This study explores why many Japanese companies continue to engage in unlawful and unethical activities amid increasing societal demands for non-financial disclosure and stricter consumer and investor protections. It posits that as managements are tasked with maximizing shareholders’ wealth, they should take measures to recover reputational damage after an initial scandal if the economic consequences of the scandal are material. To obtain a better understanding of why many senior managers continue to engage in unethical conduct, we collect data on 895 scandals in 319 Japanese companies between 1995 and 2018. Applying basic valuation theory, we employed excess implied cost of capital, return on assets (ROA), and return on equity (ROE) as indicators of corporate value and analyzed their values before and after the scandals. Our findings reveal a misalignment between the number of scandals necessary to provoke penalties from the financial market and the reactions of consumers and/or clients. Specifically, consumers tend to respond swiftly to scandals, causing profitability to fall, but become less reactive after multiple incidents. In contrast, the financial market responds only if a series of scandals occurs within a short timeframe. This differential response, coupled with the relatively high debt-to-asset ratio typical of Japanese companies, suggests that the consequences of scandals may be perceived as immaterial, thereby failing to send signals to inhibit unethical behavior. The research highlights the need for a more robust framework to hold companies accountable and emphasizes the importance of aligning stakeholder reactions with corporate governance practices to mitigate unethical conduct more effectively.