Article

Journal of Business Ethics

, Volume 103, Issue 3, pp 403-427

Business Ethics and Financial Reporting Quality: Evidence from Korea

  • Tae Hee ChoiAffiliated withKDI School of Public Policy and Management
  • , Jinhan PaeAffiliated withKorea University Business School Email author 

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Abstract

This study examines the relationship between corporate commitment to business ethics and financial reporting quality. We posit that companies with a higher level of ethical commitment exhibit better quality financial reporting than those with a lower level of ethical commitment. Consistent with our prediction, we find that companies with a higher level of ethical commitment are engaged in less earnings management, report earnings more conservatively, and predict future cash flows more accurately than those with a lower level of ethical commitment. We also find that corporate commitment to business ethics has perpetuating effects on future financial reporting quality.

Keywords

business ethics financial reporting quality accruals conservatism corporate governance