The concept of sustainable and responsible (SR) investments expresses that every investment should be based on the SR investor’s code of ethics. To a large extent the allocation of SR investments to more sustainable companies and ethical practices is based on the environmental, social, and corporate governance (ESG) scores provided by rating agencies. However, a thorough investigation of ESG scores is a neglected topic in the literature. This paper uses Thomson Reuters ASSET4 ESG ratings to analyze the influence of firm (...) size, a company’s available resources for providing ESG data, and the availability of a company’s ESG data on the company’s sustainability performance. We find a significant positive correlation between the stated variables, which can be explained by organizational legitimacy. The results raise the question of whether the way the ESG score measures corporate sustainability gives an advantage to larger firms with more resources while not providing SR investors with the information needed to make decisions based on their beliefs. Due to our results, SR investors and scholars should reopen the discussion about: what sustainability rating agencies measure with ESG scores, what exactly needs to be measured, and if the sustainable finance community can reach their self-imposed objectives with this measurement. (shrink)

This study examines the relation between a firm’s business strategy and its corporate social responsibility performance. Using a comprehensive measure of business strategy based on the Miles and Snow theoretical framework, we find that firms following an innovation-oriented strategy are associated with better CSR performance than those following an efficiency-oriented strategy. Specifically, compared with defenders, prospectors engage in more socially responsible activities, fewer socially irresponsible activities, and perform better in both stakeholder- and third-party-related CSR areas. Taken together, our results suggest (...) that business strategy is an important determinant of CSR performance. Prospectors take advantage of CSR, as their innovation-oriented strategy allows them not only to benefit more from CSR, but also to have more tolerance for the uncertainty, risk, and long time-horizon associated with CSR engagement. (shrink)

This paper examines the relationships between corporate governance and corporate sustainability by focusing on two main components of companies’ governance structure: boards of directors and investor relations officers. We propose an original empirical strategy based on the 120 biggest French capitalizations for the year 2013, allowing us to measure boards of directors’ independence and expertise, as well as investor relations officers’ convictions and communication on corporate sustainability. Our results show that corporate governance has an ambiguous impact on corporate sustainability because (...) of opposing forces: internal, external and intermediate forces. On the one hand, the higher the proportion of inside directors, the higher the company’s environmental and governance performance, while the higher the proportion of general experts in the board room, the lower the company’s governance performance. On the other hand, investor relations officers’ beliefs that corporate sustainability is primarily driven by investors’ ethical values appear negatively related to companies’ governance performance. In sum, corporate sustainability appears positively related to internal forces and negatively related to external forces. The results of this study demonstrate the need to carry out efforts to train BoDs and IROs to respond to corporate sustainability and to take more of a leadership role in this area. (shrink)

This study examines the endogenous relation between corporate social responsibility and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms’ CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find (...) that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities. (shrink)

This article reviews empirical research of corporate social performance using Kinder, Lydenberg, Domini social ratings data through 2011. The review synthesizes 100 empirical studies, noting consistencies and inconsistencies among studies examining similar constructs. Notable consistencies were that, although accounting measures of financial performance were a positive outcome of CSP, the same was not often true of stock returns. Also, demographics of top management teams increased CSP strengths, but did not reduce concerns, whereas organizational decentralization reduced CSP concerns. Notable inconsistencies were (...) that CEO demographics were not as often related to CSP as were TMT demographics, indicating that managerial discretion may be an important mitigating factor shaping managerial effects on CSP. Also, although CSP for some organizations seemed influenced by institutional pressures, other organizations appeared to be less influenced, perhaps suggesting that some organizations are more able than others to resist institutional pressures. Future research should attempt to probe observed consistencies and inconsistencies, and to test the boundaries of observed relationships, toward a disciplined program of middle-range theory development. (shrink)

Based on a survey and content analysis of 462 peer-reviewed academic articles over the period 1990–2014, this article reviews theories related to the external drivers of corporate social responsibility and the internal drivers of CSR that have been utilized to explain CSR. The article discusses the main tenets of the principal theoretical perspectives and their application in CSR research. Going beyond previous reviews that have largely failed to investigate theory applications in CSR scholarship, this article stresses the importance of theory-driven (...) explanations of CSR and the complementarity of different theories. The article demonstrates that the current mainstream theorizing of CSR is dominated by theories related to the external drivers of CSR and is less developed with regard to the internal dynamics. The article outlines several productive avenues for future research: the need for multi-theory studies and more research at multiple levels of analysis, particularly at the individual level of analysis. It suggests that CSR scholarship can benefit from combining theoretical insights from a range of established theoretical lenses such as institutional theory and RBV, and can gain new insights from theoretical lenses such as Austrian economics and micro-level psychological theories. (shrink)

In this study, we examine the determinants of corporate environmental responsibility, as well as the relationship between legal systems and CER as measured by a unique set of global environmental cost data. Results of our analyses show that firms’ legal origins affect CER, which requires a long-term management perspective. Specifically, our results indicate that civil law firms exhibit significantly higher levels of CER than common law firms. In addition, results of an auxiliary test suggest that manager shareholding has a significant, (...) nonlinear relationship with CER. The association between a firm’s legal origin and its CER performance remains robust after controlling for the effects of managerial ownership and issues related to endogeneity. Our findings imply that although the majority of corporate law studies in the past few decades provide support for the common law system emphasizing the maximization of shareholder value and investor protection, the civil law system stressing the maximization of stakeholder wealth and the importance of CER may become more influential in the coming decades as CER becomes central to firms’ operations. (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)

Recent years have featured a leap in academic and public interest in Corporate Social Responsibility (CSR) activities and related corporate reporting. Two main themes in this literature are the exploration of management incentives to engage in and disclose this information, and of the use and value of this information to market participants. We extend the second theme by examining the interest that specific investor classes have in the use of CSR information. We rely on feminist intersectionality, which suggests that gender (...) intersects with other identities to yield different values, experiences, and opportunities that can lead to gender-based preferences for CSR information. Based upon a survey of 750 US-based retail investors, we find that female retail investors have a greater interest in the use of CSR information, relative to male retail investors. Women express greater anticipated future demand for this information than do men. Further, the magnitude of the increase from current use to anticipated future demand is greater for women than men. Age is a significant modifying factor in that the discrepancy between women of any age and older men is greater than that between women and younger men. Finally, women also exhibit greater demand for streamlining of the information flow, consistent with pressures induced by time poverty. It appears that current disclosure practices provide a less than optimal match with the needs of the information consumers that are primarily interested in using this information. This mismatch may result in a systematic disenfranchisement of female investing classes which suggests an ethical need to level the playing field. (shrink)

We investigate what drives responsible investment of European pension funds. Pension funds are institutional investors who assure the income of part of the population for a long period of time. Increasingly, stakeholders hold pension funds accountable for the non-financial consequences of their investments and many funds have engaged in responsible investing. However, it appears that there is a wide difference between pension funds in this respect. We investigate what determines pension funds’ responsible investments on the basis of a survey of (...) more than 250 pension funds in 15 European countries in 2010. We use multinomial logistic regression and find that especially legal origin of the country, ownership of the pension fund and fund size-related variables are to be associated with pension funds′ responsible investment. For fund size, we establish a curvilinear relationship; especially the smallest and largest pension funds in the sample tend to engage with responsible investing. (shrink)

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)

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)

Social norms of responsibility are shared beliefs on what constitutes responsible behavior, and they play a significant role in determining CSR. This study analyzes how social norms of responsibility permeate corporate boundaries and influence CSR through political leaders, corporate executives, employees, and the public. Socially irresponsible behaviors of the above populations are used as proxies for local social responsibility norms and related to CSR ratings for firms headquartered in the twenty largest U.S. metro areas. The empirical results show that firms (...) headquartered in cities with more responsible social norms exhibit higher ESG scores even after controlling for various demographic, regional, and economic factors. Social responsibility norms encourage firms to be more responsible but are ineffective in deterring irresponsible corporate behaviors. Corporate and political leaders are the essential channels through which social norms of responsibility influence CSR, highlighting the importance of instituting regulations and setting high ethical standards for political and business leaders. This study also demonstrates that social norms have a significant impact on firms with leaders who are more susceptible to local social norms (i.e., local leaders) than non-local leaders. In addition, this study documents a negative bias for responsible social norms in that they condemn irresponsible behaviors more than reward responsible ones. Collectively, the above findings underline the importance of social norms of responsibility in shaping CSR and provide additional insights into societal motivations for CSR. (shrink)

The allocation of resources among different stakeholders is an ethical dilemma for chief executive officers (CEOs). In this study, we investigate the association between CEO power and workplace injuries and illnesses. We use an establishment-level dataset comprising 31,924 establishment-year observations between 2002 and 2011. Our main result shows that employees at firms with structurally powerful CEOs experience fewer workplace injuries and illnesses and days away from work. We reason that CEOs derive a private benefit from low injury and illness rates (...) and that powerful CEOs are better at influencing employees to take workplace safety and health seriously. Additional analyses reveal fewer injuries and illnesses in firms led by CEOs with expertise power. However, increased injuries and illnesses were linked to firms controlled by CEOs with ownership power. Moreover, we find that structurally powerful CEOs mitigate injury and illness differences in relation to geographical proximity to corporate headquarters. We contribute with both research and practical implications on the topics of CEO power and corporate social responsibility (CSR) in general and workplace safety and health in particular. (shrink)

Corporate social irresponsibility (CSI) and other questionable business incidents that appear to harm stakeholders frequently afflict firms yet draw disparate investor reactions. We address this disparity by investigating the association between firm legal orientation and investor reactions to CSI. We hypothesize the proportion of board members and top management team (TMT) executives with law degrees affects investor perceptions of firm foresight, and in turn, their judgment of blame and consequent punishment. Based on abnormal returns to 629 announcements of CSI and (...) 308 publicly traded S&P 500 firms, we find that both too small and too large a proportion of board of directors and TMT members with law degrees lead investors to mete out harsher punishment. This inverted u‐shaped link is further affected by firm size, firm risk, and industry competition. Our investigation sheds light on the link between executive education and financial performance in the context of CSI and investor perceptions of foresight. (shrink)

We investigate the financing strategies of environmentally responsible firms to understand how they set target capital structures and make incremental financing decisions. Literature shows that firms with better environmental performance have lower risk and better access to financing. However, it is not obvious how these firms choose to finance their investments. Using an extensive data set of U.S. firms, we find that firms with superior environmental performance have significantly lower debt ratios and use mostly short‐term debt for temporary financing needs. (...) In doing so, environmentally responsible firms are able to achieve more tax savings and experience lower costs of financial distress. Our results provide new empirical facts about environmental performance and financing decisions, and they help explain the observed relationship between environmental performance and economic performance. (shrink)

The purposes of this study are to investigate whether current corporate social responsibility (CSR) is at the theoretically derived achievable level (hereinafter referred to simply as achievable level), to introduce “CSR inefficiency” as the difference between actual and achievable levels of CSR, and to specify its determinants. We established that the achievable level of CSR activity is determined by a range of keiretsu group, government, sector, and resource factors, and choosing specific activities can affect the priority levels of social contributions. (...) CSR inefficiency is affected by its own factors such as internal management, which are different from those of CSR activity. Our study suggests the importance of the differences between the achievable levels of CSR among firms. For example, firms in machinery, electrical equipment, public utilities, and service industries have greater inefficiency in environmental CSR than the other industries. Conversely, the achievable levels of construction and petroleum and gum industries for environmental CSR are higher. Service firms can achieve higher level of environmental CSR, although their emissions and wastes are not as large as those of manufacturing firms in general. In retail industries, the achievable level of environmental CSR is lowest among all industries, while those for labor issues and social contribution are as high as those of other industries. Public utilities have large CSR inefficiency compared with other industries, while construction, steel and nonferrous metals have small CSR inefficiency. (shrink)

The aim of this paper is to investigate the relationship between environmental, social, and governance controversies and firm market value. We use a unique dataset of more than 4000 firms from 58 countries during 2002–2011. Primary analysis surprisingly shows that ESG controversies are associated with greater firm value. However, when interacted with the corporate social performance score, ESG controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive. Building on (...) this evidence, we attempt to explore the channels through which CSP may enhance market value. Conducting sample split analysis indicates that higher CSP score has an impact on market value only for high-attention firms, those firms which are larger, perform better, located in countries with greater press freedom, more searched on the Internet, more followed by analysts, and have an improved corporate social reputation. Thus, our findings provide new insights on the role of firm visibility through which firms can profit from their CSP. (shrink)

Based on the concept of shareholder primacy, many scholars have argued that it is more important for businesses to earn profits for their shareholders than to provide benefits to society at large. Corporate social responsibility is often regarded as an investment that comes at the expense of shareholders. In contrast, research analyzing the connections between the equity ownership structure of a company and its level of CSR engagement suggests that CSR offers benefits to shareholders that go beyond direct financial returns (...) from investments. This study provides a comprehensive review and systematic assessment of theoretical considerations and approaches regarding different forms of equity ownership and their relationships to CSR, and it discusses the relevant benefits and motivations of shareholders. The perceived value of these CSR benefits varies among different types of shareholders, as they assign unequal values to short-term financial or to rather long-term CSR benefits. Based on a literature sample of 146 publications, this review demonstrates central problems inherent in previous analyses. Given the ambiguous and partially contradictory findings of prior research, this study identifies potential moderating influences that help clarify empirical evidence. A contingency approach is suggested in future research, as this can help resolve the problem of contradictory empirical findings and theoretical arguments. (shrink)

ABSTRACT:The primacy of shareholder demands in the traditional theory of the firm has typically excluded marginalised stakeholder voices. However, shareholders involved in social shareholder engagement (SSE) purport to bring these voices into corporate decision-making. In response to ethical concerns about the legitimacy of SSE, we use the lens of discourse ethics to provide a normative analysis at both action and constitutional levels. By specifying three normative questions, we extend the analysis of SSE to identify a political role for shareholders in (...) pursuit of the common good. We demonstrate the desirability for SSE to promote regulatory/institutional change to guarantee marginalised stakeholders a voice in corporate decisions that affect them. The theory of SSE we propose thus calls into question the stark separation of the political and economic spheres and reveals an underlying tension, often overlooked, within the responsible investment literature. (shrink)

This study investigates the engagement of family firms in corporate social responsibility. We first compare their corporate social performance to non-family firms. Then, following recent evidence on the heterogeneity of family firms, we examine two factors that may influence CSP within family firms: the level of family control and the governance orientation of the country in which they operate. This research is based on a theoretical framework which considers both agency and socioemotional wealth influences on family firms CSR engagements. Overall, (...) we find that family firms exhibit lower CSP than non-family firms. But when focusing on family firms, our analyses show a curvilinear relationship between family control and CSP. At lower levels of control, family owners invest more in social initiatives to protect their SEW. Beyond a threshold level of control that we estimate at 36 % in our sample, economic considerations prevail over SEW and social performance starts decreasing. We also find that family firms operating in stakeholder-oriented countries are more attentive to social concerns than those operating in more shareholder-oriented countries. (shrink)

The extant literature has examined the effects of ownership structures on corporate social responsibility, yet it has overlooked the non-linear and interactive effects among major shareholder groups. In this study, we examine the non-linear effects of insider and institutional ownerships on CSR. We also examine whether it is necessary to have both incentive alignment and monitoring mechanisms or it is sufficient to have either mechanism to promote CSR. Using a sample of the U.S. Fortune 1000 firms, our results suggest that (...) insider and institutional ownerships have non-linear effects on CSR. We also find support for the complementary mechanisms view, in that the highest CSR rating is observed when both ownership levels are high. Therefore, firms need to maintain strong governance structures to realize synergistic effects in promoting CSR. Our findings provide a more in-depth understanding of the relationships between ownership structures and corporate social outcomes. (shrink)

In both their external and internal communications, organizations tend to present diversity management approaches and corporate social responsibility initiatives as a kind of morally ‘good’ organizational practice. With regard to the treatment of employees, both concepts largely assume equality to be an indicator of organizational ‘goodness’, e.g. in terms of equal treatment, or affording equal opportunities. Additionally, research on this issue predominantly refers to prescriptive and imperative moralities that address the initiatives themselves, and values them morally. Schopenhauer opposes these moralities (...) by conceptualizing morality as exclusively being based on the incentives of acting instead of the actions themselves. He identifies egoism, compassion, and malice as the sole incentives for every human action, whereby only those actions solely motivated by compassion can be ascribed genuine moral worth. In this context, this article shows that from a Schopenhauerian perspective, CSR and DM initiatives only have a genuine moral worth in so far as the individuals who have initiated or supported their implementation were exclusively motivated by compassion. Stressing the narrative of a business case, if utilized as a façade for true compassion that attaches economic legitimacy to these initiatives, does not necessarily harm their moral worth. The approach and the findings developed in this paper contribute to the discourse on the ethical behavior of organizations, as well as to the discourse on CSR and DM. (shrink)

There is a distinct lack of research into the relationship between corporate governance and corporate social responsibility (CSR) in the banking sector. This paper fills the gap in the literature by examining the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Using a sample of large US commercial banks for the period 2009–2011 and controlling for audit (...) committee characteristics, board meeting frequency, and banks’ profitability, size and risk, we find evidence that board independence and board size, the two board characteristics usually associated with the protection of shareholder interests, are positively related to CSR disclosure. This indicates that, with regard to CSR disclosure, more independent boards of directors and larger boards are the internal corporate governance mechanisms which promote both shareholders’ and other stakeholders’ interests. Contrary to our expectations, CEO duality also impacts positively on CSR disclosure. From an agency-theoretical viewpoint, this suggests that powerful CEOs may promote transparency about banks’ CSR activities for their private benefits. While this could indicate that powerful CEOs are under particular pressure to appease stakeholders’ concerns that they might abuse their power by providing a high degree of CSR disclosure, it could also be a sign of managerial risk aversion or managers’ private reputational concerns. (shrink)

In this article, we examine the empirical association between firm value and CSR engagement for firms in sinful industries, such as tobacco, gambling, and alcohol, as well as industries involved with emerging environmental, social, or ethical issues, i.e., weapon, oil, cement, and biotech. We develop and test three hypotheses, the window-dressing hypothesis, the value-enhancement hypothesis, and the value-irrelevance hypothesis. Using an extesive US sample from 1995 to 2009, we find that CSR engagement of firms in controversial industries positively affects firm (...) value after controlling for various firm characteristics. To address the potential endogeneity problem, we further estimate a system of equations and change regression and continue to find a positive relation between CSR engagement and firm value. Our findings support the value-enhancement hypothesis and are consistent with the premise that the top management of US firms in controversial industries, in general, considers social responsibility important even though their products are harmful to human being, society, or environment. (shrink)

We empirically examine the impact of corporate social responsibility (CSR) on CEO compensation using a large sample of the US firms from 1996 to 2010. We develop and test two hypotheses, the overinvestment hypothesis based on agency theory and the conflict–resolution hypothesis based on stakeholder theory. We find that the lag of CSR adversely affects both total compensation and cash compensation, after controlling for various firm and board characteristics. Our estimates show that an interquartile increase in CSR is followed by (...) a 4.35% (2.78%) decrease in total (cash) compensation. We also find an inverse association between lagged employee relations and CEO compensation. Our results are robust to the correction for endogeneity using instrumental variable approach. Taken together, our results support the conflict–resolution hypothesis, but not the CSR overinvestment argument. (shrink)

Recent perspectives on community investments suggest that they are opportunities for firms to create value for shareholders and other stakeholders. However, many corporate managers are still influenced by a widely held belief that such investments erode profits and are therefore unjustifiable from an agency perspective. In this paper, we refine and test theory regarding countervailing forces that influence community-based firm performance. We hypothesize that high levels of available slack will be associated with higher community-based performance, but that this relationship will (...) be moderated by three important governance variables: board independence, investment fund ownership, and CEO ownership. We find support for our hypotheses in longitudinal study of a large sample of U.S. corporations. (shrink)

We study how messages on Twitter by large non-governmental organizations (NGOs), targeting companies from the S&P500, affect these companies’ stock prices. With a sample of 1,611 tweets between 2009 and 2017 by 18 large NGOs, we observe significant changes in the stock prices of the targeted firms. More specifically, NGO tweets stating a positive message about the environmental, social, or governance (ESG). Actions of the firm have a positive effect on stock prices, while negative tweets have a negative effect. Nevertheless, (...) we find that the presence of institutional owners hampers this effect: firms with high institutional ownership value positive tweets more negatively, and negative tweets more positively. These results support the idea that shareholders react significantly to NGO tweets but they react differently depending on their time horizon: for shareholders who have a more short-term horizon, typically institutional owners, the reaction diverges societal expectations about how firms should contribute to society. (shrink)

This paper examines the impact of the recent financial crisis on the relation between a firm’s risk and social performance using a sample of non-financial U.S. firms covering the period 1991–2012. We find that the relation between SP and risk is significantly different in the crisis period compared to the pre-crisis period. SP reduces volatility during the financial crisis. The risk reduction potential of SP is mainly due to the strengths component of SP. Since the relation of risk is stronger (...) with SP strengths than SP concerns, this implies an asymmetric relation between these SP components and a firm’s risk. Specifically, strengths act as a risk reduction tool during an adverse economic environment. (shrink)

Using a sample of 21,030 US firm-year observations that represents more than 3000 individual firms over the 1998–2012 period, we investigate the relationship between Corporate Social Responsibility (CSR) and investment efficiency. We provide strong and robust evidence that high CSR involvement decreases investment inefficiency and consequently increases investment efficiency. This result is consistent with our expectations that high CSR firms enjoy low information asymmetry and high stakeholder solidarity (stakeholder theory). Moreover, our findings suggest that CSR components that are directly related (...) to firms’ primary stakeholders (e.g. employee relations, product characteristics, environment, and diversity) are more relevant in reducing investment inefficiency compared with those related to secondary stakeholders (e.g. human rights and community involvement). Finally, additional results show that the effect of CSR on investment efficiency is more pronounced during the subprime crisis. Taken together, our results highlight the important role that CSR plays in shaping firms’ investment behaviour and efficiency. (shrink)

We link the corporate governance literature in financial economics to the agency cost perspective of corporate social responsibility to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data, and find that firms with more shareholder-friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective (...) tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial incentives for social performance, and suggest that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost. (shrink)

In this article, we examine the association between ethics and disclosure and the impact of this association on the long-term, post-issue performance of seasoned equity offerings (SEOs). We argue that firms with extensive disclosure are less likely to face information problems, and more likely to lead to an active shareholder monitoring, and therefore, engage in fewer unethical activities, such as aggressive earnings manipulation, and have better long-term, post-issue performance. Consistent with these predictions, this study presents evidence that disclosure is negatively (...) related to unethical earnings manipulation and positively associated with long-term, post-issue performance. In particular, we find that long-term, post-issue SEO underperformance is significantly less for firms with extensive disclosure and conservative earnings management than firms with less disclosure and aggressive earnings management. We interpret this evidence to mean that over the long run, the capital market values ethical financial reporting and corporate efforts to incorporate social responsibility into their decision-making processes, for example, by enhancing information transparency through voluntary disclosure. (shrink)

Corporate environmental performance has become a key focus of business leaders, policy makers, and scholars alike. Today, scholarship on environmental practice increasingly highlights how various aspects of corporate governance can influence environmental performance. However, the prior literature is inconclusive as to whether ownership by insiders (officers and directors) will have positive or negative environmental effects and whether insider voting control or equity control is more salient to environmental outcomes. This article leverages a unique empirical data set of dual-class firms, where (...) insiders have voting rights disproportionate to their equity rights, to shed light on this question. We find that, on average, dual-class firms underperform their single-class peers on environmental measures and that the discrepancy comes from dual-class firms where insiders have more voting control, relative to their equity stake. While small increases in voting control are associated with improved environmental performance, too much (relative to insiders’ equity stake) worsens firms’ environmental performance. Insider equity control alone has no impact on environmental outcomes. Our findings have important implications for agency theory and environmental scholarship by identifying contingencies on the impact of voting and equity-based incentives. This research casts doubt on the idea that providing insiders with significant voting control will aid environmental performance. (shrink)

This article contributes to the general literature on the relationship between corporate social performance and corporate financial performance, as well as to the emerging HRM–CSR literature, by exploring the curvature of the relationship between HRM–CSP and CFP. We advance conceptual arguments in favor of an inverted U-shaped relationship. Our results demonstrate a significant quadratic relationship between HRM–CSP and CFP. We provide evidence that this relationship is not linear or S-shaped but rather inverted U-shaped.

Corporate social responsibility involvement and disclosure has been becoming increasingly popular among US public firms, including those that qualify as real estate investment trusts. This paper aims to discover the relationship between CSR involvement and potential determinants such as growth opportunities, profitability, visibility, and agency costs. Types of CSR involvement are assessed in terms of environmental, community, and governance disclosures and are quantified using word count from the company’s voluntary disclosure. Our results support the hypothesis that CSR has a strategic (...) element and that REITs have greater CSR involvement when they have greater growth and investment opportunities. When the type of disclosure is broken into subcategories, the results show that not all dimensions of CSR are alike: environmental, community, and governance CSR disclosures appear to be motivated by different sets of incentives and reasons. (shrink)

Corporate social responsibility (CSR) is increasingly viewed as a strategic management tool for companies to draw in candidates. In this arena, international responsible rankings such as ‘The Great Place to Work’, ‘Family Responsible Employer Index (FREE)’ or ‘The Best Companies for Working Mothers’ put emphasis on the value of responsible behaviours, not only for surviving in the market, but also to ‘win the war for talent’. Using a sample of Spanish University students, this research aims to analyse the process of (...) selecting responsible organizations to work and whether there is a possible future conflict of interest by students between their own and organizational values. Surprisingly, the university students assessed two opposing situations with the highest values: of looking to change employer and of letting time pass in order to ignore the conflict. The implications of the students’ assessments and the related factors which affect their decision-making criteria are explored in this article. (shrink)

Is corporate social responsibility a tool for strategic positioning? While CSR is sometimes used as part of a differentiation strategy, this article analyzes which specific CSR strategies arise in response to competitive pressures. The results suggest that competitive pressures lead firms to increase their positive social actions without necessarily decreasing their social weaknesses. This positive impact varies with specific dimensions of CSR and industry specificities: Competition improves social performance toward core stakeholders to a greater extent than social performance toward peripheral (...) stakeholders. This effect is more pronounced in B2C industries than in other industries. Competition leads firms in “dirty” industries to ignore environmental initiatives. (shrink)

Using a large sample of 3,040 U.S. firms and 16,606 firm-year observations over the 1991–2010 period, we find strong evidence that firm internationalization is positively related to the firm’s corporate social responsibility rating. This finding persists when we use alternative estimation methods, samples, and proxies for internationalization and when we address endogeneity concerns. We also provide evidence that the positive relation between internationalization and CSR rating holds for a large sample of firms from 44 countries. Finally, we offer novel evidence (...) that firms with extensive foreign subsidiaries in countries with well-functioning political and legal institutions have better CSR ratings. Our findings shed light on the role of internationalization in influencing multinational firms’ CSR activities in the U.S. and around the world. (shrink)

This study provides novel evidence of the impact of corporate social responsibility (CSR) on investment sensitivity to cash flows. We posit that CSR affects investment–cash flow sensitivity (ICFS) through information asymmetry and agency costs, commonly viewed as the two channels through which investment responds to the availability of internal cash flows. We find that CSR performance leads to a decrease in ICFS. We further find that ICFS decreases (increases) when CSR strengths (concerns) increase. Finally, we find that the effect of (...) CSR on ICFS is driven by the areas Community, Diversity, and Human Rights. In sum, the findings of this study stress the relevance of CSR—in particular, of CSR activities that extend beyond compliance behavior and reflect what is desired by society—in reducing market frictions and improving firms’ access to financial capital. (shrink)

In this paper, we seek to answer two questions: (1) what does boardroom diversity stand for in the strategic management literature? And, (2) is there a significant relationship between boardroom diversity and corporate social performance. We first clarify the boardroom diversity concept, distinguishing between a structural diversity of boards and a demographic diversity in boards, and then we investigate its possible linkage to social performance in a sample of S&P500 firms. We find a significant relationship between diversity in boards and (...) social performance. This relationship is moderated by diversity of boards. Our results also reveal the effects of the specific variables that make up the diversity of boards and diversity in boards constructs. In particular, gender, and age have a significant effect on corporate social performance. Some important measurement issues are raised and discussed. (shrink)

Proponents of corporate environmental responsibility argue that corporations shortchange shareholders by investing too little in environmental responsibility. They claim that corporations can improve their financial performance by increasing their investment in environmental responsibility. Opponents of corporate social responsibility argue that corporations shortchange shareholders by investing too much in environmental responsibility. They claim that corporations can improve their financial performance by reducing their investment in environmental responsibility. Yet, others claim that corporations serve their shareholders well by investing just enough in social (...) responsibility, not too little and not too much. If so, corporations increase their investment in environmental responsibility when an increase improves financial performance and reduce their investment in environmental responsibility when a decrease improves financial performance. Our evidence is consistent with this last claim. We find that the behavior of corporations is consistent with the claim that they act in the interest of shareholders, increasing or decreasing their investment in environmental responsibility as necessary to improve their financial performance. (shrink)

Relatively little research has examined the effects of ownership on the firms’ corporate social responsibility (CSR). In addition, most of it has been conducted in the Western context such as the U.S. and Europe. Using a sample of 118 large Korean firms, we hypothesize that different types of shareholders will have distinct motivations toward the firm’s CSR engagement. We break down ownership into different groups of shareholders: institutional, managerial, and foreign ownerships. Results indicate a significant, positive relationship between CSR ratings (...) and ownership by institutions and foreign investors. In contrast, shareholding by top managers is negatively associated with firm’s CSR rating while outside director ownership is not significant. We conclude that different owners have differential impacts on the firm’s CSR engagement. (shrink)

The effect of environmental, social, and governance (ESG) activities on corporate financial performance (CFP) could be linear or nonlinear. However, inconsistent results remain a research gap and thus need to be re-examined. By drawing on stakeholder theory and the neoclassical economics perspective while using the panel data of 155 Chinese listed firms from 2010 to 2020, system generalized method of moments (GMM) estimation results revealed an inverted U-shaped relationship between ESG and CFP. Moreover, by drawing on the institutional-based view, it (...) was determined that government subsidies moderate the inverted U-shaped relationship between ESG and CFP. Specifically, we found that the inverted U-shaped effect of ESG on CFP is weakened when government subsidies are high. This study contributes to the literature by confirming the presence of a curvilinear relationship between ESG and CFP. This study also generates meaningful implications suggesting that the governmental role in ESG is salient in mitigating associated financial costs for firms, thereby ultimately affecting CFP. (shrink)

This study addresses a gap in the literature on corporate governance and corporate social responsibility by investigating whether and how board independence and institutional ownership moderate the relationship between digital transformation and corporate social performance. We find that digital transformation increases CSP using a panel dataset of Chinese publicly listed firms between 2014 and 2018. Moreover, we show that this positive impact is more pronounced when firms have higher proportions of independent directors on the board and institutional owners. These findings (...) contribute to a better understanding of CSR dynamics, supporting the formulation and implementation of efficient CSR strategies in the digital era. (shrink)

The current study investigates whether tournament incentives motivate chief executive officer to be socially responsible. Furthermore, it explores the role of sub-national institutional contingencies [i.e., state-owned enterprises vs. non-SOEs, foreign-owned entities vs. non-FOEs, cross-listed vs. non-cross-listed, developed region] in CEO tournament incentives and the corporate social responsibility performance relationship. Data were collected from all A-shared companies listed in the stock exchanges of China from 2014 to 2019. The study uses the baseline methodology of ordinary least squares and cluster OLS regression. (...) Moreover, firm-fixed effects regression, two-stage least squares regression, and propensity score matching deal with the endogeneity problem and check the robustness of the results. The results provide reliable evidence that tournament incentives motivate CEOs to be more socially responsible. On the other hand, sub-national institutional contingencies positively affect the association between CEO tournament incentives and CSRP. The findings have important implications for companies and regulators who wish to enhance CSP by providing incentives to top managers. (shrink)

This paper provides a systematic analysis of how hometown ties, the most common and distinct bases for interpersonal ties to build upon in China, could influence corporate governance in Chinese corporations by focusing on its impact on CEO dismissals and corporate social responsibility. We find that hometown ties between CEOs and board chairs reduce the likelihood of CEO dismissals and that the negative relationship between firm performance and CEO dismissals is weaker for hometown-connected CEOs in locally administered state-owned enterprises, for (...) inside CEOs, for firms located outside board chairs’ hometowns, and for firms operating in regions with low social trust. Moreover, we find consistent evidence that hometown ties affect Chinese firms’ engagement in corporate social responsibility. Our study highlights the important role of hometown ties in Chinese relationship-based corporate governance. It also advances a normative ethical assessment of hometown-based favoritism by highlighting its distinct dynamics and impacts on focal actors and the third parties in specific contexts of actions. (shrink)

While the economic and environmental dimensions of the triple bottom line have been covered extensively by management theory and practice, the social dimension remains largely underrepresented. The resource-based view of the firm and the natural resource-based view of the firm are revisited to lay the theoretical foundation for exploring how the social dimension might be addressed. Social capabilities are then explored by looking at the social entrepreneurship literature and illustrative cases with the purpose of elaborating RBV toward a social resource-based (...) view of the firm. Three illustrative cases, which represent social businesses located in catastrophe-ridden Haiti, show how capabilities are used to overcome challenging constraints. The goal for the social entrepreneur is to employ the appropriate capabilities to ensure economic success, a positive environmental impact, and social benefits that leave the local community in a better position than without the business. Just as NRBV is a previous elaboration of RBV, so can SRBV be an elaborated theoretical foundation for future research. The components of a theory are systematically addressed by extending the range of variables, extending the domain, and offering propositions on variable relationships and outcome predictions. By highlighting the social capabilities of social entrepreneurs, this research illuminates the micro-foundations of corporate social responsibility, emphasizing the value of individual level analyses. (shrink)

This study explores the ethical implications of information asymmetry in corporate governance, focusing on insider trading by firm managers and the largest shareholders. We empirically analyze trading behaviors around distress events and their subsequent recoveries in the context of the Chinese Stock Exchange. The findings reveal that both managers and the largest shareholders exploit their privileged access to information for personal gain, significantly impacting other investors. However, this behavior is less prevalent among state-owned enterprises (SOEs), where the largest shareholders do (...) not engage in opportunistic trading. In contrast, family-owned firms exhibit a heightened use of insider information, with the largest shareholders strategically trading to maximize personal benefits. Our analysis extends to unobservable insider information, demonstrating that the largest shareholders’ trades are strongly associated with negative performance events, reinforcing the presence of information asymmetry. These results underscore the need for stronger regulatory frameworks to safeguard investor interests and address ethical concerns in financial markets. (shrink)

In this article, we extend the streams of research on the capital structure of socially responsible firms by investigating the impact of corporate social responsibility on firm debt maturity. Using a large sample of US firms, we provide evidence that high CSR firms significantly reduce their debt maturity. In particular, our results suggest that diversity and community are the dimensions that matter the most in explaining debt maturity. In additional analyses that use a seemingly unrelated regression approach, our results show (...) that CSR decreases the extent to which investments are financed with long-term debt and increases the extent to which investments are financed with short-term debt and shareholders’ equity. Overall, these findings support the view that high CSR firms use debt maturity to manage CSR overinvestment problems and to signal their high quality and their access to the debt market. (shrink)