Ethical Financing in Europe-Non-Parametric Assessment of Efficiency

The research gravitates around ethical, sustainable banking activity in an attempt to measure its responsible impact, which is proxy by the efficiency of their financial intermediation function. The paper focuses on ethical banks included in the membership of the European Federation of Ethical and Alternative Banks. Ethical banks are in the spotlight as they are explicitly involved in channeling financial resources towards start-ups and investment projects characterized by the social, cultural and environmental value-added, by encouraging the development of responsible, durable projects. The data envelopment analysis technique was used for computing the relative efficiency score which applies a linear programming algorithm for aggregating multiple inputs and outputs specific to banking activity. The main research stages developed within the paper consist of the following: (i) Computation of efficiency scores for each ethical bank in a timeframe of four successive years; (ii) developing the efficient frontier; (iii) performing discrimination between efficient and less efficient ethical banks and making a ranking. Therefore, the results emphasize ethical banks' comparative performance, in terms of efficiency, and allow the identification of resembling peers whose monitoring may help the bank in achieving a further efficiency status. Overall, the results show that a single ethical bank constantly fulfills its mission to be socially responsible and exhibits a persistent efficiency status while the remaining ones face heterogeneity in terms of efficient business conduct.