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«Global TrusT and EThics in FinancE Innovative Ideas from the Robin Cosgrove Prize Carol Cosgrove-Sacks / Paul H. Dembinski Editors Trust and Ethics in ...»

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They do not find any impact on cost of capital or stock return volatility when the information emanates from analysts. However, when the positive or negative information comes from the press, it does affect the cost of capital. It increases the cost of capital when the information is negative and decreases it when the information is positive. They conjecture that it might be because of the higher credibility being attributed to financial press as compared to analysts. But in our opinion, the positive returns found in the study are due to the fact that information is apparently coming form a third source rather than from management.

Not always worth the fuss

The events in which investor-relations’ firms receiving compensation try to hide their relationship from investors was studied in this paper. Firms hiring these promoters show an initial increase in the price of their stocks. There is, however, a negative reaction resulting in significantly negative returns when the legal authorities charge the promoters.

Now, smaller firms who have more free cash, and who are investing heavily in capital expenditure are more likely to use these promoters.

Their decision to hire IR firms might be an attempt to reduce the agency problem associated with having more free cash flow and a higher level of capital expenditure. Another possible motive might be to increase the liquidity of the stocks. There is support for the hypothesis that managers hire these promoters to create a more liquid market for their securities.

Thus, average volume increases during the year following the promotion as compared to the average volume preceding it. The average number of trading days also increases following the promotion, in comparison with the average number of trading days prior the promotion.

When Small Companies Dabble in Disinformation 277 As a result, there is increased liquidity resulting from higher trading volume in the underlying securities. There are positive abnormal returns around the event date. This might be considered a result of increased trading and incorporation of stale information in the security prices. It might also be due to the fact that investors really believed the promoters.

Another important factor is the fact that these promoters targeted only buy-side investors, which might have led to higher stock prices.

Ethical issues concerning the hiring of investor-relations’ firms by different firms were raised here. The fact that these investor-relations’ firms were charged, and that the firms that employed them were rarely charged, shows the complexity of enforcement of laws. These firms clearly benefited from the illegal behaviour of the investor-relations’ firms. However, the law enforcement agency did not/could not take any action against them. It might have been difficult to prove in court that the hiring firms knew about the activities of the promoters. But one can argue that these firms were agents of the hiring firms and consequently these firms should have known what their agents were doing, and should, in that capacity, have been prosecuted.

References Antweiler, W./ Frank, M.Z., 2004. “Is all that talk just noise? The information content of Internet stock message boards”, The Journal of Finance, Vol.59, No3.

Barber, B.M./ Odean, T., 2001. “The Internet and the investor”, Journal of Economic Perspectives, Vol.15, No1.

Bushee, B. et al, 2005. Investor Relations, Firm Visibility and Investor Following, published in Knowledge@Wharton.

Deller, D. et al, 1999. “A survey on the use of the Internet for investor relations in the USA, the UK and Germany”, The European Accounting Review, Vol.8, No2.

Frieder, L./ Zittrain, J., 2006. Spam Works: Evidence from Stock Touts and Corresponding Market Activity, Harvard, Berkman Center Research Publication, No. 2006-11.

Hong, H./ Huang, M., 2005. “Talking up liquidity: Insider trading and investor relations”, Journal of Financial Intermediation, Vol14, No1.

Hoveland, C./ Weiss, W., 1951. “The Influences of Source Credibility on Communication Effectiveness”, Public Opinion Quarterly, No52.

278 Trust and Ethics in Finance Kothari, S.P./ Short, J.E., 2003. The Effect of Disclosure by Management, Analysts and Financial Press on the Equity Cost of Capital, Paper 195, Cambridge, Sloan School of Management.

Wysocki, P., 1998. Cheap Talk on the Web: Determinants of Postings on Stocks Message Boards, Working Paper No. 98025, Cambridge, University of Michigan Business School.



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Solidarity finance is an ethical form of finance because it helps to reforge the social and human links that are being damaged on a daily basis by an increasingly aggressive capitalism that puts forward the accumulation of goods and capital as a development model for communities, promoting concentration instead of fair distribution. Community banks create a space where entrepreneurial women from vulnerable communities manage their savings autonomously, in full security and transparency, helping to repair that shaken trust.

Community banks as an instrument of solidarity finance

Is it possible to create mechanisms that promote the democratisation of money? The mission to which the not-for-profit organisation Nuestras Huellas [Our Footprints] has decided to devote all its energies may be described as fostering the comprehensive development of people in their own communities. This is being done through solidarity finance proTrust and Ethics in Finance grammes whose purpose is to promote participatory, self-managed and ethically responsible actions, all within a social economy structure.1 Solidarity finance implies “a kind of democratisation of the financial system, whose objective is to match financial products with the basic needs of people and to underpin the social economy being developed in each region. Solidarity finance gives priority to those excluded from the traditional banking system, creating links that help to integrate people and maintain a sustainable relationship between economy and society.

The goal of this relationship, which is built upon the foundations of ethics and social solidarity, is to create ideal conditions for human development, which must necessarily be an overall and sustainable development.”2 In order to meet this challenge, we have worked to support the establishment of community banks in areas of high social vulnerability. Our community banks are one of the main instruments helping to consolidate the social economy structure. They provide a means for groups to save and pool funds, also providing loans and some financial training to help set up businesses or undertake infrastructure improvements. At the same time an effort is made to provide a comprehensive service to the partners in the community banks, including technical assistance in marketing and business training. Nuestras Huellas is currently working hand-in-hand with 120 community banks.

“Finance is the discipline which has to do with the use of money, its cost and yield, ways of producing and capturing economic surpluses in liquid form, its protection, transfer and control, the creation of services to assist those who hold money surpluses on the one hand and those who are seeking credit on the other. But this descriptive overview makes no mention of the kind of people involved, the specific aims being pursued,

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the kinds of intermediation mechanisms and the whole question of what the existing structures aim to do and what the alternatives might be.”3 A community bank is a neighbourhood self-managed organisation.

Each group consists of at least seven people and sometimes as many as 20 or more members. The only condition for participating, besides the desire to work with team spirit that is required of the predominantly female participants,4 is that the members must be on the point of setting up a business initiative or have done so recently. Thus each partner – the name given to social entrepreneurs who are members of the community banks – obtains a personal loan, with the possibility of a gradual increase, the guarantee being based on the trust that the borrower’s own group have in her to meet her commitments. The loan might be used to boost a business initiative that she has started up or to make improvements to her accommodation.

In order to ensure that the alternative finance offered by the working groups at the community bank is likely to have a genuinely transformative effect and help build the social economy, savings mechanisms are promoted that also offer the possibility of enabling other neighbours in the community to obtain solidarity finance loans. The aim of this savings system, always structured and voluntary, is to help these groups to become independent of Nuestras Huellas, i.e. that they should build up their own capital with which to make loans among themselves, to their families and neighbours.

In its first year of operations, a community bank has an average of some 2,000 Argentine pesos ($US500) in savings on deposit and the average growth rate in savings is around 15%. The loans that a community bank grants from these reserves vary between 400 and 1,500 pesos. In March 2011, the total savings of the community banks amounted to 500,000 pesos ($US125,000), with 900 active loans under their own Alberto Federico Sabaté, Ruth Muñoz y Sabina Ozomek (Compiladores), Finanzas y Economía Social, UNGS, Ed. Altamira.

Currently 95% of all members are women.

284 Trust and Ethics in Finance management, granted within their own communities. At the same time, the active loan portfolio of Nuestras Huellas was 643,562 pesos, which means that the community banks had practically the same amount of capital with which to make loans as an officially-registered not-forprofit organisation. It should also be underlined that repayment defaults on loans granted by community banks amounted to less than 2% of the sums lent.

Each community bank elects from among its partners a board of directors, a chairman, treasurer and company secretary who are responsible for managing the bank. These roles are exercised in rotation and are taken on as a service to the general assembly of shareholders, which is deemed to be the highest decision-making body of a community bank.

Nuestras Huellas appoints a coordinator to assist with the management process at each community bank, his task being to provide the methodology and the tools needed to ensure that each working group is able to move towards greater autonomy, by learning how to do things and gradually taking on all necessary tasks.

In parallel, the shareholders’ assembly draws up its own rules and lays down its own lending policies, the rights and obligations to be assumed by each partner, plus meeting format. It decides on the bank’s values and the means of unifying the various interests and goals of the bank’s various partners. For these reasons, every community bank is self-managed from day one and grows gradually with full autonomy.

2. Solidarity finance and the democratisation of money

“Solidarity finance, like any other financial system, is an instrument of intermediation. In the capitalist economy, the financial system becomes a powerful tool for concentrating and centralising capital. The question that arises when we try to conceptualise the notion of solidarity finance is whether we have financial instruments capable of democratising economic relations. Such instruments must be able to create optimal Solidarity Finance 285 conditions for human development and underpin the social economy in each region. These new relationships must also meet the basic needs of each community by giving priority to people who are excluded from the traditional banking system. Their actions must be guided by ethics and social solidarity”.5 The community bank programme developed by Nuestras Huellas is mainly aimed at women who have decided to work for themselves. This experience leads us to reflect on the relationship women have with work. We have discussed with these women on many occasions their reasons for wanting to set up a business and the reasons vary: to generate some extra income; the fact that she has inherited a trade or would like to learn a trade; to have a pastime and something other than housework to do; to have her own money without having to ask her husband;

to have the chance to meet with and relax with friends or neighbours; or simply because having her own job allows her to get out of the house and meet people. These are some of the infinite number of different reasons. What they all have in common is that starting your own moneymaking activity engenders a change deep down inside each of the partners of a community bank that touches on all aspects of their lives. Undoubtedly, in the course of this process, a feeling of self-esteem arises and produces new attitudes, such as the desire to take better care of their appearance, to improve their look and take more account of their femininity. And this makes the woman’s family and immediate circle also recognise the value of starting an independent business. Creativity is reactivated and the fact of being linked with new groups of people and going to new places tends to awaken many new skills that rapidly engender positive effects.

In order to create a real solidarity finance proposal where the main aim is to democratise money, it is vital to start out from the concept of Dias Coelho, Franklin, Finanzas Solidarias, Cattani, D. (Org.), A otra Economía, Ed. UNGS-ALTAMIRA-OSDE.

286 Trust and Ethics in Finance work. The savings generated by these social enterprises do not come from inherited capital or from income generated simply by putting capital to work by itself. An essential aspect of this whole process is that the savings obtained are the result of work, either the work of one person or the work of a whole family. By placing the entire family’s surplus funds in a community bank, women are usually the ones who manage and channel savings generated through their own work and that of their partner, older children, a grandparent who lives in the same house, etc.

Women consequently tend to become the main managers of the income of the whole family. They take charge of budgeting for food, clothes, education and coping with demands for expenditure on family celebrations or emergencies.

If in addition to the management of income and outlay, the woman takes on the management of the family’s surplus funds, this tends to produce a powerful effect on women in terms of self-education and selfesteem. We should not forget that on top of this new responsibility comes the fact that the money saved is being harnessed to cover the financing needs of their families and neighbours. This little extra, combined with that of other neighbours, soon becomes a capital sum that, little by little, will be able to pay for things that would have seemed entirely unaffordable before. As far as commercial banks are concerned, these women who are setting up social enterprises fulfil hardly any of the requirements for obtaining a loan. Other types of finance providers, including illegal loan sharks, charge such high interest payments that it is simply not worth making the investment and women often do not have the necessary funds to repay loans from family or friends, often the main backers.

This scenario demonstrates that by setting up community banks, the partners can put an end to the “just can’t do it” syndrome, to being shut out of the system, not having the means, and all sorts of fatalistic ideas that they have been hearing since birth in their traditionally poor comSolidarity Finance 287 munities. By dint of their own work, modest and simple though it may be, women can begin to generate wealth in order to meet the needs of their families and that of the other families in the community.

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