A Wolf in Sheep's Clothing: The Use of Ethics-Related Terms in 10-K Reports
University of Notre Dame
University of Notre Dame - Mendoza College of Business - Department of Finance
Michigan State University - Department of Finance
August 16, 2007
We examine the occurrence of ethics-related terms in 10-K annual reports over 1994-2006 and offer empirical observations on the conceptual framework of Erhard, Jensen, and Zaffron (2007). We use a pre-Sarbanes-Oxley sample subset to compare the occurrence of ethics-related terms in our 10-K data with samples from other studies that consider virtue-related phenomena. We find that firms using ethics-related terms are more likely to be "sin" stocks, are more likely to be the object of class action lawsuits, and are more likely to score poorly on measures of corporate governance. The consistency of our results across these alternative measures of ethical behavior suggests that managers who portray their firm as "ethical" in 10-K reports are more likely to be systematically misleading the public. These results are consistent with the integrity-performance paradox.
Number of Pages in PDF File: 26
Keywords: ethics, 10-K filings
JEL Classification: A13, G30, M40
Date posted: August 21, 2007
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