This study fills an important gap in the literature by providing causal evidence of the impact of relaxing financial constraints on corporate social responsibility (CSR). To isolate this causal link, we examine the enactment of anti-recharacterization laws in some U.S. states, an exogenous shock that has strengthened creditor rights and eased financial constraints of the treated firms. Our difference-in-difference analysis suggests that relaxing financial constraints leads to higher CSR. This evidence is more pronounced in financially constrained firms, firms with more (...) analyst dispersion and increased volatility of cash flows. We also find that the most impacted firms are those with increased post-shock debt financing. In sum, our evidence suggests that easing access to external finance drives corporate goodness, in particular in firms that value external financing. (shrink)

Managers face an ethical dilemma in the allocation of scarce resources to corporate social responsibility because the underlying managerial incentives behind such CSR spending can range from pure altruism to complete financial orientation. Despite the importance of the managerial role in implementing CSR, prior studies generally have treated the role of managers as an exogenous factor. This study builds on recent studies on the managerial characteristics in studies on CSR by examining how managerial efficiency influences the outcomes of CSR. Using (...) a newly developed measure of managerial efficiency, we find that, on average, managerial efficiency is positively associated with a subsequent change in corporate social performance, although the association is weak in the level of total CSP. We find that efficient managers are more likely to engage in the product-related CSR that directly connects to corporate financial performance but are less likely to engage in environment-related CSR. We also find that CSP is positively associated with CFP with efficient managers. Our findings contribute to management and other stakeholders’ understanding of the association of CSR to its outcomes, CSP and/or CFP, which is hinged by the indispensable moderating role of managerial efficiency. (shrink)

This study revisits the relation between corporate performance and corporate social responsibility in the context of a major shift in firms’ credit risk status. Relying on corporate credit rating as a performance indicator, we examine whether firms under the scrutiny of rating agencies trade-off CSR engagement for credit quality improvement. To explore whether firms adjust their CSR engagement after a focal rating change, we focus on the investment–speculative grade threshold because of its importance in accessing the public debt market. We (...) find that firms that lose the investment grade rating subsequently increase CSR engagement. We also uncover that improving CSR engagement helps firms restore their credit ratings ex post. Our findings support the view of CSR engagement as a valuable risk management strategy. (shrink)

Prior research suggests that the media plays an important information intermediary role in capital markets. We investigate the role of the media in influencing firms’ engagement in corporate social responsibility activities. Using a large sample of 4396 unique firms from 42 countries over the period 2003–2012, we find strong evidence that firms engage in more CSR activities if located in countries where the media has more freedom. This relation is robust to using various proxies for media freedom, an alternative source (...) of CSR data, and to applying the instrumental variables approach to address endogeneity. In additional analyses, we find that the positive relation between media freedom and CSR engagement is stronger for better governed firms and for larger firms. Since the media have the ability to impact reputational capital, we conclude that media freedom affects firms’ incentives to engage in costly CSR activities. (shrink)