Corporate social responsibility and dividend policy

This study outlines and tests two corporate social responsibility (CSR) views of dividends. The first view argues that firms are likely to pay fewer dividends because CSR activities lower the cost of equity, encouraging firms to invest or hoard cash rather than to pay dividends. The second view suggests that CSR activities are positive NPV projects that increases earnings and hence dividend payouts. The first (second) view predicts that firms with a stronger involvement in CSR activities should be associated with a lower (higher) dividend payouts. The finding supports the second view and is robust.     

Corporate socially responsible investments: CEO altruism,reputation, and shareholder interests

Corporate managers often invest in activities that are deemed to be socially responsible. In some instances, these investments enhance shareholder value. However, in other cases, altruistic managers or managers who privately benefit from the positive attention arising from these activities may choose to make socially responsible investments even if they are not value enhancing. Given this backdrop, we investigate the various factors that motivate firm managers to make socially responsible investments. We find that larger firms, firms with greater free cash flow, and higher advertising outlays demonstrate higher levels of corporate social responsibility (CSR). We also find that companies with stronger institutional ownership are less likely to invest in CSR — which casts doubt on the argument that these investments are designed to promote shareholder value. Consistent with the literature that explores how CEO personal attributes influence corporate decision making, we find that female CEOs, younger CEOs, and managers who donate to both Republican and Democratic parties are significantly more likely to invest in CSR. This latter result suggests that CSR investments may not be driven solely for altruistic reasons, but instead may be part of a broader strategy to create goodwill and/or help maintain good political relations. Finally, we find a strong positive connection between the level of media scrutiny surrounding the firm and its CEO, and the level of CSR investment. This finding suggests that media attention helps induce firms to make socially responsible investments.     

The Anatomy of a Socially Responsible Corporation

Prior research treats corporate social responsibility (CSR) as a unitary construct. Using principal component analysis, we show that CSR activities can be divided into two types: responsive CSR (RCSR), which includes initiatives that address specific concerns caused by firm activity, and adaptive CSR (ACSR), which are initiatives that anticipate concerns before they arise. We find that responsive motives are roughly three times more dominant than adaptive motives. Larger firms, older firms, and more diversified firms invest more in RCSR while younger firms and more focused firms tend to invest more in ACSR.     

Stakeholder demands and corporate social responsibility: Evidence from the Olympic Games

We propose that stakeholder demand can explain firms’ corporate social responsibility (CSR) activities and empirically test our proposition using 2002–2016 panel data from multiple countries. We select the Olympic Games as our experimental context and use a difference-in-differences design. We find that firms domiciled in countries that host the Olympic Games subsequently experience a significantly smaller increase in CSR commitment than firms in countries that unsuccessfully bid to host the Olympics. We also find that firms domiciled in cities that host the Olympic Games exhibit a significantly smaller increase in CSR than those domiciled in other cities in the same country. Additional tests indicate that firms in host countries with greater increases in the levels of happiness tend to experience an even smaller increase in CSR. Our findings are consistent with the stakeholder demand explanation, as stakeholders are less likely to require local firms to invest in CSR if utilities, such as those from environmental improvement, increase.Running head: Olympic Games and CSR.     

Family Control and Financing Decisions

This study uses a comprehensive European dataset to investigate the role of family control in corporate financing decisions during the period 1998–2008. We find that family firms have a preference for debt financing, a non‐control‐diluting security, and are more reluctant than non‐family firms to raise capital through equity offerings. We also find that credit markets are prone to provide long‐term debt to family firms, indicating that they view their investment decisions as less risky. In fact, our empirical results demonstrate that family firms invest less than non‐family firms in high‐risk, research and development (R&D) projects, but not in low‐risk, fixed‐asset capital expenditure (CAPEX) projects, suggesting that fear of control loss in family firms deters risk‐taking. Overall, our findings reveal that the external financing (and investment) decisions of family firms are in greater (lesser) conflict with the interests of minority shareholders (bondholders).     

Does corporate social responsibility affect auditor-client contracting? Evidence from auditor selection and audit fees

We find that firms with higher CSR performance are more likely to choose Big N auditors and less likely to switch to non-Big N auditors, consistent with socially responsible firms demanding higher audit quality. Furthermore, we provide robust evidence that firms with higher CSR performance pay lower audit fees using both levels and changes models, suggesting that higher CSR performance reduces auditor engagement risk. Our analysis based on the difference-in-differences approach indicates that it is higher CSR performance that leads to lower audit fees, not vice versa. Overall, the results highlight the important role of CSR performance in auditor-client contracting.     

Does managerial ownership influence corporate social responsibility (CSR)? The role of economic policy uncertainty

To explore the drivers of corporate social responsibility (CSR), we investigate how managerial ownership influences CSR in the presence of economic policy uncertainty. Our results demonstrate that, when facing more economic policy uncertainty (EPU), firms with larger managerial ownership invest significantly more in CSR. This is in agreement with the risk mitigation hypothesis, where CSR offers insurance‐like protection against adverse events. When economic policy uncertainty is not considered, however, we find that managers with higher ownership stakes invest significantly less in CSR, suggesting that CSR is driven by the agency conflict. As managers own more equity, they are subject to greater costs of CSR. Additional analyses confirm the results, including dynamic GMM, propensity score matching and instrumental‐variable analysis.     

Sales order backlog and corporate social responsibility

We examine the impact of sales order backlog, an important leading indicator of firm performance, on corporate social responsibility (CSR) performance (measured as responsible and irresponsible CSR performance). We rely on the stakeholder and resource availability views of CSR to develop our hypotheses. Under the stakeholder view, we posit a positive relation between sales order backlog and CSR performance. Under the resource availability view, we posit this relationship to be negative. Our empirical evidence shows a significant positive relation between order backlog and irresponsible CSR performance, suggesting that firms with higher order backlog demonstrate lower overall CSR performance. This evidence is consistent with the resource availability view that engaging in CSR activities consumes valuable firm resources, and thus, firms with limited resources are less likely to invest in CSR initiatives. Firms with high levels of unfulfilled sales orders must focus on fulfilling those orders, and may not be able to devote resources to CSR.     

Corporate social responsibility and classification shifting

This study examines the relation between corporate social responsibility (CSR) and firm behavior to misclassify core expenses as special items in the income statement to inflate core earnings (i.e., classification shifting). We find that firms with good CSR performance (high-CSR firms) are less likely to engage in classification shifting than firms with poor CSR performance (low-CSR firms). We also find that high-CSR firms engage in less classification shifting even when they have greater incentives to meet earnings benchmarks. Overall, our results are consistent with the notion that socially responsible firms behave ethically in financial reporting.     

The relationship between corporate social responsibility,financial misstatements and SEC enforcement actions

This study explores the relationship between corporate social responsibility (CSR), financial misstatements and SEC enforcement actions. We find that firms with higher CSR are less likely to receive SEC enforcement actions for financial misstatements. Drawing on insights from stakeholder theory and the reputational literature, we identify two channels underpinning this relationship: (i) firms with higher CSR are less likely to engage in financial misstatements and (ii) the reputational effect of CSR reduces the likelihood of SEC enforcement actions. We find empirical evidence consistent with both channels.     

A research note on standalone corporate social responsibility reports: Signaling or greenwashing?

Over the past two decades, more and more U.S. firms are voluntarily issuing costly standalone Corporate Social Responsibility (CSR) Reports. Nevertheless, firms’ motivations for issuing standalone CSR Reports are not clear. In this paper, we consider two different explanations: signaling and greenwashing. The first explanation, signaling, proposes that firms use standalone CSR Reports as a signal of their superior commitment to CSR, which suggests firms with stronger social and environmental records will be more likely to issue standalone CSR Reports as compared to those without. The second explanation, greenwashing, proposes that firms use standalone CSR Reports to pose as “good” corporate citizens even when they do not have stronger social and environmental records. To provide insight into these explanations we compare the CSR performance scores of firms that issue CSR reports to those firms that do not. We control for firm size, leverage, profitability and industry. We find that firms that voluntarily issue standalone CSR Reports generally have higher CSR performance scores, which suggests that firms are using voluntary CSR Reports to publicize stronger social and environmental records to stakeholders.     

Corporate social responsibility and financial fraud: evidence from China

This paper investigates the impact of corporate social responsibility (CSR) on corporate financial fraud in China. We find that CSR scores are negatively associated with fraudulent financial activities, suggesting that CSR firms are less likely to engage in financial fraud. The results also indicate that the negative relation is more significant for CSR performance than CSR disclosure. Additionally, we demonstrate that the negative effect of CSR is more pronounced for firms with voluntary CSR practices, continuous CSR engagements, financial pressure and internal control weaknesses. Overall, we find that CSR is an ethical behaviour that reduces financial misconduct.     

The Value Relevance of Corporate Social Responsibility Expenditure: Evidence from Regulatory Decisions

We examine the value relevance of the corporate social responsibility (CSR) expenditure of Bangladeshi banks from 2007–2014 in response to a regulatory directive on banking firms’ engagement in CSR activities. We find a positive association between CSR expenditure and a firm's market value. Evidence of an inverse U-shaped curvilinear association between CSR expenditure and market value suggests that the impact of CSR expenditure on a firm's market value has a certain limit. We also document that unexpected or abnormal components of CSR expenditure comprise value-relevant information. Our study provides empirical evidence to support the value relevance of CSR expenditure as an explanation for why firms should invest in CSR and why they should inform various stakeholders about their CSR activities.     

银行业竞争、创新资源配置和企业创新产出——基于中国工业企业的经验证据

本文利用城市级商业银行分支机构数据,结合中国工业企业数据和企业专利数据,实证分析银行业竞争对中国企业创新产出的影响。研究发现,竞争性的银行业市场结构显著促进了企业创新产出,对非国有企业和中小企业尤为显著。进一步地,本文基于资源配置角度,从新进入企业和在位企业双重视角探讨银行业竞争影响企业创新产出的作用途径。检验发现,银行业竞争提高条件下,更多的高效率企业进入创新部门,更多的高效率在位企业增加创新投入,且上述影响在非国有企业和中小企业中更为明显。本文检验结果显示,银行业竞争能提高银行对高效率企业的信贷支持,优化企业之间创新资源配置,并通过引导高效率非国有企业和中小企业增加创新投入而推动整体层面的创新产出。本文拓展了银行业竞争对企业创新的微观影响研究,为制定基于创新驱动的金融发展政策提供新思路。     

Corporate Social Responsibility,Tax Aggressiveness,and Firm Market Value

This paper examines the relationship of corporate social responsibility (CSR), tax aggressiveness, and firm market value. An economic model has been developed to show that profit‐maximization firms are willing to incur additional costs in CSR, such as paying more taxes, as long as they can differentiate their products from non‐CSR firms, and that socially conscious consumers will buy products from CSR firms at prices higher than those of non‐CSR firms. The empirical study in this paper indicates that the higher the CSR ranking of a firm, the less likely a firm is to engage in tax aggressiveness. It also indicates that a reputation of higher CSR will enhance firm market value. Using Canadian companies listed in the S&P/TSX 60 index, I find that both firms’ five‐year effective tax rates and annual effective tax rates are positively associated with their overall CSR scores as well as with their social scores. Firms’ five‐year effective tax rates are also positively associated with their governance index. I also find that firms’ overall CSR ranking and governance scores are positively associated with their market value.     

Female leadership in corporate social responsibility reporting: Effects on writing,readability and future social performance

This study examines how the gender of corporate social responsibility (CSR) leaders (as signers of the CSR reports) could affect two psychometric properties (i.e., solidarity and certainty) and the readability of the reports. We also investigate how these gender-based differences are associated with firms' future perceived social performance. We conduct textual analyses on a sample of 346 firms in the S&P500 index that issued annual CSR reports during the period of 2006 to 2015. Our findings show that CSR reports with a female (vis-à-vis male) executive as the signer or co-signer are more readable, show more solidarity with readers, but express less certainty in the narratives. In examining their impacts, we find that readability and solidarity, but not certainty, are positively associated with firms' future social performance. Our results suggest the value relevance of leveraging greater female representation in firms' CSR reporting leadership teams so as to help firms enhance their social objectives and signal their future social performance.     

Corporate social responsibility and earnings quality: Evidence from China

We examine the association between corporate social responsibility (CSR) and earnings quality using CSR ranking data from Rankins (RKS) and four measures of earnings quality. Using a sample of 2580 Chinese listed firms for fiscal years 2009–2015, with 14,807 firm-year observations, we find that CSR firms and those with higher CSR ratings are less likely to engage in earnings management than non-CSR firms and those with lower CSR ratings, and their earnings are more persistent and more accurately predict future cash flows from operations. State ownership and marketization moderate the relationship between CSR disclosures and earnings quality.     

Mandatory CSR disclosure,monitoring and investment efficiency: evidence from China

This study investigates the effect of mandatory corporate social responsibility (CSR) disclosure on firms’ investment efficiency in China. Using the CSR regulation that mandates a group of listed firms to disclose stand‐alone CSR reports after 2008 as a natural experiment, we find that firms subject to the mandatory CSR regulation have decreased investment inefficiency subsequent to the mandate, especially in cases of overinvestment. This effect is more pronounced for firms with a control‐ownership wedge, state‐owned enterprises (SOEs), and firms having lower institutional ownership. Further analyses find that the reduction of overinvestment is much more significant in industries with high pollution and that the reduction in investment is not due to the CSR spending siphoning off capital used in other projects. We argue that mandatory corporate social responsibility disclosure improves monitoring over firms in China, especially when firms are characterised as having severe agency problems.     

Awe culture and corporate social responsibility: Evidence from China

By proxying ‘awe culture’ (i.e., reverence for life and ethical behaviour) with regional induced abortion rates, we examine the impact of awe culture on corporate social responsibility (CSR) in a sample of Chinese firms. We find that firms located in areas with higher induced abortion rates spend less funds on CSR activities and obtain lower CSR scores. The findings remain intact after an array of robustness tests. Further analysis shows that the effect of awe culture on CSR is more pronounced in areas with weaker law enforcement and where the local government emphasises economic growth targets. However, the effect becomes insignificant when firms are well-represented by top executives with overseas experience, foreign directors, and a high proportion of female board members. The significance of the effect also diminishes for non-state-owned firms, and firms with higher institutional ownership and higher cash holdings. Moreover, the lack of awe culture attenuates the positive impact of CSR on firm value. Overall, we document that awe culture, as an informal institution, shapes CSR behaviours.     

Are red or blue companies more likely to go green? Politics and corporate social responsibility

Using the firm-level corporate social responsibility (CSR) ratings of Kinder, Lydenberg, Domini, we find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic rather than Republican-leaning states. Democratic-leaning firms spend $20 million more on CSR than Republican-leaning firms ($80 million more within the sample of S&P 500 firms), or roughly 10% of net income. We find no evidence that firms recover these expenditures through increased sales. Indeed, increases in firm CSR ratings are associated with negative future stock returns and declines in firm ROA, suggesting that any benefits to stakeholders from social responsibility come at the direct expense of firm value.