Final answer:
The Sarbanes-Oxley Act was established to restore trust in corporate financial information following significant accounting scandals.
Ethical corporate behavior can lead to long-term profitability by fostering trust among stakeholders, and it is not always more costly as it minimizes legal risks and can open up new business opportunities.
Step-by-step explanation:
The Sarbanes-Oxley Act of 2002 was a direct response to a series of major accounting scandals involving corporations such as Enron, Tyco International, and WorldCom.
This comprehensive legislation was crafted with the intention to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes, thereby aiming to restore public confidence in financial information provided by public corporations.
Regarding how can a firm's ethical conduct increase its long-term profitability, ethical corporate behavior aligns with various long-term benefits that include, but are not limited to, maintaining a good reputation, ensuring customer loyalty, attracting and retaining talented employees, minimizing legal risks, and avoiding fines and penalties.
Moreover, it reinforces trust with shareholders and can contribute to gaining competitive advantage.
Contrary to some beliefs, ethical corporate behavior does not always result in more costs.
While it may involve investments and sometimes higher immediate costs in ensuring ethical sourcing, fair labor practices, or environmental sustainability, these actions can improve stakeholder relations and open doors to new business opportunities.
It also reduces unnecessary legal expenses that would arise from unethical practices.