This paper proposes a model to explain what makes organizations ethically vulnerable.Drawing upon legitimacy, institutional, agency and individual moral reasoning theories we consider three sets of explanatory factors and examine their association with organizational ethical vulnerability. The three sets comprise external institutional context, internal corporate governance mechanisms and organizational ethical infrastructure. We combine these three sets of factors and develop an analytical framework for classifying ethical issues and propose a new model of organizational ethical vulnerability. We test our model on a sample of 253 firms that were involved in ethical misconduct and compare them with a matched sample of the same number of firms from 28 different countries. The results suggest that weak regulatory environment and internal corporate governance, combined with profitability warnings or losses in the preceding year, increase organizational ethical vulnerability. We find counterintuitive evidence suggesting that firms' involvement in bribery and corruption prevention training programmes is positively associated with the likelihood of ethical vulnerability. By synthesizing insights about individual and corporate behaviour from multiple theories, this study extends existing analytical literature on business ethics. Our findings have implications for firms' external regulatory settings, corporate governance mechanisms and organizational ethical infrastructure.

This paper examines whether major media advertising expenditures help in predicting future earnings. We consider the role of media advertising in firms' marketing efforts and posit that persistent advertisers are more likely to benefit from advertising activities in creating long-lived intangible assets. Employing a sample of persistent UK advertisers over the period 1997-2013, we find that advertising expenditures are significantly positively associated with firms' future earnings and market value. We also report size and sector-based differences in the association between advertising and firms' future earnings. Our additional analysis provides support for the arguments that despite the recent rise in digital advertising budgets, traditional advertising media are still effective in positively influencing firms' performance. Overall, the results of this study are consistent with the view that advertising expenditures produce intangible assets, at least for firms in certain sectors. These findings have implications for marketers in providing evidence of the value generated by firms' advertising budgets, for investors in validating the relevance of advertising information in influencing future earnings, and for accounting regulators in relation to the provision of useful insights for any future deliberations on financial reporting policies for advertising expenditures.

This study develops a “comply or explain” index which captures compliance and quality of explanations given for non‐compliance with the corporate governance codes in UK and Germany. In particular, we explain, how compliance and quality of explanations provided in non‐compliance disclosures, and various other internal corporate governance mechanisms, affect the market valuation of firms in the two countries. A dynamic generalised method of moments (GMM) estimator is employed as the research technique for our analysis, which enabled us to control for the potential effects of endogeneity in our models. The findings of our content analysis suggest that firms exhibit significant differences in compliance, board independence and ownership structure in both countries. The “comply or explain” index is positively associated with the market valuation of UK firms suggesting that compliance and quality governance disclosure are value relevant in the UK. Institutional blockholders' ownership is, however, negatively associated with the market value of firms, which raises questions about the monitoring role of institutional shareholders in both countries. We argue that both compliance and explanations given for non‐compliance are equally important, as long as valid reasons and justifications for non‐compliance are provided by the reporting companies. These findings thus imply that the “comply or explain” principle is working well and that UK and German companies could benefit from the flexibility offered by this principle. With respect to the role of board size, board independence, ownership structure, and institutional ownership of firms, this study offers policy implications.

No abstract

Purpose The purpose of this paper is to investigate the motivation and post-merger operating performance (OP) of European utility sectors following mergers and acquisitions (M&A). Design/methodology/approach Motives behind M&A are examined by looking into the relationships between total gains, target gains and acquirer gains. Post-merger OP is measured by comparing the sample of European utilities with a matched portfolio based on size and market to book ratio with respect to five accounting indicators: growth in turnover, growth in earnings before interest and tax, return on assets, net profit margin and growth in fixed assets. Findings Synergy is the primary motive for M&A in the European utility firms. This study also found that post-merger OP is negative and significant across all the five accounting indicators matched by size, and market to book ratio suggesting that utility mergers underperform in the long term. The findings suggest that gains accruing to utilities involved in acquisitions are short term in nature. Practical implications Negative post-merger OP bears important policy implications as in future antitrust/competition authorities should be more vigilant before approving utility mergers. Originality/value Public utilities possess several characteristics that are different from industrial firms and therefore need to be examined separately. Empirical literature on M&A is very limited on utilities. This study has addressed this gap by examining the motivation and post-merger OP of the European utility firms.