To sin in secret is no sin at all: On the linkage of policy, society, culture, and firm characteristics with corporate scandals

Using industry-based ratings which aggregate the scandals of a firm on a yearly basis for 5,700 companies from 44 countries, and a hybrid panel data model which allows us to separate the within-firm and the between-entity effects, our empirical approach reveals a broad spectrum of diverse political, cultural, societal, and firm-specific variables that are linked to patterns of unethical corporate behavior and their disclosure. We argue that companies tend to have fewer scandals if there is a high level of institutional pressure or if corporate scandals pose a high-level threat to organizational legitimacy. Moreover, in highly moral societies that closely monitor corporate behavior, more corporate scandals can be observed. Our results are further confirmed through the use of an alternative model which examines the number of scandals mentioned in the media in contrast to the scandal rating.