We examine market reactions to publicly held multinational firms announcing their affiliation with the United Nations Global Compact (UNGC). The UNGC is a voluntary initiative to support four areas of United Nations viz. Human Rights, Labor, Environmental, and Anti-Corruption. Because firms must file annual Communication on Progress (COP) reports toward these initiatives, we argue this creates a differentiating transparency of interest to stakeholders. Using a sample of 175 global firms, we find support to the theory for joining the UNGC. Returns (...) differ markedly, however, between multinational firms headquartered in the United States (negative) and Europe (positive). We also find that failing to complete the annual COP generates a negative market reaction. (shrink)

We examine market reactions to the stock options backdating scandal in a slightly unusual way, but focusing on firms who were not perceived to have had a backdating concern, but were instead linked to firms who did have a backdating concern. These linkages can be found via board interlocks and the roles those directors perform. In addition we examine the linkages which occur from shared professional services firms, such as auditors and outside legal counsel. That these potential conduits are available (...) is not in question, but rather, do investors perceive the conduits are used to pass along information about backdating stock options? We then ask if affiliation with dominant audit and legal services firms ameliorates or exacerbates those investor market reactions. We find that firms linked to the scandalized firms also face negative reactions, which are worsened when they also are serviced by professional services firms who are themselves are also linked to the managerial practice. (shrink)

This study examines events at the conclusion of the 2006 stock option backdating scandal: the departures of C-level executives from firms implicated in backdating. The authors ask whether removing executives brings closure to the scandal, or if executive turnover creates greater uncertainty. Using a sample of 236 executive departures, the authors find that although overall market reaction to executive departures is negative, those departures involving a firm’s CEO or CFO ameliorate the market reaction. The authors also find that market reaction (...) worsens when the CEO “resigns,” versus being terminated, and when the firm involved has been previously identified as socially responsible. Results suggest that firms, by shaping who and how executives depart, may amplify or dampen the damage of existing scandalizing events. (shrink)

Stakeholder theory provides a framework for investigating the relationship between corporate social performance (CSP) and corporate financial performance. This relationship is investigated by examining how change in CSP is related to change in financial accounting measures. The findings provide some support for a tenet in stakeholder theory which asserts that the dominant stakeholder group, shareholders, financially benefit when management meets the demands of multiple stakeholders. Specifically, change in CSP was positively associated with growth in sales for the current and subsequent (...) year. This indicates that there are short-term benefits from improving CSP. Return on sales was significantly positively related to change in CSP for the third financial period, indicating that long-term financial benefits may exist when CSP is improved. (shrink)

The Business Roundtable's “Purpose of a Corporation” letter announced a shift from stockholder primacy to stakeholder primacy. Interestingly, we contend the letter's language employed a technical efficiency emphasis, suggesting a firm's executives chose to make this shift because they believed doing so would improve the firm's financial performance, via improved corporate governance. We examine whether investors actually accepted the technical efficiency arguments at face value, or in contrast believed the announcements were merely a “rational myth,” what management thought investors would (...) want to hear. We employ a 2-day cumulative abnormal return (CAR) event study for 140 publicly-held firms. Overall, we find investor support for the announcement. In addition, we found how returns to firms with prior similar announcements were negative at the time of the announcement. Also, the returns for firms having multiple signatories were positive and significant. (shrink)