Firm-Level AI Ethical Awareness: Measurement and Effects

With rapid integration of AI technologies into business operation, ethical issues associated with AI development, implementation, and deployment, has become increasingly conspicuous. An effective measure of firm-level AI Ethical Awareness (FAIEA) is crucial for both academics and practitioners to assess FAIEA efficiently. In this study, based on qualitative information in earning conference call, we construct and validate a firm specific measure of FAIEA. Upon establishing a reliable measure, we explore the determinants and consequence of FAIEA. We find Corporate Social Responsibility (CSR) engagement and the presence of a Chief Information Officer (CIO) as key determinants of higher FAIEA, suggesting the responsible business practices and CIOs with AI expertise and business knowledge play a critical role in perceiving AI ethical challenges. Furthermore, firms with higher FAIEA in turn restrict firms' real earnings management and increase voluntary disclosure to enhance firm transparency and stakeholder relations.