Perhaps money isn’t the root of all evil, as the old adage says.
A new paper from Purdue University researchers shows that a financial windfall can lead retailers to act more ethically.
Heejung Byun, a Daniels School assistant professor of strategic management; Purdue visiting professor Jihyeon Kim; and Justin Frake of the University of Michigan found that the financial resources of an organization make that organization less likely to cheat.
With support from the Blake Family Fund for Ethics, Leadership, and Governance, the researchers carried out archival data analysis and online experiments for their paper, “The Effect of Financial Resources of Misconduct: Evidence from Lottery Ticket Sales,” which led to its acceptance in Organization Science.
Specifically, Byun, Kim and Frake found that when retail firms experience a financial boost, such as from selling a winning lottery ticket, they are less likely to sell tobacco to minors.
When a retailer sells a winning lottery ticket, they are generally given a significant monetary bonus by their state’s lottery commission and also experience a noteworthy increase in their subsequent sales.
“Contrary to the adage that ‘power corrupts,’ our findings suggest that financial windfalls can foster ethical conduct,” Byun says. “This revelation turns the table on traditional views of wealth and corporate morality. It’s surprising because it hints that a little extra cash might make businesses behave better, not worse.”
The researchers analyzed data from more than 33,000 tobacco retailers in seven states: Connecticut, Delaware, Indiana, Michigan, New York, Rhode Island and Wisconsin. Data collection spanned from 2012 to 2017 and came from two primary sources: the United States Food and Drug Administration’s (FDA) Tobacco Retail Compliance Check Inspections Database, which includes all documented inspections of tobacco sales, particularly focusing on violations of sales to minors, and data on the sales of winning lottery tickets from state lottery commissions.
They discovered that an increase in a firm’s financial resources, particularly from unexpected windfalls like selling winning lottery tickets, actually reduces unethical practices, such as selling tobacco to minors. Quantitatively, the study found that the incidence of such misconduct dropped by 17% to 26% following a financial gain, which contradicts the common presumption that more financial success might lead to more corporate misbehavior. This highlights a complex relationship between financial status and ethical conduct in business practices.
“When stores suddenly get more money, they seem to break the rules less, not more. It’s like having a good day makes you more likely to do the right thing,” Kim says.
The research is crucial for regulators and policymakers looking to curb corporate misconduct through economic incentives, Byun notes. It offers evidence that a business’ financial cushion may encourage adherence to ethical standards, which could inspire changes in how businesses are regulated.
“It paints a hopeful picture — more profits could mean more responsible business and community members,” he says.
