This study adds to the empirical evidence supporting a significant connection between ethics and profitability by examining the connection between published reports of unethical behaviour by publicly traded U.S. and multinational firms and the performance of their stock. Using reports of unethical behaviour published in the Wall Street Journal from 1989 to 1993, the analysis shows that the actual stock performance for those companies was lower than the expected market adjusted returns. Unethical conduct by firms which is discovered and publicized (...) does impact on the shareholders by lowering the value of their stock for an appreciable period of time. Whatever their views on whether ethical behaviour is profitable, managers should be able to see a definite connection between unethical behaviour and the worth of their firm's stock. Stockholders, the press and regulators should find this information important in pressing for greater corporate and managerial accountability. (shrink)

The stock market reaction to two very different corporate social investments is explored. A market model event study methodology is employed using daily stock returns. The results are that the stock market appears to have ignored the 1977 announcement, but rewarded the 1990 event. Future research and possible managerial implications are discussed.

This study examines whether the financial markets penalize public corporations for unethical business practices. Using event study methodology, it is found that upon the announcement that a firm is under investigation or has in some way engaged in unethical behavior, a statistically significant negative abnormal (excess) return is found. This suggests that firms are indeed penalized for their unethical actions.

The increased scrutiny of investors regarding the non-financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of ' holding the market' against the cost of having positions in companies that are subsequently found to have questionable business practices. The availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a Socially Responsible Investment (SRI) benchmark at relatively low cost. The increasing (...) share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds. This article examines whether these incentives have been so far detectable with particular reference to the Dow Jones Sustainability Stoxx Index (DJSSI) that focuses on the European corporations with the highest CSR scores among those included in the Dow Jones Stoxx 600 Index. The aim of the article is twofold. First, we analyse the performance of the DJSSI over the period 2001-2006 compared to that of the Surrogate Complementary Index (SCI), a new benchmark that includes only the components of the DJ Stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances. Second, we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases, the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities. (shrink)

The pressure on companies to practice corporate social responsibility (CSR) has gained momentum in recent times as a means of sustaining competitive advantage in business. The pharmaceutical industry has been acutely affected by this trend. While pharmaceutical product recalls have become rampant and increased dramatically in recent years, no comprehensive study has been conducted to study the effects of announcements of recalls on the shareholder returns of pharmaceutical companies. As product recalls could significantly damage a company's reputation, profitability and brand (...) integrity, this paper investigates the effect on shareholder wealth and the extent to which the adoption of CSR practices by pharmaceutical companies in the United Kingdom (U.K.) and the United States (U.S.), the two largest markets for pharmaceutical products in the world, affected market reactions surrounding product recall announcements. The analysis of product recall announcements from 1998 to 2004 compiled from The Pharmaceutical Journal and U.S. Food and Drug Administration enforcement reports revealed marked differences in the way market participants in the two countries responded to news of product recalls. U.S. investors penalised firms according to the severity of product defects while U.K. investors were indifferent. While U.K. investors rewarded product recalls by firms which were not usually CSR-active, U.S. investors punished non-CSR active firms that performed recalls. These observations could pose strategic challenges to pharmaceutical firms operating in both countries. (shrink)

There are two different, and somewhat competing, strategic explanations for why firms certify for ISO 14001. On the one hand, firms may seek to reinforce their present strategies thereby further enhancing their competitive advantage. On the other hand, firms may use ISO 14001 as a mechanism to reorient their strategies, so that a clear signal is sent about the firm's change in strategic positioning. This paper aims to identify the most likely explanation for early adopters of ISO 14001. Using a (...) matched pair design, we test these alternative explanations on a sample of US firms that certified for ISO 14001 in the first two years after its introduction. In particular, we tested whether ISO 14001 was used to reinforce or reorient firm strategies in respect to the natural environment, corporate social responsibility, quality, and internationalization. We found that firms that certified early for ISO 14001 had considerable environmental legitimacy and a strong international presence. We also found that the firm's commitment to corporate social responsibility and quality were not significantly different between certified and non-certified firms. These findings suggest that early adopters of ISO 14001 leaned towards reinforcing rather than reorienting their firm strategy, which calls into question the ultimate reach of ISO 14001. (shrink)