Socially Irresponsible and Illegal Behavior and Shareholder Wealth: A Meta-Analysis of Event Studies

This article provides empirical results indicating that acting in a socially respon- sible and lawful manner is a necessary, though not sufficient, condition for increasing shareholder wealth. It meta-analyzes 27 event studies that have mea- sured the stock market's reaction to incidences of so...

Full description

Saved in:
Bibliographic Details
Published in:Business & society 1997-09, Vol.36 (3), p.221-249
Main Author: Frooman, Jeff
Format: Article
Language:English
Subjects:
Business ethics
Corporate social responsibility
Ethical aspects
Investor relations
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This article provides empirical results indicating that acting in a socially respon- sible and lawful manner is a necessary, though not sufficient, condition for increasing shareholder wealth. It meta-analyzes 27 event studies that have mea- sured the stock market's reaction to incidences of socially irresponsible and illicit behavior. It finds that for firms engaging in socially irresponsible and illicit behavior, the effect on shareholder wealth is negative (wealth decreases), statisti- cally significant (p < .001), and so substantial in size (D = -.932) that the distribution of abnormal returns is shifted nearly a full standard deviation to the left (i.e., negatively) from their expected standard normal distribution. This result gives rationally self-interested firms a self-interested reason to act in a socially responsible and law-abiding manner. It also provides support for a moral position called enlightened self-interest, which prescribes that firms should act in a socially responsible manner to promote the shareholders' interests.
ISSN:0007-6503
1552-4205
DOI:10.1177/000765039703600302