Ethical Corporate Citizenship: Does It Pay?

Research on Professional Responsibility and Ethics in Accounting, Vol. 15: 127-163, 2011

44 Pages Posted: 25 Apr 2008 Last revised: 2 Mar 2016

See all articles by Janell L. Blazovich

Janell L. Blazovich

University of St. Thomas

Murphy Smith

Texas A&M University-Corpus Christi-Department of Accounting

Date Written: 2011

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.

Keywords: Accounting ethics, corporate governance, corporate social responsibility

JEL Classification: G12, G34, M41, M43

Suggested Citation

Blazovich, Janell L. and Smith, Murphy, Ethical Corporate Citizenship: Does It Pay? (2011). Research on Professional Responsibility and Ethics in Accounting, Vol. 15: 127-163, 2011. Available at SSRN: https://ssrn.com/abstract=1125067

Janell L. Blazovich

University of St. Thomas ( email )

2115 Summit Avenue
AQU217
St. Paul, MN 55105
United States

Murphy Smith (Contact Author)

Texas A&M University-Corpus Christi-Department of Accounting ( email )

6300 Ocean Dr
Corpus Christi, TX 78412
United States

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