Do ethical firms create value?

This study aims to examine the value relevance of ethics information.

This study adopts event study methodology to test the market’s reaction around the announcements of World’s Most Ethical Companies (WME), a ranking based on firms’ overall corporate social responsibility performance. The authors calculate the abnormal returns of firms on the WME lists to investigate how stockholders respond to the disclosure of ethical information.

The authors find significant and positive abnormal returns around the announcements of the lists of ethical firms. Specifically, positive market reaction on the first day after the WME announcement (Day 1) is observed.

This study contributes to the existing literature of the relationship between business ethics and firm value. The authors provide evidence that ethics can be aligned with firms’ financial goals. Further, this study is the first to use the WME announcement as a proxy for ethical firms.