Firms are under increasing pressure from external forces to do what is right and behave ethically. However, we have only a limited understanding of how ethical and responsible business practices impact the value of the firm, both in the short and the long term. In this study, we examine 196 firms that were recognized as the world's most ethical firms from 20 countries over a 14-year span. Results show that ethical behavior may have little effect on a firm's profitability in (...) the short term. However, it has a positive effect on a firm's market value, reflecting the market's positive assessment of its long-term performance. We also find that firms frequently listed among the world's most ethical companies tend to have higher market value than firms listed only once. (shrink)

Business ethics have become an important topic globally for both policy-makers and businesses. This paper first discusses the conceptual framework for business ethics followed by ethical management and corporate social responsibility as well as relevant theories. Within this conceptual framework, Korea is used as a country context as to the development of EM and CSR. An important example of an ethical scandal is the major steel manufacturer, POSCO as it was held up as an exemplar and role model of ethical (...) management. However, in 2015, it faced allegations that the engineering and construction overseas unit chief of its Vietnamese subsidiary created a slush fund by overstating payments to Vietnamese contractors. This conceptual paper discusses the factors that created this situation referring to the theory of connection. It locates the case in the EM and CSR literature and analyses what went wrong and what the parent company could have done to prevent this from happening. (shrink)

A variety of stakeholders have long been interested in the factors that are related to firm valuation. This article investigates why companies with more comprehensive corporate governance (CG) have a value premium over companies with less comprehensive CG. We posit and find that the cost of equity capital (COC) decreases with the strength of CG, suggesting that the value premium stems from the lower COC for more comprehensive CG. We also find that the COC is lower for companies with strong (...) commitment to business ethics (BE) than for those with weak commitment to BE and that the beneficial effect of CG on the COC is more pronounced for companies with weak commitment to BE than for those with strong commitment to BE. Companies with more comprehensive CG tend to exhibit strong commitment to BE, but the beneficial effect of corporate ethical commitment is not completely subsumed by CG. Our results suggest that companies could lower their cost of equity capital and increase firm value by adopting more comprehensive CG practices and committing to higher standards of BE. (shrink)

Different ethical frameworks have been proposed as appropriate for integrating into crisis management strategies. This study examines an ethic of care approach to crisis management analysing the case of Northern Rock bank which was at the centre of the recent financial crisis in the UK. The development and maintenance of relationships is fundamental to an ethic of care approach and the research recognises this by examining the bank–stakeholder relationship both before and after the crisis. Considerable anger was directed at the (...) bank post-crisis and, subsequently, the management team resigned. An important contention is that because an ethic of care approach had not been followed external parties judged that management should have foreseen the crisis and the harm caused was deemed intentional, even though predicting the crisis would have been difficult and it is improbable any harm was intended. Additionally, this negative reaction was heightened due to three facets of Northern Rock’s history: (i) its previous existence as a building society, (ii) the ‘local’ nature of the bank and (iii) the creation of The Northern Rock Foundation. These historical factors caused local stakeholders to presume a ‘caring’ relationship between themselves, and the bank had continued to exist post-demutualisation. The events of the crisis compelled stakeholders to re-appraise this presumption, amplifying the post-crisis anger. (shrink)

The relationship between corporate social responsibility and corporate financial performance has long been a central and contentious debate in the literature. However, prior empirical studies provide indefinite conclusions. The purpose of this study is to review systematically and quantify the CSR–CFP link in a meta-analytic framework. Based on 119 effect sizes from 42 studies, this study estimates that the overall effect size of the CSR–CFP relationship is positive and significant, thus endorsing the argument that CSR does enhance financial performance. Furthermore, (...) this work sheds light on the causal relationship between CSR and CFP. Subsequent financial performance is associated with prior social responsibility, while the reverse direction is not supported. This finding supports the instrumental stakeholder theory. As predicted, the meta-analysis results indicate that the measurement strategies of the two key constructs of CSR and CFP explain some variations of the CSR–CFP relationship. Last, this study examines the moderating effect of the environmental context on the CSR–CFP link. This work proposes that CSR in the developed world, with a relatively mature institutional system and efficient market mechanism, will be more visible than CSR in the developing world. The results show that the CSR–CFP relationship is stronger for firms from advanced economies than for firms from developing economies. (shrink)

This study examines the relationship between corporate commitment to business ethics and financial reporting quality. We posit that companies with a higher level of ethical commitment exhibit better quality financial reporting than those with a lower level of ethical commitment. Consistent with our prediction, we find that companies with a higher level of ethical commitment are engaged in less earnings management, report earnings more conservatively, and predict future cash flows more accurately than those with a lower level of ethical commitment. (...) We also find that corporate commitment to business ethics has perpetuating effects on future financial reporting quality. (shrink)

Applying value relevance analysis to a sample of European banks, we test the following: (i) the direct effects of the sustainability report on stock price; (ii) whether the report modifies the value relevance of financial accounting variables (indirect effects); and (iii) whether the value relevance of sustainability reports varies across countries. Results show that investors appreciate the additional and complementary disclosure provided by the sustainability report and that this disclosure produces a positive effect on stock prices. Estimates of the indirect (...) effects demonstrate that it has a negative influence on book value per share, whereas the effect on earnings per share is not significant. Cross-country analysis shows that the value relevance of the sustainability report varies across European countries, consistent with the hypothesis that the value relevance of the sustainability report is likely to be influenced by different institutional contexts. (shrink)

This paper examines the association between board characteristics and the ethical reputation of financial institutions. Given the pivotal governance role of the board of directors and the value-relevance of ethical corporate behavior, we postulate a positive relationship between ethical reputation and board features that foster more effective monitoring and oversight. Using a sample of large financial institutions from 13 different countries, we run several alternative panel regressions of ethical reputation on board characteristics and firm-specific controls. Our results demonstrate that the (...) ethical reputation of financial institutions is positively associated with board size, gender diversity, and CEO duality, while being negatively related to the busyness of the board members and a composite index reflecting poor monitoring. Nevertheless, inconsistent with our hypothesis, we also document that financial institutions with less frequent board meetings have better ethical reputation. Overall, our empirical findings suggest that stronger board oversight may promote ethical behavior in the financial industry. (shrink)