Losses from Failure of Stakeholder Sensitive Processes: Financial Consequences for Large US Companies from Breakdowns in Product, Environmental, and Accounting Standards

Abstract

This article makes first use of a set of databases that are authoritative, independent, and consistent to examine an old research question: do firms hurt their financial performance by damaging stakeholder interests? The databases are US government on-line listings of fines for environmental breaches, unsafe workplaces, fraudulent accounting standards, and product recalls. These measures are assumed to proxy for signals to stakeholders of the environmental, social, and governance (ESG) risks in transacting with the firm and appear to have fewer biases than conventional measures of stakeholder standards. Using a sample of all non-financial S&P 500 firms during the most recent 1998-2003 full c..