The Costs of the Rotten Barrel: Financial Performance and Unethical Culture Based on Employee Reviews
63 Pages Posted: 24 Jun 2019 Last revised: 1 Jul 2019
Date Written: June 24, 2019
I investigate the relationship between unethical culture and financial performance based on a text analysis of over 100,000 employee reviews posted at Glassdoor in Brazil. My measure of unethical culture is based on the “two-factor model of ethical culture” developed by Ethical Systems. The model identifies five “disqualifiers” or ethical dimensions companies need to avert for an ethical culture to flourish. After creating an original list of around 1,400 terms related to the unethical culture dimensions, I find that companies scoring higher in unethical culture are less profitable and that this relationship is likely to be economically relevant. Of the five dimensions that make up an unethical culture, organizational unfairness, lack of awareness, and fear of retaliation are the three most strongly negatively related to performance. Causality running from culture to performance, though, cannot be claimed, as endogeneity concerns may still be present despite best efforts to mitigate it. To my knowledge, this is the first paper to document a link between an (un)ethical culture and corporate performance using online reviews. For investors, I contribute by showing that ethical culture measured by employee reviews is a value-relevant source of information.
Keywords: ethical culture, unethical culture, organizational culture, intangible assets, online reviews, firm performance
JEL Classification: G30, G32, L20, M10, M14, M54
Suggested Citation: Suggested Citation