Corporate Governance and Firm Value: The Impact of Corporate Social Responsibility |
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Authors: | Hoje Jo Maretno A Harjoto |
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Institution: | (1) Department of Finance, Leavey School of Business, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053-0388, USA;(2) Graziadio School of Business and Management, Pepperdine University, 24255 Pacific Coast Highway, Malibu, CA 90263, USA |
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Abstract: | 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. |
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