Journal of Business Ethics

Parshakov, Petr; Naidenova, Iuliia; Gomez-Gonzalez, Carlos; Nesseler, Cornel

doi: 10.1007/s10551-022-05137-7pmid: N/A

This paper empirically examines how consumers react when a company marks a product with a gay label. The company under scrutiny is one of the largest video game developers in the world, and the labeled product is a popular video game character. We use a regression discontinuity design to exploit the quasi-experimental setting. The main finding was significant drop in demand for this character and a return to previous levels after approximately 3 months. Possible mechanisms and dynamics were explored by analyzing demand for other characters and by surveying consumers. The results are consistent after performing robustness checks based on grid search, subsampling, and placebo tests.

Brennan, Jason

doi: 10.1007/s10551-022-05278-9pmid: N/A

Many business ethicists, activists, analysts, and corporate leaders claim that businesses are obligated to promote diversity for the sake of justice. Many also say—good news!—that diversity promotes the bottom line. We do need not choose between social justice and profits. This paper splashes some cold water on the attempt to mate these two claims. On the contrary, I argue, there is philosophical tension between arguments which say diversity is a matter of justice and (empirically sound) arguments which say diversity promotes performance. Further, the kinds of interventions these distinct arguments suggest are different. Things get worse when we examine the theory and empirical evidence about how diversity affects group performance. The kind of diversity which promotes justice and the kind which promotes the bottom line are distinct—and the two can be at odds.

Kong, Gaowen; Kong, T. Dongmin; Qin, Ni; Yu, Li

doi: 10.1007/s10551-022-05236-5pmid: N/A

While the effect of culture on finance and management has been well documented in the literature, it is unclear whether and by which channel(s) ethnic diversity affects corporate social responsibility (CSR). Integrating social identity theory and neo-institutional theory, we investigate the ethnic diversity–CSR relation and explore potential mechanisms and boundary conditions. Based on the distribution of ethnic groups across different regions in China, We find that ethnic diversity negatively affects firms’ CSR performance. We document that social trust mediates the negative ethnic diversity–CSR relationship, and linguistic diversity strengthens and marketization mitigates this relation. The results are robust for potential endogeneity and alternative measures of ethnic diversity and CSR performance. Our study highlights the impact of ethnic diversity on corporate behaviors, and provides practical and ethical implications on CSR promotion.

Schultz, Ainslie E.; Newman, Kevin P.; Wright, Scott A.

doi: 10.1007/s10551-022-05257-0pmid: 36187727

Sustainable products are engineered to reduce environmental, ecological, and human costs of consumption. Not all consumers value sustainable products, however, and this poses negative societal implications. Using self-expansion theory as a guide, we explore how an individual’s general sense of belonging—or the perception that one is accepted and valued by others in the broader social world—alters their responses to sustainable products. Five experimental studies and a field study demonstrate that individuals lower in belonging respond less favorably to sustainable products in terms of evaluations and willingness to pay than individuals higher in belonging. Process evidence shows that the extent to which individuals low in belonging perceive that collective, sustainable choices will impact them personally drives this result and that belonging does not impact responses to conventional (i.e., non-sustainable) products. However, perceiving a shared human experience—or that individuals share some important, basic similarities with all people—attenuates the negative effect of low belonging on responses to sustainable products for consumers both low and high in belonging. This research has significant implications for businesses and society given the growing sense of disconnect in modern society.

Nofsinger, John R.; Varma, Abhishek

doi: 10.1007/s10551-022-05264-1pmid: N/A

In response to Morningstar’s release of carbon risk (CR) scores in May 2018, (environmentally) sustainable mutual funds in the U.S. showed a greater reduction in their portfolio CR relative to conventional funds. The observed causal impact of this third-party disclosure is consistent with the funds’ primary investment objectives. Differences in fund names, potentially driven by marketing considerations, appear irrelevant to the behavior of sustainable funds. Conventional funds that are signatories to the UN’s Principles for Responsible Investment (PRI) or those with secondary sustainability mandates behave more like other conventional funds rather than sustainable funds. These funds appear relatively insensitive to disclosures as their sustainability considerations are superseded by other primary investment criteria. Fiduciary and legal bonding influences fund managers’ response to sustainability disclosures. Sustainable funds lower their CR score by reducing exposure to fossil fuels, not by increasing exposure to renewables.

Brown, Anna Bergman; Heron, Nicole M.; Levy, Hagit; Zur, Emanuel

doi: 10.1007/s10551-022-05267-ypmid: N/A

This paper examines the effects of a decrease in auditor litigation risk in a setting that isolates a change in auditor litigation risk from changes in auditor reputation. StoneRidge Investment Partners v. Scientific Atlanta is a 2008 U.S. Supreme Court ruling that restricted secondary actor liability in class action suits, resulting in a decrease in class actions that listed auditors as defendants. We document that the StoneRidge decision is associated with a negative CAR for clients of Big 4 auditors and industry specialist auditors, in particular those associated with high-litigation risk, low cash, and past incidences of modified going concern opinions. These findings are consistent with investor perception of lower potential payoffs from secondary defendants in class action suits, in particular auditors, following the StoneRidge decision. We also document that auditors are more (less) likely to accept (reject) risky clients and charge lower audit fees to risky clients after StoneRidge, consistent with a decrease in auditor litigation risk that increases auditor risk tolerance. Finally, we provide evidence that audit firms issue fewer going concern opinions following StoneRidge, consistent with a decrease in litigation risk leading to lower audit quality. Our results are relevant to policy makers as they consider the disciplinary role of litigation on audit markets.

Cumming, Douglas; Hass, Lars Helge; Myers, Linda A.; Tarsalewska, Monika

doi: 10.1007/s10551-022-05272-1pmid: 37799541

Firm managers make ethical decisions regarding the form and quality of disclosure. Disclosure can have long-term implications for performance, earnings manipulation, and even fraud. We investigate the impact of venture capital (VC) backing on the quality and informativeness of disclosure controls and procedures for newly public companies. We find that these controls and procedures are stronger, as evidenced by fewer material weaknesses in internal control under Section 302 of the Sarbanes–Oxley Act, when companies are VC-backed. Moreover, these disclosures are informative and are more likely to be followed by subsequent financial statement restatements than are disclosures made by non-VC-backed IPO companies.

Graham, Cameron; Persson, Martin E.; Radcliffe, Vaughan S.; Stein, Mitchell J.

doi: 10.1007/s10551-022-05279-8pmid: N/A

In 1856, the State of Ohio began an enumeration of its population to count and identify people with disabilities. This paper examines the ethical role of the accounting profession in this project, which supported the transatlantic eugenics movement and its genocidal attempts to eliminate disabled persons from the population. We use a theoretical approach based on Levinas who argued that the self is generated through engagement with the Other, and that this engagement presupposes a responsibility to and for the Other. We show that successive waves of legislation relied on State and County auditors along with Township clerks and assessors to conduct the mechanics of the enumeration of the population, which focused on the identification, categorization, and counting of the disabled people of the State. We argue that the accounting-based technologies of enumeration and reporting objectify the enumerated persons and deny the auditor’s pre-existing ethical obligation to this new Other. We show how the financial expertise and structures of the State were engaged in the execution of this mandate, which remained in place for over a century and supported a program of institutionalization. We consider the ramifications of this for our understanding of the ethical role of public sector accounting in the United States over this period, which has been under-explored.

Si, Yi; Xia, Chongwu

doi: 10.1007/s10551-022-05134-wpmid: N/A

This paper studies how the human capital embedded in rank-and-file employees affects firms’ stock price crash risk. Employing a unique setting in China where we measure human capital using employee information at the firm level, we show that human capital quality improves firms’ internal information environments, curbs bad-news hoarding and overinvestment, leading to lower stock price crash risk. The findings are robust to instrumental variable regressions. Our study highlights the internal informational role of human capital and sheds light on its implications for capital markets and outside investors. Therefore, we contribute to the literature on the interaction between non-shareholding stakeholders and shareholders.

Zhang, Zhe; Ji, Xintong

doi: 10.1007/s10551-022-05245-4pmid: 36267228

The research explores a novel phenomenon in which information and communication technology (ICT), which is originally designed for knowledge transferring, may result in employees’ knowledge hiding due to increasing use intensity. Specifically, drawing upon the appraisal theory of empathy, we develop a moderated mediation model of empathy linking ICT use intensity and knowledge hiding. The hypothesized model is tested by conducting a scenario-based experimental study (Study 1, N = 194) and a multi-wave field study (Study 2, N = 350). Results show that ICT use intensity is positively related to employees’ knowledge hiding through the mediating role of their empathy. Moreover, competitive goal interdependence strengthens the negative relationship between ICT use intensity and employees’ empathy, and the indirect positive effect between ICT use intensity and employees’ knowledge hiding. Overall, the research answers the questions of how and when ICT use intensity may influence employees’ knowledge hiding. Finally, the theoretical and practical implications of the research findings are discussed.