Finance, Ethics of

Finance is concerned broadly with the generation, allocation, and management of monetary resources for any purpose. It includes personal finance, whereby individuals save, invest, and borrow money to conduct their lives; corporate finance, whereby business organizations raise capital, mainly through the issue of stocks and bonds, and manage it to engage in economic production; and public finance, whereby governments raise revenue by means of taxation and borrowing and spend it to provide services for their citizens. This financial activity is facilitated by financial markets, in which money and financial instruments are traded, and by financial intermediaries, such as banks and other financial service providers, which facilitate financial transactions.

Ethics in finance consists of the moral norms that apply to financial activity broadly conceived. That finance be conducted according to moral norms is of great importance, not only because of the crucial role that financial activity plays in the personal, economic, political, and social realms but also because of the opportunities for large financial gains that may tempt [Page 900]people to act unethically. Many of the ethical norms in finance are embodied in laws and government regulation and enforced by the courts and regulatory bodies. Ethics plays a vital role, however, first, by guiding the formation of laws and regulations and, second, by guiding conduct in areas not governed by laws and regulations. In general, moral norms reflect the conduct in financial activity that follows from fundamental ethical principles.