Ethics, Diversity Management and Financial Reporting Quality

20 Pages Posted: 11 Sep 2009 Last revised: 13 Apr 2010

See all articles by Réal Labelle

Réal Labelle

HEC Montréal - Stephen A. Jarislowsky Chair in Governance

Rim Makni Gargouri

University of Sfax - Faculty of Economics and Management (FSEGS)

Claude Francoeur

HEC Montréal

Date Written: September 10, 2009

Abstract

This article proposes and empirically tests a theoretical framework incorporating Reidenback and Robin’s (1991) conceptual model of corporate moral development. The framework is used to examine the relation of governance and business ethics, as proxied by diversity management, with financial reporting quality, as proxied by the magnitude of earnings management. The level of diversity management (DM) and governance quality are measured in accordance with the ratings of Jantzi Research (JR), a leading provider of social and governance research for institutional investors. This DM score is part of an index developed by JR that investment managers use to integrate DM criteria into their investment decisions. As expected, a negative relation between corporate DM development and FRQ is found while controlling for other factors known in the governance and accounting choices literatures to affect earnings quality. Despite some caveats presented in conclusion, this study contributes to the ethics, governance and financial reporting literatures by studying the dynamics between governance and ethics in the prevention of earnings management.

Keywords: ethics, diversity, diversity management, governance, financial reporting quality, earnings management, earnings quality

Suggested Citation

Labelle, Réal and Makni Gargouri, Rim and Francoeur, Claude, Ethics, Diversity Management and Financial Reporting Quality (September 10, 2009). Journal of Business Ethics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1471332

Réal Labelle

HEC Montréal - Stephen A. Jarislowsky Chair in Governance ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514 340 6374 (Phone)

Rim Makni Gargouri

University of Sfax - Faculty of Economics and Management (FSEGS) ( email )

Route de l'aerodrome km 4
Sfax, sfax 3018
Tunisia

Claude Francoeur (Contact Author)

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal H3T 2A7, Quebec
Canada

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