Corporate social responsibility versus corporate shareholder responsibility: A family firm perspective

Recent literature suggests that some socially responsible corporate actions benefit shareholders while others do not. We study differences in policy toward corporate social responsibility (CSR) between family and non-family firms, using environmental performance as the proxy for CSR. We show that family firms are more responsible to shareholders than non-family firms in making environmental investments. When shareholder interests and societal interests coincide, i.e., when it comes to alleviating environmental concerns that have potential to harm society and elevate the firm's risk exposure, family firms do at least as well as non-family firms in protecting shareholder interests. However, when shareholder and societal interests diverge, i.e., when it comes to making environmental investments that might benefit society but do not benefit shareholders, family firms protect shareholder interests by undertaking a significantly lower level of such investments than non-family firms. Our findings suggest that lack of diversification by controlling families creates strong incentives for them to act in the financial interest of all shareholders, which more than overcomes any noneconomic benefits families may derive from engaging in social causes that do not benefit non-controlling shareholders.     

Employee‐friendly practices,product market competition and firm value

In this paper, we examine whether employee‐friendly practices are associated with product market competition, and whether firm value is related to employee‐friendly practices and product market competition. Using a large sample of US firms, we find positive and significant associations between employee friendliness and product market competition, and between firm value and employee friendliness when product market competition is high, consistent with the value creation theory. Both positive relations hold when we account for corporate governance. In addition, using the list of Fortune's ‘100 Best Companies to Work For’ as an alternative measure of employee‐friendly policies, we find firms in more competitive industries are more likely to treat their workers favourably. Furthermore, we find that the market reaction is more positive when firms in more competitive industries are selected for the Fortune list.     

Analyst coverage,corporate social responsibility,and firm value: Evidence from China

This paper examines how analyst coverage affects firms' engagement in corporate social responsibility (CSR). Using data on Chinese listed companies from 2010 to 2017, we find that (1) analyst coverage significantly enhances CSR engagement; (2) ownership structure, political connection, corporate governance, and media coverage moderate that association; (3) a plausible mechanism is that analyst coverage increases CSR by increasing site visits from institutional investors and improving firms' internal controls. In addition, the interaction between analyst coverage and CSR engagement has an economically sizeable incremental effect on firm value. Overall, our findings indicate that financial analysts play a critical external monitoring and informational role for organizations.     

Corporate social responsibility performance,financial distress and firm life cycle: evidence from Australia

This study examines the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association. Based on a sample of 651 publicly listed Australian firm‐years’ data covering the 2007–2013 period, our regression results show that positive CSR activity significantly reduces financial distress of the firm. In addition, the negative association between positive CSR performance and financial distress is more pronounced for firms in mature life cycle stages. Our results are robust to alternative proxy measures of financial distress, CSR performance and life cycle stages.     

Corporate social responsibility,industry concentration,and firm performance: Evidence from emerging Asian economies

Social and environmental performance are two pillars of corporate social responsibility that integrate the desires of firms to enhance their competitive advantages and demonstrate their commitment to society. Based on a sample of eight emerging Asian markets, this study investigates the role of firms’ social and environmental performance in their financial performance, and how this may vary under different levels of industry competition. The results show that the social dimension is more effective in increasing firm performance relative to the environmental dimension. Further, the performance of socially oriented firms is more stable in highly competitive industries relative to environmentally oriented firms. Overall, this study supports the view that socially responsible firms have a competitive edge over their rivals that leads to higher profitability.     

Corporate capital expenditure decisions and the market value of the firm

This paper is an ‘event-time’ study of the common stock prices of a sample of 658 corporations around the dates on which they publicly announced their future capital expenditure plans. For industrial firms, announcements of increases (decreases) in planned capital expenditures are associated with significant positive (negative) excess stock returns. For public utility firm, neither increases nor decreases in planned capital expenditures are associated with significant excess stock returns. We interpret the evidence as being consistent with the hypothesis that managers seek to maximize the market value of the firm in making their corporate capital expenditure decisions.     

Corporate social responsibility and social capital

When corporations make an effort to be socially responsible beyond what is required by the law, this effort is often described as strategic—made mainly for the shareholders’ or managers’ benefit. A large body of literature corroborates this belief. But, could the incentives for corporate social responsibility (CSR) come from an altruistic inclination fostered by the social capital of the region in which the firm is headquartered? We investigate whether this phenomenon exists by examining the association between the social capital in the region and the firm’s CSR. We find that a firm from a high social capital region exhibits higher CSR. This result suggests that the self-interest of shareholders or mangers does not explain all of the firm’s CSR, but the altruistic inclination from the region might also play a role.     

Corporate social responsibility as a legitimacy maintenance strategy in the professional accountancy firm

This paper investigates how accountancy firms use corporate social responsibility (CSR) as a device to maintain legitimacy with key constituents. It explores who these constituents (audiences) are for their CSR actions and the strategies they use to maintain legitimacy with these audiences. Interview-based evidence from 18 large accountancy firms in the United Kingdom (UK) identifies the main CSR constituents as: clients and potential clients of the firm; graduates as potential entrants to the industry; internal audiences represented by the firms' staff and partners; and other external audiences constructed as members of those local communities in which the firm operate. In the largest firms, maintaining pragmatic legitimacy with some client, graduate and internal audiences is frequently dependent on the development of moral legitimacy established with other external constituents (communities). Consequently, the typologies of legitimacy developed are largely pragmatic, the most ephemeral and most easily attained form, rather than something that is enduring, embedded and taken-for-granted.     

Corporate risk management and firm value: evidence from the UK market

The paper evaluates the effect of corporate risk management activities on firm value, using a sample of large UK non-financial firms. Following recent changes in financial reporting standards, we are able to collect detailed information on risk management activities from audited financial reports. This enables us to gain a better understanding of risk management practices and to investigate value implications of different types of hedging. Overall 86.88% of the firms in the sample use derivatives to manage at least one type of price risk. The hedging premium is statistically and economically significant for foreign currency derivative users, while we provide weak evidence that interest rate hedging increases firm value. The extent of hedging and the hedging horizon have an impact on the hedging premium, whereas operational risk management activities do not significantly influence the market value of the firm.     

Corporate governance,external market discipline and firm productivity

Using a sample of Australian companies over the 2000–2005 period, we examine the impact of internal corporate governance on firm's total factor productivity, taking into account the interaction between internal governance and external market discipline. Our empirical findings point to a substitution effect between product market competitiveness and firm-level corporate governance. Overall, internal corporate governance mechanisms – more efficient boards and greater CEO stock-based compensation – are effective instruments for improving firm productivity. However, internal governance is less effective when a firm faces a highly competitive product market. We find only weak empirical support for an association between firm's ownership structure and productivity, and no support for an association between industry takeover intensity and firm productivity.     

Corporate social responsibility and stakeholder value maximization: Evidence from mergers

Using a large sample of mergers in the US, we examine whether corporate social responsibility (CSR) creates value for acquiring firms' shareholders. We find that compared with low CSR acquirers, high CSR acquirers realize higher merger announcement returns, higher announcement returns on the value-weighted portfolio of the acquirer and the target, and larger increases in post-merger long-term operating performance. They also realize positive long-term stock returns, suggesting that the market does not fully value the benefits of CSR immediately. In addition, we find that mergers by high CSR acquirers take less time to complete and are less likely to fail than mergers by low CSR acquirers. These results suggest that acquirers' social performance is an important determinant of merger performance and the probability of its completion, and they support the stakeholder value maximization view of stakeholder theory.     

Corporate social responsibility and dividend policy

Using a sample of 22,839 US firm-year observations over the 1991–2012 period, we find that high CSR firms pay more dividends than low CSR firms. The analysis of individual components of CSR provides strong support for this main finding: five of the six individual dimensions are also associated with high dividend payout. When analyzing the stability of dividend payout, our results show that socially irresponsible firms adjust dividends more rapidly than socially responsible firms do: dividend payout is more stable in high CSR firms. These findings are robust to alternative assumptions and model specifications, alternative measures of dividend, additional control, and several approaches to address endogeneity. Overall, our results are consistent with the expectation that high CSR firms may use dividend policy to manage the agency problems related to overinvestment in 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.     

Corporate social responsibility and trade credit

Review of Quantitative Finance and Accounting - Prior studies show that higher corporate social responsibility (CSR) performance lowers firms’ cost of debt and equity financing. Using a...     

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 social responsibility and stock split

This study examines whether socially responsible companies are likely to conduct a stock split. We argue that these companies, compared to their counterparts, could use their strong corporate social responsibility (CSR) performance to reduce information asymmetry with shareholders, and therefore, are less likely to rely on stock splits to signal their future growth potentials. We find empirical evidence to support our hypothesis and investigate the reasons for the lower frequency of stock splits among CSR oriented firms. We find that more socially responsible firms experience a smaller increase in trading volume and a greater increase in bid-ask spread following a stock split than less socially responsible firms. Furthermore, our study finds that, when more socially responsible firms decide to conduct a stock split, they attract a greater proportion of institutional investors with long-term investment horizons.

     

Corporate social responsibility and CEO confidence

This study examines the relationship between firm corporate social responsibility (CSR) and CEO confidence. Research shows that CSR has a hedging feature. Research also shows that more confident CEOs underestimate firm risks, which, in turn, leads them to undertake relatively less hedging. Consistent with this, we find that CEO confidence is negatively related to the level of CSR. Closer analysis shows that this effect is stronger in the institutional aspects of CSR, such as community and workforce diversity, rather than in the technical aspects of CSR, such as corporate governance and product quality. Our results are robust to different competing explanations, including narcissism, which refers in this context to CEOs who engage in CSR to attract attention and alternative proxies for CSR and CEO confidence.     

Stock market liquidity and firm value

This paper investigates the relation between stock liquidity and firm performance. The study shows that firms with liquid stocks have better performance as measured by the firm market-to-book ratio. This result is robust to the inclusion of industry or firm fixed effects, a control for idiosyncratic risk, a control for endogenous liquidity using two-stage least squares, and the use of alternative measures of liquidity. To identify the causal effect of liquidity on firm performance, we study an exogenous shock to liquidity—the decimalization of stock trading—and show that the increase in liquidity around decimalization improves firm performance. The causes of liquidity's beneficial effect are investigated: Liquidity increases the information content of market prices and of performance-sensitive managerial compensation. Finally, momentum trading, analyst coverage, investor overreaction, and the effect of liquidity on discount rates or expected returns do not appear to drive the results.     

Corporate social responsibility,credit rating,and private debt contracting: new evidence from syndicated loan market

We examine the impact of corporate social responsibility (CSR) activities on loan spreads of syndicated bank loans, with a particular interest in how CSR and credit ratings are interrelated as a joint determinant of loan spreads. Focusing on private debt contracts, we show that both CSR strengths and concerns are related to their loan spreads. CSR strengths work to lower firm risk, hence reducing the loan spread, whereas CSR concerns increase firm risk, thus increasing the loan spread. Once we include detailed credit rating information in the models, however, CSR concerns lose significance, but CSR strengths remain significantly related to the loan spread. We also find that both CSR strengths and CSR concerns are related to loan spread for non-rated firms, but the CSR concern effect is stronger than the CSR strength effect for these firms. A further test shows that firm risk measured by stock return volatility plays as a direct channel through which a firm’s CSR activities affect loan spreads, whose result lends further support to our main results. Overall, our results provide strong evidence that CSR matters to the pricing of loan contracts beyond credit rating information and the results remain robust to the possible firm size effect and the endogeneity issues.     

Corporate social responsibility and bank liquidity creation

Under the stakeholder theory hypothesis, reputable corporate social responsibility (CSR) banks are expected to attract more loans and deposits, which in turn strengthens their ability to create liquidity. Our findings support this view. Further analyses reveal that the positive effect of CSR on liquidity creation differs depending on bank size, bank capital, and type of financial crisis. In addition, deposit growth, loan growth, lending rate, and funding rate are potential channels through which CSR influences bank liquidity creation. The findings are not driven by an endogeneity issue.