Executive malfeasance: Surprisingly, honesty may not be the best policy

Research indicates honesty, ethics and leadership are critical during a crisis. This paper aims to examine that ideology by analyzing the role acceptance or denial of executive malfeasance has on firm value after a crisis.

This is an event study that examines crises attributed to executive malfeasance. These qualitative crises data are blended with an analysis of abnormal returns to assess differences between executive actions.

These results indicate that ethical and timely acceptance of a firm’s role in malfeasance does not appear to be rewarded by stockholders. These data also show that there is no reward for a delayed acceptance of malfeasance. Therefore, ethics and honesty do not appear to differentiate post-crisis recovery.

This research focuses on a major factor of firm success – its value. It would be interesting to explore how stakeholders, beyond those that invest in the firm, impact the value over the long run.

While prior research indicates that honesty is prudent, this examination indicates that obfuscation does not impact firm value during a recovery. This study promotes questioning one’s ethical compass as a stock or stakeholder in malfeasance-mired firms.

In conflict with crisis-based research, this study reveals that honesty in crisis management does not always offer an advantage. The results indicate that value is multidimensional, and it may not be based on trust and ethics in the short run.