Purpose: There is ample evidence that investors respond negatively to firm’s unethical behavior. However, researchers cannot explain investors’ reactions and the mechanisms of change when faced with firm’s unethical behavior. By collecting and analyzing data from questionnaires, this study investigated the effects of firm’s unethical behavior on investors’ willingness to invest and further focused on different targets involved in unethical events. Moreover, this study explored the roles of firm development stages and the moderation effect of investors’ moral support level. It aims to reveal investors’ decisions on firm’s unethical behaviors in different situations.
Methods: This study employed a 2 (behavioral ethics: unethical behavior versus normal behavior) X 2 (stages of firm development: startups versus mature firms) X 4 (targets involved in the events: employees, peers, customers, and society) mixed design. Two hundred and fifty-seven participants were finally recruited for final analysis, and then repeated-measures ANOVAs were adopted to assess the valid data collected from 257 participants.
Results: The results showed that disclosure of unethical behavior in due diligence reports significantly decreased investors’ willingness to invest. However, investor willingness was higher for startups with unethical behavior than for unethical mature firms. Investors’ willingness to invest decreased most significantly when evaluating firms with unethical behavior toward employees, followed by society and peers. Their willingness to invest decreased the least when evaluating firms exhibiting unethical behavior toward customers. The level of investors’ moral support moderated the above effects, that is, the higher the moral support, the more considerable the decrease in investment willingness in unethical firms.
Conclusion: Current results demonstrated that when facing firms with unethical behaviors, investors would make investment decisions after considering the firm’s stage of development and the stakeholder of the unethical event. This study provides a valuable theoretical basis for decision-making by government, institutional investors, and firm managers.
Keywords: unethical behavior, startups, mature firms, willingness to invest, level of moral support