Ethical Performance, Financial Performance and the Quality of Financial Reporting
41 Pages Posted: 1 Jan 2014
Date Written: November 29, 2013
Abstract
This research examines the economic impact of firms acting ethically on financial reporting performance and quality. We assess the impact of quarterly changes in the Covalance Ethics Index (CEI) rankings compared to firm financial performance (FP) and financial reporting quality (FRQ). A significant positive (negative) stock market reaction to CEI upgrades (downgrades) is observed. Further, the results of correlation and logistic regression analysis suggest that a positive association between increased firm ethical behaviour and performance exists. Finally, multivariate analysis consistently shows that CEI ranking downgrades reflect both lower FP and FRQ rankings. Collectively, these results suggest that corporate measures taken to increase ethical performance are associated with positive benefits to shareholders.
Keywords: Ethical Performance, Financial Reporting Quality, Corporate Social Responsibility, Financial Performance
JEL Classification: M14
Suggested Citation: Suggested Citation