Most Ethical Companies and Stock Performance: Empirical Evidence

This paper provides empirical evidence from the capital market that ethical companies enjoy above-the-market-average performance. The analysis of risk premiums and risk adjusted returns of an equal-weighted portfolio of public firms ranked consecutively from 2007-2011 as the most ethical companies in the United States shows the average portfolio risk premiums are positive and greater than the market risk premiums for 3-year and 5-year holding period intervals; the average risk-adjusted excess returns are positive and statistically significant for the 3-year and 5-year holding period intervals. The implication of this study is that the firm’s commitment to be ethical will pay off in the long-turn, on average.