Which Firms Get Punished for Unethical Behavior? Explaining Variation in Stock Market Reactions to Corporate Misconduct

Although there is ample evidence that stock markets react negatively to unethical corporate behavior, our understanding of the mechanisms that shape variation in these reactions across different incidents of misconduct remains underdeveloped. We propose and test a framework for explaining this variation by focusing on the role of the media in disseminating initial information about misconduct. We argue that the signaling effects of this information are important for investors because corporations have strong incentives to limit the information they disclose about misconduct. More specifically, we hypothesize that investors are more likely to react negatively when the media presents clear and credible information that misconduct occurred, that the firm was responsible for it, and that the misconduct was the result of deeper organizational problems. We also predict that information which signals that a firm has restorative capacity tempers investor reactions when the media places blame for misconduct on the corporation rather than specific individuals. We test our hypotheses in a unique sample of 345 acts of corporate misconduct in five European countries. Our findings provide broad support for our hypotheses, and we discuss implications for research on corporate misconduct and the role of non-state actors in regulating unethical corporate behavior.


Edward J. Carberry, Peter-Jan Engelen and Marc van Essen. 2018. Which Firms Get Punished for Unethical Behavior? Explaining Variation in Stock Market Reactions to Corporate Misconduct, Business Ethics Quarterly, first published 19 February 2018: https://www.cambridge.org/core/journals/business-ethics-quarterly/article/which-firms-get-punished-for-unethical-behavior-explaining-variation-in-stock-market-reactions-to-corporate-misconduct/E98BB4819063F847C0FA12FDFF0136C2

2018-03-06T13:13:15+00:00 By |

About the Author:

Marc van Essen
Marc van Essen (PhD Erasmus University) is an Associate Professor of International Business at the Moore School of Business, University of South Carolina and permanent visiting professor at emlyon business school, France. His research interests include comparative corporate governance, international business, family business, and meta-analytic research methods. His works applying meta-analysis have been published or are forthcoming in the following journals: Academy of Management Journal, Journal of Banking and Finance, Journal of International Business Studies, Journal of Management, Journal of Management Studies, and Organization Science, and other outlets.

Leave A Comment