Can a Code of Ethics Affect Management Behavior and Investor Confidence?
Some Intuition and Experimental Evidence Bruce Davidson, Florida State University Douglas E. Stevens, Florida State University ABSTRACT: The maintained assumption underlying recent accounting regulations (e.g. Sarbanes Oxley Act, 2002, Section 406) is that a code of ethics can improve both management behavior and investor confidence in the financial markets. A review of the literature, however, reflects little intuition to support this assumption and the empirical evidence is inconsistent at best. To address this gap, we provide some intuition for why a code of ethics might improve management behavior and investor confidence and test this intuition using an adaptation of the Berg, Dickhaut, and McCabe (1995) investment game. We find that manager return behavior and investor confidence only improve when the code of ethics includes a public certification choice by the manager. When the code of ethics is present but there is no certification choice, manager return behavior does not improv
