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Story in the School of Business

Statman photo

Meir Statman

Professor, Finance
At a glance:

Ethics in business has always been a topic of contention, but finance professor tackles it head-on.

Paul Bond is an attorney whose law firm is advising one company on the takeover of another. Though Bond is not involved in that project himself, he overhears a colleague say that the offer for the target company will be $120 a share. Based on this knowledge, he buys 1,000 shares at $70, expecting to turn a quick and substantial profit.

Is Bond's behavior ethical?

It turns out there's a wide range of opinions, depending on the country where the question is asked and whether it's asked of college students or finance professionals, according to research done by Meir Statman, the Glenn Klimek Professor of Finanace in the Leavey School of Business at SCU.

Statman published the results of his study in Financial Analysts Journal¸and was awarded the Finance Research Excellence Award by the University of Notre Dame for his work. He hopes his findings will stimulate deeper and more practical discussion on business ethics and how to improve them.

"Conversations about ethics in business tend to be sterile and based on abstract principles drawn from philosophy," Statman says. "There's too much preaching, too much self-righteousness and hypocrisy, and too little knowledge of actual perceptions of ethics and how they vary among countries and within them."

Working with colleagues abroad, Statman posed the Paul Bond question and others to finance professionals and college students in the United States, Australia, India, Israel, Italy, the Netherlands, Turkey, and Tunisia. In the U.S. and the Netherlands, only 5 percent of finance professionals said Bond's behavior was acceptable. That rose to 16 percent in Australia and Israel, and then jumped to percentages in the forties in Italy, Tunisia, and India, and to 56 percent in Turkey.

In every country surveyed, students were more likely to approve of Bond's behavior. Statman suspects that, unlike the professionals, the students haven't yet been fully schooled on the law prohibiting insider trading.

Insider trading is illegal in all the surveyed countries, but is viewed as more acceptable in some places. Norms of fairness as well as levels of trust and freedom from corruption are part of "social capital," and that capital varies from country to country, Statman says.

"In a society where people cheat where they can," he says, "business enterprises are often limited to family because others are not trusted."

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