An examination of the relationship between ethical behavior, espoused ethical values and financial performance in the U.S. defense industry: 1988–1992

Journal of Business Ethics · 1996 · Volume 15 · Issue 12

Abstract

This paper tests the ethics-is-good-for-profits as well as the ethics-and-profits-are-joint-outcomes-of-good-management hypotheses in the context of the U.S. defense industry in the 1988–1992 period. Both ethical behaviors (defined and measured as the number and dollar cost of convictions for violations of civil and criminal law as well as reimbursement obligations arising under environmental statutes) and espoused ethical values (in the form of membership in the Defense Industry Initiative and average level of PAC contributions) are compared with measures of profitability for the defense-oriented business segments of sixty-two major U.S. defense contractors. From 1988 to 1992, the U.S. Defense Department gave these contractors an average of 65% of all prime contract awards over $25,000 to business firms for work in the U.S.We found statistically significant, positive correlations between (1) our two measures of espoused ethical values and (2) both measures of espoused ethical values and violative ethical acts. In other words, those contractors with worse ethics records were more likely to be members of the Defense Industry Initiative and give larger PAC contributions. However, we were unable to reject the null hypothesis of no correlation between either ethical behavior or espoused ethical values and profits. The public policy implications of these findings are discussed.

Keywords

Policy Implication, Financial Performance, Ethical Behavior, Defense Industry, Business Firm

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