Corporate financial misconduct has garnered increased interest in business ethics research. Although prior research has provided insights into the consequences of financial misconduct, our understanding of why investors react differently to similar instances of misconduct, especially in emerging markets, remains limited. In this study, we first argue that direct information on the severity of misconduct is the primary basis for investors’ evaluations. Next, drawing on screening theory, we theorize that in contexts characterized by high information asymmetry, indirect information about existing (...) firm commitment cues plays a vital screening role by demonstrating the firm’s legitimacy and capability. Subsequently, we develop a tripod framework that integrates the social, market, and strategy dimensions as firm commitment cues that serve as fundamental screening mechanisms to mitigate the adverse effect of misconduct severity on investor reactions. We use a sample of 344 Chinese listed firms that engaged in financial misconduct during 2009–2019 and find that greater misconduct severity results in more negative investor reactions. However, this negative relationship is weakened when the firm demonstrates stronger social and strategy commitments but not stronger market commitment. (shrink)

We develop a model of ideals-based accountability which we have witnessed at work in several long-thriving family businesses. The owners and managers of these firms eschew individualism and materiality in the pursuit of ethical ideals such as supporting democracy and bettering the human condition. Although accountability is to these ideals, not for outcomes such as profitability or even reputation, IBA has resulted in outstanding reputations for some firms. We characterize IBA according to its missions, leadership, culture, and stakeholder relationships. We (...) also contrast it with traditional forms of accountability and differentiate IBA from related stakeholder, stewardship, and CSR perspectives. Finally, we examine its manifestations within five long-lived family enterprises, in the process generating propositions to advance the concept. (shrink)

The question of whether ethical individuals have a disadvantage in becoming leaders is an important one that has not been adequately discussed in the business ethics/leadership literature. In this paper, drawing on Plato’s middle dialogues and particularly on the Republic, I develop a Platonic framework of the constraints that might hinder the emergence of what the dialogues term ‘philosopher kings’. Subsequently, I use this framework to elucidate the emergence of ethical leaders in todays’ organizations and conclude with a discussion of (...) this paper’s implications for the ethical leadership literature. (shrink)

Political corruption imposes substantial costs on shareholders in the U.S. Yet, we understand little about the basic factors that exacerbate or mitigate the value consequences of political corruption. Using federal corruption convictions data, we find that firm-level economic rents and monitoring mechanisms moderate the negative relation between corruption and firm value. The value consequences of political corruption are exacerbated for firms operating in low-rent product markets and mitigated for firms subject to external monitoring by state governments or monitoring induced by (...) disclosure transparency. Our results should inform managers and policymakers of the tradeoffs imposed on firms operating in politically corrupt districts. (shrink)

We use the U.S. Supreme Court’s decision in Citizens United v. Federal Election Commission to assess the reputational risks created by political investment opportunities that allow managers to spend unlimited and potentially undisclosed firm resources on independent political expenditures. This new opportunity raises important ethical questions, as it is difficult, and perhaps impossible, under current law for shareholders to hold managers accountable for this investment choice and the reputational risks it entails. Using firms’ known political activity as a proxy for (...) managers’ likely future use of independent political expenditures, we examine how market participants reacted to Citizens United, conditional on this prior activity and corporate governance attributes related to the concentration of decision rights in senior management and blockholders. The results of our analyses document that firms with both a high level of known political activity and CEO-chairperson of the board duality experienced negative abnormal returns in reaction to Citizens United. In contrast, firms with concentrated ownership experienced positive abnormal returns; however, as known political activity increased, investors discounted the benefits of concentrated ownership. These findings suggest that investors expect this expansion of firms’ political investment opportunities to amplify principal-agent problems inherent in corporate political activity. Additionally, our findings provide evidence for those deliberating the mandatory disclosure of firms’ investments in politics as a means of increasing managerial accountability to both shareholders and the public. (shrink)

Corporate anti-corruption initiatives can make a substantial contribution towards curtailing corruption and advancing efforts to achieve the United Nations’ Sustainable Development Goals. However, researchers have observed that underdeveloped assumptions with respect to the conceptualization of corruption and how firms respond to corruption risk impeding the efficacy of anti-corruption programs. We investigate the relationship between the perceived level of corruption in foreign host countries and the organizational structure of subsidiary operations established by multinational corporations. Foreign host market corruption is disaggregated into (...) two components—private and public corruption. We employ an uncertainty-based perspective grounded in transaction cost theory to focus upon the distinct mechanisms through which private and public corruption can each be expected to impact a foreign subsidiary’s organizational structure [wholly-owned subsidiary or a joint venture with a local partner]. We expect that each type of corruption fosters a different type of uncertainty which predominates in shaping the MNC’s choice of foreign subsidiary investment structure. Hypotheses are developed and tested with a sample of 187 entries into 19 foreign host markets. Each type of corruption was found to exert a distinct effect upon the organizational structure of foreign subsidiaries. More precisely, while heightened perceived levels of public corruption were found to motivate MNCs to invest through a JV with a local partner rather than a WOS, more pronounced private corruption precipitated the opposite outcome. (shrink)

We examine how corporate bribery is impacted by cultural distance between multinational enterprises home and host countries, and organizational distance to core values between MNE entry modes and MNE headquarters. Tension between external and internal legitimacy helps to explain why cultural and organizational distances will affect MNE bribery. The empirical analysis used data from cross-border transactions by MNEs that were sanctioned by US regulatory officials between 1978 and 2011. We find statistical support for all hypotheses capturing main and moderating effects (...) and suggest that MNEs may be seriously risking their legitimacies from transactions in corruption-prone host countries. (shrink)