Monday, April 23, 2012

Corporate Ethics and Financial Markets

Some may view the goal of shareholder wealth maximization as too limited especially with regards to ethics, however, many in Finance have another view. The financial view regarding ethics is that if the market (society as a whole) values ethical conduct, it will be priced in the market. For example, Walmart's recent investigation into possible unethical and illegal bribery in Mexico resulted in a relatively large stock price decline. The meaning of the price drop is that the investors do not condone this behavior. In short, bribery is not a way to maximize shareholder wealth.