoring more sophisticated institutional investors. The purpose of this paper is to better understand the relatively unexplored field of investment decisions made by pension fund trustees, an important subset of institutional investors, and identify future avenues of further exploration.Design/methodology/approachThis paper starts by setting out the landscape in which pension fund trustees operate and make their decisions, followed by a literature review of the extant behavioral finance research applicable to similar situations.FindingsDespite receiving training and accumulating experience in financial markets, these are limited and sparse; therefore, pension fund trustees are unlikely to be immune from behavioral biases. Trustees make decisions in groups, are heavily reliant on advice and make decisions on behalf of others. Research in those areas has uncovered many inefficiencies. It is still unknown how this specific context can affect the psychological effects on their decisions.Research limitations/implicationsGiven how much influence trustees’ decisions have on asset allocation and by extension in financial markets, this is a surprising state of affairs. Research in behavioral finance has had a marked influence on policy in the past and so we anticipate that exploring the decisions made within pension funds may have wide ramifications for the industry.Originality/valueAs far as the authors are aware, no behavioral research has empirically tested pension fund trustees’ decisions to investigate how the combination of group decisions, advice and surrogacy influence their decisions and, ultimately, the sustainability of our pensions.

Do investors exhibit behavioral biases in investment decision making? A systematic review

2018 ◽  
Vol 10 (2) ◽  
pp. 210-251 ◽  
Author(s):  
Syed Aliya Zahera ◽  
Rohit Bansal
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Institutional Investors ◽  
Investment Decision ◽  
Research Work ◽  
Investment Decisions ◽  
Financial Advisors ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making

Purpose The purpose of this paper is to study and describe several biases in investment decision-making through the review of research articles in the area of behavioral finance. It also includes some of the analytical and foundational work and how this has progressed over the years to make behavioral finance an established and specific area of study. The study includes behavioral patterns of individual investors, institutional investors and financial advisors. Design/methodology/approach The research papers are analyzed on the basis of searching the keywords related to behavioral finance on various published journals, conference proceedings, working papers and some other published books. These papers are collected over a period of year’s right from the time when the most introductory paper was published (1979) that contributed this area a basic foundation till the most recent papers (2016). These articles are segregated into biases wise, year-wise, country-wise and author wise. All research tools that have been used by authors related to primary and secondary data have also been included into our table. Findings A new era of understanding of human emotions, behavior and sentiments has been started which was earlier dominated by the study of financial markets. Moreover, this area is not only attracting the, attention of academicians but also of the various corporates, financial intermediaries and entrepreneurs thus adding to its importance. The study is more inclined toward the study of individual and institutional investors and financial advisors’ investors but the behavior of intermediaries through which some of them invest should be focused upon, narrowing down population into various variables, targeting the expanding economies to reap some unexplained theories. This study has identified 17 different types of biases and also summarized in the form of tables. Research limitations/implications The study is based on some of the most recent findings to have a quick overview of the latest work carried out in this area. So far very few extensive review papers have been published to highlight the research work in the area of behavioral finance. This study will be helpful for new researches in this field and to identify the areas where possible work can be done. Practical implications Practical implication of the research is that companies, policymakers and issuers of securities can watch out of investors’ interest before issuing securities into the market. Social implications Under the Social Implication, investors can recognize several behavioral biases, take sound investment decisions and can also minimize their risk. Originality/value The essence of this paper is the identification of 17 types of biases and the literature related to them. The study is based on both, the literature on investment decisions and the biases in investment decision-making. Such study is less prevalent in the developing country like India. This paper does not only focus on the basic principles of behavioral finance but also explain some emerging concepts and theories of behavioral finance. Thus, the paper generates interest in the readers to find the solutions to minimize the effect of biases in decision-making.

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