Does Earnings Quality Influence Corporate Social Responsibility Performance? Empirical Evidence of the Causal Link

The study examines the causal links between earnings quality and corporate social responsibility (CSR) performance using a large sample of United States (US) firms from 1992 to 2013. We first find that the association between earnings quality and CSR performance is positive and significant. We then test the flow of causality using Granger's (1969) lead–lag analysis to determine whether changes in earnings quality cause changes in CSR performance or vice versa. Our findings show that changes in earnings quality cause changes in a firm's CSR performance but not vice versa. Further analysis shows that earnings quality reduces the cost of equity capital for firms with higher CSR performance. These findings suggest that one plausible means by which firms with higher earnings quality can maintain better CSR performance is to reduce their cost of equity capital.     

Does a Government Mandate Crowd Out Voluntary Corporate Social Responsibility? Evidence from India

This study investigates the implementation of a Government of India mandate that requires firms to spend at least 2% of their profits on corporate social responsibility (CSR). The results show that qualifying firms that voluntarily engaged in CSR before the mandate reduce their CSR spending afterward. Despite increasing advertisement expenditure likely to offset the lost signaling value of voluntary CSR, stock prices and operating performance of former voluntary CSR spenders who qualify under the law decline. Our results suggest that regulatory intervention in CSR can both diminish its signaling value and lead to a reduction in voluntary CSR spending.     

Do Financial Markets Care about Corporate Social Responsibility Disclosure? Further Evidence from China

Corporations increasingly define their corporate social responsibility (CSR) activities as a part of their business. However, is this trend beneficial to investors? Based on an event study methodology and a sample of Chinese listed companies, we extend the literature on voluntary disclosure by exploring the role of CSR disclosure in reducing stock market information asymmetry, as proxied by share price volatility and liquidity. Our results show that the share price volatility after CSR disclosure is lower than before CSR disclosure; however, the trend is that it decreases first and then increases for three months following disclosure. Stock liquidity also significantly improves after CSR disclosure; however, it increases first and then decreases. Additionally, by dividing CSR disclosure into economic (hard) disclosure and generic (soft) disclosure, we find that the reduction in information asymmetry is higher for hard disclosure than soft disclosure, suggesting that although CSR disclosure does indeed have an impact on investors’ behaviour in China, an economic‐based disclosure contributes more substantially. Finally, to better understand the characteristics of the Chinese financial market, we also explore the role of marketisation with results that show that the effect in reducing information asymmetry is greater for companies located in a region with a higher degree of marketisation.     

Does the Prohibition of Long-lived Asset Impairment Reversals Affect Corporate Innovation? Evidence from a Quasi-experiment in China

China modified the asset impairment standard in 2007, prohibiting long-lived asset impairment reversal, which it had previously allowed. Using this setting as a quasi-experiment, we investigate how the prohibition of long-lived asset impairment reversal affects corporate technological innovation. Our empirical results demonstrate that the prohibition of impairment reversal has negative impacts on corporate innovation outputs. Further analyses reveal that the negative effect of this prohibition on corporate innovation is more prominent in companies with high discretionary accruals, high shareholding ratios for the largest shareholders, and companies in highly competitive markets.     

Does Corporate Social Responsibility (CSR) Improve Credit Ratings? Evidence from Geographic Identification

We show that a firm's CSR policy is significantly influenced by the CSR policies of firms in the same three‐digit zip code, an effect possibly due to investor clienteles, local competition, and/or social interactions. We then exploit the variation in CSR across the zip codes to estimate the effect of CSR on credit ratings under the assumption that zip code assignments are exogenous. We find that more socially responsible firms enjoy more favorable credit ratings. In particular, an increase in CSR by one standard deviation improves the firm's credit rating by as much as 4.5%.     

Does Corporate Social Responsibility (CSR) Create Shareholder Value? Evidence from the Indian Companies Act 2013

In 2013, a new law required Indian firms, which satisfy certain profitability, net worth, and size thresholds, to spend at least 2% of their net income on corporate social responsibility (CSR). We exploit this regulatory change to isolate the shareholder value implications of CSR activities. Using an event study approach coupled with a regression discontinuity design, we find that the law, on average, caused a 4.1% drop in the stock price of firms forced to spend money on CSR. However, firms that spend more on advertising are not negatively affected by the mandatory CSR rule. These results suggest that firms voluntarily choose CSR to maximize shareholder value. Therefore, forcing a firm to spend on CSR is likely to be sub‐optimal for the firm with a consequent negative impact on shareholder value.     

Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book‐tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarters relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.     

Corporate Social Responsibility: Is Too Much Bad?—Evidence from India

Asia-Pacific Financial Markets - Over the years, firms have been using Corporate Social Responsibility (CSR) as a strategic tool to improve their competitiveness and ultimately benefit their...     

Corporate Social Responsibility,Corporate Performance,and Pay-Performance Sensitivity—Evidence from Shanghai Stock Exchange Social Responsibility Index

Based on annual data of listed companies on Shanghai Stock Exchange (SSE) through 2009–2013, this article examines three hypotheses: first, whether a firm’s taking corporate social responsibility (CSR) affects corporate performance; second, whether corporate governance and a firm’s age positively moderate the relationship between CSR and performance; and third, whether CSR positively moderates the magnitude/direction of linkage between a firm’s performance and top management/director compensation (pay-performance sensitivity, PPS). Three proxies for CSR engagement are constructed by a firm’s inclusion in the SSE Social Responsibility Index. Empirical evidence generally shows that firms engaging in CSR tend to obtain superior performance in terms of higher profitability. However, firm’s age and sound corporate governance have little additional benefit on the effect of a firm engaging in CSR on performance. Finally, greater CSR engagement is associated with larger PPS. Principal outcome does not shift under two-stage estimation and propensity score matching (PSM) to correct for sample self-selection of CSR engagement.     

Some Evidence on Executives’ views of Corporate Social Responsibility

This paper draws upon the concepts of organizational legitimacy, political economy of accounting and agency theory, and subsequently combines these with stakeholder analysis, in an attempt to analyse the attitudes towards their perceived social responsibility on the part of the executives of a small sample of large, UK companies.In the conceptual model developed, organizational legitimacy is perceived as a way of examining corporate behaviour, whereby a business is visualized as operating under a mandate from society, withdrawable were the organization be seen not to be doing the things society expects of it. There is, however, an alternative political economy of accounting view, suggesting corporate behaviour might be perceived as more proactive, with company directors attempting to ‘set the agenda’, such as to manipulate societal opinion towards a favourable view of corporate activity.Agency theory is then utilized in an attempt to establish the connection between organizations and the various interest groups with whom they interact, whilst, finally,stakeholder analysis is resorted to as a way of establishing the relevant societal interest groups to which businesses might either be considered ‘accountable’, or alternatively whose views they might wish to ‘manipulate’ favourably regarding their (i.e. corporate) actions.The underpinning theory, as delineated, is then examined for validity via interviews with executives representing eight prominent UK companies in four business sectors. The model outlined enables the nature of perceived accountability/influence by the company to be linked to perceived/manipulated stakeholder expectations of the company, with the tentative conclusion being reached that support can be found for both organizational legitimacy and political economy of accounting perspectives, although which predominates is impossible to determine.     

Does carbon emission of firms matter for Bank loans decision? Evidence from China

In the context of global climate governance, greater carbon emissions of enterprises often result in a higher potential risk of environmental violations. Taking the non-financial companies listed in China from 2008 to 2018 as research samples, this paper empirically examined the impact of firm carbon emission on their acquisition of new bank loans and its mechanism of action. This paper empirically finds that if the carbon emission of an enterprise is higher, it will be granted with less new bank loans. The results remain robust after pairing analysis and instrumental variable analysis. The mechanism analysis shows that corporate credit rating plays a significant moderating role in the relationship between corporate carbon emission and new bank loans. Carbon emission leads to the improvement of earnings management of enterprises and the significant decline in the conservatism and comparability of accounting information, which is likely to be an important channel for the reduction of corporate bank loans. Upon further analysis, we find that the carbon emission of enterprises will not significantly affect the cost of acquiring bank loans, but it will significantly reduce the loan term structure. The cross-sectional analysis shows that the effect of carbon emission on new bank loans is more obvious in state-owned listed enterprises, enterprises with high internal control quality and enterprises with strong environmental law enforcement. The research results of this paper enrich the research on the economic consequences of carbon emission, reveal the implementation effect of green credit policies, provide empirical evidence for bank credit to play a role in green governance, and promote enterprises to actively reduce carbon emission.     

When Does Information Asymmetry Affect the Cost of Capital?

This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can have a separate effect on firms’ cost of capital. Consistent with our prediction, we find that information asymmetry has a positive relation with firms’ cost of capital in excess of standard risk factors when markets are imperfect and no relation when markets approximate perfect competition. Overall, our results show that the degree of market competition is an important conditioning variable to consider when examining the relation between information asymmetry and cost of capital.     

Does Securitization of Corporate Loans Lead to Riskier Lending?

This paper finds that loans sold to collateralized loan obligations (CLOs) underperform matched unsecuritized loans originated by the same bank. We find that banks put less weight on the hard information on borrower risk available to them when they set interest rates on the loans they sell to CLOs, and that they retain less skin in the game on these loans, suggesting that lax underwriting standards contributed to the worse performance of securitized loans. We also find that the median non‐CLO syndicate participant retains a lower stake in securitized loans when compared to loans that are not securitized, suggesting that these investors, like lead banks, expected securitized loans to perform worse.     

How Does Being Public Affect Firm Investment? Further Evidence from China

What role does the stock market play in the allocation of capital? Few studies have examined how being public affects firm investment in emerging markets. This study fills this gap by comparing investment behavior in public and private Chinese firms over the period 2004–2010. We find an overall improved capital allocation of public firms relative to private firms in China. By disentangling the financial constraints effect from the agency effect, we show that public firms are less likely to underinvest when there is cash flow insufficiency and more likely to overinvest when there is free cash flow. We conclude that both effects coexist and that whether or not being public improves investment behavior depends on the net effect of loosening financial constraints and worsening agency conflicts. Further examination shows that financial information plays a limited role in these effects, implying that the association between being public and firm investment may not be attributed to information asymmetry but, rather, institutional arrangement in China.     

How Do Institutional Investors Affect Corporate Performance? Evidence from Private Placements in China

Using data on private placements in China from 2007 to 2014, we show that abnormal returns of issuing companies’ stocks are significantly positive on the announcement day, but they become significantly negative during the event window [?20, +20]. Participation by institutional investors has a significant and negative impact on the short-term stock returns. This negative effect is also present in issuing companies’ long-term stock returns and profitability. Furthermore, we find that participation by institutional investors reduces dividend payments after private placements. Overall, our findings do not support the monitoring hypothesis of institutional investors’ role in corporate finance but are consistent with the management entrenchment hypothesis and shareholder pessimism hypothesis.     

Does Competition Affect Bank Risk?

Although policymakers often discuss trade-offs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. We employ a new approach for identifying exogenous changes in the competitive pressures facing individual banks and discover that an intensification of competition materially boosts bank risk. With respect to the mechanisms, we find that competition reduces banks’ profits, pricing power, and charter values and increases banks’ provision of nontraditional, riskier banking services and lending to riskier firms.     

Do Female Executives Prioritize Corporate Social Responsibility?

How do female executives view corporate social responsibility (CSR)? Previous studies have reported mixed findings on the relationship between female executives and CSR. We select a sample of Chinese listed firms and use propensity score matching to construct a new sample of firms and evaluate the gender transition (from male to female) of chief executive officers or board chairpersons (executives) who are randomly assigned to firms (i.e., the gender transition of executives is regarded as an exogenous event). Subsequently, we use a difference-in-differences approach to identify the pure effect of female executives on CSR. Our results indicate that female executives are more likely to encourage CSR reporting. Moreover, we suggest that the mechanism behind female executives prioritizing CSR is altruism preference rather than risk aversion preference.     

Does the Use of Foreign Currency Derivatives Affect Firms' Market Value? Evidence from Colombia

High returns in emerging markets over the last decade have attracted international investors. This study investigates if and how economic or political news affects stock market activity in two emerging markets: Argentina and Turkey. Our analysis shows that political and economic news influences both the volatility of returns and trading volume in these markets to varying degrees. Results suggest that both economic and political factors, as well as specific market characteristics, should be taken into consideration by international investors when making investment decisions in emerging markets.