Author Date

2019-12-20

Degree Name

Department

Economics

College

Family, Home, and Social Sciences

Defense Date

2019-11-12

Publication Date

2019-12-20

First Faculty Advisor

Bradley Agle

First Faculty Reader

Jeffery Thompson

Honors Coordinator

Mark Hansen

Keywords

Business ethics, capital, relational wealth, strategy, stakeholder theory

Abstract

Key sources of competitive advantage for a firm include its various forms of relational wealth. These intangible relational assets exist because of a firm’s relationship with a given stakeholder. We argue that stakeholder perceptions of the morality of a firm can have substantive positive or negative effects on that firm’s relational wealth. Previous research has suggested links between perceptions of the morality of a firm held by stakeholders such as employees, strategic alliance partners, customers, and communities and the relevant relational wealth held by the firm in relation to those stakeholders. However, a comprehensive model and composite measure of these ethical perceptions and their relationship with relational wealth does not exist in the academic literature. The lack of such a model and measure impedes academic research on the link between ethics and competitive advantage and also limits the extent to which these important antecedents of relational wealth are considered in firm valuation and investment decision making. Ethical capital is the collection of stakeholder perceptions relating to a firm’s underlying moral character which can be converted into relational wealth. We propose an integrative, general model of ethical capital of the firm in which positive stakeholder perceptions of the moral character of a firm lead to high value behaviors while negative perceptions lead to value reducing behaviors. We differentiate our conceptualization from existing constructs, namely reputation capital and social capital. We describe ethical capital with employees, strategic alliance partners, consumers, and communities. We then conclude by outlining a plan for operationalization of ethical capital across stakeholders in light of our model.