THE EFFECT OF PUBLISHED REPORTS OF UNETHICAL CONDUCT ON STOCK-PRICES

This study adds to the empirical evidence supporting a significant con nection between ethics and profitability by examining the connection b etween published reports of unethical behaviour by publicly traded U.S . and multinational firms and the performance of their stock. Using re ports of unethical behaviour published in the Wall Street Journal from 1989 to 1993, the analysis shows that the actual stock performance fo r those companies was lower than the expected market adjusted returns. Unethical conduct by firms which is discovered and publicized does im pact on the shareholders by lowering the value of their stock for an a ppreciable period of time. Whatever their views on whether ethical beh aviour is profitable, managers should be able to see a definite connec tion between unethical behaviour and the worth of their firm's stock. Stockholders, the press and regulators should find this information im portant in pressing for greater corporate and managerial accountabilit y.