The Effect of Corporate Ethical Level and Ethical Efforts on Corporate Performance: Evidence of a Corporate Moral Licensing Phenomenon

This study investigates the complex relationship between corporate ethics and financial performance in the context of sustainable management. By subdividing corporate social responsibility (CSR) into corporate ethical levels and ethical efforts, it analyzes how these factors, along with their interaction, influence corporate financial performance. The analysis employs ordinary least squares (OLS) regression with year fixed effects (year dummy variables), using twelve years (2012–2023) of ESG evaluation data from 384 publicly listed Korean manufacturing companies. The study empirically tests whether highly ethical firms may fall into a corporate moral licensing phenomenon, whereby past ethical achievements are used to justify socially irresponsible decisions in pursuit of short-term profit. The findings reveal that while higher corporate ethical levels generally improve financial performance, sustained ethical efforts at a high level can paradoxically reduce short-term profitability, thereby exposing firms to risks that undermine sustainability. Taken together, these results highlight the dual nature of CSR as both an enabler and a potential constraint for sustainable business practices. Overall, the study contributes to sustainability research by offering novel evidence of moral licensing at the corporate level and providing actionable insights for managers and policymakers seeking to balance ethical commitments with long-term sustainable performance.