Do Managers Do Good with Other Peoples' Money?
University of Michigan - Ross School of Business
Harrison G. Hong
Princeton University - Department of Economics; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business
January 11, 2013
Chicago Booth Research Paper No. 12-47
UCD & CalPERS Sustainability & Finance Symposium 2013
AFA 2013 San Diego Meetings Paper
Fama-Miller Working Paper
We test the hypothesis that corporate social responsibility is due to managerial agency problems using two identification strategies. First, we use the 2003 Dividend Tax Cut, which increased the after-tax effective firm ownership for managers. Consistent with the agency view, we find that the tax cut led to a decline in corporate goodness. We then use a difference-in-differences approach to test a prediction of the agency model that firms with intermediate managerial ownership stakes should react more strongly to the tax cut than firms with very low or high managerial ownership stakes. Second, we provide corroborating evidence using a regression discontinuity design of close votes around the 50% cut-off for passage of shareholder-initiated governance proposals. Firms in which these proposals narrowly passed experienced significantly slower growth in corporate goodness relative to firms in which the proposals narrowly failed.
Number of Pages in PDF File: 45
Keywords: corporate social responsibility, agency costs
JEL Classification: G30, G31, G35working papers series
Date posted: November 20, 2011 ; Last revised: February 5, 2013
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