The Counterintuitive Relationship of Returns, Ethical Behavior, and Sustainability

This study highlights the importance of past returns as a predictor of future unethical corporate behavior, challenges the traditional notion that scandals are unpredictable, and shows that achieving high returns comes at a price: an increase in corporate controversy. A global sample of 10,500 publicly traded companies from 2002 to 2020 shows that both high returns and high risk-adjusted returns can predict future unethical behavior and corporate controversy. This effect occurs primarily for companies that are comparatively large and outperform their industry, while it is independent of traditional sustainability ratings. Our results emphasize that stakeholders should carefully position themselves in the counterintuitive relationship between returns, ethical behavior, and sustainability.