In this article, we examine the empirical association between corporate governance (CG) and corporate social responsibility (CSR) engagement by investigating their causal effects. Employing a large and extensive US sample, we first find that while the lag of CSR does not affect CG variables, the lag of CG variables positively affects firms’ CSR engagement, after controlling for various firm characteristics. In addition, to examine the relative importance of stakeholder theory and agency theory regarding the associations among CSR, CG, and corporate (...) financial performance (CFP), we also examine the relation between CSR and CFP. After correcting for endogeneity bias, our results show that CSR engagement positively influences CFP, supporting the conflict-resolution hypothesis based on stakeholder theory, but not the CSR overinvestment argument based on agency theory. Furthermore, firms’ CSR engagement with the community, environment, diversity, and employees plays a significantly positive role in enhancing CFP. (shrink)

Some argue that managers over-invest in corporate social responsibility (CSR) activities to build their personal reputations as good global citizens. Others claim that CEOs strategically choose CSR activities to reduce the probability of CEO turnover in a future period through indirect support from activists. Still others assert that firms use CSR activities to signal their product quality. We find that firms use governance mechanisms, along with CSR engagement, to reduce conflicts of interest between managers and non-investing stakeholders. Employing a large (...) and extensive sample of firms within Russell 2000, S& 500 and Domini 400 indices during the 1993-2004 period, we find that consistent with the conflict-resolution hypothesis, the CSR choice is positively associated with governance characteristics, including board independence, institutional ownership, and analyst following. In addition, after correcting for endogeneity of CSR engagement, our results show that CSR engagement positively influences operating performance and firm value, supporting the conflict-resolution hypothesis as opposed to the over-investment and strategic-choice arguments. We find only a weak support of the product-signaling hypothesis as a major motive of CSR engagement. (shrink)

This study examines how the sell-side analysts interpret firms’ corporate social responsibility activities. Specifically, we examine the differential impact of overall, legal, and normative CSR on the analysts’ earnings forecast dispersion, stock return volatility, cost of equity capital, and firm value. Employing a sample of U.S. public firms during 1993–2009, we find that overall CSR intensities reduce analyst dispersion of earnings forecast, volatility of stock return and cost of capital , and increase firm value. However, its impact is reduced for (...) firms with better accounting and disclosure quality. When we disaggregate CSR into legal and normative CSR, we find that legal CSR decreases analysts’ dispersion, stock return volatility, and COC, while legal CSR increases firm value. The sell-side analysts tend to have less information asymmetry regarding the net benefits of pursuing CSR that is required by laws. We find, however, that the benefit of having normative CSR realized in 1 year lag such that analyst dispersion, stock return volatility, COC decrease, respectively, and firm value increases. Furthermore, we find that the benefit of normative CSR is offset for firms with higher accounting and disclosure quality. (shrink)

Business Ethics, the Environment &Responsibility, Volume 32, Issue 4, Page 1452-1469, October 2023.

This study investigates the effects of internal and external corporate governance and monitoring mechanisms on the choice of corporate social responsibility (CSR) engagement and the value of firms engaging in CSR activities. The study finds the CSR choice is positively associated with the internal and external corporate governance and monitoring mechanisms, including board leadership, board independence, institutional ownership, analyst following, and anti- takeover provisions, after controlling for various firm characteristics. After correcting for endogeneity and simultaneity issues, the results show that (...) CSR engagement positively influences firm value measured by industry-adjusted Tobin’s q. We find that the impact of analyst following for firms that engage in CSR on firm value is strongly positive, while the board leadership, board independence, blockholders’ ownership, and institutional ownership play a relatively weaker role in enhancing firm value. Furthermore, we find that CSR activities that address internal social enhancement within the firm, such as employees diversity, firm relationship with its employees, and product quality, enhance the value of firm more than other CSR subcategories for broader external social enhancement such as community relation and environmental concerns. (shrink)

A growing group of institutional investors use divestment strategically to deter misconducts that are harmful for the climate and society. Based on Kantian ethics, we propose that divestment represents investors’ universal and absolute moral commitment to socially responsible investing (SRI). Following categorical and hypothetical imperatives and reciprocity as a norm, we hypothesize how institutional investors’ commit to SRI through a divestment strategy against ethically reprehensible behaviour of banks, especially when these investors represent banks themselves. Using a hand-collected database of the (...) revelation dates of enforcement actions on banks, we find evidence that banks are less likely to divest equity holding on banks with misconduct (fined banks) than their non-bank institutional investors peers. Banks that commit to invest responsibly by signing for the Principles for Responsible Investment (PRI) are not significantly more likely to divest on fined banks stocks than non-signatory banks. Moreover, divestment of fined banks whose own legitimacy to operate is in question is not significantly different from non-fined banks divestment. We find that European banks are more inclined to sell their holdings permanently on fined banks than their United States peers. Therefore, bank’s moral commitment to SRI via divestments is influenced more by cultural and reciprocity norms than their moral commitment to participate in the PRI. (shrink)

This paper studies the relationship between personal stock donation by top executives and board of directors (insiders) of publicly traded corporations and their personal tax, shareholders' returns, and social responsibility. The study finds evidence that the timing of stock donations is driven by personal tax gain. The study further shows, comparing stock gift corporations relative to their non-stock gift cohorts, that personal stock gifts are associated with lower short-term and long-term stock returns to shareholders. This implies that stock donation driven (...) by insiders' personal gain adversely affects shareholder wealth. However, the likelihood and intensity of insiders to make personal stock donation is reduced when firms have strong corporate social responsibility (CSR). Agency theory explains insiders' opportunistic behavior, stakeholder theory is also supported by evidence that stock donation is negatively related to CSR, and stewardship theory offers a different view to explain the rationale behind insiders' stock donation and shareholders' reactions to stock gifts. (shrink)

This paper studies the relationship between personal stock donation by top executives and board of directors (insiders) of publicly traded corporations and their personal tax, shareholders' returns, and social responsibility. The study finds evidence that the timing of stock donations is driven by personal tax gain. The study further shows, comparing stock gift corporations relative to their non‐stock gift cohorts, that personal stock gifts are associated with lower short‐term and long‐term stock returns to shareholders. This implies that stock donation driven (...) by insiders' personal gain adversely affects shareholder wealth. However, the likelihood and intensity of insiders to make personal stock donation is reduced when firms have strong corporate social responsibility (CSR). Agency theory explains insiders' opportunistic behavior, stakeholder theory is also supported by evidence that stock donation is negatively related to CSR, and stewardship theory offers a different view to explain the rationale behind insiders' stock donation and shareholders' reactions to stock gifts. (shrink)

This study examines whether reputable analysts and brokerage houses as thinker-driven middlemen led corporations to engage in CSR by investigating the causal relation between CSR and analysts and brokerage houses’ reputations. While theory of information asymmetry predicts that corporations with higher level of CSR tend to attract more reputable analysts and brokerage houses such that they can disseminate valuable information to outside investors, the social pressure theory expects corporations, which receive coverage from more reputable analysts and brokerage houses, tend to (...) have higher CSR. Our findings suggest that CSR activities per se do not attract experienced analysts and reputable brokerage houses. Instead, we find that corporations which are covered by more experienced analysts and reputable brokerage houses tend to increase their CSR activities, indirectly supporting the social pressure hypothesis based on thinker-led-doer model. In addition, we find that corporations tend to have higher CSR strengths, lower CSR concerns, and increased CSR components of diversity and product when they are covered by more reputable analysts and brokerage houses. We interpret these findings are supportive of the social pressure hypothesis, rather than the information asymmetry hypothesis. (shrink)

Organizational theory argues that institutional social responsibility, which represents managers’ moral values, ethics, and norms, and technical social responsibility, which represents firms’ relationship with key stakeholders, influence corporate ethical behavior. We examine and compare the impacts of strengths and concerns of institutional and technical social responsibilities on the likelihood of corporate fraud. Using a sample of 152 high-profile corporate fraud cases in the U.S. during the 2000-2010 period, we find that firms’ corporate social responsibility activities reduce the likelihood of corporate (...) fraud. More importantly, our study finds that both institutional strengths and technical strengths reduce the likelihood of corporate fraud. Institutional concerns also increase the likelihood of corporate fraud and institutional responsibility plays a more significant role than technical responsibility. Our study supports the legitimacy theory of social responsibility and highlights the importance of moral management to reduce the likelihood of corporate fraud. (shrink)