Corporate Actions as Moral Issues

Authors: Elisabeth Kempf, Oliver Spalt

Abstract

We study how a representative sample of the U.S. population evaluates the morality of a broad range of corporate actions. The corporate actions we consider include classic textbook decisions related to maximizing firm value, as well as decisions related to environmental, social, and governance (ESG) concerns. Our core findings are that: (i) all corporate actions we consider are perceived to be not just financial but also moral issues; (ii) classic finance textbook issues, such as CEO pay, labor cost reductions, corporate taxes, and financial leverage, are perceived to be significantly more of a moral issue than more recently emphasized ESG issues, such as renewable energy usage and workforce diversity; (iii) participants trade off moral concerns against monetary costs; (iv) shareholders have a greater willingness to pay for morally desirable corporate actions than customers or employees. Although we observe significant and plausible heterogeneity across participants in the absolute importance given to moral considerations, the relative ranking of the morality of different corporate actions is surprisingly stable across participants. Our results have broad implications for theoretical and empirical work in financial economics, as well as for finance practitioners.