| r_AVG | Average cost of equity | r_AVG = (r_GLS + r_CT + r_OJ + r_ET)/4 | Authors' calculations based on I/B/E/S and compustat North America |
| r_GLS | Cost of equity derived from Gebhardt et al. (2001) model | Details in Appendix B.1 | Authors' calculations based on I/B/E/S and compustat North America |
| r_CT | Cost of equity derived from Claus and Thomas (2001) model | Details in Appendix B.2 | Authors' calculations based on I/B/E/S and compustat North America |
| r_OJ | Cost of equity derived from Ohlson and Juettner-Nauroth (2005) model | Details in Appendix B.3 | Authors' calculations based on I/B/E/S and compustat North America |
| r_ET | Cost of equity derived from Easton (2004) model | Details in Appendix B.4 | Authors' calculations based on I/B/E/S and compustat North America |
| ETHICS | A code of ethics specifies an organization's primary values and ethical rules that are designed to promote right behaviors and deter wrong behaviors | We conduct a factor analysis to aggregate the four measures of Ethics: Systems; Implementation; Corruption; and Human Right. The factor analysis provides one factor with Eigen value greater than one. We name this factor Ethics | Authors' calculations based on ethical investment research service (EIRIS) database |
| SYSTEM | Comprehensiveness of a firm's code of ethics | The answer to the question: “Does the firm have a code of ethics and, if so, how comprehensive it is?” the possible answers are: no (coded = 0); limited (coded = 1); basic (coded = 2); intermediate (coded = 3); and advanced (coded = 4) | Ethical investment research service (EIRIS) database |
| IMPLEMENT | Compliance of a firm's code of ethics | The answer to the question: “Does the firm have a system for implementing a code of ethics and, if so, how comprehensive it is?” the possible answers are: no (coded = 0); limited (coded = 1); basic (coded = 2); intermediate (coded = 3); and advanced (coded = 4) | Ethical investment research service (EIRIS) database |
| CORRUPT | Deterrence of corruption as a proxy for doing the wrong things | The answer to the question: “Does the company have policies and procedures on bribery and corruption?” the possible answers are: the firm has no policy disclosed (coded = 0); the firm has adopted a policy (coded = 1); or the firm has a clear policy and procedures (coded = 2) | Ethical investment research service (EIRIS) database |
| HUMAN | Promotion of human right as a proxy for doing the right things | The answers to the question: “What is the extent of policy and systems addressing human right issues?” the possible answers are: No evidence (coded as 0); limited (coded as 1); Intermediate (coded as 2); Advance or good (coded as 3) | Ethical investment research service (EIRIS) database |
| BETA | Systematic risk | The firm's rolling beta estimated by regressing 60 months excess stock returns ending in June of year t on the corresponding monthly CRSP value-weighted index excess returns. Monthly excess returns are monthly returns minus the one-month treasury bill rate. We require a minimum of 12 months of observations in Beta estimation | Authors' calculation based on CRSP data and market data from Ken French's website: http://mba.tuck.dartmouth.edu/pages/Faculty/ken.French/data_library.html |
| SIZE | Natural logarithm of a firm market value | Log (Fiscal year-end stock price x total common shares outstanding)Log(prcc_f x csho) | Compustat North America database |
| BTM | Book-to-market | Total assets/(fiscal year-end stock price x total common shares outstanding) at/(prcc_f x csho) | Compustat North America database |
| LEV | Leverage | Total debt divided by total assets (dlc + dltt)/at | Compustat North America database |
| LTG | Long-term growth | The average long-term growth forecast reported in June of year t | I/B/E/S database |
| DISP | Analyst forecast dispersion | The standard deviation of one-year-ahead analyst forecasts of earnings per share in June of year t | I/B/E/S database |
| DIV | Dividend payment | Total dividend payment scaled by net income. dvt/ni | Compustat North America database |
| GOV | Corporate governance | The answers to the question: “Does the company: (1) separate the roles of chairman and chief executive; (2) have a board comprising of more than 33% independent directors; (3) have an audit committee comprising a majority of independent directors; and (4) disclose executive and director remuneration?” the possible answers are: None (coded as 0); one (coded as 1); Some (coded as 2); All (coded as 3) | Ethical investment research service (EIRIS) database |
| CSR | Corporate social responsibility | An aggregate measure of corporate social responsibility based on three dimensions: (1) community performance (graded from 1 to 4); (2) environmental performance (graded from 1 to 5) and employee performance (graded from 1 to 3) | Authors' calculation following the aggregation method specified in Brammer and Pavelin (2006) using ethical investment research service (EIRIS) database |
| INST | Institutional holding | Coded as 1 if a firm-year has at least one institutional holder reported in the form 13 F to the SEC | SEC website: https://www.sec.gov/divisions/Investment/13flists.htm |
| ANACOV | Analyst coverage | Log (1+ the number of analyst estimates issued on a stock at the end of the year) | I/B/E/S database |
| ANABIAS | Analyst forecast bias | Difference between the mean value of the 1-year-ahead consensus earnings forecasts and actual earnings scaled by stock price | I/B/E/S database |
| ACCR1 | Earnings quality | Absolute value of abnormal accruals estimated based on Dechow et al. (1995) model | Authors' calculations based on compustat North America database |
| ACCR2 | Earnings quality | Absolute value of abnormal accruals estimated based on Kothari et al. (2005) model | Authors' calculations based on compustat North America database |
| ICD | Internal control deficiency | A dummy variable that takes a value of 1 if a firm report internal control deficiency and zero otherwise | The data contains material weakness disclosures from 2004 to 2005, provided by Sarah McVay http://faculty.washington.edu/smcvay/ICdata.html |
| EarlyAdopt | Early adopted a code of ethics in the period prior to 2003 | A dummy variable that takes a value of 1 if a firm early adopts a code of ethics before 2003 zero otherwise | Author's constructions based on the annual filings data available on SEC website |
| IndAvgAdopt | The industry proportion of firms early adopted a code of ethics prior to 2003 | Average of EarlyAdopt | Author's constructions based on the annual filings data available on SEC website |
| Inverse Mills Ratio | The expected probability of early adoption of a code of ethics | Expected value of the dependent variable in Equation 4 | Author's constructions based on the annual filings data available on SEC website and data from compustat North America |