The effect of suppliers' corporate social responsibility concerns on customers' stock price crash risk

We investigate the spillover effect of corporate social responsibility (CSR) concerns along the supply chain. We propose an information incorporation effect for whether suppliers' CSR concerns affect customers' stock price crash risk. Customers' investors can incorporate information about suppliers' CSR into stock price valuations, lowering the probability of abrupt stock price crashes. Our findings support the information incorporation effect. Suppliers' CSR concerns are negatively associated with customers' stock price crash risk. The negative relationship is more pronounced for firms with high media coverage, negative media sentiment, high investor attention, negative investor sentiment, low trade policy uncertainty, and low political uncertainty. Moreover, we rule out the alternative explanation that suppliers' CSR strengths dominate the effect. Our main finding is supported by change analysis and robustness tests, including an alternative measure test.     

Is corporate social responsibility engagement influenced by nearby firms? Evidence from China

This paper explores whether the CSR engagement of a focal firm is influenced by the CSR density formed by nearby firms. Using a sample of listed firms from 2010 to 2019 in China, we find a positive relationship between the local CSR density and the CSR engagement of a focal firm. Based on the heterogeneous analysis, we find that the impact of local CSR density is more pronounced for firms with worse financial conditions (i.e., lower profits, cash to debt, sales to inventory, and higher leverage), less corporate investment (i.e., lower capital expenditure growth, organization capital investment, employee growth) and fewer market shares. The primary findings are robust after addressing potential concerns. Overall, our findings provide evidence of the effect of firms' locations in the context of CSR engagement and have insightful implications for managers and governments seeking CSR improvement in emerging markets.     

企业履行社会责任的共赢效应——基于精准扶贫的视角

本文以沪深A股非金融上市公司作为样本,研究实施精准扶贫对扶贫企业以及被扶贫地区的影响。研究发现,对于扶贫企业而言,实施精准扶贫能够显著缓解其融资约束。从扶贫方式来看,产业扶贫和教育扶贫的效果最为明显。从经济后果来看,实施精准扶贫不仅提高了扶贫企业的经营业绩,而且增加了股东的财富水平。对于被扶贫地区而言,精准扶贫显著提高了地区经济发展和居民可支配收入的增长速度,更重要的是,该地区的生态环境并未遭受明显破坏。在企业实施精准扶贫的动机方面,本文发现管理者私利动机并不能解释企业的精准扶贫行为。上述结果表明,与慈善捐赠有所不同,企业实施精准扶贫并不是企业自利的工具,而是利他性动机与战略性动机的结合,能够实现企业、社会与环境三者的共赢。     

Do political connections affect the role of independent audit committees and CEO Duality? Some evidence from Malaysian audit pricing

This study examines whether political connection to firms affects the association between audit committee independence and demand for higher quality audits. In line with Carcello et al. (2002), our findings show that there is a positive association between audit committee independence and audit fees thus supporting the hypothesis that more independent audit committees demand higher audit quality. However, we find that this relationship is weaker for politically connected (PCON) firms suggesting that the independence of audit committees in Malaysian PCON firms may be compromised. Additionally, we provide evidence that PCON firms that have CEO duality are perceived by audit firms as being of higher risk than CEO duality firms without political connection.     

Corporate social responsibility and corruption risk: A global perspective

This paper extends our knowledge on corporate corruption risk by examining whether and to what extent corporate social responsibility (CSR) affects firm-level corruption risk. Using a cross-country sample of major multinational firms, we find that firm-level CSR mitigates corruption risk. On closer examination, we find that the relationship between CSR and corruption risk is mediated by country-level variables such as institutional quality, protection of minority shareholders’ rights, stock market development and freedom of the press. Further, we find that in emerging countries, CSR mitigates corruption risk only when the country-level institutional quality is high and citizens enjoy press freedom. Our findings suggest that both formal institutions and the quality of civil society influence the effect of CSR on corruption risk. Our results remain robust to controls for endogeneity and potential sample selection bias.     

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.     

Informative or distracting: CSR disclosure of peer firms and analyst forecast accuracy

We investigate the relationship between the CSR disclosure of peer firms and the analyst forecast accuracy of the focal firm. We find a negative association between peer CSR disclosure and analyst forecast error of the focal firm, indicating that peer CSR disclosure is informative. This negative association is more pronounced when the information environment of the focal firm is worse, when the correlation in fundamentals between the focal firm and its peers is higher, when the business of the focal firm is less complex, when the focal firm has more expert analyst coverage, when the focal firm's financial performance is more sensitive to CSR engagement, or when the quality of peer CSR disclosure is higher. Overall, we show that peer CSR disclosure conveys value-relevant information about the focal firm. Our study enriches the literature on both analyst forecasts and peer information, and we also provide important implications for practitioners in understanding the role of CSR disclosure in capital markets.     

Impact of directors' networks on corporate social responsibility: A cross country study

We investigate the impact of directors' networks on corporate social responsibility (CSR) activities by using an unbalanced panel data of 2023 publicly listed firms from 17 countries during 2003–2018. Drawing on network theory, stakeholder theory, and institutional theory, we find that directors' networks is positively related to their decision of CSR activities. Additionally, we find a positive relation between directors' networks and CSR during financial crises. Our results still hold after a set of sensitivity tests. The findings in our study expand the academic literature related to directors' networks and CSR activities, and assist policymakers and investors in understanding the importance of directors' networks as determining factor of CSR policies.     

Tax avoidance,tax management and corporate social responsibility

This study examines the effect of three measures of corporate social responsibility (CSR) — corporate governance, community and diversity on tax avoidance in firms that use auditor‐provided tax services. This is one of the first studies, to our knowledge, to empirically relate tax avoidance, tax management and CSR literature. By separating the strengths and concerns for each CSR measure, we are able to analyze the effects of a firm's negative and positive social actions on tax avoidance. We find that the interaction of community concerns with tax management fees positively affects both GAAP and Cash ETR, while the interaction of corporate governance strengths and diversity concerns with tax management fees negatively affects Cash ETR. Our results are similar when we use Excess ETR that is not explained by firm specifics. We find additional evidence that CSR affects tax avoidance when we divide firms into portfolios based on CSR levels. Our findings suggest that future studies on tax avoidance and tax management should incorporate CSR.     

Does corporate tax avoidance promote managerial empire building?

We examine the association between corporate tax avoidance and empire building using 35,060 firm-year observations from the United States (US) for the period 1991–2015. We build a composite empire building measure by conducting a factor analysis on four popular empire building proxies used in the literature. We find a positive association between this composite measure and the four proxies used to represent the tax avoidance of firms in our sample. As our results suggest, agency problems are inflicted upon firms employing tax avoidance strategies which, in turn, facilitate managerial rent extraction through aggressiveness in growth and the accumulation of assets. Furthermore, the relationship of corporate tax avoidance to managerial empire building is found to be more pronounced in firms with weak governance, poor monitoring mechanisms, greater Chief Executive Officer (CEO) power and weak corporate social responsibility (CSR) performance. We also find that empire building-motivated tax avoidance leads to lower firm valuation. Our results remain insensitive even when employing several robustness tests.     

Stock repurchasing and corporate social responsibility

Stock repurchases are controversial. Researchers often view the positive association between free cash flow and the volume of the stock repurchases to be in the shareholders’ interest and the positive association between executive options and stock repurchases to be in the managers’ interest. Using firms’ corporate social responsibility (CSR) ratings as a measure of ethical culture—one that increases the cost of self-serving behavior for managers— we examine whether a firm’s CSR rating is related to its stock repurchase decisions. Although the baseline regression shows a positive association between CSR and repurchases, we find that CSR amplifies the positive association between free cash flow and stock repurchases and lessens the positive association between executive options and stock repurchases. These results indicate that ethical culture might play a role in repurchase decisions: it may encourage repurchases aligned with shareholders’ interests and discourage those primarily in managers’ interest. Furthermore, we also find that high CSR firms are associated with a greater completion rate of announced repurchase programs and receive more favorable stock market reaction to their repurchase announcements.     

Firm-level political sentiment and corporate tax avoidance

This paper examines how managers' tone on political issues in earnings conference calls relates to corporate tax avoidance. We find a positive relationship between managers' tone of using political linguistics and tax avoidance, while controlling for non-political tone. The relationship is more pronounced for firms with greater political exposure, higher lobbying expenditures, greater information asymmetry, and more risk-taking. The empirical results remain robust with various additional checks. Overall, our evidence suggests that managers employ the sentiment of political risk disclosure for aggressive tax purposes.     

Corporate social responsibility and inside debt: The long game

We examine the effect of CEO inside debt on corporate social responsibility (CSR). We document a positive relation between CEO inside debt and CSR. This positive relation is attenuated not only when firms face high risk, but also when firms have high short-term institutional ownership. Our evidence supports the view that CEOs with large inside debt holdings are more concerned about firm sustainability and, are therefore more likely to prefer CSR for long-term firm benefits, i.e., the long game. We also find that CSR and CEO inside debt jointly exert a significantly positive impact on long-run stock performance, particularly in the presence of a low level of short-term institutional holdings. Overall, our findings highlight the importance of aligning institutional investor preferences with CEO incentives in order to maximize shareholder benefits from CSR investment.     

Does corporate social responsibility affect the cost of capital?

We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of US firms. Using several approaches to estimate firms’ ex ante cost of equity, we find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms’ cost of equity. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.     

Integrating corporate social responsibility criteria into executive compensation and firm innovation: International evidence

Using a large sample of firms from 30 countries, we find that the integration of corporate social responsibility (CSR) criteria into executive compensation is associated with greater innovation output in countries around the world. We also find that this positive association is stronger in countries with weak stakeholder orientation, countries with weak legal environments, and countries without mandatory CSR reporting requirements. These findings suggest that CSR contracting can compensate for institutional voids and high stakeholder demand for CSR, and thereby foster firm innovation. The results of the channel analyses suggest that a greater level of employee innovation productivity, enhanced managerial risk-taking, and greater responsiveness of firms' R&D investment to their investment opportunities play a significant role in the association between CSR contracting and innovation. Overall, our study demonstrates in a global context the importance of linking executive compensation to nonfinancial criteria in addition to financial criteria, and it documents the heterogeneity in the effect of CSR contracting on firm innovation in different countries.     

Corporate giving and the case of tax avoidance

Prior studies suggest that the association between corporate social responsibility (CSR) and tax avoidance is nuanced. Corporate giving, a CSR strength, is a discretionary activity primarily driven by management values. We propose that corporate giving promotes community-mindedness. Paying a fair share of tax is consistent with this value. We hypothesize that corporate giving and tax avoidance are negatively associated. Our findings support this hypothesis, suggesting that firms that generously contribute to charitable causes are less aggressive in avoiding tax. The association holds when tax avoidance is measured over a multi-year period, is more pronounced in a good economy, and is evident among highly profitable firms, firms subject to low political costs, and domestic firms.     

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.     

Determinants of corporate social disclosure: Empirical evidence from Bangladesh

We explore the potential firm and industry characteristics that determine the corporate social responsibility (CSR) disclosure practises by Bangladeshi listed firms. We use a CSR disclosure checklist to measure the extent of CSR disclosure in the annual reports and a multiple regression analysis to examine the determinants of CSR disclosure. Our study finds that CSR disclosure has positive and significant relationships with export-oriented sector, firm size and types of industries. We also find a negative relationship between CSR disclosure and family ownership. The overall findings of our study provide empirical evidence which suggests that a number of firm and industry characteristics are important determinants of the extent of CSR disclosures in a developing country like Bangladesh. Our findings can help the policy makers to adopt necessary regulatory reform to improve the CSR practises and enhance organisational legitimacy.     

Corporate social responsibility orientation and textual features of financial disclosures

This paper examines the relationship between corporate social responsibility (CSR) orientation and textual attributes of financial disclosures. Using a large U.S. sample from 1999 to 2017, we find that firms with high CSR orientation provide more readable disclosures and use a less ambiguous tone in their annual reports. These findings are consistent with the notion that managers in CSR-conscious firms adhere to high ethical standards and commit to improving the transparency of their firms' financial disclosures. Our results are robust to alternative measures of readability and CSR performance, potential endogeneity, and sampling methods. Moreover, in a cross-sectional analysis, we show that the impact of CSR on corporate readability/tone ambiguity is more pronounced for firms with weak corporate governance. Overall, the results suggest that CSR serves as a substitute for traditional corporate governance mechanisms to ensure transparent disclosure.     

Corporate Lobbying,Visibility and Accounting Conservatism

In this study, we examine the relationship between a firm's lobbying activities and financial reporting quality using a US setting where public scrutiny of corporate political activities is high. More importantly, we examine whether and how a firm's visibility shapes the relationship between its corporate lobbying activities and accounting conservatism. Adopting annual lobbying expenditure data to measure firms’ lobbying activities, and using a propensity‐score‐matching methodology to control for differences in firm characteristics between lobbying and non‐lobbying firms, we find a positive relationship between a firm's lobbying intensity and the degree of accounting conservatism in its financial reporting. We further find this positive relationship to be more pronounced in lobbying firms with a higher level of visibility. These results are robust after controlling for a firm's political connections, across various conditional conservatism measures, and across a number of visibility measures including firm size, the number of analysts following the firm, the age of the firm, the number of foreign stock exchanges that the firm is cross‐listed in, and the level of the firm's media coverage. Together, our findings add to the literature on how firms’ political activities shape their accounting practices in general, and accounting conservatism in particular. More importantly, our findings suggest that the heightened public attention paid to political activities in the US yields incentives for firms to be more conservative in their accounting practices.