MU researcher's analysis shows personal ethical breaches can affect trust and diminish value, operations
University of Missouri-Columbia
A CEO outed for lying on a resume. An executive caught assaulting someone. A manager arrested for driving under the influence. These events certainly cast shadows on individuals, but a new study from Adam Yore, an assistant professor of finance in the Trulaske College of Business at the University of Missouri, shows that such indiscretions can have multimillion dollar consequences for the companies that employ them.
Yore and his co-authors examined 325 instances of executive indiscretions, which were divided into four categories: substance abuse, violence, sexual indiscretions and dishonesty. The analysis found an immediate 1.6 percent loss in shareholder value in instances of managerial missteps, which translates into an average loss of $110 million in market capitalization. When indiscretions were committed by the CEO, the loss in shareholder value is 4.1 percent or $226 million. The dishonesty indiscretions were found to be the most damaging.
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