Corporate Governance and Firm Value: The Impact of Corporate Social Responsibility

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.     

Insurance of Techno-Organizational Ventures and Procedural Ethics: Lessons from the <Emphasis Type="Italic">Deepwater Horizon</Emphasis> Explosion

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.     

Direct effect of advertising spending on firm value: Moderating role of financial analyst coverage

Previous research distinguishes between direct and indirect effects of advertising spending on firm value. This research focuses on the direct effect of advertising based on the spillover and signaling effect of advertising. Both effects are the result of increased public information flow about the firm created by advertising. Another source of public information flow about firms is information produced by financial analysts. We hypothesize that the direct effect of advertising on firm value will be stronger for firms not covered by financial analysts than for those that are covered because investors may rely on information flow from financial analysts for covered firms and rely on information flow from advertising in the absence of analyst coverage. Using financial and accounting databases for publicly traded firms for a period from 1975 to 2015, we test this hypothesis and find empirical evidence for the moderating role of analyst coverage in the relationship between advertising spending and firm value.     

Corporate Social Responsibility and Its Impact on Firms’ Investment Policy, Organizational Structure, and Performance

This study examines the determinants of corporate social responsibility (CSR) and its implications on firms’ investment policy, organizational strategy, and performance. First, we find that firms with better performance, higher R&D intensity, better financial health, and firms in new economy industries are more likely to engage in CSR activities, while riskier firms are less likely to do so. We also find U-shaped relation between firm size and CSR, indicating that either very small or very large firms exhibit high levels of CSR strengths and concerns. Next, we find that firms’ CSR strengths relate favorably with their investments, organizational strategy, and performance, whereas CSR concerns and firm attributes are by and large negatively related. Using a 2SLS procedure, we verify that the CSR–performance relation is robust to corrections for endogeneity through reverse causation and/or biases introduced by time varying omitted variables. Finally, we find that the CSR–firm attributes relation is strengthened when the CEO’s incentives are below the sample median, suggesting that CSR participation is especially important when monetary incentives are lower than benchmark levels.     

分析师跟进、法律环境与企业诉讼风险

本文以我国2008-2013年沪深两市非金融类上市公司为样本,实证研究分析师跟进对企业诉讼风险的影响及其制约因素。结果发现：分析师跟进能够显著降低上市公司的诉讼风险,且分析师跟进数量越多,上市公司面临的诉讼风险越低;将法律环境纳入考虑,发现较之法治水平低的地区,分析师跟进对上市公司诉讼风险的降低作用在法治水平高的地区更为显著。本文丰富了分析师在证券市场发挥外部治理作用的情景素材,也为现实中国家法律体系的进一步完善提供经验佐证。     

Doing Well While Doing Bad? CSR in Controversial Industry Sectors

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 extensive 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.     

Doing Good Business by Hiring Directors with Foreign Experience

Using a manually collected dataset on the overseas experiences of directors of Chinese listed firms, we examine the effects of returnee directors on firms’ corporate social responsibility (CSR) engagement. Our results show that returnee directors significantly improve their firms’ CSR engagement. The positive relationship between the percentage of returnee directors and CSR engagement is more significant when a firm is in a competitive industry, when a firm has no government ownership, when a firm’s CEO is not politically connected, and when a firm’s CEO is older. Furthermore, we find that only long-term foreign professional or academic experience matters, whereas short-term visiting experience does not. Finally, our results are robust after controlling for endogeneity. Therefore, this paper offers clear policy implications by suggesting that hiring more returnees as corporate directors is an efficient way to enhance firms’ CSR, which may be of particular interest to regulators in emerging markets.     

Does Corporate Social Responsibility Affect Information Asymmetry?

In this study, we examine the empirical association between corporate social responsibility (CSR) and information asymmetry by investigating their simultaneous and endogenous effects. Employing an extensive U.S. sample, we find an inverse association between CSR engagement and the proxies of information asymmetry after controlling for various firm characteristics. The results hold using 2SLS considering the reverse side of information asymmetry influencing CSR activities. The results also hold after mitigating endogeneity based on the dynamic panel system generalized method of moment. Furthermore, the CSR–information asymmetry relation is amplified in high-risk firms due to managers’ efforts to build a good reputation. Last, we find that CSR engagement is inversely associated with reputational risk measure and lower predicted value of reputational risk is positively associated with lower information asymmetry measures. We interpret these results as supporting the stakeholder theory-based, reputation-building explanation that considers CSR engagement as a vehicle to build and maintain firm reputation thereby enhancing the information environment.     

The Heterogeneous Impact of Corporate Social Responsibility Activities That Target Different Stakeholders

We aggregate different dimensions of corporate social responsibility (CSR) activities following the stakeholder framework proposed in Clarkson (Acad Manag Rev 20(1), 92–117, 1995) and present consistent evidence that CSR strengths targeting different stakeholders have their unique impact on firm risk and financial performance. Institutional CSR activities that target secondary stakeholders are negatively associated with firm risk, measured by total risk and systematic risk. Technical CSR that target primary stakeholders are positively associated with firm financial performance, measured by Tobin’s Q, ROA, and cash flow returns. Our results, based on a sample of S&P 500 component firms over the period of 1995–2009, are consistent with the risk management view of “altruistic” CSR activities and with the stakeholder salience theory. We also show that the impact of CSR activities on risk varies with the ethical climate, as proved in our subsample analyses on pre- and post-Sarbanes–Oxley periods. Our empirical analyses mitigate possible omitted variables and endogeneity concerns that are often overlooked in previous research. Our findings are robust to alternative CSR measures, to alternative risk and performance measures, and to alternative estimation methods.     

Dare to be different? Investigating the relationship between analyst categorisation hierarchies and corporate social responsibility (CSR) conformity

This paper investigates how analyst categorisation hierarchies (CH) affect corporate social responsibility (CSR) conformity. We argue that firms that are labelled as either high rank or low rank by analysts have higher institutional immunity, while firms that are categorised as middle rank have lower immunity. These heterogeneous institutional immunities will affect the levels of CSR conformity differently. Our results, which originate from a sample of Chinese listed firms from 2009 to 2016, suggest that CH exhibit an inverted‐U‐shaped relationship with CSR conformity. High‐ranked and low‐ranked firms are most likely to be CSR nonconformist, while middle‐ranked firms tend to conduct CSR like the majority of their industry peers. Moreover, we also investigate the environmental boundary conditions of this curvilinear relationship. This relationship is moderated by environmental munificence (positively) and dynamism (negatively). Our findings fill the theoretical gap by proposing an institutional‐based explanation for the CSR conformity heterogeneity which is rarely discussed and extending the boundary conditions for the categorisation‐CSR conformity relationship.     

Firm Internationalization and Corporate Social Responsibility

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 (CSR) 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.     

Understanding instrumental motivations for social responsibility engagement in a micro‐firm context

Firms engage in social responsibility activities for diverse reasons. This study focuses on understanding firms' instrumental motivations for engaging in socially responsible activities. We suggest that the instrumental motivations underlying firms' corporate social responsibility (CSR) engagement are associated with their market, learning, and risk‐related behaviors; thus, we identify market orientation, learning orientation, and risk‐taking attitudes as three constructs that influence firms' CSR engagement. This research was conducted in the Norwegian firewood sector, in which CSR expectations are high and in which we expect CSR engagement to be encouraged by both instrumental and normative motivations. The firms in this study are micro‐firms with fewer than 10 employees and represent an important but highly neglected segment of firms in CSR research. Data obtained from 230 firms were analyzed using structural equation modeling. Our results indicate that market orientation, learning orientation, and risk‐taking attitudes affect social responsibility toward different stakeholder groups in different ways. In some cases, the size and age of firms also affect these relationships.     

Corporate Social Responsibility and Credit Ratings

This study provides evidence on the relationship between corporate social responsibility (CSR) and firms’ credit ratings. We find that credit rating agencies tend to award relatively high ratings to firms with good social performance. This pattern is robust to controlling for key firm characteristics as well as endogeneity between CSR and credit ratings. We also find that CSR strengths and concerns influence credit ratings and that the individual components of CSR that relate to primary stakeholder management (i.e., community relations, diversity, employee relations, environmental performance, and product characteristics) matter most in explaining firms’ creditworthiness. Overall, our results suggest that CSR performance conveys important non-financial information that rating agencies are likely to use in their evaluation of firms’ creditworthiness, and that CSR investments—particularly those that extend beyond compliance behavior to reflect what is desired by society—can lead to lower financing costs resulting from higher credit ratings.     

Corporate Social Responsibility That “Pays”: A Strategic Approach to CSR for SMEs

This study adopts a strategic approach to corporate social responsibility (CSR), puts forward a model of CSR activities that enhance small and medium enterprises (SMEs) growth, and argues that by aligning CSR activities with the competitive strategy of the firm, SMEs enhance firm growth. We test this model using multinomial logistic analysis and data from a survey with 211 U.K.‐based SMEs. We find that CSR activities related to the community enhance firm growth for all SMEs, but especially for firms adopting a cost leadership strategy, and that CSR activities related to the workforce are crucial to avoid sales decline, especially for SMEs adopting a differentiation or a quality‐driven strategy. We also find that environment‐related CSR activities are not beneficial for SMEs' growth and that human rights–related CSR activities slow growth for firms adopting a differentiation or a quality‐driven strategy. Finally, we put forward managerial and policy recommendations.     

Corporate Environmental Responsibility and Firm Risk

In this study, we examine the relation between corporate environmental responsibility (CER) and risk in U.S. public firms. We develop and test the risk-reduction, resource-constraint, and cross-industry variation hypotheses. Using an extensive U.S. sample during the 1991–2012 period, we find that for U.S. industries as a whole, CER engagement inversely affects firm risk after controlling for various firm characteristics. The result remains robust when we use firm fixed effect or an alternative measure of CER using principal component analysis or downside risk measures. To address the concern of endogeneity bias, we use a system equations approach and dynamic system generalized methods of moment regressions, and continue to find that environmentally responsible firms experience lower risk. These findings support the risk-reduction hypothesis, but not the resource-constraint hypothesis, along with the notion that the top management in U.S. firms is generally risk averse and that their CER engagement facilitates their risk management efforts. Our cross-industry analysis further reveals that the inverse CER-risk association mainly comes from the manufacturing sector, whereas in the service sector, CER tends to increase firm risk.     

Examining the relationship between negative media coverage and corporate social responsibility

This study investigates the relationship between negative media coverage and corporate social responsibility (CSR). We suggest that CSR can compensate for the loss of legitimacy in a firm only when it receives negative media coverage of a given magnitude. Using a sample of Chinese listed firms, the results suggest that in relation to CSR, negative media coverage has an inverted U-shaped curve. When we explore two industrial-level boundary conditions, we find that this nonlinear relationship is more pronounced in firms with higher industrial concentration and dynamism. The results are robust after controlling for endogeneity. This study contributes to CSR and communication literature by deepening our understanding of the nonlinear impact of negative media coverage on firms.     

Can Sinful Firms Benefit from Advertising Their CSR Efforts? Adverse Effect of Advertising Sinful Firms’ CSR Engagements on Firm Performance

This study investigates corporate social responsibility (CSR) of sinful firms, which refer to ones that are operating in controversial industries, including the production and distribution of alcohol, tobacco, gambling, adult entertainment, firearm, military, and nuclear power. We attempt to answer two questions in this study: (1) Do these sinful firms actively advertise their CSR engagements compared to non-sinful firms? And (2) do their advertising efforts really yield increased financial performance? Positing that advertising not only can make sinful firms’ good deeds visible, but also can highlight the contradiction between these firms’ stigma and their prosocial activities, we claim that sinful firms are likely to advertise their CSR engagement to overcome their stigmatized firm image, but these advertising activities will make the firms’ performance vulnerable by inducing skepticism from stakeholders. Using KLD database in conjunction with COMPUSTAT and Center for Research in Security Prices from 1991 to 2010, where 337 firms are involved in the controversial sinful industries, namely tobacco, alcohol, gaming, firearms, military, and nuclear power, we examine the effect of advertising spending of sinful firms’ CSR engagement on performance vulnerability, which is instantiated with idiosyncratic risk. The empirical results indicate that sinful firms increase their advertising expenditure when they engage in CSR programs, but these efforts for advertising CSR tend to increase idiosyncratic risk. This finding indicates that even though sinful firms can benefit from engaging in socially responsible initiatives, advertising their CSR efforts may backfire.     

Social Performance and Firm Risk: Impact of the Financial Crisis

This paper examines the impact of the recent financial crisis (2008–2009) on the relation between a firm’s risk and social performance (SP) 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 (post-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.     

The Impact of Corporate Social Responsibility on Risk Taking and Firm Value

We hypothesize that CSR serves as a control mechanism to reduce deviations from optimal risk taking, and therefore, CSR curbs excessive risk taking and reduces excessive risk avoidance. Based on the stakeholder theory, firms with CSR focus must balance the interests of multiple stakeholders, and therefore, managers must allocate resources to satisfy both investing and non-investing stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1718 US firms during 1998 to 2011, we find that stronger CSR performance is associated with smaller deviations from optimal risk taking levels. We examine the mechanism through which CSR has an impact on firm value and find a positive indirect impact of CSR on firm value through the impact of CSR on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance.     

Mandatory Corporate Social Responsibility (CSR) Reporting and Financial Reporting Quality: Evidence from a Quasi-Natural Experiment

This study examines the impact of mandatory Corporate Social Responsibility (CSR) reporting on firms’ financial reporting quality using a quasi-natural experiment in China that mandates a subset of firms to report their CSR activities starting in 2008. We find that mandatory CSR disclosure firms constrain earnings management after the policy. The result is robust to a battery of sensitivity tests and more prominent for firms with lower analyst coverage. Further analyses reveal that upward earnings management by mandatory disclosure firms is more likely to be caught after the policy. The findings suggest that mandatory CSR disclosure mitigates information asymmetry by improving financial reporting quality.