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)

Corporations have increasingly been called on to assume responsibilities for paying fairer shares of tax, while, at the same time, governments have been repeatedly urged to develop more effective corporate tax systems to tackle tax avoidance. Therefore, institutional attributions of tax responsibility for companies seem to have features of both explicit and implicit corporate social responsibility (CSR). However, given that we lack a clear understanding of which form or forms of CSR in relation to tax are expected of companies and (...) how exactly this might be changing, we examine the evolution in institutional expectations of explicit and implicit CSR for corporate taxation. Drawing on a longitudinal content analysis of 992 news media articles from the United Kingdom between 2000 and 2021, we find that institutional expectations of corporate tax responsibility have followed a process of continuous and non-linear hybridization characterized by a pendulum-like trajectory of explicitization followed by implicitization. We discuss the implications of these findings for the theory and practice of corporate tax responsibility and the framework of explicit/implicit CSR. (shrink)

Can firms overcome credit constraints with a corporate culture of high integrity? We empirically address this question by studying their investment–cash flow sensitivities. We identify firms with a culture of integrity through textual analysis of public documents in a sample of Chinese listed firms and also through corporate culture statements. Our results show that firms with an integrity-focused culture have lower investment–cash flow sensitivity, even after we address endogeneity concerns. However, we also find that for the culture to reduce the (...) investment–cash flow sensitivity, external stakeholders must be able to verify this culture through a low information asymmetry environment. Overall, our findings show that a corporate culture of high integrity can mitigate a firm’s external transaction costs. (shrink)

Does CEO tolerance to risk affect a firm’s long-run sustainability? Using CEO insider debt holding, we show that CEO’s risk-aversion encourages immoral yet rational decisions of emitting more greenhouse gas thereby adversely affecting the firm’s long-run sustainability. Our result is robust to several endogeneity tests including a quasi-natural experiment. Our finding also suggest that to mitigate potential adverse reactions from stakeholders, carbon emitting firms with risk-averse CEOs tend to spend more on CSR activities. Much of the heterogeneity in our results (...) are attributed to companies with weaker governance, powerful CEOs, and operating in a competitive product market. Overall, contrary to conventional wisdom, CEO preference toward risk-aversion can often lead to unethical outcomes (environmental degradation) and especially appears to be a key determinant for firm-level carbon emissions. (shrink)

Fraud in the reward-based crowdfunding market has been of concern to regulators, but it is arguably of greater importance to the nascent industry itself. Despite its significance for entrepreneurial finance, our knowledge of the occurrence, determinants, and consequences of fraud in this market, as well as the implications for the business ethics literature, remain limited. In this study, we conduct an exhaustive search of all media reports on Kickstarter campaign fraud allegations from 2010 through 2015. We then follow up until (...) 2018 to assess the ultimate outcome of each allegedly fraudulent campaign. First, we construct a sample of 193 fraud cases, and categorize them intodetectedvs.suspectedfraud, based on a set of well-defined criteria. Next, using multiple matched samples of non-fraudulent campaigns, we determine which features are associated with a higher probability of fraudulent behavior. Second, we document the short-term negative consequences of possible breaches of trust in the market, using a sample of more than 270,000 crowdfunding campaigns from 2010 through 2018 on Kickstarter. Our results show that crowdfunding projects launched around the public announcement of a late and significant misconduct detection (resulting in suspension) tend to have a lower probability of success, raise less funds, and attract fewer backers. (shrink)

Fraud in the reward-based crowdfunding market has been of concern to regulators, but it is arguably of greater importance to the nascent industry itself. Despite its significance for entrepreneurial finance, our knowledge of the occurrence, determinants, and consequences of fraud in this market, as well as the implications for the business ethics literature, remain limited. In this study, we conduct an exhaustive search of all media reports on Kickstarter campaign fraud allegations from 2010 through 2015. We then follow up until (...) 2018 to assess the ultimate outcome of each allegedly fraudulent campaign. First, we construct a sample of 193 fraud cases, and categorize them into detected vs. suspected fraud, based on a set of well-defined criteria. Next, using multiple matched samples of non-fraudulent campaigns, we determine which features are associated with a higher probability of fraudulent behavior. Second, we document the short-term negative consequences of possible breaches of trust in the market, using a sample of more than 270,000 crowdfunding campaigns from 2010 through 2018 on Kickstarter. Our results show that crowdfunding projects launched around the public announcement of a late and significant misconduct detection (resulting in suspension) tend to have a lower probability of success, raise less funds, and attract fewer backers. (shrink)

Banks play a unique role in society. They not only maximize profits but also consider the interests of stakeholders. We investigate whether banks consider firms’ pollution records in their lending decisions. The evidence shows that banks offer significantly higher loan spreads, higher total borrowing costs, shorter loan maturities, and greater collateral to firms with higher levels of chemical pollution. The costly effects are stronger for borrowers with greater risk and weaker corporate governance. Further, the results show that banks with higher (...) social responsibility account for their borrowers’ environmental performance and charge higher loan spreads to those with poor performance. These results support the idea that banks with higher social responsibility can promote the practice of business ethics in firms. (shrink)

ABSTRACT:Although there is ample evidence that stock markets react negatively to unethical corporate behavior, our understanding of the mechanisms that shape variation in these reactions across different incidents of misconduct remains underdeveloped. We propose and test a framework for explaining this variation by focusing on the role of the media in disseminating initial information about misconduct. We argue that the signaling effects of this information are important for investors because corporations have strong incentives to limit the information they disclose about (...) misconduct. More specifically, we hypothesize that investors are more likely to react negatively when the media presents clear and credible information that misconduct occurred, that the firm was responsible for it, and that the misconduct was the result of deeper organizational problems. We also predict that information which signals that a firm has restorative capacity tempers investor reactions when the media places blame for misconduct on the corporation rather than specific individuals. We test our hypotheses in a unique sample of 345 acts of corporate misconduct in five European countries. Our findings provide broad support for our hypotheses, and we discuss implications for research on corporate misconduct and the role of non-state actors in regulating unethical corporate behavior. (shrink)

The traditional understanding of corporate social responsibility (CSR) has largely been focused on its downstream performance implications, particularly its associations with firms’ customer market metrics such as customer loyalty, customer satisfaction and customer co-creation as well as financial ones such as firm value, return on assets etc. However, given the close relationship between CSR and marketing that literature has identified, it is surprising that the relationship between a focal upstream construct, i.e. the marketing function’s power within a firm and the (...) firm’s propensity toward CSR has not been addressed in the literature. Examining the link between marketing’s power (MP) in a firm’s top management team (TMT) and firm CSR levels, we investigate how this fundamental TMT configuration, i.e. the distribution of marketing power in the TMT, motivates the firm’s social endeavors. Further, we formulate this relationship in a contingency-based model that incorporates the moderating effects of firm size, firm age, service intensity, and resource slack across 1569 firms operating in 63 industries. In addition to their effect on CSR, this study shows how MP in TMT may influence corporate social irresponsibility (CSI) as well as CSR capability after controlling for industry type. The inclusion on these additional dimensions of CSR (CSI and CSR capability) complements our analyses of the effect that MP has on CSR. The research contributes to a deeper understanding of CSR’s fundamental corporate determinants as well as identifies the essential role of the marketing function in firms’ CSR strategy. In this process, it yields useful implications for multiple streams of theory as well as for business practices. (shrink)

Business Ethics, the Environment & Responsibility, EarlyView.