A new approach to research and theory development for financial firms-building a “house with windows”

Abstract

The aims of this paper are to: rethink empirical models and theory used in explaining banks and financial institutions (FIs); and to enhance the process of theory construction. This is a provisional response to Colander et al (2009), Gendron at al (2013) call for a new approach to developing theory for finance and financial institutions Approach: An embryonic 'behavioural theory of the financial firm' (BTFF) is outlined based on: field research about banks and FI firms; and relevant literature. The paper explores 'conceptual connections' between BTFF and traditional finance theory ideas of financial intermediation (FTFI). It does not seek to 'integrate' finance theory and alternative theory in 'meta theory', and has a more modest aim is to improve theory content through 'connections' Findings: The 'conceptual connections' provide a means to develop ideas proposed by Scholtens and Wensveen (2003. They are part of a 'house with windows' intended to provide systematic means to 'take data from the outside world' whilst continuously recognising 'the complexities of the context' (Keasey and Hudson, 2007), to both challenge and build the core ideas of finance theory. Research implications: The BTFF is a means to create 'conversations' between academics, practitioners and regulators to aid theory construction. This can overcome the limitations of such embryonic theory. Practical implications: The ideas developed create new opportunities to: develop finance theory; propose changes in banks and FIs; and suggest changes in the focus of regulation. Originality/value Regulators can use the expanded conceptual framework to encourage theory development and to enhance accountability of banks and FIs to citizens.

Corporate Social Responsibility, Problems, Behaviour, and Change in Financial Firms

“…These provide the basis to develop CSR oriented 'Behavioural theory of the financial firm' (CSR BTFF). This is a further development of a financially oriented BTFF (Holland, 2017b(Holland, , 2019a. The CSR BTFF can be used to improve integrated thinking in managing financial firms and to support development of CSR disclosure in integrated reporting or <IR> in financial firms.…”

“…The intangibles include 'governance', 'leadership', 'culture', shared knowledge. It concerns their dynamic interactions and significant role in financial intermediation (Holland, 2019a) and in CSR change processes. These internal factors and issues exacerbate barriers to CSR change.…”

“…They also face values gaps between conventional finance values and emerging CSR values. The knowledge and values gaps become evident during ongoing periods of gradual and rapid change (Chen et al 2014, Holland, 2010, 2017b, 2019a. Knowledge gaps arise in practice and academe between what is known and what must be known (Zack, 1999) The knowledge gaps and 'values' gaps about CSR change in financial firms arise in practice and academe due to the complexity and rapidity of external change (Holland, 2010;Bratianu, 2020) and because of internal barriers to change.…”

“…This creates conditions for financial intermediation and hence the transformation of financial capital and its risks. (Holland, 2019a).…”

“…The CSR BTFF is also a basis to develop firm-wide hypotheses for empirical tests in CSR finance (Poterba, 2021) and test for 'CSRwash' (Pope et al, 2016). It can encourage a rethink of research and theory development in finance (Gendron, & Smith-Lacroix, 2013Holland, 2019a. It contributes to developing holistic and integrated CSR communication and reporting.…”