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Business & Society, Vol. 36, No. 3, 221-249 (1997)
DOI: 10.1177/000765039703600302

Socially Irresponsible and Illegal Behavior and Shareholder Wealth

A Meta-Analysis of Event Studies

Jeff Frooman

University of Piusburgh

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.


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