Ethical Corporate Citizenship: Does it Pay?

Abstract

Ethical corporate citizenship and good corporate governance have received increased attention since the financial scandals prevalent at the beginning of the new millennium. This study first explores the relationship of ethical corporate citizenship to financial performance (i.e., greater profitability and efficiency, and lower cost of capital). Second, the study examines whether ethical corporate behavior is associated with a market-value premium. Results of prior studies are mixed. The results of our study contribute directly to the recent accounting literature in which specific aspects of ethical corporate behavior have been explored (Fukami et al. 1997; Ittner and Larker, 1998;Ballou et al., 2003;Clarkson et al., 2004). We use firms listed by Business Ethics as "The 100 Best Corporate Citizens" as our sample of ethical firms. The univariate results of our study indicate a significant relationship between ethical corporate behavior and financial performance (i.e., greater profitability and efficiency, and lower cost of capital). The results of multivariate tests, controlling for prior year market value of equity, yield results which indicate a marginally significant association between being recognized as ethical in that year and market value of equity, but no association between being recognized as ethical at least one time and market value of equity. Nevertheless, given our study's findings of better financial performance and lower risk, we conclude that ethical corporate citizenship does indeed benefit a firm.

Do LGBT‐supportive corporate policies enhance firm performance?

“…Numerous studies document a positive association between CSR, broadly defined, and firm performance (Blazovich & Smith, ; Chung, Eneroth, & Schneeweis, ; Rushton, ; Waddock & Graves, ). Findings suggest that firm performance is positively related to several components of CSR, including environmental reputation (P. M. Clarkson, Li, & Richardson, ), the implementation of labor‐friendly policies (Faleye & Trahan, ), and employee satisfaction (Edmans, ).…”

Analyst coverage, corporate social responsibility, and firm risk

“…Although there are various definitions of CSR, it generally refers to serving people, communities, and the environment in ways that go above and beyond what is legally required. Recently, researchers have examined the benefits of CSR engagement using direct financial measures of corporate financial performance and have found evidence that CSR is beneficial to the firm, such as higher analyst following (Hong & Kacperczyk ), receive more favorable analysts’ investment recommendation (Ioannou & Serafeim ), increasing financial communications to shareholders (Fieseler ), more effective corporate governance and higher firm value (Blazovich & Smith , Jo & Harjoto , ), lower cost of equity (Dhaliwal et al . ), and higher analyst forecast accuracy (Dhaliwal et al .…”

Longitudinal Analysis of Corporate Social Responsibility on Company Websites

“…If companies merged these issues under one heading and uniformly used the term philanthropy, people could more easily navigate a company’s website, grasp company involvement with this issue, and even make comparisons between companies. Many consumers and investors actively compare companies to put their money into a company that is engaged in CSR (Bhattacharya & Sen, 2004; Blazovich & Smith, 2011).…”