The Effect of Corporate Governance on Corporate Social Responsibility

Abstract

Motivated by agency theory, we explore the effect of corporate governance quality on corporate social responsibility (CSR), using the governance standards provided by Institutional Shareholder Services (ISS). Our evidence reveals that firms with more effective governance make significantly less investment in CSR. It appears that managers tend to over‐invest in CSR and are forced to reduce CSR investments when corporate governance is more effective. In particular, an improvement in governance quality by one standard deviation translates into a decline in CSR investments by 7.16%. Our fixed‐effects analysis also shows that, within firms, when governance quality improves over time, CSR investments decline significantly. Using the passage of the Sarbanes‐Oxley Act of 2002 as an exogenous shock that improves the quality of corporate governance, we demonstrate that high‐quality governance is not merely associated with, but rather brings about, lower CSR investments.

How do independent directors view corporate social responsibility (CSR)? Evidence from a quasi‐natural experiment

“…To the extent that an independent board represents a more effective governance mechanism, managers appear to over‐invest in CSR and are forced to cut back in the presence of a stronger board. Our results are consistent with the risk‐mitigation hypothesis and the agency view of CSR and are also in agreement with the results of several recent studies, such as Adhikari (2016), Barnea and Rubin (2010), Bhandari and Javakhadze (2017), Chintrakarn, Jiraporn, Kim, and Kim (2016), and Withisuphakorn and Jiraporn (2018).…”

“…Using the governance standards provided by the Institutional Shareholder Services (ISS), Chintrakarn et al. (2016) show that more stringent corporate governance leads to lower CSR engagement, implying that CSR activities are motivated by agency problems and are thus reduced in the presence of stronger governance.…”

“…Additional studies that find evidence in favor of the over‐investment/agency cost hypothesis include Adhikari (2016), Chintrakarn et al. (2016), and Withisuphakorn and Jiraporn (2018).…”

Correction to: Corporate governance and employee treatment: Evidence from takeover defenses

“…On the other hand, sizable literature finds adverse effects of takeover provisions on firm value. As a corporate control mechanism, takeover provisions lower firm value if CSR is present (Surroca and Tribó 2009), as well as reducing overall CSR score for responsible firms (Chintrakarn et al 2016;Sheikh 2018). Takeover provisions that make it difficult to replace current management are found to lower innovation (Johnson and Rao 1997;Long and Ravenscraft 1993).…”

Corporate Governance Determinants And Corporate Social Responsibility In Malaysian Food Industry

“…The issues that normally occur include animal welfare (humane slaughtering practices), environmental impacts (the use of energy and water used and waste generated from the activities), as well as the safety and health benefits of the products. Issues like the environmental impact of food production, processing and distribution as well as food safety and quality aspect or animal welfare has long attracted considerable attention in the agriculture and economic research areas (Chintrakarn, Jiraporn, Kim, & Kim, 2016).…”