Ethical Performance, Financial Performance and the Quality of Financial Reporting

41 Pages Posted: 1 Jan 2014

See all articles by Fayez A. Elayan

Fayez A. Elayan

Brock University-Goodman School of Business

Jennifer Li

Brock University

Zhefeng Frank Liu

Brock University

Thomas Meyer

Southeastern Louisiana University

Sandra Felton

Brock University

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

Elayan, Fayez A. and Li, Jingyu and Liu, Zhefeng Frank and Meyer, Thomas and Felton, Sandra, Ethical Performance, Financial Performance and the Quality of Financial Reporting (November 29, 2013). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2373151 or http://dx.doi.org/10.2139/ssrn.2373151

Fayez A. Elayan (Contact Author)

Brock University-Goodman School of Business ( email )

1812 Sir Issac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.brocku.ca

Jingyu Li

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

Zhefeng Frank Liu

Brock University ( email )

st catharines, Ontario
Canada
(905)688-5550 ext 5834 (Phone)

Thomas Meyer

Southeastern Louisiana University ( email )

Hammond, LA 70402
United States

Sandra Felton

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

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