Abstract
Research background:With countless standards and rankings for moral behavior of large companies on one side and corporate scandals of immoral actions on the other, the question arises whether it is important at all for stock corporations to keep a clean slate or whether their value might not even be affected by emerging scandals.Purpose of the article:This paper analyzes whether and how the stock market reacts to newly published news about immoral behavior by stock corporations. It shows the reactions of stock prices to morality scandals for 39 different companies that have all been exposed for immoral behavior.Methods:After establishing a standard time window around the event day of the emerging news, the stock reaction is analyzed by estimating the selected companies’ share prices based on their past and then comparing the estimated values to the actual values on and after the event day.Findings & Value added:While the overall finding is that stock prices do not react to their companies’ scandals with statistical significance, it is shown that the stock prices of smaller companies are affected more than those of the bigger example companies. It can therefore still be recommended for companies to build a good reputation by showing responsible behavior.
Highlights
“Moral brings profit”[1] is the title of the German magazine “Wirtschaftswoche” on the cover of its 38th issue and it shows just how relevant the topic of ethics is at present
By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”[7]. What the founding father of the national economy, the Scottish moral philosopher Adam Smith, formulated with these sentences in his famous work “The Wealth of Nations” earned him much admiration and recognition: Not through altruism, but with an orientation towards self-interest, each individual promotes public interests without intending it themselves
Market critics cite numerous ethical problems to demonstrate that market outcomes are always ethically inferior and unfair
Summary
“Moral brings profit”[1] is the title of the German magazine “Wirtschaftswoche” on the cover of its 38th issue and it shows just how relevant the topic of ethics is at present. More market means more entrepreneurial freedom, which could be used to ruthlessly generate higher profits at the expense of the general public In this context, critics of globalization in particular denounce the misuse of room for manoeuvre by management.[4] It is often disregarded that the market can serve the welfare of all if it is not limited by bureaucratic regulations. Critics of globalization in particular denounce the misuse of room for manoeuvre by management.[4] It is often disregarded that the market can serve the welfare of all if it is not limited by bureaucratic regulations In this context, the need for independent (corporate) ethics is denied, as the market automatically disciplines its participants to behave correctly.[5]. The question arises for consumers, suppliers, or the press, and for companies themselves: market or morality?
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