ABSTRACT We investigate whether firms listed by Ethisphere as the “World's Most Ethical Companies” exhibit a sincere commitment to ethical business practices by examining their corporate governance. Using a sample of S&P 1500 companies from 2007 to 2022, we find that Ethisphere firms demonstrate superior board monitoring efficiency, as indicated by higher CEO turnover‐performance sensitivity, greater pay‐for‐performance and pay‐for‐risk sensitivity, and lower discretionary accruals. Additionally, Ethisphere firms reveal greater investment efficiency and corporate innovation, indicating more effective board advising. Our findings highlight that Ethisphere firms foster a robust governance environment and mitigate agency issues, resulting in enhanced financial performance. Unlike traditional ESG scores, which often face criticism for their variability and reliability, Ethisphere‐listing provides a more consistent and comprehensive indicator of firms' ethical culture. Our study suggests that firms with exemplary ethical profiles, indicated by Ethisphere‐listing, are associated with greater director awareness and efforts towards stakeholders' best interests.
Dah et al. (Sun,) studied this question.